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Texas Recovery Plods Along in August

September 23, 2010 | Update in PDF PDF

The Texas economy continues to recover at a moderate pace, but growth appears to have decelerated in August. While the energy sector and mortgage delinquency rates show improvement, job growth in construction and manufacturing is weaker. The uptrend in the Texas Leading Index has paused over the past two months, suggesting that the pace of recovery is slowing.

Job Market Recovery Continues, but Pace Slows
The Texas economy added 14,700 private-sector jobs at a 2.1 percent annual rate in August. August job growth was slightly stronger than the 1.7 percent growth recorded in July. Texas employment has expanded at a 2.7 percent annual rate year to date, faster than the national pace of 1.1 percent. The state has gained jobs at 1.9 percent annual rateso far in the third quarter, slowing from second quarter’s 3.7 percent growth (Chart 1).

Most major sectors have added jobs since the end of 2009 and outperformed their U.S. counterparts. While employment in private services grew at a faster pace in August than July, growth in manufacturing and construction was slower. The current recovery, though nascent, so far appears stronger than the two previous jobless recoveries (Chart 2).

Long-Term Unemployment, Permanent Job Loss High
The average duration of unemployment reached lengths unseen in the three previous recessions, exceeding 30 weeks for the nation. Texas’ average duration remains five weeks shorter, another indication that the labor market is stronger in Texas than the nation.

The recent recession also has a significantly higher incidence of permanent job losses—more than 40 percent of the nation’s unemployed—than the previous postwar recessions. Permanent job loss refers to unemployment without expectation of recall into a previous position. The share of permanent job losses among the unemployed in Texas has begun to decline and remains below national figures (Chart 3).

Initial unemployment insurance claims, which fell until the end of last year, have stabilized since then, raising prospects of a slower recovery going forward. Overall, job growth is expected to be around 2.5 to 3 percent in 2010 and remain modest in 2011.

Retail Sales Sustain Tepid Growth
The Dallas Beige Book reports that growth in retail sales slowed in August, and retailers felt uncertain about the strength of the recovery. According to the Texas Comptroller’s office, sales tax collections increased less than 1 percent from August 2009. The amount collected missed the 2010 budget-year target by 6.6 percent. The tepid growth indicates that retail sales growth the remainder of the year will be positive but small.

Serious Delinquencies Start to Fall
Serious delinquencies—mortgages 90 or more days past due, plus the inventory of foreclosures—among both prime and subprime borrowers in Texas began to decline in the second quarter but remain at high levels.

Housing Indicators Weaken
After hitting bottom in 2009, residential construction activity picked up in Texas, and employment in the sector recovered at a faster rate than in both manufacturing and services. But recent downward movement in the two leading indicators of future construction activity—single-family permits and residential construction contract values—point to an impending reversal in recent gains in homebuilding activity (Chart 4).

The fledgling housing market recovery that began in 2009 started to slip after the homebuyer tax credit expired in April 2010 (Chart 5). Texas sales of existing homes declined 17.4 percent from June to July and 22 percent from July 2009.

Energy Industry Recovers Strongly
Oil prices rebounded strongly and reached a postrecession high during the year but have since stabilized at levels that are still conducive to drilling. The rig count in Texas has risen steadily. Anecdotal reports indicate that the Gulf of Mexico drilling moratorium is not having a significant impact on the state’s energy sector. A recent decline in natural gas prices may dampen overall activity going forward, however.

Exports Decline in July
Real Texas exports declined 3.2 percent in July, although they are up 15.2 percent from July 2009. Exports to Latin America (excluding Mexico) have grown impressively, but exports to China and the rest of Asia dropped in the first and second quarters.

Recovery Likely to Decelerate

The Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey (TMOS) and Texas Leading Index, a composite index of eight leading economic indicators, both point to slower growth in the near future. Although still in the majority, fewer manufacturers responding to TMOS in August expect an improvement in capacity utilization or an increase in future orders. The Texas Leading Index appears to have paused after showing sustained increases earlier in the year, suggesting a slower pace of job gains, among other economic measures, in the coming months (Chart 6).

Anil Kumar and Yingda Bi

About the Authors

Kumar is a senior research economist and advisor and Bi is a research assistant in the Research Department of the Federal Reserve Bank of Dallas.

 

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