Texas Economic Performance and Outlook Amidst COVID-19 Pandemic

Federal Reserve Bank of Dallas6/18/2020

Laila Assanie

DISCLAIMER: The views expressed are the authors’ and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or Federal Reserve System.

2

Connecting Regional Economies

Federal Reserve Districts

3

Serving theEleventh District

Texas in the COVID-19 Pandemic

4

Sharp, sudden contraction in economic activity and employment due to COIVD-19 induced shelter-in-place regulations

Record declines in activity in March and April, less-severe contraction in May

Activity appears to be gradually improving as economy reopens, but the path of the virus is unpredictable, creating heightened uncertainty for businesses and individuals

So far Texas matching or beating US performance, but this may change due to the state’s industrial mix

Higher share of employment in vulnerable industries

The economic crisis appears to have broadly peaked but may take time to unwind

Overview

5

All states shed jobs from Feb to Apr; Northeast/Midwest suffer largest losses

6

-25

-20

-15

-10

-5

0

MI

VT NY NJ RI

HI

NV

MA PA DE

NH CT

ME KY OH

WA WI

AK CA

U.S

.LA IN OR

MD IL NC SC MN

WV

MT FL TN CO

NM IA MO GA ID MS TX AL AZ VA ND KS NE UT

SD AR DC

WY

OK

Texas

U.S.

Percent change, Apr 2020/Feb 2020, SA

SOURCES: Bureau of Labor Statistics.

Texas job losses less severe than U.S.(April/Feb.)

7

-59.7-50.9

-23.8

-48.3 -49.5

-98.1

-49.0

-16.7

-57.2

-68.9

-45.1-45.5

-32.1

-9.5

-37.8 -41.8

-93.9

-26.5

-8.0

-39.6

-57.8-52.6

-120

-100

-80

-60

-40

-20

0

Total Trade,Transp.& Util.

(20.3%)

Gov't(16.6%)

Prof. &Bus. Serv.

(14.5%)

Educ. &HealthServ.

(13.8%)

Leisure& Hosp.(7.6%)

Mfg.(7.4%)

Fin.Activ.(6.8%)

Constr.(6.3%)

Info. &Other Svcs

(4.9%)

Oil & Gas,Mining Sup.

(1.7%)

U.S. Texas

Annualized job growth (percent)

NOTE: Data show April 2020/Feb. 2020 annualized growth. Numbers in parenthesis indicate share of total state employment for April.SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; FRB Dallas.

Texas unemployment rate spikes; still below nation’s

8

13.312.8

0

2

4

6

8

10

12

14

16

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Percent, SA

NOTES: Data through April for Texas and May for the U.S. Grey bars show U.S. recessions.SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; adjustments by the Dallas Fed.

U.S.Texas

Unemployment claims remain elevated

9

0

200

400

600

800

1000

1200

1400

1600

Jan. Feb. Mar. Apr. May Jun

Weekly total unemployment insurance claims, index, Jan. 2020 = 100

U.S.

Texas

NOTE: Data through the week ending June 6.SOURCE: Department of Labor.

Layoffs hitting all sectors in Texas

10

29

26 2523

21 2018

14 13 13 13 12 11 119

74 2

00

5

10

15

20

25

30

35

NOTES: Claims data for week ending March 7 through week ending June 6. Employment for Feb. 2020.SOURCES: BLS LAUS program; Texas Workforce Commission

UI claims as a share of industry employment, percent

190 185 178 174 171 169 163 163 160 154 152 151 145 144 141 139 135 135 127 125 120 118108 108

0

20

40

60

80

100

120

140

160

180

200

NOTES: Claims data for week ending March 7 through week ending June 6. Employment for Apr. 2020.SOURCES: BLS LAUS program; Texas Workforce Commission

Claims per 1,000 workers

Layoffs span all Texas metros; border cities and energy centers harder hit

11

12

Texas Business Outlook indexes show services, manufacturing activity contracting more slowly in May

-28.1-28.0

12.49.2

-80

-60

-40

-20

0

20

40

60

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Revenue (Services)

NOTES: Data through May 2020. Dashed lines are post-recession averages.SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys (TBOS).

Diffusion index, SA

Production (Manufacturing)

Most Texas firms see a sizeable dip in revenues

13

Revenues are down (59.9%)81.20

Revenues are normal8.62

Revenues are up (161%)10.18

How do your firm’s current revenues compare with a typical May?

