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DALLASFED
FIRST QUARTER 2015

Southwest
Economy

Texas Feels Energy Drain
ffState

Facing Economic Headwinds
in 2015

ffLower

Oil Prices Weaken Prospects
for Job, Economic Growth

ffMetros’

Rapid Growth Likely to Slow
Following Energy Price Drop

PRESIDENT’S PERSPECTIVE

collective story
}Our
involves a lot more than
the recent oil and gas
boom.

s my 10 years leading the Federal Reserve Bank of
Dallas draw to a close, I find myself reflecting on
the creative and innovative spirit of Texas.
Nature’s endowments and Texans’ ingenuity—the shale exploration revolution arrived during my tenure—have contributed to a period of tremendous growth:
Texas output has increased $331 billion, or 31 percent, in
real terms from 2005 to 2013. To put that in context, Texas’
economic capacity has grown by the equivalent of Norway,
one of the world’s wealthiest countries and the home of my
maternal ancestors.
In fact, our collective story involves a lot more than the
recent oil and gas boom. Texas has outperformed the rest of
the U.S. in the pace of job creation by a greater than 2-to-1
margin for more than two decades. Since 1990, 68 net new
jobs have been created in Texas for every 100 that existed
in 1990. That compares with 10 new jobs in New York and
seven in Michigan.
There are justifiable concerns following recent, sharp
oil price declines. For those predicting a repeat of the economic calamity that followed the 1980s Texas bust, I would
recommend this issue of Southwest Economy. The Texas
economy relies less on the oil and gas sector than before,
Michael Plante reports in this issue.
Nonetheless, lower oil prices, if they are sustained, will
dampen state employment growth, though not uniformly
across our economically diverse metropolitan areas, Amy
Jordan writes. And after a year of record economic growth,
including new highs in income per capita and home price
appreciation, Texas’ streak of outperforming the nation may
be challenged, Keith Phillips and Christopher Slijk anticipate in our annual economic outlook.
Texas may face some near-term uncertainties, but I
don’t fret for the longer-term future of our great economic
powerhouse or its people—Texas’ underlying strength.
I’m reminded of the lyrics from one of my favorite
country ballads:
Never knowin’ if believin’ is a blessin’ or a curse
Or if the going up was worth the coming down.
I depart the Dallas Fed knowin’ that believin’ has been
a blessin’, and no matter the ups and downs, our prospects
remain bright.

Richard W. Fisher
President and CEO
Federal Reserve Bank of Dallas

Texas Facing Economic
Headwinds in 2015
By Keith R. Phillips and Christopher Slijk

}

fter expanding strongly in
2014, the Texas economy faces
significant economic challenges in 2015. They include a
sharp decline in the oil and gas industry, tight labor markets and weakening
exports. Texas job growth is projected to
slow to between 1 and 2 percent for the
year.
State employment grew 3.4 percent
last year, according to Federal Reserve
Bank of Dallas data. That is well above
the previous year’s 2.7 percent and more
than a full percentage point above the
national average of 2.3 percent. Growth
in 2014 was broad based, with jobs in
most industries picking up significantly
over 2013. Employment in oil and gas,
professional and business services, construction, and leisure and hospitality led
overall growth.
Texas ranked second in job growth
in 2014, behind only North Dakota,
according to Current Employment Statistics data released by the Bureau of Labor
Statistics (Chart 1). While oil and gasproducing states led the U.S. in the early
years of the recovery, the rankings of

ABSTRACT: Texas job growth is
likely to slow in 2015 from last
year’s rapid pace as the state
economy absorbs the impact
of collapsing energy prices that
have curtailed oil patch activity.

Chart

these states in recent years have become
more dispersed, with Oklahoma and
Louisiana falling below the national average. Meanwhile, Sunbelt states hard hit
by the housing crisis—such as Florida,
Arizona and Nevada—have rebounded
and are above the national average.
The Texas unemployment rate
fell sharply last year, to 4.6 percent in
December 2014 from 5.6 percent a year
earlier. The decline occurred despite
steady increases in the labor force, which
grew 1.3 percent. The unemployment
rate at year-end was the lowest since May
2008 and well below the long-term average of 6.1 percent.
Industry contacts noted that labor
market tightness grew throughout the
year, with firms encountering difficulty
finding qualified workers in a broad
range of industries and sectors. In the
Federal Reserve Bank of Dallas’ November 2014 Texas Business Outlook Survey
(TBOS), 77.1 percent of manufacturing
respondents and 71.9 percent of service
sector respondents reported difficulty
finding qualified workers.
While many sectors of the Texas

Texas Posts Second-Fastest Job Growth in U.S. in 2014

Percent change*

6
5
4

Texas

3
U.S.
2

ND
TX
UT
OR
FL
NC
WA
DE
GA
CO
AZ
SC
TN
NV
US
OK
CA
IN
DC
AR
WI
MA
KY
AL
NM
RI
MO
CT
MT
ID
LA
HI
WY
NH
VT
MN
NY
OH
MI
IA
WV
PA
KS
IL
ME
NE
SD
VA
MD
NJ
AK
MS

*December over December, adjusted for seasonality and comparison purposes.
SOURCE: Bureau of Labor Statistics.

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

economy remain strong, headwinds will
likely damp growth in 2015. The energy sector has begun losing significant
numbers of jobs following the recent
sharp decline in oil prices. This will, over
time, ripple through other sectors of the
economy, such as truck, pipeline and rail
transportation; warehousing; equipment
manufacturing; hospitality; construction;
and retail.
Although layoffs in the oil and gas
sector may ease labor market tightness
this year, the skills of oil and gas workers
will not match those demanded by such
industries as health care. Additionally,
laid-off oil patch workers will need time
to find jobs and relocate to areas where
labor is in short supply. Thus, labor
market tightness will likely dissipate
somewhat this year, although in many
occupations and regions, it will continue
restraining job growth. Finally, the recent
strength of the Texas value of the dollar
is putting downward pressure on Texas
exports.

Texas Growth Strong in 2014
Texas growth was on the higher
end of the Dallas Fed’s 2.5 to 3.5 percent
interval forecast for 2014, published a
year ago. While a pickup in activity was
anticipated, mining and construction
jobs in particular accelerated faster than
expected. Employment growth was faster
than the national average for the 11th
consecutive year. Since attaining its prerecession employment peak in late 2011,

Chart

Texas has added 1.1 million jobs, a 10.2
percent expansion (Chart 2). By comparison, the U.S. matched its prerecession
employment peak in April 2014; at yearend, the nation was just 1.6 percent (2.3
million jobs) above the previous high.
Job growth increased in most Texas
industries in 2014 (Chart 3). Oil and gas
employment, driven by gains in energy
prices through midyear, picked up the
most and grew 10 percent last year from
5.4 percent in 2013. Due to gains in both
residential and nonresidential building
activity, construction employment accelerated from 4.5 percent in 2013 to 7.7
percent last year.
Professional and business services
added the largest number of net new
jobs, accounting for one-fifth of the total
389,000 jobs gained in 2014. This came
in large part from a strong increase at
employment agencies, which expanded
6.2 percent. Other notable areas of activity included accounting services and
computer systems design.
Job growth in the government sector
picked up slightly to 1.2 percent last year.
Sector expansion has been light over the
past several years compared with the
historical average as budget cuts led to
cutbacks first at the state and local level
and then at the federal level. With less
federal fiscal uncertainty in 2014, federal
government employment in Texas fell
0.4 percent, compared with a 2.8 percent
decline in 2013. Growth among state and
local governments remained steady at

Texas Jobs Continue to Grow Beyond 2008 Peak

Index, January 2000 = 100

130
125
120
115

Texas prerecession
job peak
Texas
U.S. prerecession
job peak

110
105

U.S.

100
95
90

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.

1.3 percent in 2014, still well above 0.4
percent nationally.
Fiscal stability also affected private
industries that rely on government funding. This was particularly true in private
education and in health services, which
increased nearly a percentage point to
3.1 percent after several years of lagging
activity.

