Full text of Texas Economic Update : Texas Economy Strengthening

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Texas Economy Strengthening
December 16, 2010
The district economy continues to expand at a moderate pace,
with recent signs of a pickup in growth after some slowing over
the summer. Growth in total nonfarm jobs and manufacturing
and energy production has recently increased, although the construction sector continues to be a drag. Leading indicators have
generally been increasing over the past three months.
Job Growth Sees Slight Improvement
Total employment grew at a 3 percent annualized rate in October
compared with a slight decline in September. A key source of the
rise in total nonfarm employment was a partial bounceback in
state and local government jobs after declines in the previous
two months. Private sector jobs also edged up in October, growing at a 2.3 percent annualized rate, versus 1 percent in September.
Leading Index Signals Slightly Improved Pace of Job
Growth
The Texas Leading Index increased for the second month in a
row in October after falling in May, June and August (Chart 1).
With the exception of the Help Wanted Index, the leading index
components have been either flat or increasing. Declines in the
Texas value of the dollar have been the biggest positive contributor to the increase in the leading index. Declines in the dollar relative to the countries to which Texas exports should provide further stimulus for Texas exports, which have increased
strongly this year.
Stock prices of Texas-based companies have also increased solidly. Corporate profits in general have been one of the most
positive indicators in the national economy, and the rise in stock
prices in Texas is a reflection of growth in earnings and outlooks
for companies in the state. Overall, movements in the leading
index suggest that job growth will be about 2.4 percent in 2011,
slightly faster than the 1.9 percent for 2010.

Chart 1
Job Growth Likely to Pick Up Slightly in 2011
Index
130

Millions of jobs
11.0
10.8

Texas Leading
Index

10.6

125

10.4

120

10.2

115

10.0
110

9.8
9.6

105

9.4

Texas nonfarm employment
and employment forecast
(with 80% confidence band)

9.2
9.0

100
95

'00
'02
'04
'06
'08
'10
SOURCES: Federal Reserve Bank of Dallas; Haver Analytics.

Chart 2
Temporary Employment, Consumer Confidence Growing
Millions of jobs
11.0

Employment
services

Thousands/index
300

10.5
10.0

250
200

Total nonfarm employment

9.5

150

9.0

100

8.5

Consumer Confidence
West South Central

50

8.0
'98
'00
'02
'04
'06
'08
SOURCES: Conference Board; Federal Reserve Bank of Dallas;
Haver Analytics.

0
'10

Consumer and Business Confidence Climb
Other leading indicators have also been increasing. Consumer
confidence in the West South Central states, which includes Arkansas, Louisiana, Oklahoma and Texas, is now at its highest
level since August 2008 (Chart 2).
Employment agency jobs continue to grow at a healthy 15.2
percent annual pace through October. Jobs in employment agencies, which include temp jobs, typically begin to decline prior to
the decline in total jobs and increase prior to the recovery in
jobs. Dallas Beige Book respondents in this industry recently
reported that there has been an increase in direct hires, a good
sign that businesses are becoming more confident that demand
will be sustained.
Federal Reserve Bank of Dallas

Initial Unemployment Claims Declining
Even though the Texas unemployment rate has only ticked
down slightly this year, from 8.3 to 8.1 percent, initial claims
for unemployment insurance have dropped by 31 percent since
peaking in February 2009. In the past, such declines have led
to steeper reductions in the unemployment rate (Chart 3). For
example, from mid-2003 to the end of 2004, a similar decrease
in initial claims coincided with a decline in the unemployment
rate of 1.1 percentage points. During this period, job growth
was 1.7 percent—slightly less than in 2010. Thus, the data on
job growth and initial claims suggest that the unemployment
rate is likely to fall more in 2011 than it has in 2010.

Regional Economic Update

1

Manufacturing Shows Improvement

Data from the November Texas Manufacturing Outlook Survey
show 13.1 percent more respondents reported increases in production than reported decreases (Chart 4). The new orders index
also increased strongly, the first increase in five months.

A key source of strength this year has been the manufacturing
sector. While employment in this sector declined by 13 percent
(120,000 jobs) between mid-2008 and December 2009, jobs
have rebounded 1.8 percent this year.

Chart 3
Initial Claims Suggest a Drop in the Texas
Unemployment Rate
Percent**

Thousands*
140

9
Unemployment
rate

120

8
7

100

6

80

5
4

60
Initial claims for
unemployment insurance

40

3
2

20

1
0

0
'90
'95
'00
*Seasonally adjusted, six-month moving average.
**Seasonally adjusted.
NOTE: Shaded areas indicate Texas recessions.
SOURCES: Department of Labor; Haver Analytics.

'05

'10

Chart 4
Texas New Orders and Production Increase in November
TMOS index*
60
40
20

Along with the rise in new orders and increased production levels, manufacturers also became more optimistic about hiring
over the next six months. Almost 38 percent more manufacturers expect to increase rather than decrease employment over
the next six months, the largest percentage since February
2007.
Energy Sector Picking Up
The drilling rig count ticked up following some gains in oil prices
(Chart 5). The disparity between oil and gas prices continues to
drive more drilling toward oil. Beige Book contacts expect the
overall rig count to level off or to increase more slowly through
year-end as low natural gas prices continue to dampen drilling
for gas.
Construction Still Weak
Most measures of Texas construction activity remain weak. The
real value of residential construction continued to slide in October, and nonresidential activity fell after a slight pickup (Chart
6). According to the Beige Book, housing markets remain sluggish. Builders said sales weakened slightly in October after some
firming in August and September. Real estate agents also said
the higher end of the market is selling better, a reversal of the
late 2009 and early 2010 trend. Prices were up slightly from year
-earlier levels. Office construction is not likely to pick up anytime
soon since vacancy rates remain elevated. One exception to the
weakness in construction is a moderate boost in apartment construction. According to the Beige Book, apartment demand has
risen steadily, and occupancies and rents have edged up.
—Keith R. Phillips and Yingda Bi

0
-20

………………………………………………………………………………………………………...

Production

About the Authors

Volume of new orders

-40
-60
Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Phillips is a senior economist and policy advisor at the San Antonio Branch of the Federal Reserve Bank of Dallas, and Bi is a
research assistant in the Research Department of the Federal
Reserve Bank of Dallas.

Jun-10

*Seasonally adjusted
SOURCE: Texas Manufacturing Outlook Survey.

Chart 5
Rig Count Increasing

Chart 6
Texas Construction Contract Values Remain Weak

Rig count (weekly)

Nominal price, dollars (weekly)

1000

160

900

140

800

120

Real dollars (millions)*
4000

3000

700
TX rig
count

600

Gas price

500
400

2000

80

1500

60

1000

20
0

200
'01

'02

'03

'04

'05

'06

'07

'08

500

Nonbuilding

0

300

'00

Residential

2500

100

40

Oil price

Nonresidential

3500

'09

'10

'00
'02
'04
'06
*Seasonally adjusted, five-month moving average.
SOURCES: F. W. Dodge; Haver Analytics.

'08

'10

NOTE: Gas price is multiplied by 10.
SOURCES: Wall Street Journal; Baker Hughes, Inc; Haver Analytics.
Federal Reserve Bank of Dallas

Regional Economic Update

2