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August 2009
Further Evidence of Stabilization in Texas Economy
The Eleventh District economy has displayed evidence of further stabilization. Recent data and anecdotal reports indicate the Texas economy is flattening at subdued levels, with some hope of improvement toward the end of the year.
Employment Decline Slows
Texas employment fell at a rapid pace through the first half of the year. During the first six months, employers cut payrolls at a 4.3 percent annualized rate. In the second quarter, payrolls shrank at a 3.4 percent annualized rate compared with a 5.2 percent rate in the first quarter. As initial claims have continued to trend down, the rate of employment decline is expected to slow further in the third quarter (Chart 1).
Housing Market Shows Continued Signs of Improvement
Home sales seem to be bottoming out, with volume rising 3.5 percent in June after a small increase in May (Chart 2). However, sales volume is still down 14.1 percent year over year. A majority of the increase in home sales has been attributed to the first-time homebuyer tax credit, which expires Nov. 30. After the tax credit ends, a clearer view of the housing market should emerge, although recent signs are encouraging.
The median sales price of Texas homes climbed 1.1 percent in June, increasing for the third month in a row. Year-over-year median prices were up as well, gaining 2 percent.
New home construction also appears to be picking up. Single-family permits were up 13 percent in June but are still down 18.8 percent year over year. Single-family contract values are fairing slightly better, increasing 30 percent in June and only declining 11.1 percent year over year.
Commercial Real Estate Market Still Strained
Commercial real estate markets remain weak, buffeted by both the decline in economic activity and reduced financial activity. Vacancy rates continued to rise, affecting a broad swath of property types and metro areas. Transactions involving commercial properties remain subdued, with the expectation of some increase through the end of the year.
A depressed commercial real estate market is taking its toll on nonresidential construction. Contract values increased slightly in the second quarter but are down 29.5 percent from the comparable period in 2008 (Chart 3).
Manufacturing Outlook Improving
The July Texas Manufacturing Outlook Survey showed that declines in factory activity moderated in recent months. The general level of business activity continues to improve, and expectations of future activity appear to be stabilizing (Chart 4).
Energy Sector Shows Signs of Life
Since mid-June the rig count has gradually increased, following nine straight months of decline. Year to date, the rig count has fallen 54.9 percent (–440 rigs). With oil prices hovering around $70 per barrel, some oil rigs have been coaxed back into operation. However, natural gas prices remain low and inventories bloated, subduing drilling activity (Chart 5).
Outlook Remains Uncertain
According to broad-based indicators, the Texas economy remains in recession. However, recent data show some improvement and coincide with anecdotal reports that suggest a bottom may be forming. The Texas Leading Index ticked down 0.8 percent in June but remains 4.6 percent above the low reached in March (Chart 6).
Despite the signs of stabilization, employment continues to decline, though there is evidence of improvement on this front as well. The most recent employment forecast estimates that Texas will see a decline of 2.8 percent in 2009. While not especially encouraging, it is a significant improvement from the previous forecast of –3.5 percent.
—D’Ann Petersen and Jackson Thies
About
the Author
Petersen is a business economist and Thies is a research analyst in the Research Department at the Federal Reserve Bank of Dallas. |
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