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At the Heart of Texas: Cities’ Industry Clusters Drive Growth


Dallas–Plano–Irving: Texas’ Business and Financial Services Hub

At a Glance

Dallas-Plano-Irving

Population (2014): 4.6 million*
Population growth (2006–14): 14.5 percent
Median household income (2014): $60,231
National MSA rank (2014): No. 4*
Kauffman Startup Activity Index rank (2015): No. 15* (Dallas and Fort Worth combined)
*The Dallas–Plano–Irving metropolitan division is part of the Dallas–Fort Worth metropolitan statistical area (MSA) and encompasses Collin, Dallas, Denton, Ellis, Hunt, Kaufman and Rockwall counties. The population of the Dallas–Fort Worth MSA is 6.95 million. The Kauffman Startup Activity Index, a measure of business creation in the 40 largest U.S. metropolitan areas, is further explained in the Appendix.

  • Dallas’ prominence arose from its importance as a center for the oil and cotton industries and its location along numerous railroad lines.
  • Today, Dallas serves as the business and financial services center for the state and has evolved into a major high-tech hub.
  • Dallas has become a popular migrant destination, attracting residents from abroad as well as from other states.
  • The metro’s finance, insurance and transportation sectors are expected to see rapid growth over the next two years.

HISTORY: Business Center Rises from Rail Crossroads

Dallas quickly became a service center for the surrounding countryside after its founding in 1841. By the 1870s, Dallas had attracted two major rail lines, making it one of the first rail crossroads in Texas and establishing the city as a strategic location for the transport of regional products to manufacturers to the north and east.

Dallas became the world’s leading inland cotton market at the beginning of the 20th century. It also rapidly evolved into a center of petroleum financing; Dallas bankers were among the first in the nation to lend money to oil companies using oil reserves as collateral.

The growth of companies such as Texas Instruments Inc. helped make Dallas the nation’s third-largest technology center during the 1950s and ’60s. The opening of Dallas/Fort Worth International Airport in 1974 helped attract corporate headquarters to Dallas, further increasing the area’s prominence as the state’s business and financial center.[1]

INDUSTRY CLUSTERS: Business and Finance Looms Large

Industry cluster concentration is measured by location quotient (LQ), which compares the metro-area economy with the national economy (Chart 2.1). Growth within an industry cluster is measured by the percentage-point change in its share of local employment between 2006 and 2014.[2]

Business and Finance, IT and Telecom Dominate Dallas


Clusters in the top half of Chart 2.1, such as business and financial services and computer manufacturing, have a larger share of employment relative to the nation and, thus, an LQ greater than 1. These clusters are generally vital to the area’s economy and can be expanding rapidly (“star”) or growing slowly (“mature”). Those in the bottom half, such as advanced materials (semiconductors and fiber optics) and education, are less-dominant locally than nationally and, hence, have an LQ below 1. “Emerging” clusters are fast growing, while those expanding slowly are “transitioning.”

Not surprisingly, Dallas’ most important star clusters are business and financial services, information technology and telecommunications, and defense and security. Business and financial services is the largest cluster, employing around 14 percent of the workforce in 2014. Many of Dallas’ largest employers are banks, such as JPMorgan Chase, Bank of America, Comerica and Citigroup, and insurance companies, such as Health Care Service Corp.’s Blue Cross and Blue Shield of Texas unit.

The business and financial services cluster has grown rapidly since 2006, increasing its employment share 0.4 percentage points between 2006 and 2014. Liberty Mutual Insurance and State Farm Insurance are consolidating operations in the Dallas area and bringing thousands of jobs, making insurance one of the metro’s fastest-growing industries. The relocations will contribute to growth in the already large business and financial services cluster.

The Dallas area is also home to major technology companies, including Texas Instruments and AT&T. The IT and telecommunications cluster employed about 8 percent of the metro’s workforce in 2014 and was among the fastest-growing clusters from 2006 to 2014 (Chart 2.2). During the peak of the high-tech boom, the Telecom Corridor was an expansive part of the Dallas area’s economy. The region was hard hit by the 2001 dot-com bust, but it has recovered in recent years, adding the operations of numerous companies in technology and other fields.

