|Outlook for the Texas Economy||Outlook for the Texas Economy||Luis Torres and Wayne Day||2017-01-12T06:00:00Z||technical-report||Texas Economy|
November 2016 Summary
The Texas economy advanced in November as the number of jobs in the state increased by 20,900. The energy sector appeared to be improving with OPEC production cuts propping up prices, sustained production, and increased rig operation. Goods-producing jobs—specifically mining and manufacturing—narrowed losses and neared a trough. Meanwhile, the services sector continued to register positive growth. Real earnings continued its negative growth even with a tight job market due to loss of high-paying energy jobs and a shift toward lower-paying sectors. The strength of the dollar weighed on both exports and manufacturing. Consumer prices increased, but cheaper imported goods put downward pressure on inflation. Texas' and the major metros' housing sales surged over the year prior. Statewide building permits increased for the year and month. Housing demand trends remain positive as months of inventory remains low. Overall, the economy appears solid and expectations are for continued improvement into 2017.
The Dallas Fed's Texas Leading Index, which signals future directional changes in the business cycle, edged down. The index was positively affected by advancement in the U.S. leading index, improved oil prices, increased well permits, and stock price appreciation of Texas companies. The index was negatively affected by Texas value of the dollar appreciation, average weekly hours worked by employees, a slowdown in the number of new workers sought after, and an increase in new unemployment claims. The Texas Business Cycle Index that measures current economic activity continued to grow at a slightly faster clip during the second half of the year.
Texas housing demand was exceptional during November. Statewide housing sales increased 19.9 percent year-over-year on a seasonally adjusted basis (+19.5 percent not seasonally adjusted) compared to 18.3 percent for the nation (+17.8 percent not seasonally adjusted). All of the major metros had sales increases similar in magnitude to the state. The percentage increase in housing sales during November was dramatic primarily because closings in November 2015 fell because of technical changes among the title companies setting the stage for a large year-over-year boost for November 2016. A possible second explanation is homebuyers attempted to close ahead of an expected December rate hike pulling sales forward from later months. Year-to-date sales for Texas were 4.6 percent greater than the same period in 2015 compared with a 4.8 percent increase for the U.S.
On the supply side, the number of building permits issued for new single-family homes increased during November both on an annual and monthly basis. The overall trend since late-2014/early-2015 remained positive. Austin continued to grow at an accelerated pace. Dallas had been flat-to-declining during the year but showed signs of improving at the end of 2016. Houston also showed signs of recovery toward the end of the year, although year-to-date was a negative 3.7 percent over the same period in 2015. Fort Worth and San Antonio trended positive as the year progressed, but San Antonio remained 2.4 percent behind year-to-date numbers over the same period during 2015 while Fort Worth remained more-or-less unchanged. Dallas and Houston continued to be the number one and two metropolitan markets in the U.S. for residential permits.
Months of Inventory of Texas houses for sale remained low at 3.7 months (seasonally adjusted), indicating continued strong housing demand. The nation remained at 4.3 months (around 6.5 months of inventory is considered a balanced housing market). Overall, supply has been restricted due to limited lot inventory and construction labor shortages.
Rising Texas home prices reflect the low inventories resulting from constrained supply. Since late-2011, Texas home prices have increased more rapidly than the rate of increase for the U.S. In third quarter 2016, the U.S. and Texas FHFA Housing Price Indexes increased from the year prior by 6.1 percent and 7.8 percent, respectively. (For additional housing commentary and statistics, see Texas Housing Insight.)
West Texas Intermediate crude oil prices averaged $45.66 per barrel in November compared with $42.44 a year earlier. Oil prices started an upward trend in February 2016 and have stabilized in recent months. Oil price expectations are positive following an agreement by OPEC to cut output. High oil output and large inventories constrain oil price increases. The Energy Information Administration projects the oil supply glut to diminish as 2017 progresses. The number of operating rigs in Texas continued to climb slowly for the sixth straight month to 271 up from 250 in October; however, they remain down from 339 a year ago. Oil production maintained recent output levels after dropping from its peak in March 2015. According to recent a Dallas Fed survey, most oil producers need prices around $50 to $55 to expand production profitably in turn increasing rig count and the jobs that come with expansion (See "Energy Survey," Federal Reserve Bank of Dallas, September 28, 2016).
