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Regional Update
November 2004
Texas Keeps Pace with the Nation

Jason Saving reviews recent economic conditions in Texas.

The Texas economy is currently growing about as fast as the nation's as a whole. The outlook has improved slightly in recent weeks, but it is too early to say whether any positive expectations will become reality.

Let’s begin with the payroll employment numbers. By this measure, Texas has grown about as quickly as the nation for almost a year, and this trend continued in September (Chart 1).

Chart 1

Job growth was weakly positive for most major sectors of the Texas economy, with certain exceptions such as manufacturing and construction (Chart 2).

Chart 2

But payroll employment may not be the best measure of economic activity in today’s economy. U.S. economic growth is generally judged to be better than the payroll employment numbers suggest. To determine whether the same is true for Texas, it’s important to look at other measures of economic activity. These measures are less timely than the payroll employment numbers, but they do shed light on the recent health of the Texas economy.

With consumer spending powering two-thirds of Texas’ economic activity, measures of consumption are a reasonable place to start. Texas sales tax receipts—the best available measure—rose 7.9 percent in fiscal 2004, the largest annual increase since 1998. And sales-tax growth has been very broad-based across the state. January-to-August revenue rose in all 10 of the state’s largest cities compared with the same period in 2003, and was up everywhere except San Antonio in August (Chart 3).

Chart 3

Personal income paints a similar picture. Second quarter 2004 marked the seventh consecutive quarter in which Texas personal income has grown (Chart 4). Personal income grew at a 6 percent annual rate in the second quarter, besting the nation’s 5.4 percent.

Taken together, this evidence suggests consumer spending is faring relatively well in Texas. Recent evidence from the Hudson Employment Index supports this conclusion: Texans are 4 percentage points more likely than residents of other states to believe their personal finances are improving. Other survey evidence suggests Texas firms plan to do more hiring than firing in the months ahead, which is an encouraging sign going forward.

News from the various sectors of the Texas economy is mixed, with the positives slightly outweighing the negatives. High-tech remains lukewarm, though there are tentative signs that telecom may finally be bottoming out. Texas airlines continue to persevere through today’s difficult financial climate. Agriculture is doing well almost across-the-board because of good weather and favorable international developments such as the recent decision by Japan to partially lift its embargo of U.S. beef. And oil-and-gas exploration activity is accelerating as firms increasingly seek ways to increase crude production.

Traditionally, Texas grows about 1 percentage point faster than the nation. By that standard, economic activity in Texas has been tepid for the last several years and remains so today. But in absolute terms the picture is one of moderate growth coupled with a bit of optimism about the outlook. And this view is reinforced by the Texas Leading Index, which rose sharply in September to its highest level since 9/11 (Chart 5).

Chart 5

Stable current conditions and a somewhat more optimistic outlook over the next quarter doesn’t mean we should expect a quick return to Texas’ traditional position as a growth leader. But it does suggest there may be more growth than we think in the spring.

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