2004 News Releases

For immediate release:
July 22, 2004

Media contact:
James Hoard
Phone: (214) 922-5307
e-mail: james.hoard@dal.frb.org

Dallas Fed Publication Explores the Texas Economy,
Federal Budget and Euro

DALLAS—The latest issue of the Federal Reserve Bank of Dallas' Southwest Economy examines Texas' economic revival, the outlook for the federal budget and the euro's successes and challenges.

In "A Texas Revival," economist Fiona Sigalla states that Texas' economic recovery is under way but is likely to remain sluggish compared with the state's traditionally high growth.

"The state's recent subpar growth is not necessarily indicative of a long-term trend but is expected to persist for the short term, and it is unclear how long the short term will be. Relatively weak Texas job growth is expected to continue throughout 2004," according to Sigalla.

The state's employment growth outperformed the nation throughout the 1990s, but for the past year and a half Texas has been growing at the same or slower rate than the overall nation—1.3 percent vs. 2.2 percent during the first five months of 2004.

Reduced construction activity, a manufacturing decline, a lagging high-tech sector and a shrinking energy industry are holding back the state's economic and employment growth. Meanwhile, education, health care and government have been adding jobs in Texas.

Senior economist and research officer Alan Viard writes in "The Federal Budget: Developments and Outlook" that recent policy changes and economic developments have increased the deficit. This increase, he notes, has probably reduced national saving.

Viard states that a reduction in national saving "raises living standards today, as resources are consumed rather than saved. But it lowers living standards tomorrow, compared with what they otherwise would have been, by reducing future national income."

However, in historical terms, the deficit has not reached crisis levels.

"The deficit and the debt are within their historical ranges, though toward the upper end of those ranges. Also, the deficit is projected to decline over the next decade, although that projection is subject to considerable uncertainty," Viard writes.

In "Five Years of the Euro: Successes and New Challenges," economics writer Richard Alm finds the European economic and monetary union (EMU) has achieved its primary goal of low inflation, but it has not been as successful at stimulating members' economies.

"The euro area has grown more slowly than the United States for much of the past five years, with most of the poor performance arising from structural rigidities in product and labor markets," he writes.

After reviewing presentations by economists and European central bankers at a recent Dallas Fed conference, Alm says that Ireland and Portugal, original EMU members, have benefited through greater stability and lower interest rates than they otherwise would have enjoyed.

Meanwhile Great Britain and Sweden have fared well outside EMU. The U.K. has experienced lower inflation and higher economic growth than its euro area counterparts, Alm writes, and Sweden's economy has held its own without EMU participation.

Alm states the European Union's most important task is wrestling with contradictions between a centralized monetary policy and decentralized fiscal policies.

Find the July/August issue of Southwest Economy online at www.dallasfed.org.