2015 texas economic outlook: tapping on the brakes keith phillips sr. economist and research officer...
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2015 Texas Economic Outlook:Tapping on the Brakes
Keith PhillipsSr. Economist and Research Officer
The views expressed in this presentation are strictly those of the presenter and do not necessarily reflect the positions of theFederal Reserve Bank of Dallas or the Federal Reserve System. Any secondary distribution of this material is strictly prohibited.
• 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
National Economy Picking Up
Average Job Growth of 260K per Month in 2014
After 199K in 2013 (2.3% vs 1.8%)
-1000
-800
-600
-400
-200
0
200
400
600
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
Thousands,SA
Source: Bureau of Labor Statistics
U.S. Leading Index Suggests Continued
Good Growth over Next 6 Months
-20
-15
-10
-5
0
5
10
15
20
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Annualized% change
12-month6-month
Source: Conference Board, Federal Reserve Bank of Dallas
RGDP Grew 2.5% in 2014, January Blue Chip Survey Projects 2.8% in
2015
-8.2
-5.4
-0.5
1.3
3.9
1.7
3.9
2.7 2.5
-1.5
2.9
0.8
4.6
2.3
1.6
2.5
0.1
2.7
1.8
4.5
3.5
-2.1
4.65.0
2.2
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SAAR, Percent
2013 3.1% Q4/Q4
2012 2.0% Q4/Q4
2014 2.4% Q4/Q4
Source: Blue Chip Economic Indicators
2015 2.8% Q4/Q4
• 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).
TX Economy Has Grown Above Trend and Stronger than Most
States
Texas Economy Growing Well Above Trend
(Texas Business Cycle Index)
-8
-6
-4
-2
0
2
4
6
8
10
12
M/M SAAR
NOTE: Shaded areas represent Texas recession.
2.6% trend
Texas Ranked Sixth in Job Growth in 2014
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
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 N
MM
D CT IN IA KS OH
NH
MN RI PA IL DC VT AK VA SD MO NJ
NE
MS
MT
ME HI
WV
Percent Change,Dec. 2013 - Dec. 2014
U.S.
TX
Source: Bureau of Labor Statistics
Texas Jobs Growing Faster Than Nation’s
-3.8
0.8
1.6 1.7 1.82.32.1 2.3
3.5
2.7
3.4
-5
-4
-3
-2
-1
0
1
2
3
4
5
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
U.S.
Texas
Percent, Job Growth Y/Y
-3.4
Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas
Job Growth is Broad-Based AcrossLarge Texas Metro Areas
90
95
100
105
110
115
120
2008 2009 2010 2011 2012 2013 2014 2015
Houston
San Antonio
Ft. Worth
Austin
Dallas
Nonfarm Employment IndexAug. 2008=100
TX
El Paso
Corpus Christi
U.S.*
*Indexed from U.S. Peak Employment in January 2008Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas
Texas Unemployment Rate Low and Falling
4.4(Jan.)
3.5
4.5
5.5
6.5
7.5
8.5
9.5
10.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Percent, SA
US unemployment rate
Texas unemployment rate
5.7(Jan.)
Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas
Job Growth Broad-Based Across Industries
-5
0
5
10
15
20
(Job Growth 2011-2014)
Oil & Gas
Construction
Trade, Transportation,
& Utilities
Manufacturing
Business Services
Finance, Insurance, & Real Estate
Leisure & Hospitality Information
Services Health & Education
Government
(2.6%) (5.5%) (20.1%) (7.6%) (13.4%) (6.1%) (10.3%) (1.8%) (13.2%) (15.9%)
Share of Total Employment
Dec/DecPercent Change
Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas
Texas Construction Contract ValuesIncreased Strongly Last Year
0
1000
2000
3000
4000
5000
6000
7000
8000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Real $, Mil5MMA, SA
Residential
Non Residential
Non Building
Total
Source: F.W. Dodge, Federal Reserve Bank of Dallas
TX Home Inventories Remainat Historically Low Levels
0
2
4
6
8
10
12
14
16
18
Texas
U.S.