Construction Surge
Construction accelerated significantly in 2014 after moderating in the
prior year. Growth was broad based, with
healthy expansion in nonresidential and
residential construction. Multiple billiondollar manufacturing plant projects, such
as a new Dow Chemical facility in Freeport, Texas, broke ground in the second
half of the year, pushing nonresidential
contract values to record highs.1
Meanwhile, residential housing
construction picked up steadily through
the year, with average monthly contract
values up 13.4 percent, slightly less
robust than the very strong 14.1 percent
growth in 2013. Multifamily construction
increased 23.6 percent, while single-family home construction rose 11.7 percent.
Still, low lot supply, tight lending for land
development and higher input costs
constrained single-family activity.2
The 2015 outlook for construction
generally remains positive, although
falling energy prices add an element of
uncertainty. Continued low mortgage
rates and record low existing-home inventories of 3.4 months—well below the
standard 6 months considered healthy—
means that new building is needed to
meet demand. Similarly, a low average
office vacancy rate of 14.3 percent across
the five largest Texas metros indicates
that new construction is likely in areas
that are tight on space and won’t be hit
hard by the weaker energy sector.
Overall construction will moderate
in metros such as Houston, where jobs
have grown strongly the past several
years due to direct and indirect effects of
oil and gas industry expansion. The effect
will be greater in areas even more heavily
dependent on the energy sector, such as
Midland–Odessa.
Nevertheless, help-wanted advertising across the state for construction

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

and maintenance workers was up 10.6
percent in the fourth quarter, and as of
February, was at all-time highs. A need
to ease tight home and office space
inventories should buffer the impact of
the energy sector declines. In areas less
affected by the loss of energy jobs, the
inflow of workers from that sector may
help the construction sector expand at a
faster pace.3

Health Care Bounce-Back
Employment in health care and
social assistance picked up sharply in
2014 and looks ready to continue growing rapidly in 2015. Sector employment
grew at a 2.1 percent annualized rate
in first quarter 2014, a weak pace that
typified the sector over the past several
years and was well below the long-term
average of 3.5 percent. However, jobs
picked up sharply, particularly at physicians’ offices, home health care agencies
and hospitals, in the last nine months of
2014.
In second quarter 2014, Medicaid
enrollments in Texas began climbing
rapidly and grew 13.4 percent last year.
This rise, along with the rollout of the
Affordable Care Act, likely contributed
to a significant increase in demand for
health services even though Texas opted
out of the federal government’s proposed
expansion of Medicaid eligibility.
One notable area of growth the past
year has been in home health care. This
field faced significant weakening in 2013
due to cutbacks in government funding, which were particularly felt in Texas
metros along the Mexico border, where
up to 10 percent of all employment is in
home health care. More stable government spending in 2014 and a higher
percentage of people with insurance
drove demand for home health aides
and enabled employment in the field to
bounce back.
Manufacturing activity picked up
substantially in 2014 after an anemic
2013. The Dallas Fed’s manufacturing
barometer, the Texas Manufacturing
Outlook Survey (TMOS), indicated
robust manufacturing output growth.
The TMOS production and volume of
new orders indexes reached their highest
annual levels since 2006, indicative of a

strong pickup in activity relative to the
past several years.
Manufacturing employment was
predominantly driven by the strength
of chemical and construction-related
industries (Chart 4). Jobs in constructionrelated manufacturing (wood products, cement and concrete products,
architectural and structural metals, and
furniture) and chemical production grew
more than three times faster than the rest
of the manufacturing sector in 2014.
Manufacturing prospects in 2015
look less positive. The business outlook of
companies participating in TMOS turned
sharply downward the first two months
of 2015, dipping into negative territory for
the first time since May 2013. Production
and new orders data also declined, suggesting that manufacturing output may
decelerate in coming months.
There are several reasons for this
softening outlook. The oil price decline
will likely lead to a significant reduction
in demand for oil and gas equipment.
Also, the recent rise in the value of the
dollar has increased the cost of Texas
exports (Chart 5). Recent appreciation
in the Texas trade-weighted value of the
dollar is likely behind some of the 12.8
percent decline in the state’s exports from
last August through January. Energy price
declines—particularly in gasoline and
diesel fuel—have also contributed to the
falling value of Texas exports.

Chart

Energy Sector Boom and Bust
The energy industry accelerated in
2014, thanks in large part to continued
expansion in shale drilling. Employment
grew 10 percent, and the annual average
rig count expanded 5.6 percent. However,
weaknesses in this industry will ripple
throughout the economy in 2015. (See
“Lower Oil Prices Weaken Prospects for
Job, Economic Growth in Texas,” p. 10.)
Over the past several years, the
average price of West Texas Intermediate
(WTI) crude oil has been relatively stable
at around $95 per barrel. The high prices
and success of hydraulic fracturing exploration spurred a flurry of drilling that has
expanded state oil production more than
50 percent since year-end 2012.
However, after peaking at $107 per
barrel in June 2014, WTI fell below $50
in January (Chart 6). The initial decline—from the peak to $80 at the end of
October—likely positively influenced the
regional economy. Because the breakeven point for most oil drilling in the state
is below $80, mining activity changed
very little while consumer spending
picked up, reflecting households’ lower
cost of energy.
The further decline to between $45
and $50 is likely to more greatly affect
the oil and gas sector. The rig count is
off 41 percent, from a high of 906 in late
November to 538 at the beginning of
March. Further reductions are expected.

Most Texas Industries Advance in 2014

(Annual job growth by year, 2011–14)

Percent change, December over December

20
15
10

2.6%
5.7%

20.0%

7.6%

13.5%

10.3%
6.1%

1.7%

13.2%
15.7%

0
–5

’11
’12 ’14
’13

Oil
&
gas

Construction Trade,
Manutransp. facturing
& utilities

Prof. & Financial Leisure Information Health Government
bus.
&
services care &
services
hospitality
education

NOTES: Figures above bars represent each industry’s share of total nonfarm employment in December 2014.
The financial category includes financial services, insurance and real estate.
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas.

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

Chart

Chemical, Construction Manufacturing Jobs Surge in 2014

Index, January 2011 = 100*

114
112
110

Chemical
manufacturing

108
Other
manufacturing

106
104
102
100

Constructionrelated manufacturing

98
96
94
92

2011

2012

2013

2014

2015

* Seasonally adjusted.
SOURCE: Bureau of Labor Statistics.

Chart

Texas Exports Decline Sharply Since August 2014

Index, January 2000 = 100*

Index, January 1988 = 100

260

110

Texas trade-weighted
value of the dollar

240

105
100

220

200

180

160

Texas exports

140

75
U.S. exports
minus Texas

120
100
80

’00

’01

’02

’03

’04

’05

’06

’07

’08

’09

’10

’11

’12

’13

70
65
60

’14

*Seasonally adjusted; real.
SOURCES: Census Bureau; WISERTrade; Bureau of Labor Statistics; Federal Reserve Bank of Dallas.

Chart

Rig Count, Oil Prices Begin Plunge in Last Half of 2014

Number

Dollars

1,000

160

Rig count

900

140

800

120

700

100

600

Oil price

500

400
Natural gas price
(multiplied by 10)

300
200

’00

’01

’02 ’03

’04

’05 ’06

’07

’08

SOURCES: Oil and Gas Journal; Baker Hughes; Wall Street Journal.

20
’09 ’10

’11

’12

’13

’14

’15

Large oilfield service companies such as
Schlumberger, Halliburton and Baker
Hughes recently announced they will lay
off thousands of workers over the next
several quarters. Layoffs began appearing in January oil and gas employment
data, which fell an annualized 5 percent.
Natural gas prices, which have been low
the past several years, have also recently
fallen, further damping drilling activity.
To better understand the effects of
this sharp price decline on Texas in 2015,
it helps to look at past oil price shocks
and job growth in the state relative to the
nation (Chart 7). By examining Texas’ relative job growth (the difference between
state and national rates of growth), we
factor out broader macro influences that
may be affecting both economies, such
as interest rates and national consumer
spending.
For example, in the late 1990s, a
high-tech boom positively influenced
growth in Texas and the U.S. When oil
prices declined to very low levels in late
1998 and early 1999, Texas job growth
fell below that of the nation (although it
remained positive). In general, the chart
shows a strong relationship between the
inflation-adjusted price of oil and the
relative growth in Texas jobs, suggesting
that Texas employment growth may slip
below the national average this year.

