The recent decline in oil prices has sparked a lot of discussion about the potential impact on the North Texas economy. Rather than raise concerns, though, it has provided an opportunity to showcase the region’s economic diversity and stability. Economists measure diversity by comparing cities to the overall U.S. economy, says Walter Bialas, vice president and director of research for JLL.
“The closer a metro area’s economy looks like the U.S. as a whole, the more diverse it is— and the lower volatility it will see when major shifts take place in a key industry driver,” he says. “This is the case with Pittsburgh and steel in the late 1970s and auto manufacturing in Detroit today.”
The U.S. is benchmarked at 100—the most diverse set of industries. As various sectors expand and retrench, markets evolve. Back in the 1980s, Dallas came in with an index of 67. Today, it is benefiting from its economic maturity, and comes in at 80.
“That is pretty much at the top of all the major U.S. markets,” Bialas says. “Back in the 1980s, energy was a big part of the Dallas economy. Today, Dallas has deep roots across numerous industries such as technology, telecommunications, banking, and financial services. This balances out the swings we saw in the old days, and are the key reasons we are seeing the broad kind of growth we have experienced in the last several years.”
The lowest-ranked U.S. markets and their drivers include Washington, D.C. (index of 45, government), Las Vegas (25, gaming), San Jose (23, technology), and Midland, Texas (8, energy).
When it comes to employment, there are 31,000 direct energy jobs in Dallas Fort Worth— about 1 percent of the region’s employment base.
Even though energy is still a driver in Fort Worth, that market has become much more balanced in the last several decades, Bialas says. “In contrast, markets like Austin and Seattle are very tech-focused, which is reflected in their lower scores,” he says. “That is not to say those economies are bad. Rather, the lower score merely quantifies how much those markets rely on a specific industry or industries for growth, and how volatile the reaction might be if there is a sudden change in their drivers.”
According to Moody’s Analytics Inc., Dallas has the tenth most diverse economy in the country. (San Antonio comes in at No. 6, Austin at No. 30, Fort Worth at No. 33, and Houston at No. 37.)
“That is not to say those economies are bad. Rather, the lower score merely quantifies how much those markets rely on a specific industry or industries for growth, and how volatile the reaction might be if there is a sudden change in their drivers.”
Things show no signs of changing anytime soon. According to JLL, corporate relocations and expansions in the works across the region cover a broad range of industries, with financial services/insurance (17 percent), technology (15 percent) and consumer/retail entertainment (15 percent) leading the way. The searches add up to a combined 19.6 million square feet of space. Submarkets seeing the most activity are Las Colinas (35 percent), Far North Dallas (19 percent), and Richardson / Plano (10 percent).
Moody's Diversity Index
Industrial diversity is an index used to gauge the extent to which an area’s economy resembles the national economy. Thus, it is useful in determining how closely the nation’s economic performance will be mirrored across regional economies. The diversity index for a given year is calculated using employment data at the four-digit NAICS level of industrial detail. A diversity indexof one, the highest possible value, indicates that an area’s industrial structure—its distribution of employment across industries—is exactly the same as that of the nation. The lower the index, the less the region approximates the industrial structure of the nation. The index assumes that it is impossible for a regional economy to be more diverse than the national economy. Therefore, there are no diversity index values higher than 1. A state or metropolitan area with a higher diversity index is more likely to behave like the national economy, whereas a region with a very low diversity index will likely behave differently.