National Economy Picking Up After Q1 Pause Texas Economic Outlook: Tapping on the Brakes Keith Phillips Assistant Vice President and Senior Economist Consumer spending picked up in 1 as housing prices and stock market improved, and consumer debt fell job growth picked up Declining energy prices providing a further boost although retail sales data this year weaker than expected Unusually bad weather, strong dollar, West Coast port slowdown, sharp declines in energy sector investment and jobs all factor into Q1 weakness Stronger growth expected in remainder of year The views expressed in this presentation are strictly those of the presenter and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or the Federal Reserve System. Any secondary distribution of this material is strictly prohibited. 1
Home Construction Continues to Grow Although at a Slower Pace Home Prices Continue to Increase Millions, units Billions, $. 5 1.75 1.5 Real single family construction 35 3 Index, = 7 5 3 1 U.S. Texas California Florida Nevada 1.5 5 19 1. 17.75.5 Single family building permits.5 197 197 1978 198 1986 199 199 1998 6 1 1 Source: Bureau of Economic Analysis, U.S. Census Bureau and author s calculations. 15 5 15 13 11 9 1 3 5 6 7 8 9 1 11 1 13 1 15 Source: FHFA House Price Index
Ratio, personal debt per capita/personal income per capita 1. 1.3 1. 1.1 1.9.8.7.6 Credit card 5.9% HE revolving.3% Auto loan 8.1% Household Balance Sheets in Better Shape Student loan 9.8% Other.8% U.S. Mortgage 69.1% Note: Data are through fourth quarter 1, except where noted. 1.35 1.19.98 (Q1).93 (Q) 6 8 1 1 1 Sources: Federal Reserve Bank of New York, Bureau of Economic Analysis. U.S. Texas Student loan 11.1% Credit card 7.% HE revolving 1.% Auto loan 1.8% Other.% Texas Mortgage 61.6% Thousands,SA 6 6 8 Average Job Growth of 17K per Month in 15 After 6K in 1 (1.7% vs.3%) Source: Bureau of Labor Statistics Jan Jan 3 Jan Jan 5 Jan 6 Jan 7 Jan 8 Jan 9 Jan 1 Jan 11 Jan 1 Jan 13 Jan 1 Jan 15 3
U.S. Leading Index Slowing but Still Suggesting Healthy Growth in Months Ahead RGDP Grew.% in 1, May Blue Chip Survey Projects.3% in 15 Annualized % change 15 1 5 5 6 month 1 month SAAR, Percent 8. 6......5 3.9 3.9.7.9.5 1.7 1.3 1.5.6.8 1.% Q/Q 13 3.1% Q/Q.3.5.7 1.6 1.8.1 1.% Q/Q.5.6 5. 3.5.1. 15.3% Q/Q.7 1. 15 6. 5. 196 1965 197 1975 198 1985 199 1995 5 1 15 Source: Conference Board, Federal Reserve Bank of Dallas 8. 1. Source: Blue Chip Economic Indicators 8. 3 5 6 7 8 9 1 11 1 13 1 15
TX Economy Has Grown Above Trend and Stronger than Most States In past five years growth in energy, construction and exports provided a strong stimulus to Texas. 1 growth was broad based across sectors. Energy, construction, business services, health care, exports and tourism strong. Government sector improved. In 15, low oil prices and labor market tightness will likely restrain growth. Strong dollar may dampen exports. I expect job growth will slow in 15 to between.5% and 1.5% (from 3.% in 1). M/M SAAR 1 1 8 6 6 Texas Economic Growth Dipping Below Trend (Texas Business Cycle Index).6% trend 8 NOTE: Shaded areas represent Texas recession. 5
