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Texas Rebound Likely Slowed by Renewed COVID-19 Impact on Services, Retail

Yichen Su and Carlee Crocker

November 12, 2020

The Texas economy’s recovery from COVID-19 in the spring continues, though a resurgence of the virus likely contributed to a recent slowing of growth in the service and retail sectors.

Overall, Texas jobs grew at an annualized 3.6 percent in the third quarter, falling short of the national growth rate of 11.9 percent.

Texas jobs expanded an annualized 8.0 percent in August, slowing to 1.0 percent in September (Chart 1). While the state has trailed the national recovery, Texas’ employment contraction in March and April was relatively mild. September payrolls were an annualized 9.7 percent below February 2020 pre-pandemic levels, while national jobs numbers were 11.8 percent lower.

Chart 1: Texas Growth Slower than U.S. in Third Quarter, Though Pandemic Net Job Loss Smaller

Downloadable chart | Chart data

Job growth in Texas has been broad based since July, led by government, professional and business services, and the information sector. Leisure and hospitality, which experienced the sharpest payroll drop at the onset of the pandemic, recorded steady growth, while energy jobs were added in September for the first time since April 2019.

Among major Texas metros, Austin’s employment growth in August and September was strongest. Though Houston payrolls steadily expanded in September, cumulative job losses since February remain the largest among the major metros.

Indicative of slowing job expansion, the Texas unemployment rate rose to 8.3 percent in September from 6.8 percent in August and exceeded the national rate (7.9 percent) for the first time since March, according to the Bureau of Labor Statistics. The state’s increase occurred as initial unemployment insurance claims trended down from August through October (Chart 2).

Chart 2: Initial Unemployment Insurnace Claims Decline After March Run-up, Remain Elevated

Downloadable chart | Chart data

The Federal Reserve Bank of Dallas’ Texas Weekly Employment Estimate, produced with high-frequency data, suggests 8.0 percent annualized job growth occurred in October, substantially higher than in September.

Economic Activities Continue to Recover

The Texas Business Outlook Surveys registered positive results for September and October, pointing to a continued recovery (Chart 3). Both manufacturing and services indicated robust growth in September. While manufacturing growth continued in October, gaining some momentum, services and retail respondents reported slowing expansion. The rig count in Texas has increased since September, suggesting mild improvement in the energy sector.

Chart 3: Texas Business Activity Keeps Expanding; Consumer Spending, Mobility and Engagement Mostly Flat

Downloadable chart | Chart data

Texas COVID-19 Cases Rise Again; Pace Slower than in U.S.

The COVID-19 incidence in Texas rose in October after remaining largely flat in September. However, the state’s caseload increase is less pronounced than the nation’s. The Dallas Fed’s Mobility and Engagement Index flattened in October. The COVID-19 resurgence during October did not yield a concurrent statewide spike in deaths.

The recent COVID-19 surge was particularly notable in El Paso County, which reached record infection rates in October that continued into November. It has challenged the local economy, with calls by public officials to limit all activity causing a concurrent decrease in the Mobility and Engagement Index there.

Consumer Spending Moderates, Delinquencies Rise, Home Sales at Record High

Consumer spending was little changed in September and October after growing in August.

Consumer loan data show that recent delinquency rates (30–89 days past due) for Texas consumer loans (credit cards, mortgages and auto loans) rose slightly in September, after declining following the onset of COVID-19. The uptick may be attributed to a depletion of household savings following the end of federal stimulus that included supplemental unemployment insurance relief programs.

Home sales boomed in Texas, with single-family inventory at record lows during the summer, particularly in the suburbs. Texas homeownership soared 3.8 percentage points from the first quarter to the second quarter and 2.8 percentage points from the second to the third quarter. Since the beginning of the year, overall growth is a net 6.2 percentage points—greater than the increase in homeownership from 1997 to 2007.

Texas Exports Steady in September After Three Months of Growth

Texas exports were little changed in September—just as U.S. exports picked up—after recovering at a faster pace than the rest of the nation from June to August.

Because of large export declines in April and May, Texas sustained a larger net export decline relative to U.S. exports through September. Energy exports drove the large Texas swings; excluding the energy sector, Texas and U.S. export activity has been similar.

COVID-19 Resurgence Concerns, Legislative Outlook Drive Uncertainty

Most businesses do not anticipate changes in their capital expenditures, employment, or wages and benefits over the next six months, according to Texas Business Outlook Survey respondents.

Among those businesses that do anticipate changes, more foresee increases rather than decreases in capital expenditures, employment and wages. Although the net expectation for six-month growth in capital expenditures is positive, it remains below year-ago levels.

Respondents said COVID-19 concerns and a lack of legislative clarity drove up uncertainty and a scaling back of operations. The weak oil market, rising input costs and staffing difficulties were cited as additional constraints.

The Dallas Fed employment forecast predicts a 4.2 percent decrease in Texas employment on a December-to-December basis. Based on that forecast, 539,000 jobs will be lost this year. The forecast, though slightly improved from a projected decline of 4.8 percent in September, remains the first year-over-year decline since 2009 during the Great Recession.

About the Authors

Yichen Su

Su is a research economist in the Research Department at the Federal Reserve Bank of Dallas.

Carlee Crocker

Crocker is a research analyst in the Research Department at the Federal Reserve Bank of Dallas.

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

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