NOTES: Pie chart shows the share of responses belonging to each answer. Numbers in parentheses show average response to how revenues compare with typical May revenues within each answer.SOURCE: Dallas Fed Texas Business Outlook Surveys, May 2020 Special Questions.

1.0%8.0%

14.2%

7.2%

10.3%

59.2%

If current revenue levels were to continue, how long could your firm survive?

Less than a month 1-3 months 4-6 months 7-9 months 10-12 months More than a year

SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys, May 2020 Special Questions.

May survey suggests nearly one-fourth of firms unable to survive beyond six months at current revenue levels

14

Majority of firms applied for and have received PPP funding

SOURCE: Dallas Fed Texas Business Outlook Surveys, May 2020 Special Questions.

“Have you applied for a PPP (Paycheck Protection Program) loan?”“If you applied for a PPP loan, have you received it?”

60% 93%of surveyed firms have applied for a PPP loan

of those that have applied have received their loan

15

PPP borrowers largely able to stave off layoffs, wage reductions

16

78

66

52

2115

0

10

20

30

40

50

60

70

80

90

Prevented layoffs and/orfurloughs

Prevented wage reductions Helped us pay bills and/or rent Allowed for rehiring of workers Other

How did receiving the PPP loan benefit your firm?

NOTES: Data collected from 216 business executives from May 12-20, 2020. Respondents asked to select all options that apply.SOURCE: Dallas Fed Texas Business Outlook Surveys, May 2020 Special Questions.

Share of responses, percent

Texas firms shift to working from home

17

69

4333

23 20 19 1711 11

0

10

20

30

40

50

60

70

80

Increasedworking from

home

Reduced workhours (includingcutting overtime)

Reduced orsuspendedbonuses

Paid time off Furloughs Layoffs Reduced wages Other None

Have you taken any of the following steps regarding employment in response to COVID-19?

NOTES: Data collected from 389 business executives from May 12-20, 2020. Respondents asked to select all options that apply. SOURCE: Dallas Fed Texas Business Outlook Surveys Special Questions.

Share of responses, percent

Among firms facing difficulty recalling workers, infection fears, lack of child care cited as significant challenges

18

60.0

46.7 43.3

6.7

30.0

0

10

20

30

40

50

60

70

Fear of infection Lack of child care Generousunemployment

benefits

Other None

Were there any impediments to recalling workers or increasing hours?

NOTE: Data collected from 60 business executives from May 12-20, 2020.Question posed to respondents who indicated that they were attempting to recall workers or increase hours. Respondents were asked to select any and all choices that applied.SOURCE: Dallas Fed Texas Business Outlook Surveys Special Questions.

Share of responses, percent

Yes33.3

No66.7

Have you attempted to recall any laid off/furloughed workers or increase hours among current workers?

NOTE: Data collected from 186 executives who indicated that they have attempted to recall any laid off/furloughed workers or increase hours among current workers.

Mobility increasing and workers starting to come back,daily new Texas COVID cases rising again

19

-50

-110-100-90-80-70-60-50-40-30-20-100102030405060708090100110

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

3/1 3/8 3/15 3/22 3/29 4/5 4/12 4/19 4/26 5/3 5/10 5/17 5/24 5/31 6/7 6/14

COVID19 daily new casesCOVID19 daily deathsMobility and engagementNum. of hourly employees working

NOTE: Mobility and engagement index data up to June 13, 2020, Homebase data up to June 15, 2020, all other data up to June 16. Mobility and engagement index values are scaled such that the national index average over January-February are subtracted out and divided by the national value in the week ending in April 11, the lowest national weekly value. Mobility and engagement index value can be interpreted as mobility and engagement relative to the national trough in mobility and engagement.SOURCES: Homebase, Johns Hopkins University, SafeGraph, Federal Reserve Bank of Dallas.

Count, 7 day avg. Index, 7 day avg.

2205

26

-22

Texas Mobility and Engagement and COVID-19 Spread

- 52 (4/10)

5/1: Phase 1 of re-

opening

5/22: Phase 2 of re-opening

-107 (4/10)

6/3: Phase 3 of re-opening

6/12:Restaurants expand to

75% capacity

Restaurant reservations in Texas lose some momentum in June

-100

-80

-60

-40

-20

0

20

Feb Mar Apr May June

Texas

Houston

San Antonio

Dallas

Austin

U.S.

NOTE: Data through June 16, 2020. Data refers to year/year percent change in seated diners at restaurants on the OpenTable network across all channels: online reservations, phone reservations, and walk-ins.SOURCE: OpenTable.

