Regional Economic Update
Regional Growth Accelerates in the Spring
June 19, 2014· Update in PDF
The Texas economy has grown at a faster pace, according to recent data. Job growth picked up in April, and unemployment fell to a new five-year low. Housing permits, starts and existing-home sales rose in April. Thus far in the second quarter, Texas Business Outlook Survey (TBOS) results are improved over first-quarter averages, suggesting that manufacturing and services activity is picking up. On the negative side, manufacturing and government employment growth are flat year to date. Wage pressures continue as labor shortages persist, even for unskilled labor. However, employment growth for the full year is projected to outpace 2013.
Job Growth Picks Up in April
Texas employment grew at a 5.7 percent annualized rate in April, up from 2.7 percent in the first quarter. The quarterly data point to robust employment growth similar to what was experienced in late 2012. The energy industry continued to lead growth, followed by professional and business services and construction. More than 40 percent of the 52,700 jobs gained in Texas in April were created in the Dallas–Fort Worth metropolitan area (Chart 1). The area’s share of year-to-date job gains is almost as large, at 37.9 percent.
Texas’ unemployment rate fell further in April, to 5.2 percent, the lowest level since September 2008. The U.S. unemployment rate also declined in April, to 6.3 percent, and held steady in May.
Housing Supply Still Constrained
Construction activity showed signs of accelerating as housing starts and single-family and multifamily permits picked up in April. However, a low supply of vacant developed lots is constraining building activity somewhat. Data from Metrostudy indicate that the inventory of vacant developed lots continued to decline in first quarter 2014 in all major metros except San Antonio (Chart 2).
Existing-home sales grew at a nonannualized rate of 2.1 percent in April. The inventory of unsold existing homes relative to sales in Texas remained unchanged in April at 3.6 months, which is more than two months below the six-month level considered normal. Almost 40 percent of Dallas-area houses have a sales contract within two weeks of hitting the market, and homes sell for 99 percent of asking price on average, according to data from Redfin.com.
Energy Activity Remains Strong
Beige Book contacts report drilling and oilfield services activity remains solid. The rig count fell to 888 during the second week of June but remained elevated at a level not seen since August 2012. West Texas Intermediate oil prices averaged $105.97 per barrel during the second week of June. Natural gas prices have fallen significantly from their peak in mid-February but remain above June 2013 levels.
Texas Exports Grow in April
Texas exports rose 4.3 percent month over month in April after falling 0.8 percent in March (Chart 3). Exports have grown 0.9 percent year to date (April over December). The global trade deceleration that may have been responsible for a slowing in Texas exports is expected to be transitory. The International Monetary Fund World Economic Outlook (April) projects a strengthening in global growth to 3.6 percent for full-year 2014.
Exports to Mexico, Texas’ largest trading partner, expanded 1.5 percent in the first quarter as Mexico’s economic growth fell short of expectations. Mexico’s government cut its 2014 growth forecast after first-quarter growth trailed analysts’ estimates. Even though first-quarter growth disappointed, it was twice the fourth-quarter rate, coming in at an annualized 1.1 percent (Chart 4).
Wage Pressures Continue as Labor Shortages Persist
Eleventh District firms continued to see wage pressures in May, according to TBOS. The wage and benefits index for both the Texas Service Sector Outlook Survey and the Texas Manufacturing Outlook Survey fell but remained at elevated levels not seen since before the recession. Overall, 70 percent of TBOS participants responding to special questions on labor market conditions reported problems finding qualified workers. The principal reasons given were applicants’ lack of hard and soft skills as well as an insufficient number of job applicants (Chart 5). Comments indicate that firms are having a hard time passing higher costs on to customers. Nevertheless, some cost pressures are spilling over into inflation, which has increased in the region over the past year.
Job Forecast Points to Improvement
The Texas economy has picked up over the past six weeks. Job growth expanded faster in April than in first quarter 2014 and fourth quarter 2013, led by energy and professional and business services.
The Texas Leading Index ticked up 1 point in April after remaining relatively flat in March (Chart 6). The Texas employment forecast, based on the leading index and employment data through April, is for 3.2 percent growth for the year—up from 2.6 percent in 2013.
—Jesus Cañas and Melissa LoPalo
About the Authors
Cañas is a business economist and LoPalo is a research analyst in the Research Department at the Federal Reserve Bank of Dallas.
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