Regional Economic Update Anil Kumar Economic Policy Advisor and - PowerPoint PPT Presentation

Regional Economic Update Anil Kumar Economic Policy Advisor and Senior Economist

Overview  Texas economy expanding at a moderate pace but job growth decelerated in Q4  Jobs grew at 2.5 percent annual rate in December  2.4 percent rate in 2018 (faster than 2.1 percent in 2017)  Labor markets remain tight  Construction activity softened and house price growth decelerating  Wage and price pressures moderating  Exports strong despite recent dollar strength  Expect 1-2 percent job growth in 2019—slower than 2018

TBOS Headline Indexes Show Signs of Slower Growth Index, 3MMA, SA 40 30 20 17.0 11.3 10 11.1 0 -10 -20 Manufacturing Production (TMOS) -30 Service Sector Revenue (TSSOS) Retail Sales (TROS) -40 -50 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NOTES: Data through December 2018. Dashed lines are post-recession averages (Jan. 2010-Dec. 2017). SOURCES: Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS) and Texas Retail Outlook Survey (TROS).

Texas Payroll Employment Growing Moderately Q/Q job growth, SAAR Texas: 2.5 6 U.S.: 2.1 Texas 4 2 0 M/M job growth, SAAR U.S. U.S. Texas -2 4.5 5 4 3.1 2.5 2.5 -4 3 2.4 2.3 2.2 2.0 1.8 1.7 2 1.4 1.3 1.2 1.0 1 -6 0 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 -8 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NOTE: Dashed lines indicate long-run averages (Jan. 1990-Dec 2017). SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.

Job Growth Mostly Broad-based Across Sectors Percent, Q/Q job growth, SAAR 12 10.2 10 8 6.1 5.8 5.6 6 4.1 3.7 3.6 3.4 3.3 3.3 4 3.1 3.0 2.8 2.1 1.6 1.6 1.3 2 1.1 0.9 0 -0.3 -1.0 -2 -3.0 -4 Trade, Govt. Prof. & bus. Educ. & Leisure & Mfg. Fin. act. Const. Other svcs. Oil & gas Info. (1.6%) transp., util. (15.4%) svcs. (13.9%) health hosp. (7.1%) (6.2%) (6%) (3.4%) (1.9%) (20%) (13.7%) (10.8%) NOTES: Quarters are Q3 and Q4 2018. Numbers in parentheses refer to share of state employment in December 2018. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.

Q4 Job Growth Slower in Most Metros Percent, Q/Q job growth, SAAR 6 4.9 5 3.9 3.9 4 3.5 3.1 2.8 3 1.9 1.8 2 1.7 1.2 1 0.6 0.2 0 Dallas Fort Worth Houston Austin San Antonio El Paso (21%) (8.4%) (24.7%) (8.5%) (8.4%) (2.5%) NOTES: Quarters are Q3 and Q4 2018. Numbers in parentheses refer to share of state employment in December 2018. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.

Texas Unemployment Rate Holds Steady and Remains Near Historical Lows Percent, SA 11 10 9 8 7 U.S. 6 5 4 3.9 Texas 3.7 3 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 NOTE: Data through December 2018. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by Federal Reserve Bank of Dallas.

Existing Home Inventories Edge Up but Remain Still Low Months of inventory 10 U.S. Houston 9 Texas 8 San Antonio 7 Dallas Austin 6 Ft. Worth 5 4 3 2 1 0 2011 2012 2013 2014 2015 2016 2017 2018 NOTE: Data through Dec. 2018. SOURCES: Multiple Listing Service; Texas A&M Real Estate Center.

House Price Growth Decelerates More in Texas than U.S. Percent, Y/Y, SA 20 15 U.S. 10 5 Dallas 0 -5 -10 -15 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 NOTE: Data through October 2018. SOURCE: Standard & Poor's.

Most Measures Point to Slower House Price Growth House Price Changes in Texas and the U.S. Latest Period Year/Year 2017 Year/Year Texas U.S. Texas U.S. Texas U.S. FHFA House Price Index (Q3) 4.5 5.1 5.7 6.3 7.7 6.6 S&P/Case Shiller Index (Oct.) 3.0 6.1 3.9 5.5 7.7 5.8 MLS Median Sales Price (Dec.) -5.2 -11.3 1.1 1.2 4.3 4.0 NOTES: Dallas is used to approximate Texas for the S&P/Case Shiller Index; all data is annualized. SOURCES: FHFA, S&P/Case Shiller, MLS.

Delinquency Rates Reflect Still-healthy Household Financial Situation Texas U.S. Mortgage Loans Credit Card Loans Percent seriously delinquent Percent seriously delinquent 10 16 9 14 8 12 7 8.9 6 10 5 8 4 6 7.8 3 4 2 1.0 2 1 1.0 0 0 2001 2004 2007 2010 2013 2016 2001 2004 2007 2010 2013 2016 Auto Loans Student Loans Percent seriously delinquent Percent seriously delinquent 8 20 13.4 6 15 5.1 4.2 4 10 11.4 2 5 0 0 2001 2004 2007 2010 2013 2016 2001 2004 2007 2010 2013 2016 NOTES: Data through Q3 2018. Seriously delinquent includes 90+ days past due and severe derogatory. SOURCE: Federal Reserve Bank of New York Consumer Credit Panel/Equifax.

