Regional Economic Update
Texas Growth Picks Up
October 26, 2012 · Update in PDF
Growth in the Texas economy picked up in the past six weeks. Job growth strengthened to a 3.1 percent annual rate in September, and the unemployment rate ticked down to 6.8 percent from 7.1 in August. Construction and housing indicators suggest that real estate activity remained strong in September. The energy sector continues to be robust despite recent declines in the rig count, and exports ticked up in August. Political and fiscal uncertainties persist and pose the most significant challenges to stronger growth in the fourth quarter.
Texas Job Growth Gains Momentum
With total nonfarm employment growing at a 3.1 percent clip, the Texas economy added 27,800 jobs in September. Quarterly job growth for Texas and the U.S. suggests that after a significant slowdown in the second quarter, growth picked up in the third quarter (Chart 1).
Most of Texas’ major sectors have outpaced the U.S. in employment growth year to date. Professional and business services and trade, transportation and utilities have made the largest contributions to year-to-date job growth, with a combined share of 41.5 percent (Chart 2). The construction sector has also played a big role and accounts for 14 percent of job gains in Texas compared with a negative contribution for the nation.
Job growth in manufacturing turned positive in September, and employment in the sector is up 1.5 percent year to date. The production index from the Texas Manufacturing Outlook Survey (TMOS) indicates that activity expanded at a faster pace in September, as the index level increased to 10 from 6.4 in August. Job growth in private services also picked up in September, posting a 3.5 percent annual rate, led by a 9.8 percent expansion in professional and business services and 5.5 percent growth in educational and health services.
Housing Activity Robust
Texas single-family housing permits contracted 0.2 percent in September; however, they are up 19.2 percent year to date. Texas’ real residential construction contract values increased 12 percent in August but declined 4.4 percent in September. Nonresidential construction contract values, which are down from year-ago levels, also saw a big turnaround in August with 15 percent growth followed by an 18.2 percent increase in September (Chart 3).
Growth in housing starts in Texas accelerated to 8.7 percent in August from 1.6 percent in July. Texas’ housing starts are up 24 percent year to date and 31 percent year over year. Growth in existing-home sales remains strong at 2.9 percent in September, up nearly 20 percent from year-ago levels and driving housing inventory further down to 5.2 months of available supply, well below the level of six months widely considered healthy. Recent gains in house prices continue to hold up, with the most recent release of the S&P/Case-Shiller Home Price Index for Dallas showing a small uptick in July and median house prices up 3.5 percent year to date in September.
Energy Activity Strong Despite Declines in Rig Count
The Dallas Beige Book reports that energy activity in Texas remained strong in August and September but that growth may have stagnated. Refining margins and capacity utilization on the Gulf Coast are high, but the rig count continued to decline modestly (Chart 4). Employment in the sector contracted in September after strong growth in August but is still up year to date and year over year.
Exports Tick Up in August
Texas’ monthly exports ticked up 1.3 percent in August following a 2.3 percent decline in July (Chart 5). On a year-to-date basis, exports are down about 1.6 percent in Texas and 0.6 percent at the national level.
Retail Sales Growth Remains Sluggish
The Beige Book reports continued softness in retail sales in September, although sales appear to have improved from a year ago. However, the sales index from the Texas Retail Outlook Survey (TROS) points to continued sales growth in September following a strong rebound in August.
The Beige Book indicates that prices were mostly steady, while TMOS indexes of future prices and wages remained in positive territory.
Outlook Points to Continued Growth in Fourth Quarter
The Texas Leading Index ticked up for a second consecutive month in August, after three consecutive months of decline. The three-month change in the index was also positive. The future activities indexes from TMOS, TSSOS and TROS—the Federal Reserve Bank of Dallas’ Business Outlook Surveys—point to continued growth over the next six months, although the index for future production activity ticked down (Chart 6).
An accelerating pace of recovery in construction and housing is a key source of upward momentum for growth in the fourth quarter. The political uncertainty and concerns about the “fiscal cliff” present significant headwinds to stronger growth in the near term.
—Anil Kumar and Melissa LoPalo
About the Authors
Kumar is a senior research economist and LoPalo is a research assistant in the Research Department of the Federal Reserve Bank of Dallas.