Indicators of Slowdown Rising in Texas; Worth Pressures Ease


Mytiah Caldwell and Yichen Su

August 04, 2022

The Texas financial system continued increasing in June and July, although at a decelerating tempo in contrast with earlier this yr. There are rising indicators of slowing exercise—significantly weakening demand in manufacturing—at the same time as total job progress stays sturdy.

Enterprise outlooks have been unfavourable, and worth and wage pressures eased in July. House costs in some metros seem to have peaked, and house hire will increase are slowing.

Texas Job Progress Robust

Texas employment progress accelerated to an annualized 7.3 p.c in June, exceeding the downwardly revised 5.6 p.c charge in Could. The state’s growth was broad primarily based through the second quarter. Texas outpaced the nation in all sectors besides authorities (Chart 1).

Chart 1: Second-Quarter Texas Job Growth Exceeded U.S. in All Sectors, Except Government

Downloadable chart | Chart knowledge

The fastest-growing sector was power, the place employment elevated at an annualized 22 p.c charge. The knowledge, leisure and hospitality, and development sectors additionally strongly expanded within the second quarter. Dallas and Houston led the main Texas metropolitan areas in employment through the quarter, with Dallas gaining 9.7 p.c on an annualized foundation and Houston rising 7.7 p.c.

The Dallas Fed’s Texas employment forecast initiatives 4.5 p.c progress this yr (December over December), an upward revision from the earlier forecast due to the sturdy June efficiency. These beneficial properties pushed the expansion charge within the first half of the yr to an annualized 5.8 p.c. Whereas the employment forecast implies a slowing within the second half, the state ought to nonetheless exceed its historic common of two p.c progress.

The Texas unemployment charge dropped to 4.1 p.c in June from 4.2 p.c in Could. The jobless charges for Black and Hispanic employees decreased greater than for white employees over the primary half of the yr. The advance signifies that the racial hole in unemployment charges noticed through the peak of the COVID-19 pandemic has narrowed significantly this yr.

Financial Exercise Grows in July; Outlooks Stay Pessimistic

The Texas financial system expanded in June and July, though the tempo of progress slowed significantly in contrast with earlier this yr, in response to Dallas Fed’s Texas Enterprise Outlook Surveys (TBOS). The manufacturing manufacturing index elevated from 2.3 to three.8 from June to July, whereas the service sector income index was largely unchanged (Chart 2). TBOS indexes are diffusion indexes, with constructive values sometimes indicating progress and unfavourable ones reflecting contraction.

Chart 2: Texas Economy Continues to Expand, Though at a Slower Pace

Downloadable chart | Chart knowledge

Whereas manufacturing manufacturing progress remained constructive, indexes of producing demand comparable to new orders and the expansion charge of orders indicated contraction in June and July, reaching their lowest ranges since mid-2020.

The retail sector has struggled this yr, with gross sales falling at an accelerating charge. Regardless of the weak point reported by retailers, state gross sales tax income rose 16.4 p.c yr over yr in June, suggesting spending has gained relative to final yr.

In June, TBOS survey respondents have been requested a particular query about constraints on income. Responses counsel that weak demand more and more restricted companies’ income; 26 p.c of companies pointed to weak demand in June, in contrast with 15 p.c in March 2022.

Provide-chain constraints and labor shortages remained the highest challenges cited. Moreover, TBOS particular questions in July present the share of companies seeking to rent employees has decreased since April, reaching its lowest level in over a yr. Even with barely lowered labor demand, most survey respondents reported that hiring stays troublesome, although the problem filling low- and mid-skill positions moderated in July relative to November 2021, when this query was final requested.

Regardless of the continued growth, companies’ outlooks have been pessimistic in June and July (Chart 3). Companies expressed rising uncertainty and fear a few potential financial slowdown.

Chart 3: Firms' Outlooks Worsened in June, July; Uncertainty Increased

Downloadable chart | Chart knowledge

Nonetheless, since power manufacturing makes up a bigger portion of the Texas financial system than it does of the nationwide financial system, the state normally outperforms the U.S. when oil and fuel costs are excessive. Chart 4 plots the Texas job progress premium (Texas 12-month job progress charges minus the nationwide 12-month job progress charge) and the concurrent sequence of benchmark West Texas Intermediate oil costs.

Chart 4: Texas Often Outperforms the U.S. Economy When Oil Price is High

Downloadable chart | Chart knowledge

The chart depicts a robust diploma of co-movement between these two sequence. Within the occasion of a nationwide slowdown or a recession, this relationship means that the Texas financial system could outperform the nation given current excessive oil and fuel costs.

Housing Market Slows

The housing market is displaying indicators of slowing. The months-of-supply of properties throughout Texas metros was greater in June than on the similar time final yr. Particularly, Austin skilled a extra speedy enhance in properties on the market than different metros, and the variety of gross sales dropped extra shortly than in different areas. The speed of enhance in residence costs slowed in June, with the median worth plateauing in Houston and San Antonio and declining barely in Austin.

Lease progress equally decelerated throughout Texas metros, with Austin experiencing probably the most pronounced slowdown after a yr of rising rents that led different Texas metros in 2021. Residence occupancy charges have remained excessive over the previous few months.

The Dallas Fed’s Banking Circumstances Survey reveals continued progress in mortgage quantity in June, although residential actual property lending was flat. Texas monetary establishments count on mortgage demand to weaken in coming months.

Worth and Wage Stress Eases in July

Worth pressures have grown—the Houston metro’s Client Worth Index (CPI) for June, which reached an annualized 10.2 p.c, topped the 9.1 p.c nationwide CPI studying. Particularly, power and meals costs rose extra in Houston than within the U.S.

Nonetheless, TBOS outcomes point out that upward worth stress in Texas probably eased in July (Chart 5).

Chart 5: Upward Price Pressure Eased in July, Texas Business Outlook Survey Indicates

Downloadable chart | Chart knowledge

The manufacturing enter worth index decreased sharply, from 57.5 in June to 38.4 in July. The service sector enter and promoting worth diffusion indexes additionally declined after remaining at highs by June. Based mostly on the survey outcomes, inflation seems to have slowed in Texas in July.

In regards to the Authors

Mytiah Caldwell

Caldwell is a analysis analyst within the Analysis Division on the Federal Reserve Financial institution of Dallas.

Yichen Su

Su is a analysis economist within the Analysis Division on the Federal Reserve Financial institution of Dallas.

The views expressed are these of the authors and shouldn’t be attributed to the Federal Reserve Financial institution of Dallas or the Federal Reserve System.

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