Texas Ranked Sixth in Job Growth in 1 Percent Change, Dec. 13 Dec. 1 5.5 3.5 TX 3.5 U.S. 1.5 1.5.5 6 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 NM MD CT IN IA KS OH NH MN RI PA IL DC VT AK VA SD MO NJ NE MS MT ME HI WV Source: Bureau of Labor Statistics Texas Ranked 35 th in Job Growth So Far in 15, Though Above Most Energy States Annualized Percent Change, Dec. 1 Apr. 15 8 6 U.S. TX ID NV UT VT WA SC SD OR FL CA MI ME HI NE IN MN MA NC CO MT WI US CT NJ GA OH MD NM IA RI AR PA KY MO AZ TX NY IL AK VA MS DC DE TN AL KS WY NH ND OK LA WV Source: Bureau of Labor Statistics
Texas Jobs Growing Below the Nation So Far in 15 Job Growth is Broad-Based Across Large Texas Metro Areas Percent, Job Growth Y/Y 5 U.S. Texas 3.5 3.6 Nonfarm Employment Index Aug. 8= 1 Austin 3 1.7.1.3.3 1.6 1.7 1.8 1.7.8.8 115 11 San Antonio Houston Dallas TX Ft. Worth Corpus Christi 15 El Paso U.S.* 1 95 3 5 Note: 15 data annualized through March. Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas 199 199 199 1996 1998 6 8 1 1 1 3.8 3. 9 8 9 1 11 1 13 1 15 *Indexed from U.S. Peak Employment in January 8 Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas 7
Texas Unemployment Rate Well Below Nation Energy, Construction & Manufacturing Have Weakened Significantly in 15 Percent, SA 1.5 Dec/Dec Percent Change (Job Growth 1 15) 9.5 US unemployment rate 15 Oil & Gas Construction 8.5 7.5 1 5 Trade, Transportation, & Utilities Manufacturing Business Services Finance, Insurance, & Real Estate Leisure & Hospitality Information Services Health & Education Government 6.5 5 5.5 Texas unemployment rate 5.5 (May) 1.5 3.5 1 3 5 6 7 8 9 1 11 1 13 1 15 Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas. (April) 15 Share of Total Employment (.5%) (5.7%) (.%) (7.5%) (13.%) (6.%) (1.%) (1.8%) (13.3%) (15.7%) Note: Striped bars represent Dec. 1 - Apr. 15 annualized change Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas 8
Texas Construction Contract Values Increased Strongly Last Year TX Home Inventories Remain at Historically Low Levels Real $, Mil 5MMA, SA 9 8 Months 18 16 Texas 3.3 7 Total 1 U.S. 5. 6 1 5 1 3 Residential Non Residential 8 6 April 15 Non Building 199 199 199 1996 1998 6 8 1 1 1 Source: F.W. Dodge, Federal Reserve Bank of Dallas Source: Multiple Listing Service 9
TX Office Vacancy Rate Beginning to Rise TX Manufacturing Production, New Orders Falling Real, Millions $, 5MMA 5 Percent 35 Index 35 3 Office Vacancy Rate Office and Bank Buildings Contract Value 3 5 8 6 5 May-15 15 15 - - 5 1-6 Production Volume of New Orders '86 '88 '9 '9 '9 '96 '98 ' ' ' '6 '8 '1 '1 '1 Source: F.W. Dodge, CBRE, Federal Reserve Bank of Dallas 5-8 - Jun- Dec- Jun-5 Dec-5 Jun-6 Dec-6 Jun-7 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-1 Dec-1 Jun-13 Dec-13 Jun-1 Dec-1 Jun-15 Dec-15 1
Texas Exports Have Weakened as Value of the Dollar has Risen Texas State and Local Government Jobs Near 1 Peak Index, SA, Real Jan. = 6 Texas Value of the Dollar Index Jan. 1988= 115. 11. Index, Jan = 15 1 Texas U.S. Texas State and Local share of Total Nonfarm Jobs 1.% 15.. 115 18 16 1 Texas 95. 9. 85. 8. 11 15 U.S. State and Local Share of Total Nonfarm Jobs 13.6% 1 U.S. minus Texas 75. 7. 8 1 3 5 6 7 8 9 1 11 1 13 1 15 Source: U.S. Census, Bureau of Labor Statistics, WISERtrade, Federal Reserve Bank of Dallas 65. 95 1 3 5 6 7 8 9 1 11 1 13 1 15 Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas 11
