Regional Economic Update
Texas Economy Slower in Recent Months
December 17, 2012 · Update in PDF
Texas job growth has been persistently above trend this year, with jobs growing at an annual pace of 3.2 percent through October. In recent months, however, the pace of employment growth has slowed. Exports have generally declined since February, causing a weakening in Texas manufacturing. Continued low prices for natural gas have also led to some slowing in the energy sector. Offsetting this somewhat, construction activity has accelerated. Looking forward, the Texas Leading Index increased for the fourth consecutive month in October, although the pace of increase has moderated. The outlook components of the Dallas Fed’s three Texas Business Outlook Surveys all weakened in November, suggesting somewhat weaker growth ahead.
Texas Employment Growth Above Trend and Faster than in U.S.
Texas job growth has been 3.2 percent year-to-date annualized, well above the 2.0 percent long-term trend and faster than the 1.4 percent pace in the U.S. overall (Chart 1). Texas employment is now 2.9 percent (306,000 jobs) above its prerecession peak, while the national economy is 3.1 percent below its peak. If U.S. job growth continues at the moderate pace of the past two years, it will reach its prerecession peak in January 2015—three years after Texas.
Private job growth has increased only slightly this year—to 3.6 percent from 3.4 percent; however, these numbers are well above the 2.1 percent long-term trend. The Texas unemployment rate has fallen to 6.6 percent in October from 6.8 percent in September.
Energy Activity Continuing to Help Texas Economy
Texas, like many of the oil- and gas-producing states, is experiencing an energy boom and is recording faster job growth than many other states (Chart 2). However, low natural gas prices have recently led to reduction in Texas drilling activity. Moreover, growth in some energy states has eased as natural gas prices remain at historically low levels.
Export Growth Has Slowed
Texas exports have generally declined since February, when they reached a peak (Chart 3). This decline in exports was followed by a weakening of the manufacturing production index from the Texas Manufacturing Outlook Survey (TMOS). The value of the TMOS production index fell to 1.7 in November, its lowest level so far this year.
While Texas exports to China, the European Union and the United Kingdom declined sharply in the first three quarters of this year, exports to Mexico increased by 10.8 percent. The weakness in international demand has caused manufacturing employment growth to subside, particularly in industries that are export sensitive. The top three Texas manufacturing industries for exports, as a share of industry GDP, are electronic equipment, transportation equipment and primary metals. Job growth in these three industries generally has been weakening in recent quarters.
Construction Activity Improving
In October, the inventory of unsold existing homes relative to sales declined to 5.1 months, the lowest level since March 2007 (Chart 4). Existing-home sales have increased at a rapid annual pace of 15 percent in the two months ending in October.
While low mortgage rates and tight inventories have been boosting the residential construction sector, nonbuilding activity, such as highway construction, has not improved until very recently (Chart 5).
Price Pressures Remain Mild
Recent Texas Business Outlook Survey (TBOS) responses suggest that price pressures have picked up recently in manufacturing and services. The rise in price pressures follows very weak or negative price growth over the summer so that price changes overall appear moderate. The Texas consumer price index rose at an annual rate of 1.9 percent over the three months ending in September but is up only about 1 percent for the year.
Retail Sales May Have Weakened
The Texas Retail Outlook Survey (TROS) sales index fell in October and November, suggesting that retail sales growth weakened. Consumers were likely nervous about economic conditions after the U.S. election with the possibility of the “fiscal cliff” resulting in higher taxes and more job uncertainty. This may improve in December if Congress comes up with some stop-gap measures.
Outlook for 2013 Is for Slightly Weaker Job Growth than in 2012
The employment forecasting model of the Dallas Fed is predicting job growth that is slightly to moderately weaker next year—somewhere in the range of 2 to 3 percent, based on the Texas Leading Index (Chart 6). While this is a fairly strong pace, energy extraction growth is expected to subside, export growth may remain weak and growth in government jobs will be stable at a low rate, although construction activity should continue to improve.
Recent declines in company outlooks from TBOS suggest a positive but slightly weaker growth outlook than a few months ago. The Dallas Fed’s November Beige Book reported that many firms’ outlooks remain uncertain given regulatory and fiscal concerns and short-term disruptions caused by the late-October Hurricane Sandy.
—Christina Daly and Keith Phillips
About the Authors
Daly is a research assistant in the Research Department of the Federal Reserve Bank of Dallas and Phillips is a senior economist and policy advisor at the San Antonio Branch of the Federal Reserve Bank of Dallas.