Lone Star State Emerges As Model of Marathon Growth

Economic diversity fuels a nine-year expansion - the longest run in the nation.

Tivoli Systems, a software company here, was looking for a few good computer geeks, so it went straight to a somewhat unorthodox source - Longhorn Stadium at the University of Texas.

At the gates, workers handed out Tivoli seat cushions and soda-can holders. In the sky above, a plane dragged a banner over the stadium, advertising a Tivoli job fair. (Given the football team's poor performance on the gridiron lately, some UT fans have been looking skyward anyway.)

Such an aggressive - or desperate - hunt for employees shows what can happen in a state economy that has been expanding for nine years, the longest boom in the country.

Qualified workers become scarce and even well-managed companies must scramble to keep the production lines rolling. But many states would welcome such challenges if they could emulate the longevity of the economic expansion Texans now enjoy.

The Lone Star State wasn't always such a model of stability.

In the past, when the volatile energy sector made up 27 percent of the state's gross product, the good times were glorious, but the bad times were always just a bad crop or oil bust away. Now the state's main economic driver is high technology, with computer sales alone making up 25 percent of the state's gross domestic product.

Together with banking and foreign trade, these newer businesses are lending greater stability to the economy here.

"Texas used to be a real roller-coaster economy, with huge booms and huge busts," says Daniel Friel, an economist with Nationsbank, a Charlotte, N.C.-based bank that moved into Texas in the late 1980s. "But now it's much more diverse, and since 1988, it's seen remarkably consistent growth."

Flexible economy breeds success

In fact, Texas may have the most diverse economy in the country, says Bill Gilmer, a senior economist at the Houston branch of the Federal Reserve Bank of Dallas. As a result, "there's specific parts of the economy that may go up or down, but unless they all bite us at the same time, we're probably going to be alright."

For Texans, the key to today's boom is found in the ashes of yesterday's bust. In 1986, the Texas economy changed overnight, when the price of oil dropped from $40 to $10 per barrel because of overproduction by the OPEC nations. Small oil companies went bust, banks stopped lending money, and pipefitters and roughnecks left the state, making oil-dependent towns like Midland, Odessa, and Houston feel like ghost towns.

When the engines of economic recovery finally stirred in 1988, they were powered not by oil but by silicon. Using advanced technology produced by Texas Instruments, the semiconductor industry took off. This was followed closely by the personal-computer industry, and companies like IBM, Compaq, and Dell began to pull the rest of the state out of the doldrums. And when much of the US entered a post-Gulf War recession in the early 1990s, Texas just kept on growing.

"Texas was the only state that didn't suffer through the recession of 1990," says Mr. Friel of Nationsbank, "because they'd already been through one in 1986 and '87."

But some economists say the high-tech recovery is not just a matter of good timing. In fact, a recent study of Texas and 11 other major states shows that high-tech investment may be a silver-bullet solution for any state or region to achieve greater productivity and profits.

"We found that investment in high-technology products leads to growth of the overall economy 93 percent of the time," says Angelos Angelou, founder of Angelou Economic Advisors, an Austin-based research firm.

For their part, companies that have relocated here from California and elsewhere have been quick to list the attractions of Texas: low taxes, low labor costs, and the availability of cheap land. And when companies move here, their employees often follow. Texas' population has been growing at roughly 130,000 a year, mostly from in-migration.

The prosperity has been most obvious in towns like Houston, where high-tech advances in deep-water exploration, seismic technology, and horizontal drilling have made oil production profitable, even if the price of oil remains half what it was in the peak years of the 1980s. This means jobs, with employment growing more than 5 percent a year for the past two years.

But the good times have also extended as far south as the border towns of the lower Rio Grande Valley, where double-digit unemployment rates persisted even in the go-go 1980s. Under the North America Free Trade Agreement, hundreds of factories have been built in Mexico, with sister plants built in dusty US towns like McAllen, Laredo, and Brownsville. In this environment, even corporate giants like General Motors and Levi-Strauss are having trouble finding enough south Texas workers to meet the growing demand for their products.

Of course, some areas have been left behind. The west Texas border town of El Paso, for instance, has lost more jobs than it gained under NAFTA, as textile and apparel industries opted for cheaper labor in Mexico. And oil towns such as Midland and Odessa in west Texas are still searching for new industries to replace oil.

But in Houston, Austin, Dallas, Fort Worth, and San Antonio, the signs of prosperity are unmistakable. You can hear it in the pounding of hammers across the amoeba-like suburbs of Houston. And you can smell it in the diesel fumes at the massive border trucking port of Laredo, where goods come and go 24 hours a day.

Plenty of jobs

For its part, Austin's boom is expected to start slowing down, in part because most of the qualified employees are already employed. Tivoli Systems hopes that its recent aggressive job campaign will help keep it ahead of the curve.

By most accounts, the job fair was a success. More than 200 candidates were interviewed. Ten were hired on the spot. All took home funky T-shirts with a cartoonish man on the front, complete with pocket protector and high-water pants. The slogan read: "If you didn't go with Tivoli, then your problem is obvious."

"There's a certain weird sense of humor here," laughs Ann Taylor, a Tivoli spokeswoman. But because high-tech companies often depend as much on the personality of workers as on their technical abilities, she adds, "we want to do whatever we can to get the right people."

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