This commentary originally appeared in the McAllen Monitor on April 6, 2015.
By Vance Ginn and Kolten Morris
The U.S. Bureau of Labor Statistics and the Federal Reserve Bank of Dallas recently provided evidence of continued job creation in Texas, but noted that the pace moderated recently from lower oil prices and an appreciating U.S. dollar. Therefore this is an opportune time for the 84th Texas Legislature to consider tax relief to sustain the Texas Miracle.
Net nonfarm job creation in Texas slowed to 7,100 in February, compared with the 2014 average of 33,950 per month. Despite fewer jobs added, that month marked the 53rd straight month of positive job creation.
A major indicator of future performance and growth in the oil and gas sector is the state’s rig count. A major drop in oil prices typically causes the rig count to fall — and with it the number of jobs in the energy sector. Since last November, the rig count in Texas declined by 41 percent to 538 in early March. For each rig stoppage, jobs are potentially lost in production, service and administrative areas of the energy sector whereby there were 3,500 fewer net oil and gas jobs in February weighing down employment growth.
If oil prices remain depressed, the rig count will continue to fall increasing the likelihood of fewer oil and gas jobs slowing total employment growth.
While the oil and gas sector may continue to lose jobs, the Dallas Fed doesn’t expect a major employment contraction across all industries. One reason is that the drop in oil prices leads to lower gasoline prices supporting positive economic activity and job creation.
For example, there were 16,300 net jobs added in the retail trade, transportation and utilities industries that benefit from lower gasoline prices in February. Overall, net job growth over the last twelve months was 357,300, suppressing unemployment and creating more opportunities for all Texans to prosper.
Texans have reaped the benefits of a 4.3 percent unemployment rate — the lowest in seven years. This rate remains at least 1.2 percentage points lower than the other largest states: California, New York and Florida. Moreover, February was the 98th consecutive month that Texas’ unemployment rate has been at or below the national average.
This lower unemployment rate feat is even more impressive when you consider how many Americans have stopped looking for work after an unsuccessful job search.
While the nation’s reported 5.5 percent unemployment rate in February is near what some consider “full employment,” it doesn’t tell the whole story as the nation’s shares of the population in the labor force and employed are about 3 percentage points lower than pre-Great Recession levels.
The same may not be said for Texas. The shares of the population in the labor force and employed are back near pre-recession levels, indicating the relative strength of the state’s labor market.
However, the appreciating dollar during the last few months also contributes to fewer exports, thus slowing economic activity and job creation in manufacturing and other related areas.
As the state approaches what may be a period of slower economic growth, the 84th Texas Legislature should take steps to preserve the economic gains that Texas has made and push for reforms that would encourage further prosperity.
It’s encouraging to see valuable strides to boost the Texas model’s success were taken recently by the Texas Senate with the passage of a $4.6 billion tax relief package that would be the largest tax cut in the state’s history. The Texas House would be wise to pass a similar package, particularly one that has the biggest bang for the buck by repealing the business franchise tax.
By equipping Texans with more liberty to spend or save their hard-earned money as they see fit, the economy can better withstand the challenges today and in the future thereby generating the most opportunity for Texans to succeed.
Dr. Vance Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He may be reached at [email protected].
Kolten Morris is a research associate in the Center for Fiscal Policy at the Texas Public Policy Foundation. He may be reached at [email protected].