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March 2009
Texas’ Recession Persists
The Texas economy continues to slow. Almost every region and economic sector in the state is weaker than six weeks ago. In large measure, this slowdown is the result of soft consumer demand and frayed financial markets, although ongoing economic weakness in Mexico and low energy prices have also adversely impacted the region.
Employment
Payroll employment fell
by 32,400 jobs, or 3.6 percent annualized rate, in
January and by 2 percent over the past three months
(Chart 1).
The state unemployment rate rose
to 6.4 percent in January, its highest level in five
years—though it remains significantly below
the national average (Chart 2). Initial claims
followed a similar pattern, rising sharply yet remaining
well below the national level.
Employment in both the service-providing
and goods-producing sectors fell in January, although
private services fared considerably better than the
goods-producing sector. Private services payrolls contracted
at a 2.7 percent annualized rate, while goods payrolls
dropped 11.3 percent.
Employment in the manufacturing sector has been hit particularly hard, with growth declining at a 12.5 percent annualized rate in January and 5.8 percent over the past three months.
The high-tech sector has also weakened. Payroll employment in semiconductor manufacturing declined at a 22.9 percent annualized rate in January, and numerous layoffs have been reported. Venture capital in fourth quarter 2008 was down 31 percent compared with the third quarter and 78 percent compared with fourth quarter 2007.
Construction and Real Estate
Construction employment
fell at an annualized rate of 8.9 percent in January
and 13.6 percent over the past three months.
Contract values have declined
to 2005 levels. Residential construction has been
particularly weak and continues to slide. Existing
home sales (Chart 3) and single-family permits
continue to plummet across the state.
Exports Fall Sharply
Following a disappointing third quarter, Texas exports plunged another 12 percent in the fourth quarter to their lowest level in three years (Chart 4). The decline was widespread across sectors and trading partners, suggesting that the global economic crisis is taking its toll on the state’s export sector.
Consumer Confidence
Consistent with overall
weakening, consumer confidence continues to soften
in Texas. The latest reading for the West South Central
census region, which is dominated by Texas, declined
by more than five points in January to its lowest level
of the decade (Chart 5). Although confidence
in the region began to fall at about the same time
the national plunge began in early 2008, it has remained
consistently higher than the national average.
Energy and Mexico: Texas-Specific
Negative Shocks
Falling energy prices and continued weakness in Mexico are narrowing Texas’ traditional growth advantage over the nation.
The Texas energy sector has
declined dramatically over the past six weeks. Low
energy prices have sparked a sizable fall in well
permits and a 13.2 percent annualized drop
in January natural resources and mining employment.
Mexico’s economy has been faltering. Its GDP contracted at a 10.3 percent annualized rate in the fourth quarter, and industrial production has fallen sharply. This weakness has spilled over to Texas, given Mexico’s strong trade ties with the Lone Star state. Texas exports to Mexico dropped 13.7 percent in the fourth quarter.
Conclusion
The Texas economy has deteriorated
further over the past six weeks, with nearly all available
data suggesting that Texas is in recession. Manufacturing,
services and construction sectors are continuing to
decelerate here as they are nationally, and adverse
developments in the energy sector and in Mexico and
are having a disproportionately negative impact on
Texas. Recent sharp declines in the leading index suggest
that the current slowdown will persist for at least
the next few quarters (Chart
6).
—Mike Nicholson and Jason L. Saving
About
the Authors
Nicholson is a research analyst and Saving is a senior economist in the Research Department at the Federal Reserve Bank of Dallas. |
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