Texas' economy continued to feel the effects of high inflation, with consumer confidence falling for the third month in a row. The labor market remained strong despite the Fed pausing interest-rate hikes. The labor force remained steady with its continual increases, surpassing a 3 percent growth in a year. Texas trade exhibited strong growth but was still down from the record setting 2022. The state's housing market saw little change; however, high mortgage rates continue to restrict buyers.
CPI Rises as Fed Pauses Rate Hikes
The Consumer Price Index (CPI) rose 0.4 percent month over month (MOM). According to the Bureau of Labor Statistics, the index for shelter continued to be a significant driver of the overall price index increase, accounting for more than half of the monthly growth. The gasoline index saw its second month of increases following higher demand and oil prices.
The Fed paused its interest-rate hike in September leaving the Fed Funds target at 5.25 to 5.5 percent. The year over year (YOY) change for CPI in September remained at 3.7 percent, which is still above the 2 percent goal the Fed seeks to pursue. Consumer spending is strong and real GDP is exceeding expectations, resulting in the Fed keeping rates high. Holding rates at 5.25 to 5.5 percent allows the Fed to slow down the economy by discouraging consumer spending. As the Fed continues to fight inflation, their eyes will also be on minimizing the negative impact those rate increases have on the labor market in the coming months.
Employment Remains Strong Despite the Tight Labor Market
Despite the tight labor market, total nonfarm employment expanded 0.44 percent MOM, with Dallas and Houston contributing 24,400 and 13,600 workers, respectively. The state payroll gained 61,400 new workers in July from the goods-producing sector (up 11,300) and the service-producing sector (up 50,100). Few sectors saw decreases in payroll, marking a strong month of gains for the state overall.
Texas' job market remains resilient with a high participation rate of 64.2 percent. The unemployment rate remained unchanged for the fifth consecutive month at 4.1 percent, and continued unemployment claims averaged around 129,500 applications on a weekly basis. Over the course of a year, Texas attracted 445,079 potential workers, continuing to surpass the record-high total labor force.
Housing Demand Plunges in 2023
Following last month's impressive 9.5 percent MOM growth, Texas' total home sales held at a similar 27,175 transactions in September, a deviation of less than 1 percent from August's figures (see table). Monthly sales activities in major metros also remained steady, with deviations of no more than 40 transactions in each area. Despite these minor monthly changes, the housing market is clearly taking a beating from the highest mortgage rates since 2000. Only the most committed buyers remained. Consumer demand has trended strongly downward since December 2021, resulting in a 14.2 percent YOY decline in the state's sales volume.
Merchants Pessimistic about Current Business
Service sector sentiment moderated this month, according to the Dallas Fed's Service Sector Outlook Survey. The labor market within the service sector showed signs of slowing, with the employment index falling to its lowest level in five months. Respondents foresee short-term general business conditions worsening. However, they remain positive about the long-term outlook.
Retail payroll gained 4,900 workers this month, bringing the YOY retail employment change to 1.5 percent. Sales continued to decline as the Dallas Fed's Retail Outlook Survey reported that the sales index fell by over half a percent, marking its fifth consecutive month of decreases. The labor market within the retail sector showed no change since August. Expectations for future retail growth remained positive with the future company outlook index rising by 10 percent.
Global Trade Showed Strong Increases
Texas' all-commodity exports increased by 6.1 percent MOM but still remained down by 11.6 percent YOY. Demand increased MOM for the top three manufacturing exports: petroleum/coal (up 4.7 percent), chemicals (up 5.6 percent), and computer/electronic products (up 4.5 percent). Despite these increases, the YOY change remains down from peaks in 2022. Demand for Texas' crude oil exports skyrocketed, increasing 13.3 percent MOM—more than a one billion dollar increase for the month. This increase can be attributed to the increase in demand for crude oil, as countries such as South Korea and Thailand more than doubled their imports from Texas. Exports to European countries such as France, Netherlands, and the UK experienced a sharp decline from last month's increases.
Select Economic Indicators
- The Texas Leading Economic Index remained relatively unchanged in September, signaling no major changes in outlook since August.
- Nominal average hourly earnings rose just shy of 1 percent MOM to $31.92, with Houston ($34.66) remaining the highest of the four major metros.
- Texas consumer confidence fell 12.8 percent to almost 28 percent below the average U.S consumer's confidence.
- The ten-year U.S. Treasury bond rose 21 basis points to 4.38 percent.
- The Federal Home Loan Mortgage Corporation's 30-year fixed-rate increased 13 basis points to 7.2 percent, continuing a 22-year high.
- The West Texas Intermediate (WTI) crude oil spot price rose 6.14 percent YOY from $84.26 to $89.43. The Henry Hub spot price plummeted 67 percent YOY from $7.9 to $2.6 per million British thermal units (BTU).
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