Texas economy chugging along
But future appears murky as tariffs rise, global trade slows
Texas remains among the strongest regional economies in the nation, but the horizon might not be as bright as tariffs continue to hit business’ bottom lines and uncertainty caused by signs of slowing economies in developing countries worry economists.
Speaking at the Houston branch of the Federal Reserve Bank of Dallas, economists pointed to a robust labor market that is posting strong job gains each month and driving unemployment to record lows as a sign that Texans are prospering.
But uncertainty as to how long tariffs will stay in effect — and how high they will go — has continued to put the brakes on economic growth in the region, which is high
ly connected to the global economy, economists said.
“Texas is very exposed to global developments, so tariffs are a challenge for us,” said Pia Orrenius, a vice president and senior economist at the Dallas Fed. “There is a lot of pessimism. Risks to the outlook are really tilted to the downside.”
Risks to the region
Other risks to the region’s growth include the direction of oil prices — always a major factor in the local economy’s stability — and a slowdown in manufacturing, which generally is a leading indicator for business cycles.
Economists called manufacturing one of the “gloomier” pieces of data they are tracking right now.
“The big slowdown in growth in manufacturing abroad really impacts growth here in our manufacturing sector,” Jim Dolmas, a senior research economist at the Dallas Fed, said during his remarks. “Some of it is trade policy uncertainty.”
In Texas, manufacturing is highly dependent on the energy sector.
The U.S. rig count, which can provide an indication of energy sector activity, has declined in 2019, and Fed surveys of energy executives in Texas found that capital expenditures by energy firms are down in the second quarter. Companies’ outlooks also have turned negative in the second quarter.
That could be due to the recent up-and-down swings in oil prices, economists said, as well as market uncertainty abroad due to the trade war.
Texas still hiring
Exports to China have plunged since the tariffs were implemented last year, and only represented 4 percent of exports from Texas in May.
Still, job growth in Texas remains above the national trend; in the first half of 2019, employment has increased 2.3 percent compared to the national rate of 1.4 percent.
In Houston, it’s an even better story: year-to-date job growth in the region is the best it has been since 2014, up 3 percent.
While a strong labor market is a sign of a healthy economy, employers are running out of people to hire, which eventually could constrain business’ ability to grow, economists said.
That problem may be exaggerated in Houston, where domestic migration has turned negative in recent years and the pool of available employees for hire has shrunk as a result, Orrenius said.
Many firms have reported in recent surveys conducted by the Dallas Fed that rather than not having enough skilled workers – as was the problem a few years ago – firms now don’t have enough applicants. The new problem is there are simply not enough people to fill the jobs that businesses need to grow.
“There’s a slowdown in domestic migrations because of tighter labor markets and higher wages, so it’s a good news story for the nation when you look at it that way,” Orrenius said. “But this development is a constraint on growth if you can’t find the workers you need to hire. Houston’s domestic migration has actually been negative, so that’s not helpful.”