Issue 6, November/December 2005
Federal Reserve Bank of Dallas

Regional Update

Hurricanes Katrina and Rita roiled economic activity and statistics, but aside from these unprecedented events, the Texas expansion has strengthened in recent months.

Storm evacuees stimulated the real estate market, particularly for apartments, and boosted demand for many goods and services. Oil production and refining activity was severely disrupted, but demand for energy products remains strong and repairs to industry infrastructure are under way. The extent and duration of the hurricanes’ effect are still uncertain.

September’s new claims for unemployment insurance jumped as a result of the hurricane disruptions. The Texas unemployment rate also increased sharply in September but was subsequently revised to a mild rise. While these effects are expected to be largely temporary, they are dampening growth in the Texas Coincident Index and have contributed to a decline in the Texas Leading Index.

The hurricanes also contributed to a sharp hike in the price of many goods and services, particularly energy, petrochemicals and some construction products. Business contacts interviewed for the October Beige Book expressed increased uncertainty about the outlook for economic activity, mostly because of higher energy prices. Contacts interviewed for the November Beige Book continue to be cautious but have become more optimistic.

The Texas expansion has strengthened in recent months, in part because of growth of construction activity. In recent years, Texas’ construction sector has been slower than the rest of the country’s. But construction employment has picked up in 2005, boosted by strong apartment building and a recent surge in home building.

Employment growth has remained solidly in positive territory this year. Job growth is typically stronger in Texas than in the rest of the country, but after 2000 it had grown at about the same pace. The Texas economy is now more likely to be an asset to U.S. economic growth, albeit not at the magnitude it was over the past couple of decades.

—Fiona Sigalla

Previous Article>

About Southwest Economy Southwest Economy is published six times annually by the Federal Reserve Bank of Dallas. The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Research Department of the Federal Reserve Bank of Dallas. Southwest Economy is available free of charge by writing the Public Affairs Department, Federal Reserve Bank of Dallas, P.O. Box 655906, Dallas, TX 75265-5906, or by telephoning (214) 922-5254.