Regional Economic Update: Conditions Good, Outlook Brightening

Federal Reserve Bank of DallasDABE Annual Outlook

1/17/2020

Pia M. Orrenius, Vice President

The views expressed are my own and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or Federal Reserve System.

Regional economy was healthy overall in 2019 Texas job growth close to trend Tight labor markets are pushing wages higher, consumer strong Migration picked up

Headwinds either stable or dissipating slightly as we enter 2020 Labor markets tight but stable Suppress job growth as labor shortages cause difficulty hiring

Investment suppressed but uncertainty improving Tariffs and trade policy uncertainty are a headwind to growth and investment

Energy sector weak but pace of decline slowing Global growth slower, including Mexico, but some positive signs emerging

Roadmap

Federal Reserve District map

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10 years after Great Recession, 11th Federal Reserve District still outperforms

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NOTE: Data through November 2019.SOURCES: Bureau of Labor Statistics; FRB Dallas.

90

95

100

105

110

115

120

125

Peak=t t+12 t+24 t+36 t+48 t+60 t+72 t+84 t+96 t+108 t+120 t+132 t+144

Dallas

San Francisco

Atlanta

New York

Richmond

Kansas City

Minneapolis

Boston

St. Louis

Philadelphia

Chicago

Cleveland

Index, each district's peak employment = 100

Texas 3rd among states in job growth in 2019

5

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50U

T ID TX AZ NV FL WA AL NC

OR

NM CO RI

CA TN DC DE

NE

MA

U.S

.G

A KS NY KY MO SC AR MT

VA SD ME NJ

MD PA MS

NH LA IL ND MI

OH HI

MN CT

WV IA IN VT AK WI

OK

WY

Texas

SOURCES: Bureau of Labor Statistics.

Percent change, Nov 2019/Dec 2018, SAAR

U.S. Energy states denoted in black

2019 Texas job growth above nation’s, close to state trend

6

NOTES: Latest data refers to Nov. 2019/Dec. 2018 annualized growth rate for Texas and Dec. 2019/Dec. 2018 for the U.S.. Long-run trend growth is 1.1 percent for the U.S. and 2.1 percent for Texas.SOURCES: Bureau of Labor Statistics, Texas Workforce Commission; FRB Dallas.

1.42.0

-5

-4

-3

-2

-1

0

1

2

3

4

5

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

U.S. TexasPercent change, year/year, SA

Oil Bust

Tight labor markets a constraint; Texas and U.S. unemployment rates at record lows

7

3.5

3.4

2

3

4

5

6

7

8

9

10

11

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Texas

Percent, SA

U.S.

NOTE: Data through November 2019 for Texas and December 2019 for the U.S..SOURCE: Bureau of Labor Statistics.

0

50

100

150

200

250

300

350

400

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

International migration

Domestic migration

Net migration (thousands)

NOTE: Data are for July of the previous year to July of the year indicated.SOURCE: U.S. Census Bureau.

Large net in-migration allows Texas to grow faster

8

Relocations to Texas more likely to be driven by job market

NOTE: Data refer to 2010-2019.SOURCES: CPS-ASEC, author’s calculations.

Reason Texas Non-Texas

Relocated for job 51 41

Family Reasons 27 27

Amenities 18 24

Other 5 8

By Industry: Broad based job growth, energy the lone exception

10

1.40.4 0.7

1.92.7 2.3

0.41.4

2.01.1

-3.8

2.01.1

0.3

2.53.2

2.22.9

3.5

5.0

0.5

-2.7

-5-4-3-2-10123456

Total(100)

Trade,Transp.& Util.(19.6)

Gov't(15.2)

Prof. &Bus. Serv.

(14.0)

Educ. &Health Serv.

(13.7)

Leisure& Hosp.(10.9)

Mfg.(7.1)

Financial(6.3)

Constr.(6.1)

Info. &Other Svcs

(5.0)

Oil & GasExtract.,

Mining Sup.(1.8)

U.S. Texas2019 YTD percent change in employment, SAAR

NOTES: Data refer to Nov. 2019/Dec. 2018 annualized growth for Texas and Dec. 2019/Dec. 2018 growth for the U.S.. Numbers in parentheses are share of Texas employment for November.SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.

By Metro: Employment growth slowest in energy hubs

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2.0 1.62.2

2.9 2.8 2.41.1

0.2 0.20

2

4

6

8

10

12

14

Texas Houston(24.6%)

Dallas(21.1%)

Austin(8.7%)

Ft. Worth(8.5%)

San Antonio(8.4%)

El Paso(2.5%)

CorpusChristi(1.5%)

Midland-Odessa(1.5%)

2017 2018 Nov. 2019/Dec. 2018

Percent change in employment, Dec./Dec., SAAR

NOTE: Numbers in parentheses refer to the share of Texas employment in the most recent month.SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by Dallas Fed.

Energy activity continues to slow as rig count trends down

12

396

$60.84

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200

100

200

300

400

500

600

700

800

900

1,000

Oil price

Rig count

NOTE: Data are weekly, through the week ending January 10, 2020.SOURCES: EIA; Baker Hughes.

Number of rigs$/bb

Well completions also falling

13

0

100

200

300

400

500

600

700

800

900

1000

0

500

1,000

1,500

2,000

2,500

2014 2015 2016 2017 2018 2019

DrilledCompletedRig count

NOTE: Rig count data through December 2019; all other data through November 2019.SOURCES: Energy Information Administration; Baker Hughes.