Percent change, y/y, 7 day moving average

-100-90-80-70-60-50

20

Negative factors Low oil prices Texas job growth is less than nation’s when oil prices fall to very low levels

Less remote work capability Texas has a lower share of workers that can work from home

More vulnerable industries Texas has a greater share of employment in industries harmed by social distancing Texas more exposed to international trade, Mexico

Positive factors Typically grows faster than nation Flexible labor markets, good business climate Fewer COVID risk factors? Low density metros, lack of mass transit

So far Texas matching or beating US performance, but this may change

21

Fewer can work remotely in Texas

22

0.280.37

0.480.42

0.40

0.230.50

0.330.47

0.570.27

0.570.27

0.420.34

0.370.39

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7Other areas in Texas

San AntonioAustin

Dallas/Fort WorthHouston

HispanicAsianBlackWhite

Income>=$60,000Income<$60,000

With college degreeNo college degree

FemaleMale

TexasU.S.

Percent of Workers Compatible with Remote Working

NOTE: All samples, except for the top bar are restricted to workers in Texas.SOURCE: IPUMS; Dallas Fed; author's calculations.

Texas has more employment at risk in pandemic

23

1.2 1.61.7 0.3

4.23.7

6.15.8

9.69.2

0

5

10

15

20

25

Texas U.S.

Accommodations & food servicesAdministration & support servicesTransportation & warehousingEnergyArts, entertainment & recreation

NOTE: Data is from March 2020.SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by the Dallas Fed.

Share of total employment

DFW Economy Amid the COVID-19 Pandemic

24

Business-Cycle Indexes indicate sharp contraction in DFW

-6.04

-12.33

-15

-10

-5

0

5

10

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

DallasFort Worth

Percent, year/year

NOTES: Business-cycle indexes through April 2020. Dashed lines are long-run (20-year) averages.SOURCE: Federal Reserve Bank of Dallas.

25

604

-59

-23

-120

-80

-40

0

40

80

120

-700-600-500-400-300-200-100

0100200300400500600700

3/1 3/7 3/13 3/19 3/25 3/31 4/6 4/12 4/18 4/24 4/30 5/6 5/12 5/18 5/24 5/30 6/5 6/11 6/17

COVID19 daily new casesMobility and engagement (Index)Num. of Hourly Employees Working (Index)

NOTE: Mobility and engagement index data up to June 12, 2020, Homebase index up to June 16. Case data through June 17, 2020.SOURCES: Homebase; Johns Hopkins University; SafeGraph.

Count, 7 day avg.Index, 7 day avg.

Dallas-Fort Worth Social Distancing and COVID-19 SpreadMay 1: Most retailers, dine-in restaurants allowed to open at 25% capacity May 22: Phase 2

of re-opening

June 3: Phase 3 of re-opening

Mobility increasing and workers starting to come back,daily new COVID-19 cases rising again in DFW

26

June 12:Restaurants expand

to 75% capacity

DFW leads major Texas metros in net migration gains since 2010

27

-1000

100200300400500600700800

DFW Houston Austin San Antonio El Paso

Net migration, thousands

NOTE: Data are for July 2010 to July 2019. SOURCE: U.S. Census Bureau, Population Division.

Reason for migrating to Texas versus elsewhere

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

Reason Texas Non-Texas

Relocated for job 50.9 41.3

Family Reasons 26.6 26.6

Amenities 17.8 23.8

Other 4.7 8.3

28

Texas and DFW Real Estate Markets

29

Residential construction weakens

0

100

200

300

400

500

600

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020NOTE: Last data point is April 2020. Table refers to percent growth in annual totals. Table 2020 YTD data for January-April 2020.SOURCES: U.S. Census Bureau; seasonal adjustments by FRB of Dallas.

Index, Jan.‘10=100, 5 MMA, SA

Single-family permits DFW

Multifamily permits DFW

Single-family permits Texas

Multifamily permits Texas

2019 2020 YTD 2019 2020 YTDDFW -3.7 17.7 4.4 -0.8Texas -0.3 17.9 22.8 5.8

Single-family(percent growth)

Multifamily(percent growth)

30

Apartment rent payments slightly below 2019

31

93.292.7

93.2 93.2

91.9

89.0

93.9

93.293.5 93.5

92.2

88.9

86

87

88

89

90

91

92

93

94

95

Austin Dallas San Antonio Fort Worth Houston U.S.*

June 1-13, 2020 June 1-13, 2019

NOTE: US data are from National Multifamily Housing Council. Texas metro data provided by RealPage Inc.SOURCES: RealPage Inc.; National Multifamily Housing Council.

