Regional Economic Update
Regional Economy Picks Up
April 26, 2012 · Update in PDF
Regional economic indicators point to stronger job and output growth in the first quarter of the year. Improvement has been pronounced and broad based, although growth slowed in March. Since December, Texas job growth has surged, unemployment has dipped, survey indexes have posted strong readings for production and revenue, retail sales have increased and exports have risen further. The Texas Leading Index increased in February for the fifth consecutive month. However, construction remains subdued, house prices are still depressed and purchasing power is undermined by high fuel and food prices.
Employment Growth Strong
First-quarter employment grew at a rapid rate of 3.1 percent in Texas (annualized), compared with 1.9 percent in the nation (Chart 1). The pace slowed as the quarter progressed. Employment grew at an annualized rate of 6.8 percent in January, 2.3 percent in February and 0.4 percent in March. The unemployment rate fell from 7.1 percent in February to 7 percent in March.
First-quarter job growth was broad based. All major industries except government saw employment increases. Notably, construction employment rose 7.2 percent (annualized) in the quarter after falling in the last two quarters of 2011.
Surveys Suggest Output Growth
The Texas Business Outlook Surveys’ headline indexes suggested greater activity in March (Chart 2). Manufacturing growth continued, according to the Texas Manufacturing Outlook Survey’s production index, which held steady at a reading of 11. The Texas Service Sector Outlook Survey suggested revenue continued to grow but at a slower pace in March. The retail sector showed notable strength; the Texas Retail Outlook Survey’s sales index rose to its highest reading in six months.
Construction Mixed, Real Estate Improves
Texas total construction contract values (five-month moving average) remain at very low levels (Chart 3). Residential construction contract values fell 3 percent in March. Nonresidential building contract values rose 4.4 percent, while nonbuilding construction contract values rose 1.1 percent.
While single-family construction contract values dipped, other single-family construction indicators continued on an upward trajectory. Housing starts rose for the third month in a row, and permits for single-family housing increased in February. Overall, single-family construction appears to have bottomed out in early 2011 and is still at very low levels, but indicators are headed upward.
Sales and inventory data suggest housing markets across the state continue to improve. Texas house prices rose 1.2 percent in the fourth quarter, according to the Federal Housing Finance Agency, while prices were flat in the U.S. Months of inventory remained at 6.1 in March for Texas. Below six months of inventory is consistent with a “tight” housing market, which could result in higher prices.
Retail Sales Pick Up
Retail sales picked up the pace in February, growing 0.9 percent after edging up 0.7 percent in January. This is consistent with other reports of increased retail activity and stronger consumer demand.
Exports Rise More Slowly in 2012
Texas exports continue to rise, albeit at a slower pace. Monthly growth in real Texas exports averaged 0.3 percent in January and February, compared with 2.8 percent in fourth quarter 2011.
Energy Activity a Driver
High oil prices continue to contribute positively to the Texas economy. Although the West Texas Intermediate crude oil price has recently fallen below March highs of $107 per barrel, prices are still high enough to support more oil extraction, particularly in the Eagle Ford and Permian Basin areas.
Natural gas inventories are 57 percent higher than at the same time last year, due to rising production and lower heating demand during an unusually warm winter (Chart 4). As a result, prices have fallen below $2 per MMBtu. This has stalled dry natural gas drilling activity in the Barnett and Haynesville shales and prompted mining services firms to move operations toward Eagle Ford and the Permian Basin, where there are more oil and natural gas liquids.
The Texas Leading Index rose 1.1 percent in February, a fifth consecutive increase (Chart 5). Job growth is estimated to be 2.5 to 3 percent for 2012.
—Yingda Bi, Emily Kerr and Pia M. Orrenius
About the Authors
Bi is a research analyst, Kerr is an associate economist and Orrenius is an assistant vice president and senior economist in the Research Department of the Federal Reserve Bank of Dallas.