Job Growth Likely to Slow
The Texas Leading Index declined
sharply in the three months ended in
January, a sign of impending weakening
in the state’s economy. The index incorporates changes in key indicators that
have historically led movements in Texas
job growth (Chart 8). Among them, oil
prices, well permits and the Texas value
of the dollar had a large negative influence on the change in the index.
In this three-month period, the real
(inflation-adjusted) price of WTI crude
oil and permits issued to drill oil and gas
wells each plunged by more than 50 percent. These are strong indicators that the
recent slowdown in drilling activity will
continue for the foreseeable future.
The rise in the Texas value of the
dollar also was a weakness over this
period, making Texas exports to the rest
of the world more expensive. This may be

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

pressuring Texas manufacturers, which,
as previously noted, have experienced
sharp reductions in new orders since
October and more recently lowered their
outlooks. The negative contributions
from broader economic indicators, such
as initial claims for unemployment insurance and average weekly hours worked,
were more modest.
Other leading indicators have been
modestly positive. Lower energy prices
are a stimulus for the nation, where energy consumption far outweighs energy
production. The price decline is likely an
important factor behind the recent rise
in the U.S. leading index. A pickup in the
national economy increases the demand
for goods and services made in Texas.

Chart

Despite a decline in the stock prices
of energy companies, overall share prices
have risen for Texas-based firms—pointing to continued sales and profit growth
in the months ahead. And finally, online
and print help-wanted advertising
increased over the period, suggesting
continued demand for workers.

Mixed Outlook for 2015
The Texas economy picked up last
year after a more moderate performance
in 2013. Broad-based expansion across
all major industries, led by energy, construction, business services and health
care, pushed Texas job growth to the
second-fastest in the nation.
2015 looks to be a year of mixed

Texas Job Growth Slows Relative to U.S. as Oil Prices Slump

Percent*

Price (dollars), monthly average

160

Texas job growth
minus U.S. job growth

140

120

1
0

100

–1

–2

–3

Real oil price

–4

–5
–6

’82

’84 ’86 ’88

’90 ’92

’94 ’96

’98 ’00

’02

’04 ’06 ’08

’10 ’12

’14

*Difference in Texas and U.S. job growth; 12-month centered moving average.
SOURCES: Wall Street Journal; Bureau of Labor Statistics.

Chart

Texas Leading Index Components Point to Slowing Growth

Phillips is a senior economist and
research officer and Slijk is an economic
analyst in the San Antonio Branch of
the Federal Reserve Bank of Dallas.

(Weighted contribution of components to index change,
November 2014–January 2015)

Net change in Texas Leading Index

–3.54

Texas Value of the Dollar

.31
–1.41

Well permits

–1.30

New unemployment claims

–.47

Texas Stock Index

.15

Help-wanted index

.45

Average weekly hours

–.25
–3.5

–3

–2.5

–2

–1.5

–1

The value of construction contracts, measured by F.W.
Dodge, is a measure of the value of construction contracts
that are awarded and expected to start within 60 days. Data
include new construction, additions and major alterations
and exclude repairs and maintenance.
2
For more information, see “Single-Family Housing
Squeeze Eases in Texas; Multifamily Soars,” Federal Reserve
Bank of Dallas Southwest Economy, Fourth Quarter, 2014.
3
See “Laid Off from Oil Field? Contractors Want You;
Construction Industry in Texas Is in Hiring Mode,” by David
Hendricks, San Antonio Express News, Jan. 24, 2015.
1

U.S. leading index

–4

Notes

–1.03

Real oil price

growth. Low oil prices, though bad for
Texas energy producers, benefit consumers in the form of lower gasoline and
other prices that free up real disposable
income and increase real spending. The
U.S. economy is likely to benefit on net,
fueling further demand for Texas goods
and services. Health care appears poised
for further growth as more people become insured. Housing demand remains
strong across much of the state, suggesting that construction will continue to
grow at a pace similar to that in 2014.
However, low oil prices and a high
value of the dollar are risk factors. Energy
sector companies will continue experiencing sharp cutbacks in capital expenditures and jobs, with ripple effects across
the rest of the economy. International
exports likely will continue falling with a
strong dollar, putting pressure on manufacturing activity.
Recent declines in the Texas Leading Index suggest slowing growth. This
is consistent with weakening projections reported in the Dallas Fed’s Texas
Business Outlook Surveys. A forecasting model that uses past changes in job
growth and the leading index finds that
Texas job growth will be 1 to 2 percent—
an increase of 117,000 to 235,000 jobs—
between December 2014 and December
2015. Last year, job growth nationally was
2.3 percent. If the national figure remains
constant or picks up slightly in 2015,
there is a good chance that Texas will trail
the nation in job growth for the first time
in 12 years.

–.5

SOURCE: Federal Reserve Bank of Dallas.

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

ON THE RECORD
A Conversation with Pia Orrenius

Immigrant Legalization
Offers Range of Economic
Gains, Some Fiscal Costs
Pia Orrenius is a vice president and senior economist at the Federal
Reserve Bank of Dallas. She has written extensively on the economic
effects of immigration and coauthored the book Beside the Golden
Door: U.S. Immigration Reform in a New Era of Globalization. She
discusses the Obama administration’s recently announced plans to
legalize the status of several million unauthorized immigrants.

.Q. What is the status of unauthorized immigrants in the U.S.?

Q. What are the provisions of the
president’s executive action?

Demographers at the Pew Research
Center estimate that there are around
11.2 million undocumented immigrants
in the U.S.—about 3.5 percent of the
population and 5.1 percent of the labor
force. Lawmakers have long debated
what to do about this population. The
last broad-based legalization was the
Immigration Reform and Control Act in
1986. It legalized 2.7 million unauthorized immigrants, giving them permanent
resident status (green cards). About
one-third have since become naturalized
U.S. citizens.
There have been smaller legalization
programs since 1986, but bills proposing comprehensive immigration reform
were defeated in 2006, 2007 and 2013.
State and local governments have
been more successful than the federal
government in passing immigration
legislation in recent years. Many of the
laws seek to discourage undocumented
immigrants, such as E-Verify laws
mandating businesses to electronically
confirm that their newly hired workers
are authorized for employment. Texas
recently implemented an E-Verify law
but limited it to state agencies and their
contractors. Conversely, some jurisdictions have provided relief to immigrants,
such as sanctuary city laws mandating
that city employees not ask residents
about their immigration status and not
report unauthorized immigrants to the
Department of Homeland Security.

The executive action the president
announced in November has several
provisions. All are currently blocked by
a federal court ruling, so none has been
implemented.
The centerpiece is Deferred Action
for Parents of Americans and Lawful Permanent Residents (DAPA), which would
temporarily legalize the status of up to
3.7 million unauthorized immigrants
in the U.S., including around 560,000 in
Texas. Undocumented immigrants are
eligible if they have a child who is a U.S.
citizen or lawful permanent resident.
They also must have been continuously
present in the U.S. since 2010 and cannot
have committed any serious crimes that
would deem them a “removal priority.”
Eligible immigrants whose applications
are approved can expect to receive a
three-year work permit and protection
from deportation. They will be assigned
Social Security numbers and can get a
driver’s license in most states. The action
does not grant permanent residence or
a path to citizenship; beneficiaries could
not sponsor their relatives for permanent
residency. According to the president’s
plan, DAPA status would be temporary
but renewable every three years.
DAPA is similar to DACA, Deferred
Action for Childhood Arrivals, a separate executive action implemented in
fall 2012. DACA targets undocumented
immigrants brought here as children and
gives them benefits similar to DAPA—de-

ferred deportation and renewable work
permits. To date, about 102,000 Texas
youth have applied for and received
DACA. Among Texas’ estimated 1.7
million undocumented immigrants, 54
percent would likely be eligible for relief
under DAPA and/or DACA. This estimate
from the Migration Policy Institute includes expansions to DACA announced
as part of the November executive action.

Q. What are the likely economic
effects of DAPA on immigrants?
Work permits will increase undocumented immigrants’ access to better
jobs. Initially, turnover may increase
as workers quit their existing employment to look for better opportunities.
Beneficiaries’ wages are likely to rise as
the quality of job matches improves and
because the penalty on employment has
been lifted. After all, employers who hire
undocumented workers are subject to
a fine if they are caught; this depresses
the wages of illegal immigrant workers.
Under DAPA, the threat of a fine and
other penalties is removed and, since job
matches are also expected to improve,
immigrants’ wages should rise.
Although the great majority of
undocumented men work despite their
unauthorized status, many unauthorized
women do not. DAPA can be expected to
increase labor force participation among
these women as the threat of apprehension and deportation is removed.

