Research & Data
Texas Employment Forecast
September 16, 2016 · Forecast in PDF
Incorporating August employment growth of 2.6 percent and revised leading index data into the Texas employment forecast suggests jobs will grow 1.2 percent this year (December/December). This is an increase from last month’s estimate of 0.8 percent.
The forecast suggests that 138,200 jobs will be added in the state this year and that employment in December 2016 will be 12.0 million (Chart 1).
Revisions to July’s data led to a strengthening in the Dallas Fed’s Texas Leading Index, although the net three-month change remains negative at –0.5 percent (Chart 2).
“The recent pickup in job growth and the slight upward revision to the leading index continue to suggest that Texas will finish the second half of the year much stronger than the first,” said Keith R. Phillips, Dallas Fed assistant vice president and senior economist. “Since reaching a trough in March, jobs have grown at an annualized pace of 2.0 percent, and the forecast suggests a similar healthy rate of growth for the remainder of the year.”
While the Texas Leading Index is not yet available for August, revisions to July’s index show an improvement in several of the components. In particular, the Texas trade-weighted value of the dollar weakened in July while initial claims for unemployment insurance decreased, both contributing positively to the index.
“Overall, broad indicators of the Texas economy show that, while declines in oil prices and expectations of further declines hit the Texas economy hard in the first quarter of the year, the economy has improved since then,” said Phillips. “With the stabilization of the energy sector in the second and third quarters, the economy is expected to continue to improve in the months ahead.”
Next release: October 21, 2016
The Dallas Fed’s Texas employment forecast projects job growth for the calendar year and is estimated as the 12-month change in payroll employment from December to December. The forecast reported above is a point estimate with 80 percent confidence bands; in other words, the true forecast lies within the bands on Chart 1 with 80 percent probability.
The Dallas Fed’s Texas Employment Forecasting Model is based on a transfer function that utilizes past changes in state employment along with past changes in the Dallas Fed’s Texas Leading Index (TLI). Changes in the TLI have an impact on employment with a lead time of three months, and the effect dies out slowly over time. The regression coefficients on lagged changes in employment and the TLI are highly statistically significant, and the model as a whole has been accurate relative to other forecasters over the past two decades.
The forecasting model has been in use at the Dallas Fed since the early 1990s, and the employment forecast has been published in the Western Blue Chip Economic Forecast (WBCF) since 1994. Phillips and Lopez (2009) show that the model has been the most accurate in forecasting Texas job growth relative to other forecasters in the WBCF. In particular, the model had the lowest root mean squared error and has been the closest to the actual the most times (nine of the last 17 years) out of five forecasters that have consistently participated in the survey.
For more details about the model and its performance, see “An Evaluation of Real-Time Forecasting Performance Across 10 Western U.S. States,” by Keith R. Phillips and Joaquin Lopez, Journal of Economic and Social Measurement, vol. 34, no. 2–3, December 2009.
For more information about the Texas Employment Forecast, contact Keith Phillips at firstname.lastname@example.org.