September 2016 Summary
The Texas economy improved in September as the number of jobs in the state increased by 38,300. Manufacturing and mining and logging employment in Texas declined while overall services bolstered total job growth; construction also contributed more jobs. The energy sector appears to be improving with sustained production and slightly increased rig operation. Texas housing sales increased moderately as some metros have eased their stride. State building permits decreased for the month but general housing trends remained positive.
The Dallas Fed's Texas Leading Index, which signals future directional changes in the business cycle, held steady during September. The index was positively affected by depreciation in the Texas value of the dollar, advancement in the U.S. leading index, increased well permits, a drop in new unemployment claims, and stock price appreciation of Texas companies. The index was negatively affected by oil prices and a slowdown in the amount of new workers sought after. The Texas Business Cycle Index, which measures current economic activity, continued to grow, but at a decelerated pace.
Texas housing demand was moderate in September. Statewide housing sales increased 1.9 percent year-over-year on a seasonally adjusted basis (+2.7 percent not seasonally adjusted) compared to 4.1 percent for the nation (+4.7 percent not seasonally adjusted). Sales growth in Austin decelerated to a 0.8 percent annual growth rate while San Antonio led the major metros at 8.8 percent. Dallas and Fort Worth have exhibited a slowdown this year followed by an expansion the past couple of months. Houston's growth remained suppressed registering a 0.8 percent growth rate year-to-date over the same period in 2015 (not seasonally adjusted).
On the supply side, the number of building permits issued for new single-family homes decreased slightly during September both on an annual and monthly basis, but the overall trend remains positive. In recent months, Texas' building permits showed signs of slowing compared with the pace in prior years—from 2011 through 2014. Austin continues to grow at an accelerated rate since a trough mid-2015. Dallas, on the other hand, has steadily decreased from a peak at the end of 2015. Houston (2,928) and Dallas-Fort Worth (2,244) still led the nation in the number of single-family permits issued, followed by Atlanta (1,830), Phoenix (1,467), and Orlando (1,345).
Months of Inventory of Texas houses for sale remained low at 3.7 months (seasonally adjusted), indicating continued strong housing demand. The nation rested at 4.4 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 2011, Texas home prices have increased more rapidly than the rate of increase for the U.S. In September, the U.S. and Texas Freddie Mac Housing Price Indexes increased from the year prior by 6.2 percent and 7.2 percent, respectively.
West Texas Intermediate crude oil prices averaged $45.18 per barrel compared with $45.48 a year earlier. Oil prices started an upward trend in February 2016 and have stabilized in recent months. High oil output and large inventories have been constraining oil price increases. The number of operating rigs in Texas continued to climb slowly for the fourth straight month from a previous negative trend; however, they remain down from 367 a year ago. Oil production maintained recent production levels after dropping in previous months from its peak reached in March 2015.
Texas employment continued to register a positive annual growth rate at 1.7 percent seasonally adjusted, gaining 38,300 jobs over the month prior. Texas's employment growth appeared to gain some momentum in second quarter 2016. During September, the Texas' employment growth rate surpassed the U.S. growth rate.
Nearly all of the annual employment growth occurred across the board in the services sectors. Growth in the information sector remained muted after down-sizing during the past decade and maintaining those employment levels. Of the goods-producing industries, construction was the only sector to add jobs over a year ago.
The continued expansion in the services sectors follows the favorable expectations presented by the Dallas Fed's September Texas Service Outlook Survey. According to the Dallas Fed's Texas Retail Sector Survey, retailer's perceptions of economic conditions in the retail sector broke into positive territory during September from a negative reading during August.
The only monthly losses in employment occurred in manufacturing and mining and logging. Manufacturing employment continued with its decline that started in March 2015, albeit at a slower rate. The Dallas Fed's Manufacturing Outlook Survey rose further into expansion territory during September, registering three months of positive growth and indicating positive views in the sector. Both indicators signal that the manufacturing sector losses have probably tapered off. Mining and logging employment continued to fall after reaching a peak in December 2014 but does show signs of reaching a trough. The worst of the oil downturn may be behind.
Houston continued to register a more drastic slowdown in overall employment versus the other major metros in the state. Surprisingly, even in the presence of dramatically lower oil prices and drilling activity, total jobs in Houston were still 0.5 percent greater than September 2015.
Job growth in Texas helped to keep the unemployment rate below the national average. Texas' seasonally adjusted unemployment rate was 4.8 percent, up from 4.7 in August and compared with a 5.0 percent rate for the United States. Houston carried a majority of the weight for pushing the state unemployment rate higher while the other major metros also edged up as the labor force expanded. Unemployed insurance claims, which measure initial applications for unemployment insurance, were down 8.3 percent year-over-year. Labor force participation ticked up to 63.5 percent, however, the U.S. and Texas labor markets have experienced long-run trends of workers leaving the job market.
Real total private employee hourly earnings fell 0.9 percent year-over-year, registering 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. Additionally, nominal earnings have not kept pace with inflation. Real earnings for Austin has increased above January 2007 levels while Dallas, Fort Worth, and San Antonio have not. Houston real earnings decreased over the past year as a response to the energy decline.
Increases in the Consumer Price Index have been suppressed and remain low in the U.S. as a consequence of low oil prices and a strong dollar that has made imports cheaper. The Consumer Price Indexes for Dallas and U.S. measured a 2.0 and 1.5 percent year-over-year change, respectively. The Consumer Price Index for Houston year-over-year change was 0.9 percent in August.
Because of weakening global demand, lower oil prices, and a stronger dollar, Texas real exports of all commodities and manufactured goods fell in September year-over-year. The U.S. gained year-over-year in exports of all commodities for the second month but continued to fall in manufacturing exports. The trade-weighted value of the U.S. dollar appreciated for the U.S. As the dollar appreciates (depreciates) with respect to world currencies, exports are more (less) expensive to foreign buyers.