After booming in the first half of 2108, Texas’ economy is slowing.
No cause for concern despite rocky end to year, experts say
After booming in the first half of 2018, Texas’ economy appears to be putting on the brakes.
Manufacturing production in December was the lowest since August 2016, according to a monthly survey of Texas business executives by the Federal Reserve Bank of Dallas, and perceptions of general business conditions notably worsened since November.
Overall, the Dallas Fed sees the state’s healthy economy, which added about 45,576 jobs in August alone, beginning to slow. With oil headed for its first annual loss since 2015, economists believe Texas' job growth may decelerate if prices don’t recover from around $50 per barrel.
In manufacturing, which is heavily driven by the oil and gas sector in Texas, a moderation is somewhat expected after the massive gains in the first half of the year, said Emily Kerr, senior business economist at the Federal Reserve Bank of Dallas.
“It’s unlikely that we would see red hot growth into perpetuation,” Kerr said. “It’s a catch-up effect, and now we’re seeing growth moderate to a more normal level.”
Texas manufacturing setting post-recession records in the summer, driven by both a strong national economy that helped out the real estate and construction sectors, as well as a boom in oil and gas production in West Texas that needed pipelines and oil field equipment built as fast as possible. As oil remains below $50 per barrel after rallying as high as $76 per barrel in October, those gains have ceased.
A slowdown in manufacturing isn’t necessarily concerning for the economy as long as the sector continues to have net positive growth, Kerr said. Production is still increasing, but December's index of 7.3 shows a second month of braking after the index dropped 9.2 points from October to November.
Exports are likely to weaken as well into the New Year, after a massive expansion: exports jumped 16.9 percent in Texas from the beginning of 2018 through the end of October. Given a generally weaker global economy and a stronger dollar, the Dallas Fed sees exports retreating.
Coinciding with slowing growth, perceptions of business conditions in Texas turned negative for the first time since September 2016. More than 20 percent of manufacturers reported
that their outlook worsened in December.
Most comments in the survey attributed their pessimism to declining oil prices, higher interest rates, reduced activity in housing and energy sectors, labor constraints and political uncertainty. Amplified anxiety
Kerr noted that the survey was taken during the lead-up to the government shutdown, which could have amplified political anxieties.
“That could be uncertainty in several areas regarding policies from the administration and politics in general,” Kerr said. “More stability with trade and more clarity with some of these policies would be helpful.”
While manufacturers still expect general business conditions for the next six months to improve overall, confidence is much rockier than last month — the survey showed a 22.5 point decrease in longer-term expectations compared to November.
Adding to businesses’ challenges are a tight labor market that keeps getting tighter. The state’s unemployment rate was 3.7 percent in November, the lowest ever recorded since the Dallas Fed started keeping track in 1976.
While the Dallas Fed’s numbers suggest moderation into 2019, The Greater Houston Partnership, a business-financed economic development group, sees steady growth ahead for the economy at large, particularly in health care.
The group projects that Houston will add about 71,000 jobs next year.
Texas job growth is up 2.4 percent since the beginning of 2018, led by the energy, manufacturing and financial sectors. Job growth in energy alone is up 11 percent. Still, job growth has slowed in recent months, mostly attributed to the leisure and hospitality, health care and financial services sectors. Far from dark
Immediately ahead, the economic picture is far from dark.
Manufacturing’s new orders rose in December, showing that the industry might be more pessimistic than necessary if some long-term factors — like oil prices and international trade policies — are able to be resolved in 2019.
“There are, to some extent, some mixed signals,” Kerr said. “Outlooks are dampened. … But, we’re not only seeing weakened indicators going forward, we are seeing some bright spots.”