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Regional Recovery Endures

March 16, 2011 | Update in PDFPDF

The regional economy grew at a moderate pace, with exports, energy and manufacturing all stronger than six weeks ago. Employment continued to expand in January, although at a slightly slower pace. Greater consumer confidence and a rise in the Texas Leading Index also hint at further economic growth. Home sales improved slightly, especially for higher-priced units, providing hope for the still-sluggish construction sector.

However, increasing price pressure, an unyielding unemployment rate and decreasing numbers of temporary workers may present areas of concern.

Payroll Employment Outpaces U.S.
Payroll employment rose at annualized rates of 4 percent in December and 3.6 percent in January, outpacing the nation (Chart 1) . In January, the trade, transportation and utilities sector added the most jobs, while the energy sector grew at the fastest pace. Encouraging signs for future employment include a marked decline in initial claims for unemployment insurance and more Beige Book contacts reporting moderate hiring.

At the same time, growth of temporary employment, often considered a leading indicator of future economic activity, slowed to a 2.1 percent annualized rate in December and declined at an annualized rate of 16.3 percent in January, with 3,400 jobs lost. The Texas unemployment rate remained unchanged at 8.3 percent in January.

Manufacturing Index Trending Higher
Manufacturing employment rose at a 7 percent annualized rate in January. Primary metal and auto manufacturing accounted for a large portion of the growth, while Beige Book contacts also reported a slight uptick in high-tech manufacturing, especially for smart phones and other hand-held devices. The Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey (TMOS) production index, the best available measure of current economic activity in manufacturing, rose in February after dipping in January (Chart 2). The TMOS new orders index, a leading indicator, advanced slightly in February.

Residential Construction Recovery Hinted
The construction industry added jobs at a 1.4 percent annualized rate in January. Existing-home sales, though sporadic, have been on a slight upward trend in Texas over the past few months. The six-month moving average in all major metropolitan areas and the state as a whole increased in January for the first time since the  federal tax-credit program ended last April, suggesting the residential real estate market may have finally begun recovering (Chart 3).

All major metros saw declines in the months supply of housing inventory; in Texas overall, the time needed to sell the current stock of homes fell to 7.7 months in January from 8 in December. Beige Book contacts noted increased foot traffic and “seriousness” among potential buyers. Contacts in construction-related industries, however, still reported flat demand for products. These contacts expect conditions to remain little changed or improve slightly through the year.

In Texas, serious mortgage delinquencies—mortgage payments past due 90 days or more—dropped on a seasonally adjusted basis to 2.9 percent in the fourth quarter from 3.4 percent in the third.

Even so, new data from the Federal Housing Finance Agency housing price index show slight declines in fourth-quarter housing prices from both the third quarter and year-over-year.

Energy Grows Amid Rising Oil Price
The energy sector continued a positive employment trend that began in November 2009. In January, the number of oil, gas and mining support employees rose by 2,700,  a 17 percent annualized gain. Rig counts remained roughly stable in recent weeks as oil prices soared to two-year highs. West Texas Intermediate oil prices, reaching $104 per barrel in the second week of March, have prompted new drilling. Natural gas prices remain low, benefiting Gulf Coast petrochemical producers (Chart 4).  

Exports Exceed Prerecession Levels
Exports grew at an annualized rate of 27.5 percent in fourth quarter 2010 and have exceeded prerecession levels for three quarters (Chart 5). One-third of the fourth-quarter growth was attributable to China, which accounts for 6 percent of total exports. The remainder was attributable to the rest of Asia, the European Union and Mexico.

In terms of export sectors, petroleum and coal products accounted for 52 percent of total growth,  agriculture and food for 31 percent.

Raw Material Prices Rise
Beige Book contacts noted increasing raw material prices, and there are new reports of firms planning to pass along those higher costs to finished goods. Wage pressures remain subdued.

Consumer Confidence Bolstered
Consumer confidence for the West South Central region, predominantly Texas, continued to grow in February, reaching its highest level since September 2008. The Texas Leading Index—the Dallas Fed’s composite of eight indicators that tend to foretell economic change—also exhibited a generally upward trajectory, suggesting the economy will continue growing at a moderate pace in the months ahead (Chart 6).

—Yingda Bi and Jason Saving

About the Authors

Bi is a research assistant and Saving is a senior economist and advisor in the Research Department of the Federal Reserve Bank of Dallas.


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