The state of Texas has emerged as one of the backbones of the American economy, with solid population growth, expanding industries and a booming real estate market. The real GDP growth for the year of 2023 was 7%, which was some distance ahead of the national average growth of 2.6%.
Favorable conditions and an investor-friendly local governance has meant that Texas, alongside Florida, has been the fastest growing US state since the start of the Covid-19 pandemic.
But how sustainable is this growth and what should locals and out-of-state investors consider before moving their businesses or buying investment property in the lone star state?
Key Growth Factors Affecting the Economy of Texas
Being the largest state in terms of landmass and the second largest in terms of population, Texas is a powerhouse within the United States, with a few important sectors, such as energy and agriculture, serving as the backbone of the state’s economy. However, the tech sector of Texas is also growing rapidly, with favorable state taxes and a large talent pool of qualified workers being the main drivers of growth.
Oil and Gas
As you may already know, the state of Texas is one of the largest producers of oil and gas, not just in the United States, but globally.
The 34 oil refineries currently active in the state refine approximately 6.3 million barrels of crude oil per day, which accounts for 43% of crude oil production in the United States.
This reliance on crude oil, coupled with rising oil prices, have meant that the hydrocarbon industry in the state has boomed in recent years, creating more job opportunities and attracting out-of-state workers from the nearby states of Alabama, Arizona, New Mexico and others.
The election of Donald Trump could mean an easing of regulations and bureaucratic hurdles for the energy sector, which can be a major growth driver for the Texas economy.
Tech Sector Relocation
For the longest time, California has been the primary tech hub of the United States and the world. Numerous high-profile startups still call Silicon Valley home. However, discontent with the taxation and excessive regulation of the California economy has meant that some major companies have left California for Texas in recent years.
This exodus of tech companies has also meant that a number of highly skilled workers have also left the Bay Area in favor of Austin, Houston and other major urban areas of Texas.
This influx of workers has also boosted the consumption base of some of the lesser developed areas of the state.
Low State Taxes
Texas does not charge a state profit tax, which means that the state is more financially attractive for companies who wish to relocate from a different state.
Furthermore, there is also no state income tax, which means that residents of the state are limited to federal taxation on most of their income, aside from property taxes, which are also competitive when compared to other states in the country.
These favorable conditions make it easier for workers to relocate to Texas and reduce their overall tax burden.
This also makes Texas attractive to stock and forex traders, with an overall better risk and reward ratio for individuals engaging with the financial markets.
What to Expect from the Texas Economy in 2025
While the post-Covid 19 period has been bullish for the state of Texas, investors and individuals evaluating the prospects of the state will need to consider different factors that can shape the economy of the state heading into 2025.
Impact of 2024 Presidential Elections
The election of Donald Trump in the 2024 United States Presidential Elections could be viewed as a tailwind for the Texas economy, as the policies of the Trump Administration have been broadly pro-business and characterized by less red tape when it comes to dealing with the energy sector of the state.
Due to the reliance of the Texas economy on the oil and gas sector, easing regulations can boost the economic growth of the state in 2025 and beyond.
Housing Market
The Texas housing market has experienced significant growth in the post-Covid economy, which is a trend that has shown significant slowdown in 2024.
With growing housing inventory and dropping prices, many speculators have incurred losses on investment properties in Texas, Tennessee and Florida.
A more robust economy in 2025 could also help the Texas property market regain some lost ground. However, it is also worth noting that property values are still considerably overvalued at current prices, which is a trend that is observable all over the United States.
Changing Global Energy Demands
With the second presidential term of Donald Trump underway, the oil and gas sector is likely to receive a boost in the United States, which is a development that directly affects the Texas economy.
However, this is not the only factor working in favor of Texas in the long run, as the Russian invasion of Ukraine has also exacerbated energy shortages globally, which has boosted demand and increased the price of a barrel of Crude oil to as much as $72. More supply could stabilize the price closer to the $60-65 range, with Texas continuing to be one of the largest producers of Crude oil in the world, both in 2025 and beyond.
