December 2006

Texas Maintains Steady Expansion

Despite signs of moderation, the Texas economy continues to expand at a steady pace, outperforming the nation in many respects. The state added 16,000 jobs in November at a 1.9 percent annual rate, slowing from October but keeping ahead of national employment growth (Chart 1). Year to date through November, Texas payrolls added jobs at a 3.1 percent annual rate, while the U.S. followed at 1.4 percent.

Employment Growth Broad-Based Across Sectors and Regions
Employment growth in November was fairly broad-based, with most major sectors registering growth. Year over year through November, all sectors except information not only grew, but did so at a faster clip than the nation (Chart 2 ). In particular, natural resources and mining—driven by high energy prices—and construction have shown impressive gains. The Texas manufacturing sector continues to defy the pace and trajectory of national manufacturing. While employment in the nation’s manufacturing sector headed south for the latter half of 2006, Texas continues to post steady gains in factory jobs.

Growth also has been geographically robust across Texas. All major metro areas added jobs in November 2006 and also over the 12 months from November 2005 to November 2006.

Real Estate: Strong but Slow
The housing sector has softened somewhat compared with previous months, although the extent of the slowdown is not as pronounced as that in the nation. The number of single-family and multifamily permits and residential contract values trended down in recent months. Additionally, the latest Office of Federal Housing Enterprise Oversight house price index shows Texas house prices grew at a slower rate in the third quarter (Chart 3).

Existing-home sales growth has shown signs of slowing in most major Texas metros and the state as a whole, although the deceleration is not quite as strong as in the nation (Chart 4).

Inventories of existing homes, although slightly down in November, have risen in recent months. Housing starts have fallen but not as sharply as in the nation (Chart 5). Anecdotal evidence from the real estate industry, however, suggests that builders are not overly concerned with the level of home inventories in Texas except in Dallas/Fort Worth. Nonresidential and nonbuilding subsectors have done better than residential real estate in terms of contract values, and office construction activity remains brisk in the state.

Export Growth Steady
Texas real exports grew 3.6 percent in the third quarter, hovering at about what it was in the previous quarter. Exports have followed and upward trend similar to the nation, but Texas exports have grown faster than U.S. exports, both recently and over the longer term (Chart 6). Exports to all trading partners grew, except to Mexico, where they fell in the third quarter. Exports to the European Union grew 11 percent, due partly to depreciation of the dollar against the euro.

Outlook
The Texas economy looks set to continue to expand steadily, but sentiments expressed in the Beige Book and Texas Manufacturing Outlook Survey and signs of softness in the Texas housing market point to a likely moderation in economic activity. Economists at the Dallas Fed estimate job growth slowing from 3.1 percent in 2006 to 2.5 percent in 2007.

—Anil Kumar and Raghav Virmani