|Outlook for the Texas Economy||Outlook for the Texas Economy||Luis Torres and Wesley Miller||2017-03-21T05:00:00Z||technical-report||Texas Economy|
January 2017 Summary
The Texas economy advanced from December as the number of jobs increased by 51,300. Both the service-providing and goods-producing sectors performed well. The energy sector was stable as crude oil and natural gas prices remained level and inflation increased as economic activity improved. Housing prices in Texas appreciated as supply continued to fall short of growing demand. Overall, the economy appears solid, and expectations are optimistic for 2017. Potential headwinds to the Texas economy include trade uncertainty, volatile energy prices, and national political uncertainty.
The Texas Business Cycle Index, which measures current economic activity in the state, continued its upward trend. The Dallas Fed's Texas Leading Index, which signals future directional changes in the business cycle, improved modestly. The index was positively affected by improved oil prices, increased well permits, and stock price appreciation of Texas companies. The index was negatively affected by the appreciation of the Texas value of the dollar and the number of average weekly hours worked by employees. The major metro Business Cycle Index indicated that economic conditions in Dallas and Fort Worth were increasingly favorable. Economic activity decelerated in Austin and San Antonio, and was stagnant in Houston.
Interest rates ticked downward for the first time in six months. The Federal Home Loan Mortgage Corporation's 30-year fixed-rate dropped five basis points to a 4.2 percent average. The ten-year U.S. Treasury bond yield inched down six basis points to 2.4 percent. Interest rates are expected to rise throughout 2017 as the Federal Reserve plans to raise the federal funds rate to combat inflationary pressures and from stronger loan demand.
Texas housing demand was steady as year-over-year sales increased 4.1 percent, and the average number of days on market fell to 57. The supply of housing remained constrained as the statewide months of inventory settled at 3.7 months—identical to the 2016 average. A combination of restricted supply and persistent demand in the Texas housing market caused prices to appreciate. Since 2011, the Texas median sales price for all homes has increased 47.1 percent. House price appreciation has been spurred by the state's economic and population growth over the past decade. Since 2007, employment and population have increased over 10 percent more in Texas than the nation. For additional housing commentary and statistics, see Texas Housing Insight at recenter.tamu.edu.
Natural gas and crude oil prices continued to rise out of the early 2016 trough. In January, the Henry Hub spot price of natural gas ticked down slightly from $3.62 per million BTU (British thermal unit) to $3.42 but was still 45.4 percent higher than in January 2016. West Texas Intermediate crude oil prices averaged $60.82 per barrel during January—a year-over-year increase of 68.1 percent. Consequently, the number of operating rigs in Texas increased to 303, the most in over a year. Oil price expectations remain positive as OPEC looks to restrict output, but global oil inventories remain saturated. The Energy Information Administration projects the oil supply glut will diminish as the year progresses. The monthly production of crude oil in Texas has hovered at 96 million barrels per day since June 2016, but it may be driven up if the price of oil continues to appreciate.
Texas monthly nonfarm employment increased by 51,300 jobs in January, the largest gain since February 2013, and the unemployment rate was constant at 4.8 percent. The Texas labor force participation rate ticked upward, albeit mildly, for the first time since 2010, to a rate of 63.6 percent. Both the service-providing and goods-producing sectors exhibited significant employment growth. Texas added over 36,000 service-providing jobs, 14,000 of which came from the professional and business services industry. The Texas Service Sector Outlook Survey indicated optimism regarding overall economic conditions, but health industry respondents expressed concerns over health care reform uncertainty. The Texas Retail Outlook Survey reported positive, yet slowed growth; 23.8 percent of respondents noted decreased sales, and 18.7 percent had increased inventory levels. The company-wide internet sales index declined 30.7 points. Additionally, respondents claimed the retail climate on the Texas-Mexico border remained difficult.
The goods-producing sector recovered significantly following a poor December. Construction employment increased by 8,900 jobs as building activity accelerated. Manufacturing and mining employment expanded by 7,300 and 1,900 jobs, respectively. Additionally, the Texas Manufacturing Outlook Survey reported manufacturing activity expansion; business activity was generated by post-election consumer confidence. The future business activity expectations index increased 1.2 points, but some uneasiness was reported regarding future international trade relations. Fort Worth benefited from the strong manufacturing performance, and added 7,300 total jobs. Dallas led the state in employment growth, reporting 13,100 more jobs than in December.
Real total private employee hourly earnings in Texas were flat and fell further below the national average. Texas hourly wages were converging toward the national level in 2014 but have currently diverged toward a $0.50 wage gap. Wages in Texas have struggled to remain above January 2007 levels because of the decline in the energy industry and loss of high-paying energy-related jobs. While the job market remained tight, employment shifted toward lower paying industries, such as leisure and hospitality. Nationally, average hourly wages were 2.1 times higher in the mining industry relative to leisure and hospitality jobs.
Inflation continued to climb as energy and housing prices appreciated. The Consumer Price Index for the U.S. and Dallas increased 2.5 percent and 2.7 percent, respectively, marking their largest annual leap in over four years. The transportation component of the Dallas index, which accounts for gasoline prices, grew 4.9 percent*, while the Dallas housing component rose 4.2 percent*. For additional housing commentary and statistics, see Texas Housing Insight at recenter.tamu.edu.
Despite the strong U.S. dollar, Texas exports increased for the third consecutive month to $232.3 billion (2011 dollars). Real manufacturing exports recorded positive year-over-year growth (1.4 percent) for the first time since March 2016. The Texas trade-weighted value of the dollar appreciated 6.9 percent last month1, its largest jump since June. Over half of Texas' exports are traded to Mexico (38.2 percent) and Canada (8.4 percent). Exports have remained stable, in both Texas and the U.S., despite exchange rate and currency market obstacles.
* Year-over-year calculation
1 The Texas trade-weighted value of the dollar is generated by the Federal Reserve Bank of Dallas. Its release typically lags the Outlook for the Texas Economy by one month.
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