Ted C. Jones, Ph.D., talks – a lot. In his position as the chief economist, senior vice president of Stewart Title Guaranty Company, Jones typically gives more than 150 presentations on real estate and the economic outlook each year. Members of the Bay Area Houston Economic Partnership were recently the enthusiastic recipients of one of his entertaining and insightful talks.
Jones makes predictions
During his presentation –Things Change, the Outlook for Real Estate and the Economy – Jones made some predictions that business owners found encouraging. He said, "The administration is going to cut the corporate tax rate from 35 percent to 15 percent.”
Jones also predicted that we’re going to have U.S. overseas corporate profit repatriation. What does that mean? The administration is proposing that we give a one-time tax holiday for corporate repatriation. It has advocated for a special corporate tax repatriation holiday rate whereby corporations with money stashed overseas would be able to pay a tax rate of just 10% on that income in order to bring it back into the United States. This cash could be a big boon to some of the largest U.S. multinational companies.
The Speaker of the House said that America would bring back $3 trillion by doing this, according to Jones. In winding up his predictions, Jones stated that there would be a corporate gains tax cut as well as tax changes for the middle class that would be positive for some and not so positive for others.
Recession not in the forecast
Jones then turned his attention to the performance of the U.S. stock market in 2016, which saw the Dow Jones Industrial Average at 13 percent followed by the S&P 500 at 9.5 percent and the NASDAQ Composite at 7.5 percent. He said that the NASDAQ Composite is heavily weighted towards information technology companies. Jones stated that industrials were the big winner, which is great news for Houston whose primary business is industrials.
Jobs were the next topic of discussion, and there was good news and bad news to relate. Jones reported that we now have more jobs than at any other time in our history, but U.S. job growth keeps going down. However, leisure and hospitality jobs grew by 2.25 percent over the past 12 months compared to the 1.64 percent growth overall of U.S. jobs. In the Houston – The Woodlands – Sugar Land Metropolitan Statistical Area (MSA) that growth was 4.17 percent. "You don’t spend money on leisure and hospitality unless you feel good about the future,” Jones remarked. Because of this segment of growth, he, therefore, does not see a recession coming up.
Jones covers tax climate, home sales, interest rates, and the amazing Permian Basin
Jones then spoke of the Tax Foundation’s 2017 State Business Tax Climate Index where Texas ranks 14th out of all the states. "What we need to do,” he said, "is to get rid of our gross receipts tax, our corporation income tax, and our corporate franchise tax. If Texas were to do that, it’d be the third best place to do business in America.”
There was good news to report in regard to household debt, according to Jones. He said that we’re currently spending less of our take-home pay on debt services (house, cars, college debt) today than we have in three decades. "People have money in their pockets; that’s why things are so good,” Jones declared.
Home sales in Galveston County and the Houston MSA were the highest in history over the past 12 months. That’s good news, but Jones added some bad news along with the good. He reported that 1.094 million residential building permits were issued in the past 12 months in the U.S. while there were 2.243 million net new jobs. There were 2.05 new jobs per new dwelling unit where 1.25 to 1.5 is normal. That translates to demand outstripping supply thus driving prices up. In the Houston MSA, 44,643 residential building permits were issued in the past 12 months. With 14,400 new jobs in the MSA, there were 3.1 dwellings per new job where 1.25 to 1.5 is normal. What does this mean? Jones said that high-end apartments will not be built this year, because we have too many. He added that we still have a very hot housing market in homes over $500,000. That market tends to cool off, though, with homes over $1 million.
Interest rates? They’re going up. He said, "My forecast for 30-year rates over the next 12-18 months will be between 4.7 and 5.3 percent.”
Finally, Jones spoke of oil, gas, and the Permian Basin. Under Midland-Odessa and the Permian Basin, new technology made it possible to find 14 billion barrels of oil. "Mark my words, 10 years from today, the U.S. will be among the top five oil exporting countries in the world,” he foretold.
Things change. Technology changes. It’s a good time to live in the great state of Texas.
Ted C. Jones, Ph.D.
Chief Economist / Senior Vice President
Stewart Title Guaranty Company