Q. What can we learn from other
similar programs?
While theory suggests wages and
labor force participation should rise
among immigrants who benefit from
DAPA, empirical studies can quantify
those effects. My coauthor, Professor
Madeline Zavodny of Agnes Scott
College, and I conducted a study that
addresses this question using the experience of immigrants from El Salvador and
the Temporary Protected Status (TPS)
program. (See Dallas Fed Working Paper
no. 1415.)
In 1990, Congress authorized the
president to grant citizens of some
troubled nations “temporary protected
status” while in the U.S. TPS is designed
to provide a safe haven to migrants who

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

undocumented immigrants are already in the
}Most
labor force and employed despite the fact that they
are not allowed to work under the law.

would otherwise return to potentially
dangerous situations in their home
countries. Unlike refugees, migrants with
TPS do not receive legal permanent resident status. They are supposed to return
home when the TPS designation for their
country expires.
Most TPS beneficiaries are unauthorized immigrants who were subject
to removal and could not work legally.
A TPS designation was implemented
for Salvadorans in March 2001 after two
earthquakes rocked their country. It
has been extended 10 times since, most
recently in January 2015. As a result,
many Salvadoran migrants present in the
U.S. in early 2001 have been allowed to
live and work here since. About 290,000
Salvadorans were initially granted TPS,
and some 212,000 currently have it.
Our study compared less-educated
Salvadorans who likely received TPS
with those who did not. We found that
the employment rate of TPS eligible men
fell 6 percentage points as many workers
quit existing jobs to search for better
ones once they had work permits. There
were no changes in hours worked or
weeks worked among male workers who
remained employed, but their wages
rose 13 percent on average compared to
the control group.
We also looked at TPS eligible
women. While their wages did not increase, they greatly increased their work
effort. Among less-educated, TPS eligible
women, labor force participation rates
soared 15 percentage points relative to
the control group.

Q. How are other workers affected?
Most undocumented immigrants
are already in the labor force and em-

ployed despite the fact that they are not
allowed to work under the law. They get
around the law by using fake Social Security numbers or numbers that belong
to someone else. They may also work for
employers who don’t check their work
authorization and/or pay them cash.
These are often not the same employers
who hire native workers, which limits
the extent of labor market competition
between some unauthorized immigrants
and natives.
Once immigrants receive work
permits, they can better access jobs with
employers who also hire natives, and this
may increase direct labor market competition, putting downward pressure on
native workers’ wages in the short run.
This effect should be quite modest. Even
when competing in the labor market,
immigrants and natives have different
skills that set them apart. Language and
education are two of the most important. Legal immigrants are much closer
substitutes for the newly legalized than
are natives.
Another mitigating factor could
be that employers switch to hiring legal
workers once they become relatively
plentiful. If the labor demand moves
with the worker to the “legal market,”
there are few, if any, adverse wage effects.
To facilitate this process, laws such as
DAPA should grant employers one-time
immunity from prosecution.

Q. Do you believe undocumented
immigrants will apply for the new
program?
The effects of DAPA on the labor
market and other areas could be limited
by low take-up among eligible immigrants. The group targeted under DAPA,
particularly the parents of U.S. citizen
children, can be sponsored for permanent residence when their children turn
21.1 Green cards are a far more favored
option by immigrants than deferred
deportation. It is telling that DACA,
implemented in 2012, has had a take-up
rate of only 59 percent. Youth likely put it

off for a number of reasons, including the
fear of exposing unauthorized relatives,
lack of knowledge about the program, its
high costs (at least $465) and temporary
status.

Q. Who would be left out?
Despite their broad reach, the DAPA
and expanded DACA provisions leave
out an estimated 5.8 million unauthorized immigrants who would be ineligible.

Q. What other economic effects of
legalization might arise?
Legalization of unauthorized workers has effects outside labor markets. A
number of these are positive for natives
and immigrants. Once unauthorized immigrants are legalized and have proper
identification cards and Social Security
numbers, their improved economic status will increase their demand for goods
and services. There will be increased
demand for homes and cars and related
financing and insurance services, for
example. Research also shows that the
children of legalized immigrants benefit
in terms of higher educational attainment and other measures.
The tax contributions of legalized immigrants should also increase,
although whether such increases are
sufficient to offset additional spending
depends on the details of the program.
In its current form, DAPA would allow
beneficiaries access to federal welfare
programs such as the Earned Income Tax
Credit, an expense unlikely to be offset
by taxes on higher wages.
Effects of legalization are not limited
to the U.S. Origin countries are likely to
benefit as immigrants are able to return
there for visits. This will translate into
more travel, tourism and remittances—
all positively affecting countries such as
Mexico and nations in Central America.
Note
Sponsorship is encumbered by the three- and 10-year
readmission bars for most unauthorized immigrants who
try to adjust their status to lawful permanent resident.
1

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

Lower Oil Prices Weaken Prospects
for Job, Economic Growth in Texas
By Michael D. Plante

}
ABSTRACT: Although the
relative importance of oil and
gas to the Texas economy has
grown in recent years, lower
energy prices are unlikely to
halt net job growth statewide.

he oil and gas sector in Texas
has boomed in recent years
due to high oil prices and
surging production from new
drilling technologies. However, with
prices down sharply since last summer,
the sector’s outlook has dimmed (Chart
1). The economic fallout is especially
important in Texas, the leading producer of crude oil in the U.S. and home to
the nation’s major oil and gas companies.
Lower oil prices are a boon and
a bane for oil-producing economies.
Falling prices reduce the cost of energy, generally viewed as a positive for
economic activity. Conversely, lower
oil prices negatively affect economic
activity in oil-producing states as drilling activity is cut back, royalty payments
are reduced and government revenues
are adversely affected. Whether the
overall effect of lower oil prices is positive or negative depends on the relative
importance of the energy sector to the
economy.
While several metrics suggest the
Texas economy is less reliant on the oil

Chart

and gas sector than in the early 1980s,
research suggests that the decline in oil
prices will depress net job growth in the
state. The effects by themselves are not
expected to halt job creation in Texas in
2015, but will, nonetheless, be felt in areas heavily dependent on oil production
and employment related to the sector.
(See “Texas Metros’ Rapid Growth Likely
to Slow Following Energy Price Drop,”
page 16.)

Oil and Gas Riding High
The oil and gas sector’s relative
importance to the Texas economy has
varied dramatically as oil prices and
production have evolved. By several
metrics, the sector’s heyday occurred
in the late 1970s and early 1980s, a
period of extremely high prices. The sector crashed as oil prices subsequently
plunged, contributing to a statewide
banking crisis. Years of stagnation followed, with a seemingly irreversible
decline in production.
Over the past decade, Texas—and
more generally, the Eleventh Federal
Reserve District—has greatly benefited

Oil Prices Plummet in Second Half of 2014

Dollars per barrel

160
140

West Texas Intermediate
spot price

120
100
80
60
40
20
0

2006

2007

2008

2009

2010

2011

SOURCES: Energy Information Administration; CME Group.

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

2012

2013

2014

from the shale boom. The district is
home to four major basins where
hydraulic fracturing and horizontal
drilling have been successfully applied
(Chart 2). These new technologies have
revitalized oil and natural gas output.
Crude production exceeded 3.4 million
barrels per day in late 2014, up from 1.1
million in 2008, and natural gas production is at levels not seen since the 1970s.
Booming production and high
prices have increased the oil and gas
sector’s relative importance to the state
economy. The proportion of all jobs
in the state attributable to the sector
has been growing, reaching about 2.5
percent in 2013, up from a low of 1.4
percent in 2000 (Chart 3).1 The current
high remains well below the peak in
1982, when almost 4.7 percent of all jobs
were in the oil and gas sector.
The share of total income generated
in the state due to the sector has also
grown.2 As of 2013, the share was estimated to be about 13 percent, up from
the recent low of 4.1 percent in 1998.
Like employment, the share of income
remains well below its boom-era peak,
19.1 percent in 1981.

