|Outlook for the Texas Economy||Outlook for the Texas Economy||Luis Torres and Wesley Miller||2017-05-08T05:00:00Z||technical-report||Texas Economy|
March 2017 Summary1
The Texas economy advanced amid booming oil production and a strong housing market. Texas crude oil production reached a 12-month high despite flat prices—evidence of Texas oil production efficiency. Increased energy activity generated record employment growth in the mining and logging industries. Construction employment, in response to a surge in residential construction activity, posted its strongest first quarter in three years. The drop in initial unemployment insurance claims corroborated the strength of the Texas labor market. Potential headwinds to the Texas economy include trade uncertainty (especially with Mexico), volatile energy prices, and tax policy uncertainty.
Economic indicators fared better in Texas, with the Texas Business Cycle Index (a measure of current economic activity in the state) continuing its upward trend. The Dallas Fed's Texas Leading Index, which signals future directional changes in the business cycle, rose marginally at 0.3 percent. Increased well permits, fewer initial unemployment insurance claims, and the decline in the Texas value of the dollar drove the index forward. Declines in the average weekly hours worked in manufacturing and in help-wanted advertising slowed this month's growth. The major metro Business Cycle Indices indicated that economic activity advanced throughout the Texas Urban Triangle. Texans confirmed these favorable economic conditions with a 13.1 percent increase in the Texas Consumer Confidence Index and a solid month of retail consumption.
Interest rates remained stable even as the Federal Reserve raised the federal funds rate by a quarter point for the second time in three months. The ten-year U.S. Treasury bond ticked up to 2.5 percent, reflecting a weak national jobs report and turmoil in the Middle East. Furthermore, the Federal Home Loan Mortgage Corporation's 30-year fixed-rate balanced at 4.2 percent for the fourth consecutive month.
Texas housing sales rose 3.3 percent after a weak showing last month. Demand held steady as the average number of days on market remained at 57. Soft sales in February allowed supply to gain ground, resulting in the largest increase in months of inventory (2.9 percent) since January 2011; however, inventory levels remain historically low at an average of 3.7 months. The median price dipped somewhat for new homes. (For additional housing commentary and statistics, see Texas Housing Insight at recenter.tamu.edu.)
West Texas Intermediate crude oil price fell to $49.33 per barrel2 but maintained 31.4 percent year-over-year growth as crude stockpiles increased. The number of active rigs in Texas rose 14.7 percent to 435—more than twice the number in May 2016. Texas crude oil production jumped to a 12-month high of 3.2 million barrels per day2 (bpd), led by the Permian Basin, where output rose to 2.21 million bpd1. The Henry Hub spot price of natural gas settled below $2.90 per million BTU1 (British thermal units) for the second straight month as global supply continued to saturate. The utilization of horizontal drilling technology in the U.S. has flooded natural gas inventories, despite historically low prices. The Energy Information Administration predicts that the U.S. will be a net exporter of natural gas by 2018—the first time in nearly 60 years. Texas remained the largest gas-producing state, accounting for 23.8 percent of national production.
Texas monthly nonfarm employment added only 9,500 jobs, but pushed the first quarter increase to 77,300, making 2017 the strongest start in three years. The Texas unemployment rate ticked up to 5.0 percent as labor force growth outperformed employment increases. All of the major metros (except Houston) exhibited a slight rise in unemployment. However, the number of initial unemployment insurance claims in Texas fell to an eight-year low and provides a better contemporaneous measure of the health of Texas economy. Every major metro added jobs this month and maintained positive year-over-year growth. Houston led the state with 8,500 new jobs, followed by a 7,600-job increase in Austin—its largest gain since 2010.
Increased activity in the energy and housing industries generated a 10,500-job increase in the goods-producing sector. The mining and logging industries added 4,800 jobs, the largest monthly gain in series history (beginning in 1990), amid increased drilling activity in the Permian Basin. The upswing in Texas housing starts created 9,400 new construction jobs in the first quarter—the strongest start for construction employment since 2014.
Manufacturing added only 1,700 jobs, all of which occurred in the durable goods subsector. The Texas Manufacturing Outlook Survey's employment index remained positive but fell 1.2 points, reflecting the industry's marginal job increase. Additionally, factory activity increased for the ninth consecutive month and expectations of business conditions remained positive.
The service-providing sector was stagnant, losing 1,000 jobs in March, but maintained an overall positive first quarter growth. The professional and business services industries added 13,200 service jobs, while financial services employment increased by 2,800. A slow month for leisure and hospitality resulted in over 12,000 jobs lost, offsetting most of these gains. Following a weak February, the trade, transportation, and utilities subsectors continued to slide, losing another 5,500 jobs, primarily in the retail trade subcategory.
The Texas Retail Outlook Survey reported mixed signals; the employment index was positive at 2.7, while the hours worked index fell to -1.5, indicating shorter workweeks. However, the sales index increased 3.4 points and inventory levels decelerated. Despite a monthly increase in retail sales3, Texas retailers' outlook on the future continued to fall.
Respondents noted similar sentiments in the Texas Service Sector Outlook Survey, where expectations of economic conditions declined. Multiple respondents commented on the shortage of skilled workers and the impact of future immigration reform. Health care respondents expressed concerns about increased regulation and uncertainty regarding the Affordable Care Act.
Real total private employee hourly earnings in Texas ticked up 0.4 percent, slightly faster than national wages. Texas hourly wages approached the national level in 2014, before declining with the oil bust, and are currently recovering. Wage growth was relatively flat in the major metros, rising 0.9 percent and 0.1 percent in Dallas and San Antonio, respectively. Wages fell by half a percent in Austin and Fort Worth, and were stagnant in Houston.
Despite the overall wage gap between Texas and the nation, real manufacturing employee hourly earnings were 10.0 percent higher in Texas. Fort Worth has the highest wages, paying 66.0 percent and 51.0 percent more than the national and statewide averages, respectively. Houston and San Antonio manufacturing wages remained below the state average but continued their upward trend.
Falling oil prices drove down the U.S. Consumer Price Index to 2.4 percent through cheaper gasoline. Price decreases were widespread, as the core inflation rate, which excludes the often-volatile energy and food sectors, declined for the first time in six years. The Consumer Price Index for Dallas dipped to 2.3 percent, as falling gasoline prices offset inflation in housing and medical services.
U.S. exports fell to $191 billion despite rising 15.8 percent and 17.9 percent to Mexico and Canada, respectively. Trade with Mexico boosted Texas commodity exports and, specifically manufacturing exports, for the third consecutive month. Declines in the Texas trade-weighted value of the dollar, which fell 2.1 percent, supported the recent export growth4.
1All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month-over-month, unless stated otherwise.
3The Federal Reserve Bank of Dallas seasonally adjusts Texas nominal retail sales data and the data release typically lags the Outlook for the Texas Economy by one month. The series is converted into real terms using the Consumer Price Index.
4The 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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