Regional Economic Update
Regional Economic Growth Slows in May
June 23, 2011 | Update in PDF
Economic growth in Texas picked up in March and April, only to slow abruptly in May. While the Eleventh District has many bright spots—a booming energy sector, growing manufacturing output and rising exports—it is experiencing some headwinds from adverse national and international developments.
Sectors such as retail sales, which are more reflective of national conditions, have shown signs of softening, and the state’s housing market continues to struggle. Job growth fell in May, and although the Dallas Fed’s Texas Leading Index rose in April and the employment forecast was for strong growth of more than 3 percent in 2011, incorporation of more recent data may cause the forecast to be revised downward.
Texas employment grew quickly in March and April before it slowed. So far in the second quarter, annualized job growth is 2 percent (Chart 1). Private payroll employment has grown at a faster rate of 2.6 percent during the same period.
Job gains were less broad-based in April and May than in earlier months. Boosted by energy-sector activity, the largest gains were in natural resources and mining at a 15.6 percent annual rate over the quarter through May.
The unemployment rate in Texas held at 8 percent in May, pausing after falling from 8.3 to 8 between January and April.
Construction and Real Estate
Construction activity in the state has gained little momentum this year. The five-month moving average of Texas construction contract values got a boost in April from nonresidential building activity, posting gains of 5.8 percent over the month before falling 6.7 percent in May. The five-month moving average of residential contract values crept up 0.6 percent in April, followed by a 1.5 percent gain in May, likely due to increases in multifamily projects. Private projects, particularly in the health care sector, represent much of the nonresidential building activity now that publicly funded projects have begun to taper off (Chart 2).
Despite slightly higher sales activity, the single-family housing market continues to struggle with declining construction and prices. The five-month moving average of single-family permits in Texas fell 1.2 percent in April, while the five-month moving average of single-family contract values fell 1.4 percent in April and 0.8 percent in May.
Existing-home sales in Texas were down 0.5 percent year to date through May. Inventories of existing homes in Texas ticked up slightly in May from 7.8 to 7.9 months of supply at the current sales rate, while inventories rose from 8.8 to 8.9 months of supply in the U.S. A six-month supply is generally considered a healthy market.
Following trends seen in other home price measures, median prices declined. The four-month moving average of prices for existing homes sold fell 0.6 percent in Texas in May, compared with 0.9 percent in the U.S. (Chart 3).
Dallas Fed housing contacts continue to expect some improvement in the housing market in the second half of 2011, although prices may not immediately recover.
Commercial Real Estate Markets
Sales of commercial properties in Texas strengthened slightly in 2010 and continue to show signs of improvement in 2011. Dallas Fed Beige Book contacts report increased demand for nonresidential properties, as well as upticks in leasing activity and industrial and office construction. Vacancy rate and absorption data reflect the slight improvement in industrial and office markets, and apartment rents continued to climb in the first quarter in Texas and the U.S. However, national indexes suggest overall prices of commercial properties have fallen in 2011.
West Texas Intermediate (WTI) oil prices have declined in the range of $10 to $15 per barrel since recent highs in mid-April; however, the price remains elevated at around $95 per barrel and has continued to drive up the Texas rig count.
Natural gas prices are up slightly; they spiked 50 cents per million British thermal units to $4.75 in May. Unusually hot weather and higher electricity demand are likely contributing factors.
Real Texas exports grew 4.6 percent in April after rising 3 percent in the first quarter. Since 2005, the fastest-growing export markets have been Latin America and China. By industry, exports of petroleum and coal products have skyrocketed, while agriculture and food exports have taken off since third quarter 2010 (Chart 4).
Prices and Wages
The year-over-year change in the Texas consumer price index (CPI) was 3.5 percent in April, up from 2.9 percent in March and 2.1 percent in February. Core rates of CPI inflation are running much lower, at about 1.6 percent. Despite the recent rise in the Texas CPI, falling oil prices and more recent data from the Dallas Fed’s Texas Business Outlook Surveys suggest that inflation may have come down in May (Chart 5).
The finished-goods price index from the Dallas Fed’s Texas Manufacturing Outlook Survey also fell in May, to 8.8 from 23.9 in April.
Dallas Fed business contacts continue to report that although prices are rising, wage pressures are not a major issue.
Near-Term Outlook More Uncertain
The Dallas Fed’s Texas Leading Index crept up in April, while the comparable U.S. measure dipped before rebounding in May (Chart 6).
After rising through April, growth slowed in May in Texas as well as the nation. Supply disruptions in the wake of the Japanese earthquake and tsunami held down industrial production in the U.S. and Mexico. Meanwhile, the ongoing European debt crisis rattled financial markets. The resultant slowdown is likely temporary, and expectations are that the region and nation will return to healthy growth rates in the second half of the year.
—Pia Orrenius and Adam Swadley
About the Authors
Orrenius is a senior economist and research officer and Swadley is a research assistant in the Research Department at the Federal Reserve Bank of Dallas.