Wells, monthly Rig count, monthly

Dallas Fed Energy Survey: activity still declining, but company outlook turns positive in Q4

14

$59

-20

0

20

40

60

80

Business Activity Capital Expenditures Employment Company Outlook Uncertainty End of Year PriceForecast

Q4 2018Q1 2019Q2 2019Q3 2019Q4 2019

Diffusion indexPrice per barrel

NOTE: Price forecast is average year-end forecast of WTI oil price among respondents.SOURCE: Federal Reserve Bank of Dallas Energy Survey.

Texas exports keep hitting records despite tariffs, expensive dollar

15

80

100

120

140

160

180

200

220

240

260

280

300

2002 2004 2006 2008 2010 2012 2014 2016 2018

Index, Jan. 2000=100, SA

NOTES: Data through November 2019. Exports data in real dollars.SOURCES: U.S. Census Bureau; Bureau of Labor Statistics.

Texas trade-weighted value of the dollar

U.S. ex. Texas

Texas

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Texas firms report they are far more likely to be harmed than helped by tariffs

5%

28%

58%

9% Positive

Negative

No impact

Don’t know

Longer term (2020-2021)

Current (2019)

10%

37%

29%

25%

Positive

Negative

No Impact

Don’t know

NOTES: Data collected June 11-19 and 363 business executives responded to the surveys.SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys.

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Texas Business Outlook indexes show services, manufacturing activity diverging at year-end

14.0

10.4

-40

-30

-20

-10

0

10

20

30

40

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenue (TSSOS)

NOTES: Data through December 2019. Dashed lines are post-recession averages.SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys (TBOS).

Diffusion index, 3MMA, SA

Production (TMOS)

Investment down from 2018 highs, but growing at average pace

18

-50

-40

-30

-20

-10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Diffusion Index, SA

Manufacturing

Service sector

NOTES: Data through December 2019. Dotted lines are post-recession averages beginning in January 2010: TSSOS: 11.6, TMOS: 7.9.SOURCES: Federal Reserve Bank of Dallas Texas Business Outlook Surveys (TBOS).

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Company uncertainty indexes moderated in late 2019

9.7

11.4

5.61.4

-10

-5

0

5

10

15

20

25

2018 2019

Diffusion index, SA

NOTES: Data through December 2019. Dashed lines are post-recession averages.SOURCES: Federal Reserve Bank of Texas Business Outlook Surveys (TBOS).

Outlook uncertainty (TSSOS)

Outlook uncertainty(TMOS)

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Company outlook indexes edge up in December

7.58.4

1.3

11.3

-60

-50

-40

-30

-20

-10

0

10

20

30

40

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Diffusion index, SA

NOTES: Data through December 2019. Dashed lines are post-recession averages.SOURCES: Federal Reserve Bank of Texas Business Outlook Surveys (TBOS).

Company outlook (TSSOS)

Company outlook (TMOS)

Bright spot: Texas residential construction activity reversed course in 2019

21

0

25

50

75

100

125

150

175

200

225

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Single family permits

Multifamily permits

Residential housing starts

Index, Jan. 2005=100, 5MMA, SA

NOTE: Data through November 2019.SOURCES: U.S. Census Bureau; Bank of Tokyo-Mitsubishi UFJ.

Despite apartment building boom, Texas rent growth exceeds US since 2010

110

7366 64

6051 51 48

0

20

40

60

80

100

120

Midland/Odessa

Austin Dallas Fort Worth TXMarkets

Houston U.S. San Antonio

22

NOTES: Data through Q3 2019. U.S. data based on the 150 metros that form the core of RealPage’s coverage.SOURCE: RealPage Inc.

Total rent growth since early 2010

19.818.2 17.0

11.39.3 8.3 7.5 6.5 5.3

3.0

-0.6 -0.8-5

0

5

10

15

20

25

Austin(76,925)

Midland-Odessa(67,273)

Tyler(58,226)

Dallas(71,195)

Fort Worth(65,899)

Texas(60,629)

U.S.(61,937)

Longview(51,296)

Houston(65,394)

Lubbock(49,974)

Amarillo(53.087)

San Antonio(57,379)

Percent growth, 2010-18

NOTES: Bars show real median household income growth 2010-18. Median 2018 incomes are displayed in parentheses.SOURCE: Census Bureau, 2010 and 2018 American Community Survey 1-year estimates.

But income gains in several Texas metros have also exceeded nation since 2010

Housing affordability now highest in Austin(!)

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4045505560657075808590

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

AustinSan AntonioHoustonU.S.Fort WorthDallas

Percent, 2QMA

NOTES: Data through Q3 2019. Two-quarter moving average is plotted.SOURCE: National Association of Home Builders/Wells Fargo.

Outlook for 2020

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Most leading index components are positive

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-0.13

-0.11

0.05

0.06

0.06

0.08

0.24

0.32

0.58

-0.2 -0.1 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Help-wanted index

U.S. leading index

Real oil price

Well permits

New unemployment claims

Average weekly hours

Texas Stock Index

Texas value of the dollar

Net change in Texas Leading Index

NOTES: Three-month percent change through November, seasonally adjusted.SOURCE: Federal Reserve Bank of Dallas.

Net contributions to change in Texas Leading Index

90

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135

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Index, 1987=100Leading Index

Texas nonfarm employmentand forecast

(with 80% confidence band)

SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; Federal Reserve Bank of Dallas.

Millions, seasonally adjusted

Texas job growth in 2020 likely to be close to the 2019 pace of 2.0%

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Dallas Fed Publications

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Dallas Fed Economics

Texas Economic Indicators

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www.dallasfed.org

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