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2015 Texas Economic Outlook:
Tapping on the Brakes
Keith Phillips
Sr. Economist and Research Officer
The views expressed in this presentation are strictly those of the presenter and do not necessarily reflect the positions of the
Federal Reserve Bank of Dallas or the Federal Reserve System. Any secondary distribution of this material is strictly prohibited.
National Economy Picking Up
• Consumer spending picked up in 2014 as
housing prices and stock market
improved, and consumer debt fell
• Declining energy prices in second half
provided a further boost
• Europe remains a question mark but if
energy prices remain low, US economy
should pick up further in 2015
Average Job Growth of 260K per Month in 2014
After 199K in 2013 (2.3% vs 1.8%)
Thousands,SA
600
400
200
0
-200
-400
-600
-800
Source: Bureau of Labor Statistics
-1000
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
U.S. Leading Index Suggests Continued
Good Growth over Next 6 Months
Annualized
% change
20
15
12-month
6-month
10
5
0
-5
-10
-15
-20
1960
1965
1970
1975
1980
Source: Conference Board, Federal Reserve Bank of Dallas
1985
1990
1995
2000
2005
2010
2015
RGDP Grew 2.5% in 2014, January Blue Chip
Survey Projects 2.8% in 2015
SAAR, Percent
8.0
2013 3.1%
2014 2.4%
Q4/Q4
Q4/Q4
6.0
4.6 2012 2.0%
Q4/Q4
3.9 3.9
4.0
1.3
4.5
2015 2.8%
Q4/Q4
3.5
2.7 2.5 2.9
2.0
5.0
4.6
1.7
2.7
2.3 2.5
2.2
1.8
1.6
0.8
0.1
0.0
-0.5
-2.0
-1.5
-2.1
-4.0
-5.4
-6.0
-8.0
-8.2
-10.0
Source: Blue Chip Economic Indicators
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
TX Economy Has Grown Above Trend and
Stronger than Most States
• In past five years growth in energy, construction and exports
provided a strong stimulus to Texas.
• 2014 growth was broad based across sectors. Energy,
construction, business services, health care, exports and
tourism strong. Government sector improved.
• In 2015, low oil prices and continued labor market tightness
will likely restrain growth. Strong dollar may dampen exports.
I expect job growth will slow in 2015 to between 1.0% and
2.0% (from 3.4% in 2014).
Texas Economy Growing Well Above Trend
(Texas Business Cycle Index)
M/M SAAR
12
10
8
6
4
2
2.6% trend
0
-2
-4
-6
-8
NOTE: Shaded areas represent Texas recession.
Texas Ranked Sixth in Job Growth in 2014
Percent Change,
Dec. 2013 - Dec. 2014
5
4.5
4
3.5
TX
3
2.5
U.S.
2
1.5
1
0.5
0
ND
FL
GA
UT
NV
TX
CO
OR
WA
CA
NC
SC
AR
AZ
TN
US
DE
ID
KY
MA
LA
WY
MI
WI
OK
NY
AL
NM
MD
CT
IN
IA
KS
OH
NH
MN
RI
PA
IL
DC
VT
AK
VA
SD
MO
NJ
NE
MS
MT
ME
HI
WV
-0.5
Source: Bureau of Labor Statistics
Texas Jobs Growing Faster Than Nation’s
Percent, Job
Growth Y/Y
5
U.S.
Texas
4
3.5
3.4
2.7
2.3
2.1 2.3
1.8
1.6 1.7
3
2
0.8
1
0
-1
-2
-3
-3.4
-4
-5
-3.8
Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Job Growth is Broad-Based Across
Large Texas Metro Areas
Nonfarm Employment Index
Aug. 2008=100
120
Austin
115
Houston
San Antonio
Dallas
TX
Ft. Worth
110
Corpus Christi
105
El Paso
U.S.*
100
95
90
2008
2009
2010
2011
*Indexed from U.S. Peak Employment in January 2008
Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas
2012
2013
2014
2015
Texas Unemployment Rate Low and Falling
Percent, SA
10.5
9.5
US unemployment rate
8.5
7.5
6.5
5.7
(Jan.)
5.5
Texas unemployment rate
4.5
4.4
(Jan.)
3.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas
Job Growth Broad-Based Across Industries
Dec/Dec
Percent Change
20
Oil & Gas
(Job Growth 2011-2014)
15
10
Construction
Manufacturing
Business
Services
Finance,
Insurance, &
Real Estate
Trade,
Transportation,
& Utilities
5
Leisure &
Hospitality
Information
Services
Health &
Education
Government
0
Share of Total Employment
-5
(2.6%)
(5.5%)
(20.1%)
(7.6%)
(13.4%)
(6.1%)
Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas
(10.3%)
(1.8%)
(13.2%)
(15.9%)
Texas Construction Contract Values
Increased Strongly Last Year
Real $, Mil
5MMA, SA
8000
7000
Total
6000
5000
4000
Residential
3000
Non Residential
2000
1000
Non Building
0
1990
1992
1994
1996
1998
2000
Source: F.W. Dodge, Federal Reserve Bank of Dallas
2002
2004
2006
2008
2010
2012
2014
TX Home Inventories Remain
at Historically Low Levels
Months
18
Texas 3.4
16
U.S. 5.2
14
12
10
8
Jan.
