For immediate release: August 15, 2006
Economic Growth of Texas Metros, Basel’s Impact on Bank Capital Requirements and Oil Prices Featured in Dallas Fed Publication
DALLAS—The economic expansion of Texas’ largest cities, the potential effects of Basel IA capital requirements on Eleventh District banks and a discussion of high oil prices are featured in the latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy.
In “Midyear Update: Major Metros Driving Texas Expansion,” associate economist D’Ann Petersen finds that Austin, Dallas, Fort Worth, Houston and San Antonio are enjoying solid economic growth, which appears poised to continue through 2006 and into 2007.
Petersen’s findings include the following:
- Austin maintains a slight lead over Dallas in employment growth to date in 2006, with affordable housing a key factor in attracting people and companies.
- Dallas’ economy has restructured since the tech bust and is currently expanding at a robust pace. Strong growth in the professional and business services sector has helped boost demand for office space.
- Fort Worth’s economy is showing moderate growth this year. The city avoids wild economic swings, in part, due to a solid base in defense-related manufacturing.
- In Houston, energy remains the dominant economic sector. With oil producers viewing high energy prices as a long-term factor, the number of drilling support jobs has surged.
- Despite a diminishing military presence, San Antonio’s economy is growing with the financial services sector leading the pack.
- Border cities are exceeding state job growth averages. Maquiladoras in Ciudad Juárez are helping boost service industries in El Paso.
In “Making Sense of High Oil Prices,” director of energy economics Stephen P.A. Brown says strong global demand and uncertain supply are behind spiraling oil prices that are slowing economic growth.
Oil prices have more than doubled in the past few years—driven by surging demand in growing global economies like China and India, and concerns about supply from turbulent oil-producing countries, according to Brown.
He challenges assumptions that oil companies—which are experiencing record profits—are behind the spike at the pump.
“World oil markets are dominated by producing countries—not oil companies,” Brown says. “Anytime a company sees rapid increases in the price of what it sells, it’s going to do well.”
Brown also finds higher oil prices are affecting the economy: “Growth is slower. Inflation and interest rates are higher. I estimate that the tripling of oil prices since 2002 has reduced GDP by 2.4 to 3.2 percent, spread out over a number of years.”
In “Banking on Basel: An Alternative for Capital Requirements,” senior economist and policy advisor Kenneth J. Robinson and financial industry analyst Kory Killgo examine the potential effects of proposed Basel IA capital requirements on Eleventh District banks.
Banks with more conservative portfolios could experience a decrease in capital requirements, while those with more aggressive portfolios might see an increase, according to Robinson and Killgo. The result could be that aggressive banks might have to adjust their capital positions by reducing dividends, issuing stock or qualified debt, or rebalancing their portfolios toward less risky holdings.
“Since capital supports lending activity, changes to banks’ capital profiles could affect credit availability and local economies,” the authors write.
Find the July/August issue of Southwest Economy online at www.dallasfed.org.
Phone: (214) 922-5307