Government Revenue Source
For many oil-producing economies, the government revenue the
sector generates is particularly important. Falling prices may have additional
negative economic impacts because
officials are often forced to raise taxes or
reduce spending to make up for budget
shortfalls.
In recent years, oil and gas taxes
have provided a boon to Texas coffers.
Oil- and gas-related taxes provided
about 3 percent and 1.5 percent, respectively, of total state revenue in 2013.
Their total share of 4.5 percent is up
from 2 percent in 2010 and more than
double the recent low of 1.5 percent
in 1999. Because Texas taxes oil on its
market value, recent price declines will
reduce this source of revenue and could
crimp government spending.
However, the state is significantly
less dependent on these funds than
before. For example, in 1982, oil and gas
taxes provided over 17 percent of total
state revenue. Texas is also not as reliant

Chart

Four Shale Plays Dominate Eleventh District Production

VELL

Permian Basin
Eagle Ford Shale
Barnett Shale
Haynesville Shale

SOURCES: The counties in the Permian Basin, the Eagle Ford Shale and the Haynesville Shale are identified based on
Energy Information Administration guidelines; the counties in the Barnett Shale are identified based on Texas Railroad
Commission guidelines.

Chart

Importance of Oil and Gas Sector in Texas Varies over Time

Percent

Oil and gas share
of Texas employment

Oil and gas share
of Texas nominal GDP

0
1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

0
2012

NOTES: Standard Industrial Classification used for 1972–96. North American Industry Classification System used for
1997–current.
SOURCES: Bureau of Labor Statistics; Bureau of Economic Analysis; author’s calculations.

on this source of funding as are many
other oil producers—states and nations
where it can provide one-third or more
of total funding (Chart 4).

Different States, Job Impacts
A model developed for a recent
Council on Foreign Relations report
provides some predictions on how oil
price changes affect employment in

each state. The model takes into account a state’s overall exposure to the oil
and gas sector as of 2012. It also makes
other assumptions, such as how responsive employment in various sectors is to
changing oil prices.3
The model predicts that an oil
price decline would negatively affect
total employment in eight states and
positively influence jobs in 42. The

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

percentage impact on total employment
from a 50 percent oil price drop varies
across the states (Chart 5). For Texas,
the model predicts that the number of
jobs eliminated by such a decline would
equal 1.2 percent of total nonfarm
employment, which averaged about
11.7 million in fourth quarter 2014.That
translates to about 140,000 jobs at risk.

exist but would disappear because
of lower oil prices. It includes cuts in
both oil- and gas-related and non-oil
sectors. The latter losses can occur, for
example, because employees who lose
their jobs in the oil and gas sector may
reduce spending on other goods and
services such as restaurants, which can
lead to reductions in local service sector
employment.
The number should not be viewed
as a forecast of a jobs contraction in
Texas in 2015. Rather, putting the

Interpreting the Number
The 140,000 job-loss forecast estimates the number of jobs that currently

Chart

Some Governments Rely Heavily on Oil Revenues

Share of 2013 government revenue (percent)

120
95.7

100
80
60
46.7

41.8

Varying Impacts in Texas

23.2

20
4.5
0

Texas

Mexico

Venezuela*

Alaska

Iraq

*Venezuela data as of fiscal 2012.
SOURCES: Texas Comptroller’s Office; Alaska Revenue Sources Book; International Monetary Fund; Bloomberg; Haver.

Chart

Falling Oil Prices Affect Employment Differently Across U.S.

–2.0
–4.3
–0.7
–0.7

–2.3
–1.2

–1.7

–1.6

Percent change in total employment as a result of 50 percent drop in oil prices
<–2

–2 to 0

0 to 1

SOURCE: “The Shale Gas and Tight Oil Boom: U.S.States’ Economic Gains and Vulnerabilities,” by Stephen P.A. Brown
and Mine K. Yücel, Council on Foreign Relations, October 2013.

number into context requires considering the contributions to employment
growth from non-oil sectors. In recent
years, the state has produced a significant number of jobs across all sectors.
For example, the state added 373,000
jobs in 2012; 300,000 in 2013; and more
than 380,000 in 2014.
While the disappearance of 140,000
jobs is significant, it pales relative to the
number created in recent years. As a
result, if one takes the model literally,
the prediction suggests that falling oil
prices alone will lower the rate of net
job growth but will not be detrimental
enough to bring employment expansion to a halt. This is in line with a recent
forecast produced by Dallas Fed economist Keith Phillips, who anticipates
that Texas employment will grow 1 to
2 percent, compared with 3.4 percent
growth in 2014. This forecast is based on
a model totally unrelated to the one in
the Council on Foreign Relations report,
though it tells roughly the same story.

Negative effects of the price decline
will probably not be evenly spread
across Texas, for at least three reasons.
First, oil production is not evenly distributed across the state. Second, some
areas are more profitable to drill in than
others. Third, the importance of oil- and
gas-related employment also varies
across metropolitan areas of the state.
Even though Texas has four major
basins where production has boomed,
oil-related activity is concentrated in
the Permian Basin in West Texas and
the Eagle Ford in South Texas (Chart 2).
These two areas account for more than
80 percent of the oil produced in Texas.
The Barnett and Haynesville regions,
on the other hand, produce primarily
natural gas. Low oil prices, therefore,
will more significantly impact drilling
activity in West and South Texas. They
will also negatively affect royalty payments to landowners more significantly
in those areas, affecting local residents’
incomes and, potentially, reducing
spending in the area.
Break-even prices—estimates for
what oil prices must reach to provide a
reasonable return on investment—also

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

vary across basins, both within Texas
and across the U.S. Factors influencing
break-even prices include well productivity, drilling costs and the presence of
other hydrocarbons besides oil.
Studies tend to find higher breakeven prices in the Permian Basin and
relatively lower ones in the Eagle Ford
and the Bakken Shale in North Dakota.
They also find significant variation in
break-even prices within a given basin.
Although no hard data exist for Texas, a
recent study by North Dakota’s Department of Mineral Resources showed that
break-even prices in different counties
in the Bakken ranged from $28 to $85 a
barrel, with an average of $56.4
These findings suggest diminished drilling in all major plays, since
each will have specific areas with high
break-even prices. The Permian is most
susceptible to a slowdown. Indeed, the
basin lost over 200 rigs from the first
week of December to the last week of
February, significantly more than in the
Eagle Ford or the Bakken.
Finally, metropolitan areas also
will be impacted to different degrees
because some rely on energy jobs to
a greater extent than others (Chart 6).
Places such as Midland, in the Permian
Basin, and other areas more reliant on
oil and gas employment are more likely
to feel the brunt of the negative impacts.
Houston, where almost 25 percent of
all jobs in Texas are located, is the most
exposed among major metropolitan areas, with almost 3.8 percent of area jobs
related to mining. On the other hand,
cities such as El Paso and Austin have
comparatively less exposure and may
even benefit from falling oil prices.

Negative Effects for 2015
The oil and gas sector in Texas has
grown in relative importance in recent
years, but by most metrics the state is
not as dependent on the sector as it was
in the early 1980s. Despite this, research suggests that lower oil prices will
negatively affect the Texas economy,
with one model predicting that about
140,000 jobs could be lost statewide.
Although this is a large number, it
is not expected to bring net job growth
to a standstill, given recent employment

expansion in other sectors of the economy. Most susceptible to the downturn
are areas of the state with high oil production and with numerous oil-related
jobs. However, the overall impact will
also crucially depend on just how long
oil prices remain depressed, a difficult
thing to predict given the uncertain and
often volatile nature of oil prices.

Plante is a senior research economist
in the Research Department at the
Federal Reserve Bank of Dallas.
Notes
The employment share is the number of jobs related
to oil and gas production divided by total nonfarm
employment, which includes all jobs in the private and
public sectors except those related to agriculture.
2
The share is calculated as the sum of nominal gross
domestic product (GDP) in oil and gas extraction and
support activities for mining divided by total nominal GDP
for the state, using publicly available data from the Bureau
of Economic Analysis.
3
Details can be found in “The Shale Gas and Tight Oil
Boom: U.S. States’ Economic Gains and Vulnerabilities,”
by Stephen P.A. Brown and Mine K. Yücel, Council on
Foreign Relations, October 2013.
4
See “North Dakota Discloses Break-Even Prices,” Oil
Daily, Oct. 17, 2014.
1

Chart

effects of the
}Negative
oil price decline will
probably not be evenly
spread across Texas.

