Regional Economic Analysis
Texas Employment Forecast
Incorporating November employment growth of 2.1 percent and revised October leading index data into the Texas Employment Forecast suggests jobs will grow 1.6 percent this year (December/December), up slightly from last month’s estimate of 1.5 percent. Based on the forecast, 194,100 jobs will be added in the state this year and employment in December 2016 will be 12.1 million (Chart 1).
Revisions to the Dallas Fed’s Texas Leading Index show that the index picked up slightly over the three months ending in October, rising 0.13 percent (Chart 2).
“Job growth since midyear has averaged 2.5 percent, after growing only 0.8 percent in the first half,” said Keith R. Phillips, Dallas Fed assistant vice president and senior economist. “Recent revisions to the Texas Leading Index show a slight increase in the index over the three months ending in October. The moderate pace of job growth over the past several months and the slight gains in the leading index suggest that job growth should be stable to slightly stronger in the months ahead. More recently, respondents to the November Texas Business Outlook Surveys reported increased optimism about the outlook. ”
Growth in the components of the Texas Leading Index was mixed over the three months ending in October. The increase in the value of the dollar and decline in stock prices of Texas-based companies were moderate drags on the leading index. However, an increase in new well permits and the oil price were positive contributors.
“Overall, broad indicators of the Texas economy continue to point toward sustained moderate growth in the months ahead,” said Phillips. “With the stabilization of the energy sector, some recent improvement in the manufacturing sector and increased optimism by Texas businesses, the Texas economy is likely to improve moderately in 2017.”
Next release: January 20, 2017
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 forecasters 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.