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Texas Employment Forecast

March 24, 2017

Incorporating February employment growth of -0.1 percent and a slight increase in the February leading index into the Texas Employment Forecast suggests jobs will grow 2.3 percent this year, (December/December) down from our previous forecast of 2.7 percent. Based on the forecast, 284,700 jobs will be added in the state this year, and employment in December 2017 will be 12.4 million (Chart 1).

The Dallas Fed’s Texas Leading Index increased moderately over the three months ending in February, rising 1.23 percent (Chart 2).

“Although jobs declined slightly in February, the strength in January puts growth for the first two months of this year at a healthy 2.7 percent,” said Keith R. Phillips, Dallas Fed assistant vice president and senior economist. “Along with the steady increase in the Texas Leading Index, this suggests that growth will rise above the state’s long-term average of 2.1 percent this year. Last year, job growth in the state was 1.7 percent.”

“Improvement in the energy sector is helping manufacturers that sell to this industry, and some weakening in the value of the dollar in February is reducing the strains on Texas exporters,” Phillips said. “During the first two months of 2017, mining employment jumped at an annualized pace of 13.4 percent, and manufacturing jobs increased 6.2 percent.”

The components of the Texas Leading Index were mostly positive over the three months through February, with significant contributions coming from declining initial claims for unemployment insurance, increases in drilling permits for new oil and gas wells, and a strengthening of the outlook for the national economy. The largest drag on the index was a sharp decline in help wanted advertising.


Latest Texas Job Forecast

Leading Index Components Mixed

Next release: April 21, 2017


Methodology

The Dallas Fed’s Texas Employment Forecast projects job growth for the calendar year and is estimated as the 12-month change in payroll employment from December to December. The forecast reported above is a point estimate with 80 percent confidence bands; in other words, the true forecast lies within the bands on Chart 1 with 80 percent probability.

The Dallas Fed’s Texas employment forecasting model is based on a transfer function that utilizes past changes in state employment along with past changes in the Dallas Fed’s Texas Leading Index (TLI). Changes in the TLI have an impact on employment with a lead time of three months, and the effect dies out slowly over time. The regression coefficients on lagged changes in employment and the TLI are highly statistically significant, and the model as a whole has been accurate relative to other forecasts over the past two decades.

The forecasting model has been in use at the Dallas Fed since the early 1990s, and the employment forecast has been published in the Western Blue Chip Economic Forecast (WBCF) since 1994. Phillips and Lopez (2009) show that the model has been the most accurate in forecasting Texas job growth relative to other forecasters in the WBCF. In particular, the model had the lowest root mean squared error and has been the closest to the actual the most times (nine of the last 17 years) out of five forecasters that have consistently participated in the survey.

For more details about the model and its performance, see “An Evaluation of Real-Time Forecasting Performance Across 10 Western U.S. States,” by Keith R. Phillips and Joaquin Lopez, Journal of Economic and Social Measurement, vol. 34, no. 2–3, December 2009.

Contact Information
For more information about the Texas Employment Forecast, contact Keith Phillips at keith.r.phillips@dal.frb.org.
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