The Federal Reserve Bank of Dallas recently released a regional economic update providing a snapshot of the Texas economy so far this year. They note there are potential headwinds on the horizon from the large drop in oil prices but overall things are percolating along.

Texas continued as one of the nation’s leaders in job creation with 357,300 jobs added in the last twelve months through February. The exemplary 3.1 percent rate of job creation in Texas during that period contributed to a drop in the state’s unemployment rate to a seven-year low of 4.3 percent.

However, the Dallas Fed explains that the sustained lower oil prices became a drag on the Texas economy as growth moderated so far in the first quarter of 2015.

The figure below shows that while employment across many sectors decelerated from its breakneck pace in the last quarter of 2014 most sectors continue to expand benefiting Texans. According to the Dallas Fed, the oil and gas sector may lose jobs for the first time in five years in the first quarter of 2015 due to sustained lower oil prices.  

A major indicator of future performance and growth in the oil and gas sector is the rig count across the state. The next figure presents the statewide rig count alongside oil and natural gas prices. A major drop in oil prices typically causes the rig count to fall—and with it the number of jobs in the energy sector. For each rig stoppage, jobs are potentially lost in production, service, and administrative areas of the energy sector. If the rig count continues to fall, Texas should expect fewer oil and gas jobs. 

While the oil and gas sector may lose jobs, the Dallas Fed doesn’t expect a major contraction statewide. The next figure shows that cities more reliant on the oil and gas sector, like Houston, may experience the biggest slowdown in job growth. The contraction in El Paso can be attributed to cuts in federal spending, where government jobs make up a disproportionate share of metro employment. Austin, Dallas/Fort Worth, and San Antonio on the other hand should see more job creation in the first quarter of 2015. 

Despite the slowdown in some Texas cities, the state economy as a whole is continuing to expand thanks to low taxes, limited regulation, and a sensible lawsuit climate of the Texas Model. The Dallas Fed report highlights several other positive trends that reinforce this claim such as continued growth in retail and services, and high, steady levels of home sales.

As the state may be approaching a period of slower economic growth, the 2015 Legislature should take steps to preserve the economic gains Texas has made in the last year and push for reforms that would encourage further prosperity. Meaningful, lasting property tax and business margin tax relief are two obvious options that would free up additional resources providing more liberty for Texans to spend or save as they see fit and sustain economic growth in the Lone Star State.