2014
6
4
2
0
Source: Multiple Listing Service
Mortgage Foreclosures Back to Normal levels
but Delinquencies Remain Elevated
5
4.5
TX Delinquencies
TX Foreclosures Started
US Delinquencies
US Foreclosures Started
4
3.5
3
2.5
2.1
2
1.9
1.5
1
0.46
0.5
.35
0.34
0
1998
1999
2000
2001
2002
Source: Mortgage Bankers Association
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Low TX Office Vacancy Rate Likely to Motivate
Continued Strength in Office Construction
Real, Millions $,
5MMA
Percent
450
35
Office and Bank
Buildings
Contract Value
400
350
30
Office Vacancy
Rate
300
25
250
20
200
150
15
100
10
50
0
5
'86
'88
'90
'92
'94
'96
'98
'00
Source: F.W. Dodge, CBRE, Federal Reserve Bank of Dallas
'02
'04
'06
'08
'10
'12
'14
TX Manufacturing Production Growth Slow,
New Orders Falling
Index
100
80
60
40
Feb-15
20
0
-20
-40
-60
Production
Volume of New Orders
-80
-100
Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15
Texas Exports Have Weakened in Recent
Months as Value of the Dollar has Risen
Index, SA, Real
Jan. 2000=100
260
Texas Value of the Dollar
Index
Jan. 1988=100
110.0
105.0
240
100.0
220
95.0
200
90.0
180
Texas
85.0
160
80.0
140
75.0
120
100
70.0
U.S. minus Texas
80
65.0
60.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: U.S. Census, Bureau of Labor Statistics, WISERtrade Federal Reserve Bank of Dallas
Oil Prices Low, Drilling Rig Count
In Sharp Decline
Number
1000
Nominal $
Rig Count
160
900
140
800
120
700
100
600
80
500
60
400
40
Oil price
300
Gas price(*10)
200
20
0
Source: Oil and Gas Journal, Baker Hughes.
Hughes
Low Oil Prices Will Likely
Dampen TX Job Growth in 2015
• Oil prices have declined over 50% since last July, initial drop
from $106 to $80 likely was good for TX economy
• Sustained drop from $80 to $50 will hurt TX economy - $50 is
below the breakeven point for majority of shale drilling.
• Texas GDP growth will likely weaken more than jobs as output
per worker in mining is about 4.6 times more than average for
the state.
Energy’s Share of TX Economy
Increased with Shale Drilling
Percent, SA
5
Percent
16
Mining as a Share of
Nominal Texas GDP
4.5
13.5 %
14
4
12
3.5
10
3
2.5
2
2.7 %
Mining as a Share of
Total Texas Employment
8
6
1.5
4
1
0.5
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
NOTE: GDP values prior to 1997 and employment values prior to 1990 extrapolated from SIC coded data.
SOURCES: Bureau of Labor Statistics, Bureau of Economic Analysis, FRB Dallas.
2
0
TX Job Growth Relative to Nation
Impacted by Oil Prices
Real price, $,
monthly average
160
Percent difference in TX
and U.S. growth, 12MMA
4
Texas Job Growth
Relative to U.S.
3
140
2
120
1
100
0
-1
80
Real Oil Price
-2
60
-3
40
-4
20
-5
-6
1982
0
1984
1986
1988
1990
1992
1994
1996
SOURCES: Wall Street Journal, Bureau of Labor Statistics.
1998
2000
2002
2004
2006
2008
2010
2012
2014
Recent Weakness in Leading Index Led By
Declining Oil Prices and Rising Dollar
Texas Leading Index Components, 3 month change
November -January
Net Change in Texas Leading Index
-3.54
Texas Value of the Dollar
-1.03
U.S. Leading Index
0.31
Real Oil Price
-1.41
Well Permits
-1.30
New Unemployment Claims
-0.47
Texas Stock Index
0.15
Help Wanted Index
0.45
Average Weekly Hours
-0.25
-4.00
-3.50
-3.00
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
Texas Job Growth Likely to be about
1.0–2.0% in 2015, down from 3.4% in 2014
Index
(1987=100)
135
Millions of Jobs
12.5
12.0
130
Leading Index
125
11.5
120
11.0
115
10.5
110
Texas Nonfarm Employment
and TLI Forecast (with 80%
confidence band)
10.0
105
9.5
100
9.0
Jan-00
95
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas, author's calculations
Jan-12
Jan-14
Jan-16
San Antonio has a Small Share of Jobs in the
Oil and Gas Industry
El Paso*
Brownsville-Harlingen
Mcallen-Edinburg-Pharr
Sherman-Denison
San Antonio
Beaumont-Port Arthur
Austin-Round Rock
Lubbock
Dallas-Fort Worth-Arlington
Laredo
Amarillo
College Station-Bryan
Houston-Baytown-Sugar Land
Corpus Christi
Tyler
San Angelo
Abilene
Victoria
Longview
Odessa
Midland
0
5
10
15
20
Share of Employment in Mining Sector
*El Paso data as of 2008. All others as of 2012. Source: Bureau of Economic Analysis
25
30
No Clear Boost to San Antonio Job Growth
from Eagle Ford Development
Y/Y job growth
8
6
Texas
San Antonio
4
2
0
-2
-4
-6
1992
1994
1996
1998
2000
SOURCE: Bureau of Labor Statistics, Federal Reserve Bank of Dallas.
2002
2004
2006
2008
2010
2012
2014
Summary
• U.S. economy picked up in 2014 – lower oil prices at year end
stimulating further gains in consumer spending
• TX growth was strong and broad-based in 2014 - initial oil
price decline from $106 to $80 had positive impact.
• Movement of oil prices from $80 to $50 will have negative
impacts but growth likely to remain positive.
• This year Texas job growth likely to moderate to 1.0-2.0%
• Bottom line: Texas likely to continue to grow but not nearly as
strongly as last year.