Some Metro Areas Have Greater Exposure to Energy Sector

El Paso*
Brownsville-Harlingen
McAllen-Edinburg-Pharr
Sherman-Denison
San Antonio
Beaumont-Port Arthur
Austin-Round Rock
Lubbock
Dallas-Fort Worth-Arlington
Laredo
Amarillo
College Station-Bryan
Houston-Baytown-Sugar Land
Corpus Christi
Tyler
San Angelo
Abilene
Victoria
Longview
Odessa
Midland
0

10
15
20
25
Share of employment in mining sector

*El Paso data as of 2008; all others as of 2012.
NOTE: Mining predominantly represents oil and gas in Texas.
SOURCE: Bureau of Economic Analysis.

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

NOTEWORTHY
WORKFORCE: Energy Only 3 Percent of Texas Private-Sector Jobs

ore than 290,000 people work in the Texas oil and gas industry, about five times the number in
Oklahoma, which has the second-highest total among the states. Still, Texas oil and gas production
workers make up only 3 percent of private-sector employment in the state.
The share is higher in other top energy states. In neighboring New Mexico, 3.3 percent of private
employees work in oil and gas production, and Oklahoma energy jobs are 4.6 percent of total private employment. The share of energy production workers in North Dakota, home to the Bakken Shale, is nearly 5
percent, and in Alaska, the share is 5.6 percent.
Although Texas only ranks seventh in share of energy production jobs, this figure has risen because
of the shale boom. Since 2003, Texas energy employment has increased 108 percent, while total privatesector employment has grown 22 percent. Four major oil- and gas-producing regions are in Texas—the
Eagle Ford Shale and Permian Basin, which are the most prolific oil-producing regions in the nation, and
the Haynesville and Barnett shale formations, which combined produce 13 percent of U.S. natural gas.
Energy production employment includes jobs in extraction, drilling and mining support. Annual
earnings for these jobs in Texas greatly exceed average private-sector earnings—$122,000 versus $52,000.
—Kristin Davis

IMMIGRATION: Methodology Offers Insight on Unauthorized Residents

here are 1.5 to 1.7 million undocumented immigrants in Texas out of a national total of 11.2
million, according to estimates by the Migration Policy Institute, a Washington-based think tank.
About 80 percent of Texas’ undocumented population is from Mexico, and 51 percent of the
undocumented total have been present in the U.S. for 10 or more years, compared with 47 percent
nationally.
The institute’s data reflect use of a new methodology allowing analysts to impute immigrants’ legal
status from the Census Bureau’s American Community Survey.
The institute found approximately 62 percent of the Texas undocumented population lacked a high
school degree or equivalent from 2008 to 2012. That compared with 50 percent of the national undocumented population. About 63 percent in Texas were employed versus 65 percent nationally.
The data also show that during the period, more undocumented immigrants in Texas lived in poverty
than across the country—37 percent compared with 31 percent—likely as a result of their lower education
levels. An estimated 75 percent lacked access to health insurance in Texas, compared with 63 percent in
the nation.
—Emily Gutierrez

RETIREMENT: Unfunded Texas Health Benefits Add to State Liabilities

exas’ unfunded retiree health care benefits for state and local employees, known as “other postemployment benefits” (OPEB), totaled $55 billion in fiscal 2012, fourth highest in the nation, according to Standard & Poor’s. OPEBs have received less attention than pension benefits, but remain a
significant liability for states.
Nationally, unfunded OPEB liabilities totaled $529 billion in fiscal 2012—equal to 29 percent of U.S.
state-held debt—although significantly less than the $833 billion in unfunded pension liabilities, according to S&P. In Texas—as in most states—unfunded liabilities can be attributed to a pay-as-you-go funding
strategy, as opposed to prefunding. In 2012, only 11 states had a funding ratio (liabilities/assets) higher
than 10 percent.
Before the Governmental Accounting Standards Board, an independent oversight panel, required
financial reporting in 2008, OPEB liabilities were largely undisclosed. Unlike pension benefits, OPEBs
are not constitutionally guaranteed in most states, and since 2008 many states have attempted to curb
benefits in order to decrease liabilities. From fiscal 2011 to 2012, the unfunded liabilities of Texas’ largest
OPEB funds—State Retiree Health Plan and Teacher Retirement System TRS-Care—declined 3.3 and 10.1
percent, respectively, according to S&P.
—Sarah Greer

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

SPOTLIGHT

Incentives Draw Firms, but at What Cost?
By Michael Weiss

n the economic development
arena, incentives for high-profile corporate relocations signal
that a locality is open for business. They draw attention to an area’s
commercial and economic opportunities
with the goal of expanding its depth and
breadth of operations. Texas’ expansive
economy has included its share of such
relocations, notably Toyota Motor North
America’s 4,000-employee 2017 move
from Torrance, Calif., to Plano and Exxon
Mobil Corp.’s more than 11,000-worker
consolidation in 2016 to The Woodlands,
north of Houston.
Among government leaders, the
implicit expectation is that benefits—
generally well-paying jobs with the target
company and its suppliers and contractors as well as business-friendly image
burnishing—exceed the costs of providing the incentives.
The abatements—though involving
significant sums—are often small relative
to overall tax receipts. The developer of
the 478,000-square-foot property Exxon
Mobil will occupy will receive a 10-year,
100 percent abatement on one of two
office buildings the company will occupy
and 50 percent on the other. Montgomery County’s tax assessor estimated the
annual forgone taxes at $400,000. The
sum is relatively minor compared to
Montgomery County’s overall adjusted
tax base, which according to the county
assessor totaled $37.3 billion and helped
generate $169.5 million in taxes in 2013.
The Toyota move is pricier, with the
company receiving a reported 10-year,
50 percent abatement on $350 million
in real and business property tax in
addition to $40 million from the Texas
Enterprise Fund and $6.75 million from
the city of Plano.

Valuing Abatements
As the number and complexity of
abatements has increased—sometimes
pitting local governments against one
another—researchers have struggled
with how to value abatements and
incentives. Even assessing the timeframe

over which to measure their impact is difficult. While politicians tend to showcase
new arrivals and their immediate impact,
their value may arise decades later in the
form of a new commercial center that
might not otherwise exist.1
In the short run, some of the incentives prompt questions about whether
economic activity is created or merely
displaced from one location to the next.
Michael Porter, the noted Harvard Business School competitiveness expert, suggests the answer is mixed.2 On the one
hand, relocation incentives can signal
that an area is open for business or highlight its attractiveness to new industries.
On the other hand, relocation incentives
can reward firms that would have come
to the area anyway or be larger than the
firm’s economic impact would warrant.
Only time will tell whether the Dallas suburb of Frisco gave up too much
when it successfully lassoed the Dallas
Cowboys practice facility from the city
of Irving (which separately claimed
its own prize, 7-Eleven Inc.’s North
American headquarters from Dallas, in
a nearly $1 million tax abatement deal).
Frisco’s more than $100 million plan
for the Cowboys—groundbreaking was
in August—aims to have the NFL team
ensconced by 2016. In turn, other developers subsequently revealed plans for a
$1 billion mixed-use project surrounding
the team’s facility.
The overall property tax base in Texas is 52.3 percent composed of residential

property, 20.3 percent commercial and
industrial property and 27.4 percent of
other, suggesting that residential property
owners initially make up a larger part
of abated taxes, data compiled by the
Lincoln Institute of Land Policy indicate.
Nationally, the tax base is 59.8 percent
residential, 21.6 percent commercial and
industrial, and 18.6 percent other. Apart
from taxes, there are other costs, such as
environmental and congestion concerns
and possible pressure on the property tax
base that existing property owners may
be called upon to absorb.
Some analysts suggest that the success of incentives can be judged simply
by whether they bring in business that
might not have otherwise relocated.3
Even then, accurately gauging the economic success of a particular incentive
plan can be difficult. The time required
to complete many relocations as well
as evolving local labor market demand
complicate such assessments.
Notes
“Chasing a Dream: The Use of Tax Abatements to Spur
Urban Economic Development,” by Michael J. Wolkoff,
Urban Studies, vol. 22, no. 4, 1985, pp. 305–15.
2
“Defining Clusters of Related Industries,” by Mercedes
Delgado, Michael E. Porter and Scott Stern, National
Bureau of Economic Research, NBER Working Paper no.
20375, August 2014.
3
“Bidding for Business: New Evidence on the Effect of
Locally Offered Economic Development Incentives in a
Metropolitan Area,” by Robert W. Wassmer and John E.
Anderson, Economic Development Quarterly, vol. 15, no.
2, 2001, pp. 132–48.
1

