Dallas Fed report spotlights Texas economy, globalization's effect on financial crisis

For immediate release: March 16, 2009

DALLAS—The latest issue of the Federal Reserve Bank of Dallas' Southwest Economy features articles on the Texas economy, the state's business climate, globalization and the financial crisis, and Texas subprime mortgages.

Texas continued to grow while the nation's economy faltered, but that has changed in recent months as the state slid into recession, according to senior research economist and advisor Keith Phillips and associate economist Jesus Cañas in "Recession Arrives in Texas: A Rougher Ride in 2009."

The Texas Leading Index (TLI), the Dallas Fed's barometer of future activity, has weakened significantly in recent months, the authors state. Based on TLI forecasts, Texas' nonfarm employment will decrease through March 2010, with the worst job losses coming in the first six months of 2009.

 "Job growth, low business and living costs, and a young, fast-growing labor force remain positives that will help in recovery," the authors write.

In "Keys to Economic Growth: What Drives Texas," senior economist Jason Saving finds Texas must address several public policy challenges if it wants to maintain its favorable business climate.

Challenges include whether and how to reform the newly revised franchise tax, fostering the emergence of a fourth or even fifth tier 1 university and improving infrastructure like roads and bridges, according to Saving.

"[Texas'] strong business climate gives it a head start as it seeks to address these issues in ways that will help it continue to prosper in the 21st century," Saving says.

In an "On the Record" conversation, economist Nathan Sheets, director of the Federal Reserve Board's Division of International Finance, says the financial crisis may speed up the pace of globalization.

"If anything, it may accelerate globalization in the sense that we're now very aware that we need to work closely together with other countries on such things as financial-sector supervision and rating assets," Sheets says.

The Dallas-Fort Worth area leads Texas' major metros in exposure to subprime mortgages, according to this quarter's "Spotlight."

The Dallas-Fort Worth area accounts for about 37 percent of the state's metro subprime mortgages, with 19 percent of those seriously delinquent. The Houston area ranks second with 24 percent of the state's metro subprime mortgages—and 18 percent of those are seriously delinquent.

Including the smaller metro areas, Wichita Falls led the state with about 20 percent of subprime loans in serious delinquency.

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