The Federal Reserve Bank of Dallas recently released the report Regional Outlook: Moderate Growth Ahead. They discuss the current state of the Texas economy and where it’s likely headed. They find a combination of challenges and opportunities on the horizon.
Here are the highlights:
- Economic growth in the Eleventh District moderated somewhat as oil prices fell to five-year lows. Oil well permits and the Texas rig count have seen significant declines, and exports have continued to fall.
- Conditions outside the energy sector were generally upbeat in December data as payroll employment rose an annualized 3.7 percent, the unemployment rate continued to trend downward and the Texas Business Outlook Survey (TBOS) indexes remained positive. However, TBOS indexes fell markedly in January.
- Consistent with these developments, the Federal Reserve Bank of Dallas’ forecast for 2015 employment growth in Texas is 2.2 percent, in line with the state’s long-term average but slower than the 3.6 percent growth seen in 2014.
- Six weeks ago, available data suggested low oil prices had not yet significantly affected energy activity. That has now changed. The Texas rig count fell by 143 from the first week in December to the third week in January—the most rapid decline since the onset of the 2007–09 recession—after hovering around 900 throughout November. Well permits, a leading indicator of future oil production, have fallen a staggering 50.6 percent since October.
- Texas exports declined a non-annualized 11 percent from August to November, compared with a 3.3 percent increase for the rest of the nation. Anecdotal evidence suggests exports of chemical and petroleum products may be largely responsible for the slowdown, along with a rise in the Texas trade-weighted value of the dollar.
- Increases in components of the Texas Leading Index resulting from a rise in the U.S. leading index were more than offset by decreases resulting from lower oil prices, the fall in well permits and an appreciating dollar.
- Based on the net drop in the Texas Leading Index, the 2015 employment forecast now stands at 2.2 percent. While broadly similar to the state’s trend growth rate over the past few decades, the forecast is well below the 3.6 percent growth experienced in 2014.
Bottom line: Despite the headwinds of the drop in oil prices, the diversification of the Texas economy and pro-growth policies contribute to an economic outlook that includes moderating growth with employment growing as fast as or faster than the national average this year. The 84th Legislature could help lessen the blow of lower oil prices by limiting spending and providing substantial tax relief this session.