Monday Morning Scoop - New economic stats out for Austin; What will 2025 yield?

New economic stats out for Austin; What will 2025 yield?

While the pace of business activity in the Austin metro has been red hot for years, economic uncertainty nationwide — caused partly by the presidential election and the changing administration — has lately cast a cloud over the region’s outlook.

From 30,000 feet, the scene is relatively rosy, said Alan McKnight, chief investment officer for Regions Bank.

“It’s still good, and particularly for a developed economy … the U.S., Japan, the broader Eurozone … it’s a solid growth trajectory,” McKnight said during a Dec. 2 economic outlook event hosted by the Austin Chamber of Commerce. “We think that’s going to continue through next year.”

Zooming in on these parts, and the picture only gets prettier, McKnight said.

According to the most recent federal data available, the Austin metro’s real gross domestic product — meaning the value of all goods and services, adjusted for inflation — came in at $207.47 billion in 2023, a 4.5% increase from 2022. While solid, that’s a big step down from a year-over-year growth rate of 9.6% in 2022, which is a big number undoubtedly inflated by the anomalous effects of a post-pandemic time.

McKnight called the 4.5% growth rate “very solid,” pointing out it’s well above the country’s real GDP growth rate for 2023, which has been clocked around 2.5%.

“Austin is growing on a larger base, which makes it harder to hit those same numbers in the past,” he said.

The Austin area’s 2023 GDP ranked third among the four major Texas metros, according to the recently released figures from the U.S. Bureau of Economic Analysis:

• Dallas-Fort Worth-Arlington MSA, $613.38 billion, 3.2% increase
• Houston-The Woodlands-Sugar Land MSA, $550.79 billion, 5.4% increase
• Austin-Georgetown-Round Rock MSA, $247.47 billion, 4.5% increase
• San Antonio-New Braunfels MSA, $150.32 billion, 4.6% increase

Overall, the statewide GDP came in at just under $2.1 trillion in 2023 — up a whopping 7.4% from 2022. Only California’s $3.25 trillion GDP bested Texas. But the Lone Star had a much higher growth rate, with California coming in at 2%.

Trump casts cloud of uncertainty on 2025

Although Austin and Texas are growing solidly, many experts have said it’s unknown what 2025 could have in store. Business managers don’t like uncertainty.

McKnight declined to make a 2025 prediction, saying there’s too much to be decided regarding national economic policies that may be enacted by the incoming Trump Administration, particularly regarding immigration and tariffs on foreign imports.

“When we think about the economy, it all depends,” he said. “So much depends upon what happens with policy in D.C., what happens with our trading partners, how the markets respond to that, and the long-term ramifications of so many things that are going to occur over the next six to 12 months.”

On tariffs, McKnight said the main consideration is whether they’re tailored to certain industries and products or if they’re more general and target all goods from certain countries. Either way, he said any new tariffs will have an inflationary impact, meaning it will likely fall on companies to decide whether to pass the costs on to customers. 

“Someone is going to have to pay for that” tariff, McKnight said.

Several Austin businesses — from beer makers to retailers — have said previous tariffs hit them negatively. Some companies suck up the extra costs and take less profits. But more often, many business owners have said, the consumer ends up with a bigger price tag — maybe not abruptly, but eventually.

Similarly, potential new policies on immigration that result in a possible increase in deportations could have an inflationary impact on the economy, McKnight said. Deportations could cause inflation because it’s likely that any company with a job opening caused by a deportation will need to pay more in either salary or benefits to find a replacement. 

McKnight said any industry that employs undocumented workers is at risk of being impacted by an energized deportation and removal policy. In Austin, he said, it could weigh heavily on the construction and hospitality industries.  

Uncertainty around future policies likely won’t last too long, McKnight noted, saying details of vague policy promises and international and market reaction to them should be known by late January or early February.

Regardless, he said he expects Austin to continue to boast a stronger than average economy, as long as companies and people keep relocating to the area from other parts of the country and world. He cited affordability as one of the city’s biggest challenges, however, saying companies won’t relocate to the area if their employees can’t afford to live here.

By: Sean Hemmersmeier
Source: Austin Business Journal