Dallas Rapid Job Gains Areas

Defense and security, employing about 5 percent of the workforce, and health care, accounting for nearly 9 percent, have emerged as fast-growing clusters since the Great Recession. Mining and energy’s significance declined between 2006 and 2014 as many energy companies moved business operations to Houston. Drilling for natural gas in North Texas’ Barnett Shale has slowed because of low gas prices.[3]

Dallas’ neighbor, the Fort Worth–Arlington metropolitan division, also has large defense and energy clusters. Fort Worth–Arlington serves as a logistics and distribution hub for the North Texas region. Dallas and Fort Worth together are home to 21 Fortune 500 companies on the 2015 list.

Dallas’ star and mature clusters are relatively high paying and boast an annual average wage ($86,252) that is 46 percent higher than the annual average wage in Dallas ($59,013) (Table 2.1). While overall real (inflation-adjusted) wages have grown little since 2006, wages in the star and mature clusters have grown an average of 6.7 percent; wages in other, less-prominent industry clusters have declined 1.8 percent.

Table 2.1: Annual Earnings in Dallas Exceed National Average in Dominant Clusters
Cluster Dallas   U.S.
  2006 2008 2010 2012 2014   2014
Defense and security 79,821 77,819 79,551 79,018 82,667   59,588
Computer manufacturing 103,414 99,947 107,391 116,169 125,052   105,968
Information technology and telecommunications 97,211 97,227 99,438 101,597 106,007   96,631
Business and financial services 91,458 90,674 89,072 90,211 93,752   92,957
Glass and ceramics 55,564 58,331 54,280 55,604 61,862   51,073
Construction 56,368 54,957 55,338 56,440 58,215   55,041
Transportation and logistics 52,714 51,104 51,724 48,001 51,571   51,043
Publishing and information 74,941 74,756 77,071 80,509 82,535   82,107
Wood products 50,646 49,699 50,378 51,624 52,549   48,793
   
Clusters with location quotient >1 80,853 79,836 81,722 83,439 86,252  
Clusters with location quotient <1 52,814 51,693 52,041 52,024 51,889  
Average earnings (total) 58,315 57,947 57,813 58,489 59,013   51,361
NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2014 dollars.
SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations.

DEMOGRAPHICS: A Destination for New Arrivals

The Dallas–Fort Worth metroplex (Greater Dallas and Fort Worth components) has become a favored domestic destination, although it has attracted many residents from other countries as well. New arrivals from other parts of the U.S. accounted for 38 percent of DFW’s population increase in 2014 (Chart 2.3). The metroplex held one of the top two spots among U.S. metro areas for population gains through total net migration from 2011 to 2014. Overall, it is the fourth-largest metropolitan statistical area in the U.S., with 6.95 million people.[4]

Domestics Migration to D-FW after 2005

Despite record migration, Dallas’ unemployment rate has remained low, averaging 3.9 percent in the first 11 months of 2015. Per capita income and median household income are higher than national and Texas figures. (Dallas’ median household income increased 15.7 percent between 2006 and 2014 in nominal terms.)

Dallas’ population is predominantly non-Hispanic white, 45.2 percent; Hispanics also make up a significant share of the area’s inhabitants, 29.5 percent. Foreign-born residents constitute 19.9 percent of the metro population, higher than their shares in Austin and San Antonio. Also, Dallas has a relatively young population, with about 36 percent of the total under age 25, and 43.5 percent between 25 and 54.

Dallas ranks second in educational attainment among the Texas metros in this report, with over one-third of its residents holding a bachelor’s degree or higher. This is likely because the defense and security, business and financial services, and information technology sectors make up a large share of the workforce and require an elevated educational skill set.

