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Texas Economic Outlook Brightens Heading Into 2017, Says Dallas Fed Economist

For Immediate Release: Dec. 15, 2016

OPEC decision creates ‘guarded optimism’ for energy producers; manufacturing improves

DALLAS—The Texas economy is poised to improve in 2017 as energy pressures ease, said Federal Reserve Bank of Dallas economist Keith Phillips in the latest Texas Economic Update video.

“The outlook for the Texas economy next year is slightly better than the growth that we saw for this year,” Phillips said. “Toward the end of the year, the energy sector as well as the manufacturing sector stabilized, and that’s good news for the Texas economy, which saw a lot of weakness in the first half of this year.”

A recent OPEC decision to reduce production levels by January has led to cautious optimism in the Texas oil patch, Phillips said.

“Producers in Texas as well as throughout the U.S. are always guarded in their optimism as they want to make sure these cuts actually occur, but I think it’s led to the view that oil prices are more likely to increase next year than to decrease,” he said.

The Dallas Fed’s Texas Manufacturing Outlook Survey showed an increase in factory activity in November, while other indexes, such as company outlook, general business activity and employment, increased to levels not seen since last year.

A pickup in job growth in the second half of the year also bodes well for the Texas economy, Phillips said. Growth in most of the state’s major metro areas has accelerated since June, with job gains broad based across industries.

While most indicators point to continued strength in the Texas economy, potential headwinds include a rise in the Texas trade-weighted value of the dollar, according to Phillips. A stronger dollar means that Texas exports are more expensive internationally, which can have a negative effect on manufacturing activity tied to exports, he said.

In addition, a tight labor market has led to increased wage pressures in both manufacturing and services, according to Texas Business Outlook Survey respondents.

“I think that’s due to the fact that employers are having difficulty finding workers, particularly in those areas that have been growing strongly, such as Dallas and Austin,” Phillips said. “These increased pressures on wages are certainly good for workers, but if they’re not met with productivity increases, in the long run they can cause increased price pressures.”

More data on the Texas economy can be found in the most recent Regional Economic Update. Phillips is an assistant vice president and senior economist at the San Antonio Branch of the Dallas Fed.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org