Regional Economic Update
Regional Economy’s Growth Broad-Based
March 22, 2013 · Update in PDF
Over the past six weeks, the Eleventh District economy grew at a moderate pace. Employment growth for January was sluggish; however, the Texas Business Outlook Surveys (TBOS), the Dallas Beige Book and the Texas Leading Index indicated a pickup in activity since the last report. Housing remained strong with inventory levels approaching record lows, the energy sector improved even as oil prices fell, and Texas exports grew in recent months. Employment growth of 2 to 3 percent is likely for 2013.
Employment Growth Slows in January After Strong 2012 Performance
Texas total nonfarm employment grew at a strong 3.1 percent clip in 2012, with almost every major sector contributing to the expansion. January was sluggish, however, coming in at a 0.4 percent annual rate. The unemployment rate ticked up in January, as well, reaching 6.3 percent. However, the unemployment rate remains far below its peak of 8.3 percent reached in 2010 and well below the current national unemployment rate of 7.7 percent (Chart 1).
Anecdotal evidence since December suggests labor markets have improved, with Dallas Beige Book contacts reporting steady or increased employment at most firms. The February TBOS suggest hiring continued (Chart 2). The Texas Service Sector Outlook Survey (TSSOS) and Texas Retail Outlook Survey (TROS) employment indexes both posted strong increases in February, coming in at 13.4 and 21.7, respectively, though hiring growth slowed in manufacturing, according to the Texas Manufacturing Outlook Survey (TMOS).
Limited Supplies Fuel Continued Housing Activity
In February, Texas’ inventory of unsold existing homes relative to sales held steady at 4.6 months—the lowest level since September 2000. Existing-home sales continue to grow strongly across Texas, increasing at a 24 percent annualized rate in February after rising 17.9 percent in 2012. The combination of low inventories and strong sales has pushed home price growth to postrecession highs (Chart 3). The Standard & Poor’s Case-Shiller home price index for the Dallas–Fort Worth area increased 5.6 percent in 2012, while the Federal Housing Finance Agency (FHFA) purchase-only home price index grew 6.6 percent.
Texas construction activity maintained its upward trend throughout 2012, but has edged down in the first months of 2013, likely due to lingering uncertainty about fiscal issues and the impact on economic activity. The five-month moving average of real construction contract values—which includes housing, nonresidential, and roads and bridges—fell in January and February after strong growth in late 2012, mainly due to losses in the nonbuilding (roads and bridges) and nonresidential (office, industrial and commercial) categories (Chart 4). Single-family housing activity continues to increase.
Energy Activity Remains Strong
The Texas rig count rose 2.4 percent in February after falling consistently since June 2012. The recent pickup in drilling activity could be due to recent rises in natural gas prices beyond the usual seasonal patterns. In addition, oil prices are still substantially above production costs, so there is incentive to keep drilling wells in Texas.
Exports Grow in Fourth Quarter and January
Texas exports grew 2.3 percent in January (month over month), while exports fell 2.6 percent in the rest of the nation (Chart 5).
Petroleum and coal products, which make up nearly a quarter of Texas exports, continued leading the state’s growth. Petroleum and coal products exports have increased close to 260 percent since hitting a recession low in 2009. Texas exports to China, Latin America, Canada and Mexico grew, while exports to Europe and Asia (excluding China) fell in fourth quarter 2012. More than 40 percent of exports to Mexico, Texas’ largest trading partner, are non-maquiladora-related and mostly driven by Mexico’s domestic consumption. Mexico’s economy grew a strong 3.9 percent in 2012 and is expected to grow 3.6 percent in 2013.
Sequestration Threatens Government Employment on Texas–Mexico Border
The impact on the state economy of the so-called sequestration effective March 1 is hard to estimate with precision. Details about implementation of the automatic budget cuts remain sketchy as to what will be cut and which industries will be impacted. Around 15 percent of Texas jobs are tied to local and state government, while federal employment represents only 2 percent. Nevertheless, federal spending cuts could disproportionally affect the border region and San Antonio, whose economies are unusually dependent on federal spending.
Outlook for Continued Growth in 2013
The Texas Leading Index increased in January for the second month in a row to its highest level since July 2008. The three-month change in the index was positive, with all components contributing positively except new unemployment claims and average weekly hours. The current forecast is for 2 to 3 percent employment growth for 2013 (Chart 6).
—Jesus Cañas and Melissa LoPalo
About the Authors
Cañas is a business economist and LoPalo is a research assistant in the Research Department of the Federal Reserve Bank of Dallas.