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

Texas Metros’ Rapid Growth Likely to
Slow Following Energy Price Drop
By Amy Jordan

}

ABSTRACT: Houston and
Midland will be most affected
by the oil and gas sector’s
slump. Activity may slow in
other Texas metropolitan
areas, but they will avoid major
fallout because of economic
diversification that has
occurred in recent decades.

conomic growth across Texas’
four major metropolitan
areas—Austin, Dallas–Fort
Worth, Houston and San
Antonio—and two metros on the
border has been impressive since the
recession, contributing to the state’s
economic expansion.
Overall Texas nonfarm employment growth has been broad-based,
increasing by more than 1 million jobs
by January 2015, or 10 percent, from
its prerecession peak. However, with
crude oil prices down 52 percent in
February from year-ago levels, Texas’
impressive advances since the recession will moderate in 2015, affecting its
metropolitan areas to varying degrees.
Differences among Texas metros
have allowed some to emerge far more
quickly than others. While Austin has
consistently exhibited outsized growth,
Houston has experienced the greatest benefit from the energy sector and
its rise after the recession. Although

Chart

DFW lagged the other metros immediately after the downturn, it will propel
the state’s expansion in the coming
months following the recent oil price
decline.

Recession Shortest in Austin
The Great Recession’s impact was
not as severe in Texas as nationally,
though it still significantly affected
job growth. From peak to trough, total
nonfarm employment fell 4 percent in
Texas, while declining 6 percent in the
U.S. The recession’s impact varied in
timing, duration and intensity across
the state.
The metro areas entered the recession at various times. Chart 1 graphs
employment growth in the major and
border metros, with total employment
in each indexed to prerecession employment peaks, depicting the depth
of job losses and how many months
it took each locality to regain all lost
jobs.1 Shorter lines indicate a lesser

Most Metro-Area Jobs Surpass Prerecession Peaks in Less
than Four Years; North Texas Slightly Slower

Index, each metro’s peak employment = 100

120
115
110
105

Austin
Houston
San Antonio
McAllen
Dallas-Fort Worth
El Paso

100
95
90
Peak = t

t+12

t+24

t+36

t+48

t+60

Number of months since prerecession employment peak
NOTE: Data through January 2015.
SOURCES: Texas Workforce Commission; Federal Reserve Bank of Dallas.

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

t+72

t+84

number of months between a metro’s
prerecession peak employment and
January 2015.
Austin, which recovered all its lost
jobs in 26 months, was the first major
metro to bounce back. From its prerecession employment peak in September 2008 to the trough, Austin lost 3.1
percent of total employment, or 23,500
jobs, the third-greatest decline, behind
DFW at 5.4 percent and Houston at 4.8
percent (Table 1). San Antonio was the
second-fastest major metro to regain
prerecession employment levels,
reclaiming all lost jobs in 32 months,
followed by Houston at 39 months and
DFW at 49 months.
Not only did Austin most quickly
regain all the jobs it lost during the
recession, but it also has grown the
most over its prerecession employment
peak. By January 2015, Austin’s total
nonfarm employment stood at 926,300,
an increase of 17.4 percent over its high
before the downturn. Houston has
experienced the second-greatest increase, with employment 12.4 percent
higher, followed by San Antonio at 11.7
percent and DFW at 9.9 percent.
The North Texas economy has
an industrial profile that more closely
matches that of the nation than the
other Texas metros. As jobs at the
national level were slow to recover after
the recession, so too was employment
in DFW. North Texas is also home to
the Barnett Shale, an important natural
gas producing region. The collapse
of natural gas prices in 2008 caused

Table

a reduction in Barnett Shale exploration, likely contributing to the relative
weakness.
Along the border, McAllen surpassed its prerecession employment
peak faster than Austin, taking only 24
months. McAllen’s job losses were not
as severe as those in the larger metro
areas, partly because Mexico, with
whom it has extensive trade relations,
experienced a shorter recession than
the U.S. Farther west, El Paso’s job
losses as a percentage of total employment were also relatively small, only
2.8 percent. However, El Paso is heavily
dependent on the federal government and defense spending, which
took much longer to recover; El Paso
required 40 months to regain its lost
jobs, slower than all the major metros
except DFW.

only did Austin
}Not
most quickly regain all
the jobs it lost during
the recession, but it also
has grown the most
over its prerecession
employment peak.

Industry Concentration Diverse
The industries in which a metro
area specializes drive its growth. Austin’s quick rebound benefited from a
concentration of high-tech jobs—both
in information services and in professional and business services, sectors in
which it has a proportionately greater
concentration of employment than
the state (Chart 2). High-tech also
propelled Austin’s growth ahead of the
other metros.
Energy, benefiting from the shale
exploration boom, has been the topperforming sector in recent years,
generating jobs in oil and gas extraction and energy support services.

Employment Changes by Metropolitan Area
Prerecession
employment peak

Month
Major metropolitan areas
Austin
Sept. 2008
Dallas-Fort Worth
Feb. 2008
Houston
Aug. 2008
San Antonio
July 2008
Border metropolitan areas
El Paso
Feb. 2008
McAllen
Oct. 2008

Employment
(thousands)

Employment lost
(peak to trough)

January 2015
employment
(thousands)

2014
employment
growth

779.4
2,989.9
2,618.5
855.0

3.1%
5.4%
4.8%
2.7%

926.3
3,349.9
2,972.4
962.8

3.3%
4.0%
3.6%
3.3%

279.9
220.5

2.8%
1.9%

295.4
244.8

0.5%
2.3%

SOURCES: Texas Workforce Commission; Federal Reserve Bank of Dallas.

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

These jobs are concentrated in the
construction and mining supersector.
Houston, because of the prevalence
of energy jobs there, is the only major
metro area employing a greater share
of people in this supersector than is
found statewide. Employment in oil
and gas extraction and energy support
jobs—referred to below as the energy
sector or energy industry—has grown
at an annual average of 7.5 percent in
Houston since the recession.2
However, the energy industry
accounts for much more of output
than it does employment because this
sector is very capital intensive. This
is particularly evident in the Houston
area in the production of petrochemicals.3 Whether counting the value of
economic activity or jobs, the recent
decline in oil prices will likely negatively affect Houston more than the other
metros. Indeed, energy job growth
slipped in 2014 to 1.4 percent, down
from 7 percent in 2013 and 8.1 percent
in 2012.
Earlier energy sector strength from
the shale boom has benefited areas
beyond Houston, such as the Permian
Basin in West Texas and the Eagle Ford
Shale in South Texas. In addition to
employment, other business indicators
advanced. Personal income in Midland
and Odessa in the Permian Basin shot
up—rising in Midland 17.5 percent in
2012 and 5.2 percent in 2013, and advancing in Odessa 14.1 percent in 2012
and 4.2 percent in 2013.
While Houston’s energy share of
the workforce is the largest of the major
metros, other regions experienced
positive job creation spillovers in
service industries. DFW and the border
metros employ larger shares of workers
in trade, transportation and utilities jobs than the state, while Austin,
DFW and San Antonio employ greater
shares in information services jobs,
and Austin and DFW hold larger shares
in professional and business services
jobs. These sectors have expanded to
support energy activity across the state,
so the slowdown in the energy sector may affect these metros to varying
degrees.
The DFW economy, despite its

Chart

Varying Job Shares Reflect Texas Metros’ Specialization

Percentage points deviation from the sum of state metros’ share, January 2015

5
4
3
2
1
0
–1
–2
–3
–4
Construction ManuTrade,
and
facturing transp. &
mining
utilities

Info.

