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Texas Employment Forecast

May 20, 2016 · Forecast in PDFPDF

Incorporating April employment growth of 1.1 percent and new leading index data into the Dallas Fed’s Texas employment forecast leads to a 2016 estimate of 1.5 percent growth (December/December), up from April’s forecast of 1.0 percent growth. The forecast suggests that 179,000 jobs will be added in the state this year and that employment in December 2016 will be 12.1 million (Chart 1).

The Dallas Fed’s Texas Leading Index picked up for the second consecutive month, and the net three-month change was 2.49 percent (Chart 2).

“The mild pickup in job growth in April, along with a continued rise in most leading indicators, suggests that Texas job growth will improve in the coming months,” said Keith R. Phillips, Dallas Fed assistant vice president and senior economist. “Employment growth remains positive in all of the major Texas metros except Houston, where jobs have declined slightly.”

Recent gains in the Texas Leading Index have been broad based. After declining modestly in February, the index rose at a strong pace in March and April. An increase in permits to drill oil and gas wells in April followed a rise in oil prices over the past several months. Growth in help-wanted advertising and the U.S. leading index, along with declines in the trade-weighted value of the dollar and initial claims for unemployment, contributed positively to the index.



Next release: June 17, 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 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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