Percent

Home sales fall sharply in the wake of COVID-19

90

100

110

120

130

140

150

160

170

2012 2013 2014 2015 2016 2017 2018 2019 2020

Fort Worth

Texas

Dallas

U.S.

Index, 3MMA, Jan. 2011 = 100, SA

NOTE: Data through April 2020.SOURCES: Multiple Listing Service; seasonal and other adjustments by Dallas Fed.

32

Home sales dip across price points

0

100

200

300

400

500

600

700

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Dallas-Fort Worth-Arlington

$400-499k

$300-399k

$200-299k

More than $499k

$150-199k

Less than $150k

Index, Mar. 2011=100, 3MMA, SA

NOTES: Data are through April 2020. Pie chart data for 2020 YTD. Underlying data in nominal dollars.SOURCES: Multiple Listing Service, seasonal and other adjustments by FRB Dallas.

6%

12%

38%22%

10%

12%

33

Inventories tight

4.53.52.9

2.01.8

2.1

0

2

4

6

8

10

12

14

2011 2012 2013 2014 2015 2016 2017 2018 2019

Dallas-Fort Worth-Arlington

More than $499k

$400-499k

$300-399k

$200-299k

$150-199k

Less than $150k

Months of Inventory, SA

NOTES: Dashed line at six months of inventory indicates balanced level of supply. Data are through April 2020.SOURCES: Multiple Listing Service, seasonal and other adjustments by FRB Dallas.

34

House price appreciation holding steady

35

-6-4-202468

1012

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Percent, year/year, SA

DFW

U.S.

NOTES: Data through March 2020. Case-Shiller HPI for DFW is used to approximate Texas.SOURCE: Standard & Poor’s CoreLogic Case-Shiller Home Price Index.

What business contacts are saying about new-home sales in DFW

“Sales remain solid to this point.”

“DFW, San Antonio, and Austin were pretty strong. Houston was a little slow. Dallas is shaping up to have a better month than we expected. We expect monthly sales for April to be about 2/3 of what they were last year.”

“… over the past few weeks we have done a really good job of moving our prospects to contract and this week was a rebuilding prospect week. We have a better start to the week already with multiple contracts in the works.”

“We had a good week here in Dallas. We were almost double last week’s gross number. We ended up netting about 90% of plan. I have heard quite a few deals already in the process that should finish in the next couple of days. Keeping fingers crossed.”

36

DFW office absorption softens ahead of the pandemic

-4-202468

10121416

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

DFWHoustonAustinSan Antonio

Net absorption, millions

NOTE: Data through Q1 2020. San Antonio data missing in Q1 2014, Q2-Q4 2016.SOURCE: CBRE Research.

37

Outlook for 2020

38

Texas employment expected to rebound in second half but end the year below 2019 levels

39

-69.0

116.8

-100.0

-50.0

0.0

50.0

100.0

150.0

Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20

NOTE: Forecast scenario estimates Texas payroll employment for May based on initial claims data and the remainder of the year based on US GDP growth of -42.3% Q2, +16.3% Q3, and +22.8% Q4, as well as direct COVID-19 impacts from March to May and WTI prices following the futures contract curve as of 6/1.

Percent, SAAR

-3.8-15.0-10.0-5.00.05.0

Percent, Y/Y

Texas unemployment rate expected to slowly decline

40

3.5

12.8

14.9

8.9

2

4

6

8

10

12

14

16

Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20NOTE: Forecast scenario estimates Texas payroll employment for May based on initial claims data and the remainder of the year based on US GDP growth of -42.3% Q2, +16.3% Q3, and +22.8% Q4, as well as direct COVID-19 impacts from March to May and WTI prices following the futures contract curve as of 6/1.Unemployment rate forecast assumes a labor force participation rate of 63.8 and a payroll/household employment ratio of 0.97 at year-end.

Percent, SA

Pandemic is unprecedented and has many aspects of a natural disaster instead of a typical recession

Economic activity is slowly recovering; path of the virus and consumer demand and business responses highly uncertain

Most economists expect a sharp decline in Q2 and recovery in the second half – but still expect to end the year down more than in the Great Recession

Weakness in the energy industry will likely be drag on Texas, dampening the state’s recovery in the second half of 2020

Factors such as a central location, low cost of living, flexible labor markets, good business climate will be favorable for DFW in the long run

Summary

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42

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