Texas employment continued to register a positive annual growth rate at 1.8 percent seasonally adjusted, gaining 20,900 jobs over the month prior. Monthly job growth in Texas averaged 14,000 jobs since January 2000 and 23,000 since January 2010. Texas's employment growth appeared to gain some momentum starting in second quarter 2016. During November, the Texas employment growth rate surpassed the U.S. growth rate. Austin's job growth typically exceeds the other major metros on average, but Dallas averaged a 4.3 year-over-year growth rate this year with an industrial mix that more closely resembles the nation.
Of the goods-producing industries, construction is the only sector to add jobs over a year ago. Monthly losses in mining and logging employment continued after reaching a peak in December 2014 but did show signs of nearing a trough. Manufacturing jobs dropped for the month after two months of gains. The Dallas Fed's "Manufacturing Outlook Survey" ticked up suggesting views remained in expansion mode. Manufacturing sector losses have probably tapered off given the positive survey reading and narrowing of job losses.
Nearly all of the annual Texas employment growth occurred across the board in the services sectors with educational and health services, leisure and hospitality, and trade, transportation, and utilities as the top three heavy contributors. Annual growth in the information sector remained muted after down-sizing during the past decade and maintaining those employment levels.
The continued expansion in the services sector follows the favorable expectations captured by the Dallas Fed's November "Texas Service Outlook Survey". The Dallas Fed's "Texas Retail Sector Survey" portrayed favorable conditions and a pick-up in sales activity with an index increase from negative 6.6 to positive 13.2. Monthly job losses occurred in the information and trade, transportation, and utilities sectors.
Houston continued to register a more drastic slowdown in overall employment versus the other major metros in the state. Following the oil bust, total jobs in Houston have remained more or less flat, only 0.5 percent greater in November 2016 than November 2015. A slowdown in energy-related job losses, a pickup in overall employment, stabilization in oil prices, and improved rig counts suggest that the worst of the oil downturn may be behind.
Both the U.S. and Texas seasonally adjusted unemployment rates equaled 4.6 percent. Houston carried a majority of the weight for keeping the state unemployment rate higher. On the other hand, the jobless rate for all major metros, including Houston, did drop for the month. Unemployed insurance claims, which measure initial applications for unemployment insurance, were up 0.3 percent year-over-year in Texas. Labor force participation held steady for three straight months at 63.5 percent.
Real total private employee hourly earnings fell 0.5 percent year-over-year, a lower growth rate than the nation since October 2015. Real earnings in Texas have not consistently remained above January 2007 levels on a seasonally adjusted basis because of the fall in the energy industry and loss of energy-related jobs. While the job market has remained tight, the mix of jobs shifted toward lower paying jobs such as in the leisure and hospitality sector.
Inflation edged higher reflecting the stabilization in energy prices while the strength of the U.S. dollar continued to mitigate upward. Inflation pressures caused by imported goods remained relatively cheap for domestic consumers to purchase. The Consumer Price Index for the U.S. and Dallas measured a 1.7 and 2.4 year-over-year change, respectively. The Consumer Price Index year-over-year change for Houston was 1.7 percent in October.
U.S. and Texas real exports continued to be subdued because of weak global demand and a stronger dollar. However, real exports for all commodities did gain over the year for both the U.S. and Texas. Real manufacturing exports rose somewhat for the U.S. but fell for Texas. The trade-weighted value of the U.S. dollar appreciated in November. As the dollar appreciates (depreciates) with respect to world currencies, exports are more (less) expensive to foreign buyers.
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