Firms Expect Lower Wage and Price Pressures in 2019 Percent 5.0 4.7 2018 2019 (expected) 4.5 4.5 4.0 4.0 3.8 3.5 3.1 3.0 2.8 2.5 2.0 1.5 1.0 0.5 0.0 Wages Input costs (excluding wages) Selling prices NOTE: Data collected Dec. 18–26, 2018 with 317 firms responding. SOURCE: FRB Dallas Texas Business Outlook Surveys.

Rig Counts Flatten After Recent Declines in Oil Prices Rig count, weekly Nominal price, $, weekly 1,200 160 TX rig count Natural gas price 140 1,000 120 800 100 600 80 521 60 400 51.57 40 35.0 200 Oil price 20 0 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 NOTES: Natural gas price is multiplied by 10. Data through week of January 18, 2018. SOURCES: Wall Street Journal ; Baker Hughes; Energy Information Administration.

Energy Sector Business Activity Slowed Significantly in Q4 Index 50 40 30 20 10 0 2.3 -10 2018:Q4 -20 -30 -40 -50 2016 2017 2018 SOURCE: Federal Reserve Bank of Dallas Energy Survey.

Texas Exports Pick Up Despite Stronger Dollar Index, January '00=100, SA Index, January '00=100, SA Mexico Oil and gas 275.9 280 140 Asia, excl. China Petroleum and coal products Latin America, excl. Mexico Chemicals EU Computers and electronics 260 5.44.4 Canada Transportation equipment Texas China 130 Machinery, excl. electrical 8.6 Other 240 Other 17.6 33.7 19.9 12.8 120.4 220 7.4 120 17.9 7.6 200 13.2 21.9 14.7 U.S. ex. Texas 15.1 180 110 160 165.1 100 140 120 90 Texas trade-weighted 100 value of the dollar 80 80 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 NOTE: Exports lines through October 2018, value of the dollar line through November, and pie charts refer to Q3 2018. SOURCES: U.S. Census Bureau; WISERTrade.

Perceptions of Broader Business Conditions Moderate Significantly Index, 3MMA, SA 40 20 14.0 6.8 0 -3.5 -20 -40 General Business Activity (TMOS) General Business Activity (TSSOS) -60 General Business Activity (TROS) -80 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NOTES: Data through December 2018. Dashed lines are post-recession averages (Jan. 2010-Dec. 2017). SOURCES: Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS), and Texas Retail Outlook Survey (TROS).

Summary  Texas economy expanding at a moderate pace but job growth decelerated in Q4  Labor markets remain tight  House price growth decelerating  Wage and price pressures expected to moderate in 2019  Lower oil prices likely to affect energy sector activity  Expect 1-2 percent job growth in 2019—slower than 2.4 percent in 2018  Key downside risks:  Lower oil prices, higher rates, strong dollar, labor supply constraints, tariffs, and trade policy uncertainty

Broader Measures of Unemployment Well Below Pre-recession Averages Percent Texas Nov. 6MMA 10 Texas Pre-recession avg. '00-'06 9 U.S. Nov. 6MMA U.S. Pre-recession avg. '00-'06 8 7.5 7.4 7 6 4.7 5 4.4 4.1 3.9 3.8 3.7 4 3 2 1 0 U3 U3 U4 U5 (total unemployed workers) +discouraged workers +marginally attached to +part-time for economic the labor force reasons NOTES: Data through November 2018. Discouraged workers calculated as a percent of the civilian labor force plus discouraged workers. Marginally attached workers calculated as a percent of the civilian labor force plus all marginally attached workers. Part time for economic reasons calculated as a percent of the civilian labor force plus all marginally attached workers. U6 (Broader unemployment rate) equals U3 plus discouraged workers plus marginally attached plus part time for economic reasons. SOURCES: BLS/CPS.

Low Initial Unemployment Claims Reflect a Tight Labor Market Thousands, 4WMA, SA Thousands, 4WMA, SA 700 70 600 60 500 50 U.S. 400 40 300 30 200 20 100 10 Texas 0 0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 NOTES: Data are through January 12, 2019. Dashed lines are pre-recession averages (2000-2006). SOURCE: United States Department of Labor.

Existing-Home Sales Moderated Significantly in 2018 Index, Jan. '11=100, 6MMA 200 San Antonio 190 Austin 180 Ft. Worth Texas 170 Dallas Houston 160 150 140 U.S. 130 120 110 100 90 2011 2012 2013 2014 2015 2016 2017 2018 NOTE: Data through Dec. 2018. SOURCES: Multiple Listing Service; Texas A&M Real Estate Center.