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Texas Employment Forecast

August 19, 2016 · Forecast in PDFPDF

Incorporating July employment growth of 2.2 percent and new leading index data into the Texas Employment Forecast suggests jobs will grow 0.8 percent this year (December/December). This is an increase from last month’s estimate of 0.5 percent.

Based on the forecast, 96,200 jobs will be added in the state this year and employment in December 2016 will be 12.0 million (Chart 1).

The Dallas Fed’s Texas Leading Index picked up modestly in July, although the net three-month change was negative at -0.74 percent (Chart 2).

“Recent data suggest that the Texas economy has improved and that growth in the second half of the year will be much better than in the first half,” said Keith R. Phillips, Dallas Fed assistant vice president and senior economist.

“In July, jobs grew at their fastest pace so far this year, and June growth was revised up by almost 6,000 jobs. The Texas Leading Index ticked up in July, led by a rebound in help-wanted advertising and solid gains in the stock prices of Texas-based companies and the U.S. leading index.”

Over the three months ending in July, the Texas Leading Index declined moderately, but most of that decline was centered in a sharp fall in help-wanted advertising in May and June and a strong rise in the Texas trade-weighted value of the dollar (a negative contribution to the index).

“The rebound in help-wanted advertising in July suggests that employers are returning to the market looking for more workers,” Phillips said. “The continued strength in the value of the dollar, however, poses significant challenges for Texas manufacturers.”



Next release: September 16, 2016

Methodology

The Dallas Fed 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 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 was the closest to the actual the most times (eight out of the 14 years studied) out of the five forecasters that consistently participate 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.

Contact Information

For more information about the Texas Employment Forecast, contact Keith Phillips at keith.r.phillips@dal.frb.org.

 

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