Financial

Prof. &
business
services

Austin

Houston

DFW

San Antonio

Educ. Leisure & Other Government
&
hosp.
services
health
services

SOURCES: Texas Workforce Commission; Federal Reserve Bank of Dallas.

similarities to the national economy,
could feel the effects of persistently
low oil prices, especially in transportation and business service sectors that
expanded to serve the oil industry. San
Antonio will see more mixed impacts
because workers who moved to the
nearby Eagle Ford over the past few
years may return to San Antonio, and
this could provide a small boost to
job growth. Still, some oil companies
that set up operations just outside San
Antonio will likely experience direct
job losses.
Austin is more geographically
removed from the oil fields, though
anecdotal evidence indicates notable employment in energy support
activities, including the manufacture of
high-tech instruments and computer
equipment for hydraulic fracturing
used in the shale formations. As a
result, Austin’s growth may be slightly
impacted, but less so than Houston
and DFW. Depending on the extent of
job losses, overall consumer spending may also take a hit, although it will
benefit from lower gasoline prices. (See
“Lower Oil Prices Weaken Prospects for
Job, Economic Growth in Texas,” p. 10.)
San Antonio’s share of employment in the financial activities services
sector—which includes jobs in insurance, financial institutions and real

estate—also bears watching. Wages
in the sector are the second highest of service-providing industries in
the state, and this sector has posted
steady growth since the recession, both
advantages for San Antonio, whose
overall 3.3 percent employment growth
closed the gap with Austin in 2014.

DFW Adds Most Newcomers
Even though DFW was the slowest to recover after the recession, its
correlation with a strengthening U.S.
economy was reflected in its growth
last year. DFW expanded 4 percent in
2014, surpassing Austin at 3.3 percent
and registering the fastest expansion
among the metros.
DFW’s net migration—more
people arriving than departing—outpaced all other major metro areas in
the state in 2011 and 2012 (Chart 3).4
Economically motivated in-migration
helps regions grow by resolving growth
bottlenecks, boosting economic
efficiency and adding to aggregate
demand. DFW has also been one of the
top destinations in the state since 2005
and has grown the most since then.
Despite record migration, the
newcomers have found jobs. Unemployment rates for the major metros
are not at record lows, but all were at
six-year lows in January 2015 (Chart 4).

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

Chart

Recent Job Growth Attracts Migration to Metros

Net domestic migrants

100,000

Total 2005–2013 net domestic migration
Austin (250,496)
San Antonio (185,448)
Dallas-Fort Worth (365,893)
El Paso (–23,241)
McAllen (6,666)
Houston (321,331)

80,000
60,000
40,000
20,000
0
–20,000

2005

2006

2007

2008

2009

2011

2012

2013

NOTE: Comparable 2010 data not available. Data are for July of previous year to July of year indicated. Hurricane
Katrina, which struck New Orleans and the Gulf Coast on Aug. 29, 2005, contributed to the large migration to Texas
in 2006.
SOURCE: U.S. Census Bureau.

Chart

Despite High In-Migration, Unemployment Rates Trend Down
in the Recovery Across the State

Percent, seasonally adjusted

14
12
10
8
6
4

McAllen
El Paso
Dallas-Fort Worth

2
0

2005

2006

2007

2008

2009

2010

2011

Houston
San Antonio
Austin
2012

2013

2014

SOURCES: Bureau of Labor Statistics; seasonal and other adjustments by Federal Reserve Bank of Dallas.

Austin recorded the lowest unemployment rate at 3.7 percent, followed by
San Antonio, 4 percent, and Houston
and DFW, both 4.3 percent. Unemployment in the border metros, although
higher than in the other major metro
areas, has also trended down in the
recovery and reached six-year lows. El
Paso was at 5.7 percent, McAllen at 7.8
percent in January.

Slower Pace of Growth
Even without the oil price collapse,
tightening labor and housing markets
have recently begun constraining state

growth. Wage pressures have risen
for several years, with weekly wages
increasing 3 percent in 2012 and 2013;
respondents to Dallas Fed surveys have
indicated that this trend continued into
2014, noting labor shortages in several
sectors.5 This is consistent with the rapidly falling unemployment rate, which
reached 4.4 percent in January.
As employment costs rose, price
pressures increased, with those affecting housing markets particularly
severe amid record low inventories
and sharply higher prices that together
have restrained demand.6

Lower oil prices will contribute to
slower overall growth, which will resolve some of the bottlenecks the state
has experienced recently and increase
labor market slack. Growth in Houston
will slow substantially, while Midland
and Odessa will lose jobs. Some other
areas may also experience slower expansion, though Austin, DFW and San
Antonio should continue growing in
2015 because of their unique industrial
compositions. DFW will perform the
best while mirroring the U.S. economy,
and border metros will benefit from
the Mexican economy’s projected solid
performance this year.

Jordan is an assistant economist in
the Research Department at the Federal Reserve Bank of Dallas.
Notes
The major metros include Austin–Round Rock
(Austin), Dallas–Plano–Irving combined with Fort
Worth–Arlington (DFW), Houston–Baytown–Sugar Land
(Houston) and San Antonio; the two border regions are
El Paso and McAllen–Edinburg–Mission (McAllen).
2
Annual average growth is calculated since 2011.
3
See “Shale Revolution Feeds Petrochemical Profits
as Production Adapts,” by Jesse Thompson, Federal
Reserve Bank of Dallas Southwest Economy, Fourth
Quarter, 2013.
4
U.S. Census Bureau does not provide migration data
for 2010.
5
Dallas Fed surveys that include data and/or anecdotal
evidence on high wage pressures include the Eleventh
District Beige Book, Texas Manufacturing Outlook
Survey, Texas Service Sector Outlook Survey and Texas
Retail Outlook Survey.
6
See “Single-Family Housing Squeeze Eases in Texas;
Multifamily Soars,” by Laila Assanie, Federal Reserve
Bank of Dallas Southwest Economy, Fourth Quarter,
2014.
1

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2015

Federal Reserve Bank of Dallas
P.O. Box 655906
Dallas, TX 75265-5906

PRSRT STD
U.S. POSTAGE

PAID

DALLAS, TEXAS
PERMIT NO. 151

SNAPSHOT Juárez Maquiladora Employment Rising

aquiladoras
south of the Rio Grande continue to add

jobs, according to a Dallas Fed model based on the
U.S. industrial production index and state of Chihuahua manufacturing employment. The model has been used
to track maquiladora employment in the Chihuahua city of
Juárez since Mexico stopped publishing such counts in 2006.
Employment at the plants, which assemble goods for
export to the U.S., rose more than 7.2 percent in December over the same month the year before, according to the
model. Formal manufacturing employment (for which
there is an accounting of taxes and wages paid) also increased 7.2 percent in the Juárez area over the same period.
On an annual basis, U.S. auto and light truck production in January totaled 11.4 million units, while U.S. auto
sales amounted to 16.6 million. Auto sales are near historic
highs—good news for maquiladoras because roughly half
the plants across the Rio Grande are auto related.
—Adapted from El Paso Economic Indicators,
Federal Reserve Bank of Dallas, February 2015

DALLASFED

U.S. Manufacturing Activity and Juárez Maquiladora Jobs
Percent*

20
15
10
5
0
–5
–10
–15
Juárez maquiladora employment
Juárez maquiladora employment, Dallas Fed estimate
U.S. industrial production index

–20
–25
–30

’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14

*Year-over-year change; seasonally adjusted.
SOURCES: Instituto Nacional de Estadística y Geografía; Federal Reserve Board; Federal Reserve
Bank of Dallas.

Southwest Economy

is published quarterly by the Federal Reserve Bank of
Dallas. The views expressed are those of the authors and
should not be attributed to the Federal Reserve Bank of
Dallas or the Federal Reserve System.
Articles may be reprinted on the condition that the
source is credited and a copy is provided to the Research
Department of the Federal Reserve Bank of Dallas.
Southwest Economy is available on the Dallas Fed
website, www.dallasfed.org.

Federal Reserve Bank of Dallas
2200 N. Pearl St., Dallas, TX 75201

Mine Yücel, Senior Vice President and Director of Research
Pia Orrenius, Executive Editor
Michael Weiss, Editor
Jennifer Afflerbach, Associate Editor
Kathy Thacker, Associate Editor
Ellah Piña, Graphic Designer

Full text of The Southwest Economy : First Quarter 2015

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