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Texas economy sees ‘downshift in growth’ but remains strong, says Dallas Fed economist

For Immediate Release: February 1, 2019

DALLAS—Texas economic growth slowed a bit in the fourth quarter, according to the Federal Reserve Bank of Dallas’ latest Texas Economic Update.

“The level of economic activity in Texas remains strong, but we have seen a downshift in growth over the past couple of months,” said Emily Kerr, Dallas Fed senior business economist, in a video accompanying the release.

Texas added jobs at a 2.5 percent pace in the fourth quarter, according to the report. That was slightly slower than growth of 2.7 percent in the third quarter. With the exception of Fort Worth and San Antonio, most Texas metros saw slower growth.

In addition, the Dallas Fed’s Texas Business Outlook Surveys showed notable declines in the production and revenue indexes in December and January, suggesting slower output growth, according to Kerr. Survey respondents also reported difficulty passing costs on to their customers, resulting in narrower operating margins.

“Texas businesses expect wage and price growth to moderate somewhat in 2019 but still remain elevated. In fact, they expect that their selling price growth won’t be able to keep pace with the growth they’re seeing in wages and other input costs,” Kerr said. “We asked a supplemental question on this in our December Texas Business Outlook Surveys and we found that the vast majority of contacts, although they were seeing increased costs, weren’t able to fully pass those costs on to customers, and this naturally puts a squeeze on their margins.”

Partly as a result of a sharp decline in the Texas Leading Index in November and December, the Dallas Fed’s Texas Employment Forecast for 2019 was revised downward to a range of 1 to 2 percent.

“This range of 1 to 2 percent, if realized, is a bit slower growth than we typically see in Texas. Typically, we see about 2 percent job growth per year,” Kerr said. “Headwinds going forward for the Texas economy are lower oil prices, a stronger dollar, tariffs, labor constraints, higher interest rates and pretty high uncertainty.”

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