Regional Economic Update
Regional Economy Builds Momentum in 2014
January 29, 2014· Update in PDF
Over the past six weeks, the regional economy has accelerated slightly and grown at a moderate pace.
Payroll employment grew at a 2.3 percent annual rate in the fourth quarter, and Texas Business Outlook Survey (TBOS) readings remained positive. Energy and real estate are still strong, and Texas exports remain high as petroleum-related trade continues to boost the state economy. A modest rise in wage and price pressures is evident. Employment growth is forecast to accelerate in 2014, with little evidence that recent economic strengthening is likely to fade.
Employment Indicators Improve at Moderate Pace
Payroll employment increased at a 2.3 percent annual rate in December (Chart 1). Employment indexes from the Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS) and Texas Retail Outlook Survey (TROS) all advanced in January from December levels, suggesting growth ahead. These favorable labor market data are echoed by the Beige Book, which reports steady-to-increased hiring over the past six weeks. Contacts also noted increased difficulty finding skilled labor, and there were scattered reports of unskilled labor shortages as well.
The Texas unemployment rate fell in December to a postrecession low of 6 percent. Initial claims in Texas have also fallen to a postrecession low and are nearing prerecession levels (Chart 2).
Real Estate Strengthens but Construction Lags
Single-family permits have flattened over the last few months after drifting upward in the first half of 2013, while multifamily permits have risen rapidly after an early-2013 swoon (Chart 3). Overall residential housing starts grew strongly at the end of the year, with the five-month moving average rising 7.5 percent in December.
Turning to the preowned market, the seemingly inexorable improvement in existing-home sales came to a sudden halt in November after three years of generally upward movement. The six-month moving average fell by a modest 0.3 percent in November and flattened in December. The downward movement was especially pronounced in the Dallas metro area. Anecdotal reports suggest existing-home sales have been hampered not by a lack of buyer interest but by below-normal stocks available for sale, which some Beige Book contacts expect to ease in the first half of 2014.
Service Providers Grow Strongly
The headline revenue measure from TSSOS rose to a 23-month high of 18.1 in January amid growing anecdotal reports of strengthening service sector demand (Chart 4). The broader outlook measure also ticked up, reaching its highest level since February 2012.
Consistent with this data, service sector payroll employment rose at a 2.3 percent annual rate in the fourth quarter. The Beige Book reinforces this generally positive outlook, with most service sector contacts reporting stronger demand and positive near-term outlooks.
Energy Remains Robust
The rig count moved toward the upper end of the 810–850 range it has occupied for the last year, though it ticked down to 839 rigs for the week ending Jan. 24. According to the Beige Book, drilling activity has been particularly strong over the last six weeks. Contacts expect the sector to be at least as robust in 2014 as it was in 2013.
Exports Resume Strong Growth
In the first two months of the fourth quarter, Texas exports rose 5.4 percent, compared with 3.9 percent for the nation excluding Texas (Chart 5). A strengthening Mexico may be at least partly responsible—the Mexican economy seems to have regained its footing following a weaker-than-expected first half in 2013.
Price Pressures Grow Modestly
The wage and benefit components of both TSSOS and TMOS essentially reached five-year highs in December, although both retreated slightly in January. This is consistent with the most recent Beige Book, which cites “acute labor shortages” for a broad array of occupations. The TMOS raw materials and TSSOS input price indexes edged down in January, though the TMOS index remained elevated.
One might typically expect these wage and input-price pressures to eventually feed through to final-goods prices. Consistent with this modest uptick in reported price pressures, the finished-goods indexes for TMOS and TSSOS both advanced in January, with the service sector measure reaching its highest level since March 2012.
Outlook Points to Moderate Growth in 2014
The Texas Leading Index reached a postrecession high of 128.8 in November, with nearly every component of the index making a positive contribution (Chart 6).
Payroll employment is forecast to grow 2.5 to 3.5 percent in 2014. The most significant downside risk to the state’s outlook comes from a possible softening of the U.S. economy, though other indicators do not suggest this is especially likely. Overall, the balance of risks points toward a healthy Texas economy heading into 2014.
—Jason Saving and Melissa LoPalo
About the Authors
Saving is a senior research economist and advisor and LoPalo is a research analyst in the Research Department at the Federal Reserve Bank of Dallas.
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