Regional Economic Update
Regional Growth Slows From 2012
June 20, 2013 · Update in PDF
The regional economy has picked up, posting stronger employment growth in April than in March. However, this year is starting out more slowly than 2012.
In addition to last year’s soft spots, such as exports, new headwinds are blowing. These include federal government budget cuts and tax increases. State initial jobless claims and the Texas unemployment rate are higher now than they were at year-end. It’s likely that Texas job growth in 2013 won’t be on par with the robust growth in 2012.
Texas will continue to grow faster than the nation, but the state’s growth premium vis-à-vis the nation has fallen slightly.
Job Growth Strengthens in April
Texas employment grew at a 3.4 percent annualized rate in April, up from 2 percent in the first quarter (Chart 1). The quarterly data suggest that job growth, while still strong, has been slowing since early 2012. Year to date, state employment has grown an annualized 2.4 percent, compared with 3.1 percent in fourth quarter 2012, and national job growth is up an annualized 1.7 percent.
The Texas unemployment rate remained at 6.4 percent in April, two-tenths higher than the December low of 6.2 percent. A fast-growing Texas labor force and an uptick in jobless claims have propped up the unemployment rate in 2013.
Private Job Gains Offset by Government Losses
The private sector has added jobs at a 2.9 percent rate year to date in Texas, while government jobs have fallen slightly (Chart 2). Big losses in federal government jobs, down an annualized 3.8 percent year to date, have dominated small gains in state and local government, up 0.2 percent.
The sequester and cuts in health care spending are hurting metropolitan areas that have large federal government, military and health care sectors. Employment in El Paso is flat year to date, while the rest of the border metros and San Antonio have lost jobs.
Texas House Price Gains Cool Off
House prices have seen strong gains in Texas in the last year. Texas prices were up 6.2 percent year over year in the first quarter (Chart 3), according to the Federal Housing Finance Agency (FHFA) repeat-sales house-price index. The rapid rise is not expected to continue in the medium to long term.
In what may be a first sign of slowing house-price gains, the FHFA index rose only 1 percent quarter over quarter in the first quarter. This easing may persist as construction activity continues to rise, fueled by low home inventories and rapidly increasing existing-home sales, which are up 7.1 percent year to date in Texas based on a six-month moving average. In addition, mortgage rates appear to have bottomed out, a trend that could contribute to slowing price gains if rate increases price out some potential buyers and reduce competition for homes.
Energy Activity Still Strong
The Texas rig count was 846 the second week of June, up from 834 at the end of April. Oil prices have held fairly steady at around $95 per barrel. Although natural gas prices recently fell, they are up 68 percent from a year ago. However, at $3.78 per million British thermal units, they have not firmed enough to warrant new drilling.
Exports Still Sluggish
Texas exports have barely budged this year. January–April exports were 1.6 percent higher than during the same period one year ago. Though partially offset by growth in exports to Mexico, shipments to the European Union and China declined in the first quarter, while exports to top destinations such as Asia (excluding China) and Canada stagnated (Chart 4).
Petroleum and coal products, which include gasoline and other refinery products, have been a boon to the state’s export growth, particularly in the past few years. However, petroleum and coal product shipments in first quarter 2013 were 3.3 percent below such exports during the same period a year ago.
Price Pressures Falling
The most recent data suggest selling prices in Texas are rising more slowly in the service sector and falling in manufacturing, though labor costs are holding steady (Chart 5). Diminished price pressures come on the heels of lower input-cost pressures among most firms and, among firms with higher costs, a continued inability to pass those costs on to customers. Exceptions include housing markets, where higher home prices and construction costs are being passed on to buyers.
State Spending Set to Recover
On May 26, the state Legislature formally approved a $196.9 billion budget for fiscal 2014–15 that is 3.7 percent higher than expected 2012–13 expenditures. The expansionary budget development is largely due to faster-than-expected revenue growth, with total state tax revenue up 13.8 percent in fiscal 2012 and 7.7 percent thus far in fiscal 2013.
Outlook Still Positive
The Eleventh District economy has improved since the last briefing in May. The pace of economic activity and employment growth has quickened. Housing is leading the expansion, followed by energy. Despite the improvement, there are headwinds, including falling federal government spending and employment, flat exports, and slower growth in Mexico.
With these pluses and minuses, the Texas Leading Index managed to tick up in April, rising 1.3 points, or about 1 percent (Chart 6). The employment forecast, based on the slightly improved index and the latest payroll data, is for 2.5 percent growth this year.
—Pia Orrenius and Melissa LoPalo
About the Authors
Orrenius is an assistant vice president and senior economist and LoPalo is a research assistant in the Research Department at the Federal Reserve Bank of Dallas.