Regional Economic Update
Regional Economy Grows at a Modest Pace
February 4, 2013 · Update in PDF
Fourth-quarter payroll employment growth clocked in at a modest 2.2 percent annual rate in Texas, much slower than the 3.8 percent annual pace seen in the first quarter. Real estate construction continued to strengthen markedly, although energy sector growth decelerated somewhat from its 2012 peak. Employment growth of 2 to 3 percent for 2013 still seems likely, but there is little evidence that more robust growth is around the corner.
Employment Growth Moderates
Payroll employment increased at a tepid 1.3 percent annual rate in December and at a 2 percent annual rate in the second half of 2012 (Chart 1). While the second-half rate reflects slowing employment growth, it is in line with Texas' long-term trend.
The unemployment rate plummeted in December to 6.1 percent, its lowest level in four years, down from 7.3 percent in January 2012 (Chart 2). Additionally, initial claims for unemployment insurance ticked down to the lowest level since the recession ended.
Manufacturing Maintains Modest Growth
The production and future production indexes from the Texas Manufacturing Outlook Survey (TMOS) ended the year near 2012 lows but rebounded somewhat in January (Chart 3). Manufacturing payroll employment expanded in 2012 at a 2.1 percent annualized rate.
The most recent Dallas Fed Beige Book paints a mixed picture of within-sector growth, with relatively strong performances from automotive manufacturers but with slightly weaker production and orders from high-tech manufacturers. Policy uncertainty was cited as a significant impediment to future growth. Bright spots were construction-related manufacturing for single-family housing and petrochemicals, for which export demand has remained strong despite an otherwise difficult global economic environment.
Construction Contract Values and Real Estate Solid
Residential contract values rose 2.6 percent in December, while nonresidential and nonbuilding contract values fell back from recent highs (Chart 4).
Within residential, residential starts improved and single-family permits were flat in December (Chart 5). Existing-home inventory fell to 4.7 months in December, its lowest level in more than six years. However, multifamily permits increased again, even amid anecdotal reports that an improving economy is beginning to motivate would-be renters to buy.
Energy Remains Strong but Decelerates Slightly
The rig count has fallen 3 percent since early December to 824 as oil prices have hovered somewhat below recent highs. While the sector remains strong, Beige Book contacts report that firms are increasingly concerned about new activity in higher-cost fields, given recent energy-price volatility. The expectation is that the first half of 2013 will continue on the path seen in the second half of 2012.
Exports Rise as Mexico’s Outlook Improves
From September to November of last year, Texas exports rose 1.5 percent as exports from the remainder of the U.S. declined 3.4 percent. This may indicate continued strength in U.S.–Mexico and U.S.–Latin America trade. Mexico’s gross domestic product grew 3.9 to 4 percent in 2012 and is expected to expand 3.5 percent in 2013.
Wage and Price Pressures: Steady as She Goes
Price pressures have been contained the past six weeks, with TMOS and Texas Service Sector Outlook Survey price measures remaining in the range they’ve occupied for the last year. Modest price increases were noted in the Beige Book for construction-related manufacturers and transportation services, with larger increases for accounting and legal firms. Two notable developments were a rise in freight charges and, for reasons relating to the ongoing drought, record-high prices for livestock feed.
Outlook Suggests Continued Modest Growth
The Texas Leading Index rose by a modest 0.21 points from September to November (Chart 6). The relative weakening of energy components pulled down the index slightly in November. The employment forecast based on this index suggests slightly lower growth of 2.4 percent next year, compared with a 2.5 percent forecast earlier in 2012.
Headwinds remain from energy price volatility, as well as global economic and national fiscal policy uncertainty. But the Texas economy is still growing at a rate slightly above trend, with the exception of December’s relatively low payroll figure, and the state continues to rapidly reduce the ranks of its unemployed.
—Christina Daly and Jason Saving
About the Authors
Daly is a research analyst and Saving is a senior research economist and advisor in the Research Department of the Federal Reserve Bank of Dallas.