Regional Economic Update
Texas Continues Moderate Recovery in September
November 4, 2010 | Update in PDF
The Texas economy continues to recover at a moderate pace. Payroll employment grew at a slower pace in third quarter 2010, and the Texas unemployment rate edged down 0.2 percentage points in September. Some housing indicators suggest slight improvement in September, and the Dallas Fed’s Texas Manufacturing Outlook Survey points to a pickup in manufacturing activity. Exports ticked up and energy activity remains brisk. While growth is expected to remain positive through year-end, the Dallas Fed’s Beige Book suggests economic uncertainty is clouding firms’ outlooks.
Job Market Growth Slows in September
Although influenced by the departure of temporary census workers, Texas total nonfarm employment grew at a 0.9 percent annual rate in September. Texas’ private sector (which excludes government) job market recovery slowed in September to a 1.6 percent annual rate, down from a 2.3 percent annual rate in August. While private services growth accelerated from August to September, manufacturing job growth slowed and construction employment fell for the first time in six months (Chart 1).
The Texas private sector lost about 5.4 percent of its jobs during the last recession and has regained just about a third of those. Besides the information sector, which kept losing jobs before and after the recession, energy, construction and manufacturing were the hardest hit (Chart 2).
Retail Sales Improve Slightly, Still Sluggish
Reports from the Dallas Fed’s Beige Book state that retail sales growth improved slightly in September and early October but that consumers are focusing on nondiscretionary purchases. The Dallas Fed’s retail sales index supports anecdotal reports, growing 0.4 percent in August after falling 0.2 percent in July.
Delinquencies on the Decline
Data from the Mortgage Bankers Association suggest that serious delinquencies—mortgages 90 or more days past due, plus the inventory of foreclosures—began to decline among prime and subprime borrowers in second quarter 2010. Debt balance data from Equifax also show a decline in the percentage of balances 90 or more days late.
Housing Recovery Remains Uncertain
Total residential contract values increased 11 percent in September after falling consecutively for five months. Housing permits, which lead housing starts, increased in August but continue a relatively flat trend, suggesting continued weakness in housing starts.
Texas’ existing-home sales increased 3.1 percent from August to September after increasing 7.2 percent in August, but a sustained revival in sales remains absent since the expiration of the homebuyer tax credit in April 2010. Sales in all Texas metropolitan areas have trended down since then, according to the six-month moving average (Chart 3).
Inventories of existing homes continued to edge up in September as they have since the expiration of the homebuyer tax credit. Recent home price indexes delivered mixed signals. The FHFA house price index increased for Texas in second quarter 2010 while the Dallas Case-Shiller Index decreased slightly in August and is down year-over-year (Chart 4).
Despite some current weakness, the housing market is poised for a modest recovery. Largely stable home prices, record low mortgage rates and an easing of lending standards all bode well for an improved housing situation.
Texas Exports Rise in August
Real Texas exports increased 2.3 percent in August after falling 3.3 percent in July. Quarterly numbers show a slight slowdown after three quarters of strong growth. Much of the recent growth is driven by exports to Latin America (excluding Mexico), while shipments to China and the rest of Asia dropped in the first and second quarters.
Energy Sector Stays Strong
Texas’ energy sector has held strong, even in the face of low natural gas prices. Energy sector employment grew at an 11 percent annual rate in September and has grown 13 percent year-to-date. Oil prices have risen and fluctuated around $81 in October. The rig count has stabilized after rising steadily (Chart 5).
Moderate Growth Ahead
Indicators of the Texas economy's health suggest a continuation of moderate growth in the near term.
The Texas Leading Index, a composite index of eight leading economic indicators, was essentially flat from July to August, with a slightly negative three-month change from June to August.
Respondents to the Texas Manufacturing Outlook Survey report a generally positive outlook for manufacturing activity and employment in the next six months.
A forecasting model from the Dallas Fed predicts that Texas’ employment growth rate could slow in 2011.
—Anil Kumar and Adam Swadley
About the Authors
Kumar is a senior research economist and advisor and Swadley is a research assistant in the Research Department of the Federal Reserve Bank of Dallas.