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Tight Labor Markets Could Constrain Texas Growth, Says Dallas Fed's Southwest Economy

Latest issue also looks at surging industrial construction, district banking conditions, Mexico's fiscal reform and Texas graduation rates

For Immediate Release: June 21, 2019

DALLAS—The Texas job market continues to expand, and unemployment rates have fallen to record lows in many major metro areas. But as businesses struggle to find workers, this trend could pinch economic growth, according to the Federal Reserve Bank of Dallas' Southwest Economy.

"A tight job market significantly affects the economy," writes Christopher Slijk in "Texas Facing Historically Tight Labor Markets, Constraining Growth." "It increases workers' bargaining power and pushes up wages and benefits. It limits companies' ability to expand because finding and retaining workers becomes more difficult even as labor costs increase."

The state's job growth has been augmented by strong domestic and international migration as many workers move to Texas for employment. However, recent data suggest that these movements have slowed, which could make it tougher to fill open jobs.

In fact, business owners are already finding it hard to attract and retain workers, according to the Dallas Fed's Texas Business Outlook Surveys. Starting in late 2017, a majority of firms have had trouble finding qualified applicants to fill open positions. Comments from respondents indicate that the lack of workers is impeding expansion and slowing hiring, according to Slijk.

"Until the issue of shortages in Texas is resolved, it is likely that businesses will struggle trying to hire employees or replace workers lost in the course of normal turnover," Slijk writes.

Texas' economic growth has fueled demand for industrial space, write Laila Assanie and Michael Weiss in "Texas Industrial Building Booms as Economy, Population Grow." Dallas–Fort Worth now leads the nation in industrial construction and Houston is among the top six markets, according to the authors.

The surge in construction has been accompanied by increased employment in the transportation and warehousing sector and has driven industrial availability rates into the single digits in Austin, DFW, Houston and San Antonio since early 2016.

"The outlook for Texas' industrial markets is mostly positive for the year. The state's broad economic expansion persists, and job growth is forecast at close to 2 percent," the authors write.

In this issue's Spotlight article, Jesus Cañas examines why Mexico's fiscal reform has earned mixed reviews. Also in this issue, Kelsey Reichow and Amy Chapel analyze the performance of banks in the Eleventh Federal Reserve District in "Eleventh District Banks Have Performed Well Despite Rising Funding Costs, Nonbank Competition."

Southwest Economy also goes "On the Record" with Charlie Amato, chairman and co-founder of Southwest Business Corp., who discusses state business conditions and issues facing the Texas economy. And the latest "Go Figure" infographic looks at how the state stacks up in high school and college graduation rates.

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