Full text of Texas Economic Update : Texas Economy Picks Up Pace

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Texas Economy Picks Up Pace
April 27, 2011
Growth in the Texas economy is gaining steam. While activity
likely slowed at the beginning of the year, it picked up in February and March. Rising oil prices are boosting the energy sector, and Dallas Fed regional business surveys suggest manufacturing activity and retail sales rose in March. Payroll employment is growing at an accelerating rate, with forecast
2011 job growth at about 3 percent. Soft spots remain in construction, single-family housing and commercial real estate
(with the exception of multifamily, which is doing well). Texas
exports also began the year on a down note.

-2

Labor Market

-4

Texas payroll employment grew at a healthy 2.6 percent annual rate in first quarter (Chart 1). Private-sector employment
outperformed overall employment, rising at a 3 percent annual
pace in the first quarter. Texas’ growth rate exceeded the nation’s by 1 percentage point.

-6

First-quarter job growth in Texas was broad-based across industries. The energy sector expanded the fastest, followed by
professional business services, manufacturing, and education
and health services.

Chart 1
First Quarter Payroll Employment Growth Healthy
Percent*
6
4

2.6

2

1.5

0

Texas

-8
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
*Quarter/quarter; seasonally adjusted, annualized rate.
SOURCES: Bureau of Labor Statistics; Texas Workforce Commission;
seasonal and other adjustments by Federal Reserve Bank of Dallas.

Chart 2
Texas Labor Force Growth Soaks up New Jobs,
With Little Change in Unemployment Rate

The Texas unemployment rate fell to 8.1 percent in March
from 8.2 percent in February. Although this figure is only 0.1
percentage point below the March 2010 level, the relative stability is at least partially attributable to state labor force
growth roughly matching job creation (Chart 2).

Percent*
4

Construction and Real Estate

0

Construction contract values fell in February in all categories—
residential, nonresidential and nonbuilding—with residential
and nonresidential categories rebounding in March. After a
pause in January and February, construction employment
picked up in March, growing at a 1.6 percent annual rate for
the quarter.
Single-family housing activity remains weak in Texas and nationally. Existing-home sales in the state are near a nine-year
low, and housing construction is close to a 16-year low. Single
-family permits dipped in February and were flat in March.
Housing starts, following a six-month decline, were flat in February and ticked up in March.
Texas home inventories remain high—7.5 months of supply at
the current sales rate. A six-month supply is generally considered a healthy market. Sales of existing homes fell in February
to a seven-month low, with all major Texas metro areas declining. Existing-home sales ticked up in March, rising 6.4 perFederal Reserve Bank of Dallas

U.S.

3

Household
employment

2

Labor
force

1

-1
-2

Unemployment
rate

-3
-4
2005
2006
2007
2008
2009
2010
2011
*12-month change, seasonally adjusted.
SOURCE: Bureau of Labor Statistics; seasonal and other adjustments by
Federal Reserve Bank of Dallas.

cent from February; however, year-to-date activity is flat.
Texas house prices fell 1.6 percent in the fourth quarter from
the previous three months and were off 1.8 percent from
prior-year levels, according to the Federal Housing Finance
Agency Home Price Index (Chart 3).
Commercial Real Estate Markets
Commercial real estate is showing tentative signs of improvement. Anecdotally, Dallas Fed Beige Book contacts report

Regional Economic Update

1

that office and industrial leasing activity has picked up in recent months. Fourth-quarter data also suggest improving
industrial absorption and vacancy rates. The multifamily
housing sector appears to be doing particularly well, with
apartment construction and rents rising.
Energy
High oil prices, which climbed to around $110 per barrel for

Percent*
10

Prices and Wages
Regional data from the Dallas Fed’s Texas Manufacturing Outlook Survey (TMOS) suggest that the rate of price increases
picked up in April following a steady rate of gain in February
and March. Dallas Fed Beige Book contacts also report several
cases of firms passing escalating costs on to customers. Despite higher prices and more hiring, regional wage data and
anecdotal evidence from Beige Book contacts show little sign
of wage pressures.

5
0
California
Florida
Nevada
-10

Exports
Texas exports dropped 4.7 percent during the first two months
of 2011 after surging 10.7 percent in the fourth quarter (Chart
5). The exports decline occurred despite a weaker dollar,
which makes U.S. goods prices more competitive overseas.

Chart 3
House Prices Falling in Texas Too

-5

West Texas Intermediate crude in mid-April from $100 a
month earlier, are benefitting the energy sector. The Texas rig
count continues to climb, with growth driven almost entirely
by oil-directed drilling (Chart 4). Natural gas prices have risen
modestly in recent weeks to around $4.25 per million British
thermal units.

Texas
United States

-15
2004
2005
2006
2007
2008
2009
*Quarter/quarter; FHFA index; seasonally adjusted.
SOURCES: Federal Housing Finance Agency; Haver Analytics.

2010

Chart 4
Rig Count Rises With Oil Prices
Rig count (weekly)
1000

Positive Outlook Ahead
The outlook for the regional economy is bright. After a brief
pause in January, the Dallas Fed’s Texas Leading Index rose
sharply in February, suggesting continued economic expansion
in 2011 (Chart 6). Broad-based hiring across industries reflects employers increasing confidence that a sustained expansion is under way. Exports and contract values may rebound
after early weakness, and the single-family housing market is
expected to improve in the second half of the year.

800

Nominal price, dollars (weekly)
160
Texas
rig
140
count
120

700

100

600

80

…………………………………………………………………………………………….

500

60

About the Authors

900

400
300

Gas price

40

West Texas
Intermediate
oil price

20

200

0

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
NOTE: Gas price, per million British thermal units, is multiplied by 10.
SOURCES: Wall Street Journal; Baker Hughes; Haver Analytics.

—Pia Orrenius and Adam Swadley

Orrenius is a senior economist and research officer and Swadley is a research assistant in the Research Department at the
Federal Reserve Bank of Dallas.

Chart 5
Texas Exports Start Year on Down Note

Chart 6
Texas Leading Index Rises Sharply in February

Index, Jan. 2000 = 100*
200

Index, 1987 = 100
130

Index, Jan. 2000 = 100
110
Texas value of the dollar
105
180
100
95
160
90
85
140
Texas
80
120
75
70
U.S. minus Texas
100
65
60
80
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
*Real, seasonally adjusted.
SOURCES: Bureau of Labor Statistics; Census Bureau; seasonal and
other adjustments by Federal Reserve Bank of Dallas.

Federal Reserve Bank of Dallas

125
120
115
110
105
100
95

Index
120
115
110
105
100
Texas
95
90
U.S.
85
80
75
70
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

SOURCES: The Conference Board; Federal Reserve Bank of Dallas.

Regional Economic Update

2