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‘Areas of weakness hard to find’ in Texas, says Dallas Fed economist

State continues to post strong job gains but a tight labor market could restrain growth

For Immediate Release: February 6, 2017

DALLAS—After posting strong job growth in fourth quarter 2017, the Texas economy heads into the new year “with quite a lot of momentum,” said senior business economist Emily Kerr in the Federal Reserve Bank of Dallas’ latest Texas Economic Update.

State employment increased by about 3.7 percent in the fourth quarter, with gains that were broad based across industries and major metro areas, Kerr said. The Dallas Fed’s Texas Employment Forecast calls for 2.8 percent growth in 2018.

Texas saw an increase in economic activity related to recovery efforts after Hurricane Harvey, Kerr said. While that surge tapered off a bit at the end of the year, the state continues to benefit from oil prices above $60 per barrel, rising exports, business optimism stemming from the new federal tax law and strength in the U.S. economy, according to the update.

“With how strong the economy is and how widespread that growth is, areas of weakness are pretty hard to find. We are seeing slower growth along the border, and then one risk to the outlook going forward is certainly the NAFTA renegotiation and what could happen with that,” Kerr said, referring to the North American Free Trade Agreement. “A lot of Texas manufacturing, trade and even services firms that support those industries are really uncertain and apprehensive about what could happen if those trade negotiations fall apart.”

Another key question facing the Texas economy entering 2018 is the extent to which the state can add jobs when the labor market is very tight. The state unemployment rate is near its all-time low at 3.9 percent, according to the update.

“We’re hearing from firms that they’re having trouble finding qualified workers to fill the positions that they have,” Kerr said. “We have this momentum in Texas with this stronger job growth—the economy is expanding, but that could be restrained to some extent as these firms are having difficulty filling these positions.”

Kerr added, “The tight labor market also means that some firms are having to raise wages, whether that’s increasing pay for their current employees to try and retain them or also offering higher wages to attract new employees.”

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