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Texas Employment Forecast

January 20, 2017

Incorporating December employment growth of -0.1 percent and an increase in the December leading index into the Texas Employment Forecast suggests jobs will pick up from 1.6 percent in 2016 to 1.9 percent this year (December/December). Based on the forecast, 233,000 jobs will be added in the state this year and employment in December 2017 will be 12.3 million (Chart 1).

A preliminary estimate of the Dallas Fed’s Texas Leading Index shows that the index picked up slightly over the three months ending in December, rising 0.7 percent (Chart 2).

“Job growth was close to zero in December but was revised up sharply in November resulting in 1.8 percent growth for the fourth quarter,” said Keith R. Phillips, Dallas Fed assistant vice president and senior economist. “Recent moderate job growth and a strong December increase in the Texas Leading Index suggest some upward momentum heading into 2017.”

The energy sector stabilized in the second half of last year and energy executives report improved outlooks for 2017, according to the Dallas Fed’s Energy Survey.

“Gains in the energy sector would help many manufacturing industries in the state, although the strength of the dollar is still a sharp headwind for the many exporters in Texas,” Phillips said.

Most of the components of the Texas Leading Index increased over the three months ending in December. An increase in the value of the dollar and decline in average weekly hours worked in manufacturing were moderate drags on the leading index. A strong increase in well permits and moderate gains in stock and oil prices and the U.S. leading index drove the rise in the Texas Leading Index. 

Latest Texas Job Forecast

Leading Index Components Mixed

Next release: February 17, 2017


Methodology

The Dallas Fed’s Texas employment forecast projects job growth for the calendar year and is estimated as the 12-month change in payroll employment from December to December. The forecast reported above is a point estimate with 80 percent confidence bands; in other words, the true forecast lies within the bands on Chart 1 with 80 percent probability.

The Dallas Fed’s Texas Employment Forecasting Model is based on a transfer function that utilizes past changes in state employment along with past changes in the Dallas Fed’s Texas Leading Index (TLI). Changes in the TLI have an impact on employment with a lead time of three months, and the effect dies out slowly over time. The regression coefficients on lagged changes in employment and the TLI are highly statistically significant, and the model as a whole has been accurate relative to other forecasters over the past two decades.

The forecasting model has been in use at the Dallas Fed since the early 1990s, and the employment forecast has been published in the Western Blue Chip Economic Forecast (WBCF) since 1994. Phillips and Lopez (2009) show that the model has been the most accurate in forecasting Texas job growth relative to other forecasters in the WBCF. In particular, the model had the lowest root mean squared error and has been the closest to the actual the most times (nine of the last 17 years) out of five forecasters that have consistently participated in the survey.

For more details about the model and its performance, see “An Evaluation of Real-Time Forecasting Performance Across 10 Western U.S. States,” by Keith R. Phillips and Joaquin Lopez, Journal of Economic and Social Measurement, vol. 34, no. 2–3, December 2009.

Contact Information
For more information about the Texas Employment Forecast, contact Keith Phillips at keith.r.phillips@dal.frb.org.