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Texas Employment Forecast

July 22, 2016 · Forecast in PDFPDF

With the release of the June employment data, the Texas Workforce Commission made available more comprehensive data from the Quarterly Census of Employment and Wages (QCEW) for first quarter 2016. The Dallas Fed incorporates this data into the monthly payroll employment numbers in a process referred to as “early benchmarking.”

The QCEW data suggest that jobs declined at an annualized pace of 1.3 percent in the first quarter of the year instead of growing at a 1.1 percent pace as previously estimated. Growth has improved sharply since then, growing at a pace of 1.2 percent in the second quarter.

Including the new employment data and updated leading index, the Texas Employment Forecast suggests jobs will grow 0.5 percent this year (December/December). While this is down sharply from last month’s 2016 forecast of 1.3 percent growth, most of the downward shift in the forecast comes from the first-quarter benchmark revision.

“The early benchmark revision to the first-quarter data suggests that the Texas economy started the year weaker than we initially thought, although the improvement in job growth and the Texas leading index since then suggest that growth in the second half of the year will be better,” said Keith R. Phillips, Dallas Fed assistant vice president and senior economist.

Looking ahead, the forecast for growth in the second half of 2016 was revised down slightly from an annualized pace of 1.5 percent to a more moderate pace of 1.1 percent. The forecast suggests that 60,700 jobs will be added in the state this year and that employment in December 2016 will be 12.0 million (Chart 1).

“Increases in oil prices since the first quarter and their stability in recent months has led to some increased optimism in the oil patch,” Phillips said. “Gains in leading indicators for the national economy along with declines in new claims for unemployment insurance and a slight rise in average weekly hours worked in manufacturing suggest continued improvement in the state’s economy.”

While the Dallas Fed’s Texas Leading Index fell slightly in June, the net three-month change was a mild but positive 0.24 percent (Chart 2).

“While the Texas Leading Index has improved from sharp declines in 2015 and the first quarter of this year, several of the components have recently given negative signals,” Phillips said. “The rise in the value of the dollar continues to strain Texas manufacturers, and a fall in the help wanted index signals some concern about the outlook for hiring in the months ahead.”

Next release: August 19, 2016


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 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


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