Months
3.4
5.2
Jan. 2014
Source: Multiple Listing Service
Mortgage Foreclosures Back to Normal levels but Delinquencies
Remain Elevated
1.9
0.34
0.46
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
TX Delinquencies TX Foreclosures Started
US Delinquencies US Foreclosures Started
.35
2.1
Source: Mortgage Bankers Association
Low TX Office Vacancy Rate Likely to Motivate Continued Strength in Office
Construction
5
10
15
20
25
30
35
0
50
100
150
200
250
300
350
400
450
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Real, Millions $, 5MMA Percent
Office Vacancy Rate
Office and Bank Buildings
Contract Value
Source: F.W. Dodge, CBRE, Federal Reserve Bank of Dallas
TX Manufacturing Production Growth Slow, New Orders Falling
-100
-80
-60
-40
-20
0
20
40
60
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
Production
Volume of New Orders
Index
Feb-15
Texas Exports Have Weakened in Recent Months as Value of the
Dollar has Risen
60.0
65.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
110.0
80
100
120
140
160
180
200
220
240
260
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
U.S. minus Texas
Texas
Index, SA, RealJan. 2000=100
Texas Value of the Dollar
Source: U.S. Census, Bureau of Labor Statistics, WISERtrade Federal Reserve Bank of Dallas
IndexJan. 1988=100
Oil Prices Low, Drilling Rig CountIn Sharp Decline
0
20
40
60
80
100
120
140
160
200
300
400
500
600
700
800
900
1000
Gas price(*10)
Oil price
Rig Count
Source: Oil and Gas Journal, Baker Hughes
Number
Source: Oil and Gas Journal, Baker Hughes.
Nominal $
• 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.
Low Oil Prices Will LikelyDampen TX Job Growth in 2015
Energy’s Share of TX EconomyIncreased with Shale Drilling
0
2
4
6
8
10
12
14
16
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Mining as a Share of Total Texas Employment
Mining as a Share of Nominal Texas GDP
Percent, SA Percent
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.
2.7 %
13.5 %
0
20
40
60
80
100
120
140
160
-6
-5
-4
-3
-2
-1
0
1
2
3
4
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Real Oil Price
Texas Job Growth Relative to U.S.
Percent difference in TX and U.S. growth, 12MMA
Real price, $, monthly average
SOURCES: Wall Street Journal, Bureau of Labor Statistics.
TX Job Growth Relative to NationImpacted by Oil Prices
Recent Weakness in Leading Index Led By Declining Oil Prices and
Rising Dollar
-0.25
0.45
0.15
-0.47
-1.30
-1.41
0.31
-1.03
-3.54
-4.00 -3.50 -3.00 -2.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00
Average Weekly Hours
Help Wanted Index
Texas Stock Index
New Unemployment Claims
Well Permits
Real Oil Price
U.S. Leading Index
Texas Value of the Dollar
Net Change in Texas Leading Index
Texas Leading Index Components, 3 month changeNovember -January
Texas Job Growth Likely to be about1.0–2.0% in 2015, down from 3.4%
in 2014
95
100
105
110
115
120
125
130
135
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16
Millions of Jobs Index(1987=100)
Leading Index
Texas Nonfarm Employmentand TLI Forecast (with 80%
confidence band)
Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas, author's calculations
San Antonio has a Small Share of Jobs in the Oil and Gas Industry
0 5 10 15 20 25 30
MidlandOdessa
LongviewVictoriaAbilene
San AngeloTyler
Corpus ChristiHouston-Baytown-Sugar Land
College Station-BryanAmarillo
LaredoDallas-Fort Worth-Arlington
LubbockAustin-Round Rock
Beaumont-Port ArthurSan Antonio
Sherman-DenisonMcallen-Edinburg-Pharr
Brownsville-HarlingenEl Paso*
Share of Employment in Mining Sector*El Paso data as of 2008. All others as of 2012. Source: Bureau of Economic Analysis
No Clear Boost to San Antonio Job Growth from Eagle Ford
Development
-6
-4
-2
0
2
4
6
8
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
San AntonioTexas
Y/Y job growth
SOURCE: Bureau of Labor Statistics, Federal Reserve Bank of Dallas.
• 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.
Summary