EMPLOYMENT: Solid After Slow Start to Recovery

The Dallas economy was the hardest hit among the large Texas metros during the Great Recession.[5] The area not only registered the largest drop in employment (5.4 percent), it also was the slowest to recover: Dallas required more than four years to regain all its lost jobs. A major reason is that the national recovery was slow—and the industrial profile of Dallas is a closer match to the U.S. than the profiles of most other large Texas metros (Table 2.2). In Dallas, the shares of only five industry clusters significantly differ (by more than 1 percentage point) from the U.S. share.

Table 2.2: Dallas’ Industrial Makeup Closely Matches Nation’s
Deviation from U.S. cluster employment share
  Dallas Austin Houston San Antonio
Number of clusters with more than a 1 percentage-point difference from U.S. share 5 11 6 4
Average percentage-point deviation (in absolute terms, across all clusters) from U.S. share 0.89 1.26 1.10 0.65
NOTES: Data are for 2014. The table compares shares of each metro area’s industry clusters with the comparable U.S. share. The percentage-point deviation is the absolute difference between the metro area’s share and the U.S. share for each industry cluster.
SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations.

Accordingly, U.S. job growth in 2014 coincided with gains in Dallas. The metro area added 100,200 jobs—a 4.5 percent growth rate, the fastest among the large Texas metros. Moreover, Dallas and Fort Worth combined recorded the fastest annual increase in employment among the largest metropolitan areas in the country.[6]

Dallas job growth moderated to a 4.1 percent annual rate in the first 11 months of 2015 as the Texas economy slowed, in part due to low oil prices. Still, Dallas employment gains are far outpacing the state’s 1.3 percent annual rate, and the unemployment rate dropped in 2015 to near a 14-year low, suggesting a tight labor market.

OUTLOOK: Faster Job Growth than in the State

Although the Dallas area is not immune to the impact of low oil prices, it will likely achieve net job gains in 2016 and outperform the state average. One factor is that only 6 percent of the metro area’s workers are employed in the mining and energy cluster. Additionally, the U.S. economy is doing well, and thousands of jobs are coming to the Dallas area as companies such as State Farm, Toyota and Liberty Mutual consolidate operations. Despite a few challenges, the area will continue to realize good growth in the medium term.

Dallas–Plano–Irving Growth Outlook
Drivers Challenges
  • A diversified economy (less dependent on the energy sector) and planned corporate relocations and expansions will help boost job growth and buoy current high levels of office and industrial development.
  • A relatively well-educated populace and low unemployment may attract businesses to the area.
  • Newcomers to the area will further drive demand for both single-family and multifamily housing.
  • A slowing Texas economy will suppress job growth relative to 2014.
  • A tight housing supply combined with rapid population growth and continued job gains will further push up home prices, eroding the area’s low-cost-of-living advantage.
  • Rapid population growth will increase strain on existing infrastructure and public resources.

Notes

  1. The history of Dallas is taken from the Texas State Historical Association’s Handbook of Texas, tshaonline.org/handbook/online/articles/hdd01.
  2. Individual industry cluster shares do not add to 100 because some smaller industries at the three-digit-or-higher level in the North American Industry Classification System (NAICS) are included in multiple clusters, while some industries are not part of any of the clusters shown. Clusters include other related industries. For instance, semiconductor manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. (See the Appendix for more information.)
  3. The mining and energy cluster grew minimally, 1.2 percent, between 2006 and 2014.
  4. 2014 population estimates are from the Census Bureau.
  5. Large Texas metros are Austin, Dallas, Fort Worth, Houston and San Antonio.
  6. See “Dallas Has Largest Percentage Increase in Employment Among Large Metropolitan Areas, December 2014,” The Economics Daily, Bureau of Labor Statistics (BLS), Feb. 5, 2015, www.bls.gov/opub/ted/2015/dallas-has-largest-percentage-increase-in-employment-among-large- metropolitan-areas-december-2014.htm. The BLS compared 38 large metro areas with employment above 750,000 in 2013.
At the Heart of Texas