February 8, 2008

The Texas economy expanded moderately in December. The Dallas Fed's Texas Business-Cycle Index,[1] an aggregate measure of the region's current economic activity, rose at an annualized pace of 2.5 percent, following revised growth of 2.8 percent in November [2]. In 2007 the index rose at a rate of 4 percent, a slight deceleration from 2006’s 4.5 percent pace (Chart 1).

Chart 1

Texas employment activity remained positive in December. Employers added 26,600 positions—a 3.1 percent increase, according to data released by the Texas Workforce Commission, with seasonal and other adjustments made by the Dallas Fed (see table) [3][4]. In 2007, Texas payrolls rose by 314,400 net jobs—a 3.1 percent rate of growth. The state unemployment rate edged up to 4.5 percent in December.

Major Metros

Austin’s economy sustained its expansion in December, posting a 3.9 percent increase in its business-cycle index and a sizeable gain of 4,100 jobs. Employment growth was widespread, with both the goods-producing sector and service industries contributing to the monthly rise. Job growth in the trade, transportation and utilities industry led the pack, posting an increase of 1,400 positions, and was followed by the professional and business services, which created 700 jobs. The expanding health care industry added to job gains in the education and health care sector. Construction employment continued to tick up during the month, despite a pullback on new home starts by builders. Venture capital continued to fund promising startup companies in various industries, and investments rose 15 percent to $258 million in the fourth quarter. In 2007, Austin recorded a healthy 5.9 percent increase in its business-cycle index and a net gain of 30,500 jobs (4.1 percent).

Dallas’ economy picked up steam in December. Its business-cycle index grew 3 percent, and employers added 7,100 net jobs for a pace of 4 percent. The trade, transportation, and utilities sector performed the strongest, expanding by 5.9 percent. Robust job gains were also recorded in the professional and business services and education and health services sectors. As health care demand grows, medical facility construction continues to rise, with new hospital construction in Plano, Forney and north Dallas. Warehouse and industrial construction are also on the rise, according to anecdotal reports. Goods-sector employment rose 2 percent in December, a significant improvement over previous months. For the year, the Dallas business-cycle index increased 2.7 percent, and employment rose 2.3 percent (47,100 jobs).

Fort Worth’s economy strengthened in December—its business-cycle index rose 2.1 percent after increasing just 0.3 percent in November. Employers added 1,300 jobs in December, a 1.8 percent pace. The bulk of the job gains came in the service sector, yet growth in the goods sector picked up during the month. Despite a slowdown in the housing sector, financial and real estate services added jobs at 7.8 percent rate, as demand for commercial space remained robust. The leisure and hospitality sector, strengthened by hotel construction downtown, added jobs at a 5.7 percent pace. The metro’s business-cycle index rose at a 2.8 percent rate in 2007, and employment rose by 16,800 jobs.

The vibrant Houston economy decelerated slightly in December as the business-cycle index grew at an annualized rate of 4.3 percent, down from 6.3 percent in November. The energy sector continued to buoy the metro economy, with the construction, mining and natural resources sector accounting for 2,200 of the area’s 3,200 new private-sector jobs. Educational and health services posted the strongest service-sector gains, adding 500 net jobs in December and growing by a strong 5 percent pace in all of 2007. Thus far, the housing downturn in Houston has been mild, with existing-home sales down about 20 percent from last year but median prices up 1 percent. In 2007 Houston’s economy expanded rapidly. The metro’s business-cycle index posted growth of 6.8 percent for the year, and employers added 100,500 net jobs, about a third of the state total.

San Antonio’s economy continued to grow in December, with its business-cycle index registering a 3.1 percent increase. Employers added 1,600 positions during the moth bringing the total job gain for 2007 to 19,300—a 2.3 percent pace. Goods-sector employment edged down in December as homebuilders scaled back on construction in response to declining demand. Service-sector employment increased, however, with strong hiring in the leisure and hospitality, and trade, transportation and utilities industries. The trade and transportation industry job gains were buoyed by expansion at Port San Antonio. The expansion of various medical facilities, including a long-term acute-care hospital and a cancer treatment and research facility, bodes well for future job growth in the metro’s health care industry.

Border Metros

Brownsville's economy slipped slightly in December, with its business-cycle index edging down 0.2 percent and employment growth stalling. Housing demand continued to slow. Existing-home sales fell 7 percent in 2007, and single-family permits were weak. Still, permits for commercial construction rose during the year, thanks in part to an expanding retail sector. In 2007, Brownsville recorded modest growth of 1.6 in its business-cycle index and added 1,600 net jobs.

Chart 2

El Paso's economic activity rebounded in December, its business-cycle index increasing 3.6 percent. Still, 2007 growth was modest overall, with the index posting a 1.9 percent increase and employment rising by 1.1 percent (3,000 jobs). Slow growth in manufacturing employment in Juárez, the Mexican city bordering El Paso, and slower U.S. economic growth is holding back economic activity in the metro.

The Laredo business-cycle index slipped 4.1 percent in December, and employment growth plateaued. Despite the monthly decline, 2007 growth in the index stands at a more robust 3.6 percent, and 3,300 jobs were added to payrolls. High energy prices have had a negative impact on Laredo’s infrastructure projects, refocusing the emphasis to repair and maintenance. Slower housing demand led to a significant decline in residential construction, and tax valuations fell from year-earlier levels, according to anecdotal reports. The metro continues to experience a tight labor market for skilled trades such as nurses and commercial drivers.

McAllen's economy posted very moderate growth in December. Its business-cycle index rose 0.9 percent, and employment increased 1.1 percent. Nevertheless, in 2007 the metro’s economy was quite strong, with business-cycle growth of 5.8 percent and job growth of 4.2 percent. Employment growth during the year was strongest in education and health services, driven by the metro’s rapidly growing population. The retail sector was also robust during the year. Retails sales tax revenues rose 7 percent in the Rio Grand Valley. The city of Mercedes, which added the Rio Grande Valley Premium Outlets, saw sales tax collections nearly triple, according to anecdotal reports. Valley farmers planted mostly grain sorghum and corn instead of cotton, as corn prices have risen approximately .75 cents per bushel in the past year.

Notes For a definition of the Texas Business-Cycle Index, see Data Basics, Data Definitions. For more detail about the Texas metro business-cycle indexes, see "Dallas Fed Introduces Business-Cycle Indexes for Texas Metros," Southwest Economy, May/June 2005. All growth rates are annualized unless otherwise noted. The employment data used in this analysis have been benchmarked to TWC's third quarter 2007 CEW data and seasonally adjusted by the Dallas Fed. For more information about early benchmarking data, see “Getting a Jump on Texas Employment Revisions,”Southwest Economy, November/December 2005. For more information regarding the importance of seasonal adjustment of economic data, see Data Basics, "Seasonally Adjusting Data." For more information about the procedure used to seasonally adjust metro-level data, see "Reassessing Texas Employment Growth," Southwest Economy, July/August 1993. For additional information or questions, please contact D'Ann Petersen at (214) 922-5190.