Oil Prices Low, Drilling Rig Count Down by 59% Low Oil Prices Will Likely Dampen TX Job Growth in 15 Number 9 Rig Count Nominal $ 16 1 Oil prices have declined by 5% since last July, initial drop from $16 to $8 likely was good for TX economy 8 7 1 Sustained drop from $8 to $5 will hurt TX economy $5 is below the breakeven point for majority of shale drilling. 6 8 5 Oil price 6 Texas GDP growth will likely weaken more than jobs as output per worker in mining is about.6 times more than average for the state. 3 Gas price(*1) Source: Oil and Gas Journal, Baker Hughes. 1
Energy s Share of TX Economy Increased with Shale Drilling TX Job Growth Relative to Nation Impacted by Oil Prices Percent, SA 5.5 3.5 3.5 1.5 1.5 Mining as a Share of Total Texas Employment Mining as a Share of Nominal Texas GDP Percent 16 197 197 197 1976 1978 198 198 198 1986 1988 199 199 199 1996 1998 6 8 1 1 1 NOTE: GDP values prior to 1997 and employment values prior to 199 extrapolated from SIC coded data. SOURCES: Bureau of Labor Statistics, Bureau of Economic Analysis, FRB Dallas. 13.5 %.7 % 1 1 1 8 6 Percent difference in TX and U.S. growth, 1MMA 3 1 1 3 5 Texas Job Growth Relative to U.S. Real Oil Price Real price, $, monthly average 16 6 198 198 1986 1988 199 199 199 1996 1998 6 8 1 1 1 SOURCES: Wall Street Journal, Bureau of Labor Statistics. 1 1 8 6 13
Weakness in Leading Index Led By Declining Well Permits, Strengthening Dollar Texas Job Growth Likely to be between.5 1.5% in 15, down from 3.% in 1 Texas Leading Index Components, 3 month change February -April Millions of Jobs 1.5 Index (1987=) 135-1.18 -.53.8 Net Change in Texas Leading Index Texas Value of the Dollar U.S. Leading Index 1. 11.5 Leading Index 13 15. Real Oil Price 11. 1 -.65 -.38.35 Well Permits New Unemployment Claims Texas Stock Index 1.5 1. Texas Nonfarm Employment and TLI Forecast (with 8% confidence band) 115 11 15 -. -.5 Help Wanted Index Average Weekly Hours 9.5-1. -1. -1. -.8 -.6 -. -.....6 9. 95 Jan Jan Jan Jan 6 Jan 8 Jan 1 Jan 1 Jan 1 Jan 16 Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas, author's calculations 1
San Antonio Economy Holding Up in 15 San Antonio has a Small Share of Jobs in the Oil and Gas Industry 15 job growth.9% so far after 3.3% in 1 Health care job growth strong Construction very strong Federal govt. weak so far this year Business services, financial activities also strong so far this year Likely will see some slowing this year although Eagle Ford effects mixed % Growth Dec./Dec. 15 1 5-5 Total Jobs Health Care 13 1 15* *Annualized through Apr. 15 Construction Federal Government El Paso* Brownsville Harlingen Mcallen Edinburg Pharr Sherman Denison San Antonio Beaumont Port Arthur Austin Round Rock Lubbock Dallas Fort Worth Arlington Laredo Amarillo College Station Bryan Houston Baytown Sugar Land Corpus Christi Tyler San Angelo Abilene Victoria Longview Odessa Midland 5 1 15 5 3 Share of Employment in Mining Sector *El Paso data as of 8. All others as of 1. Source: Bureau of Economic Analysis 15
No Clear Boost to San Antonio Job Growth from Eagle Ford Development Summary Y/Y job growth 8 Eagle Ford Rig Count Number 3 U.S. economy picked up in 1 Slowing so far this year biggest concern is weak foreign demand and strong dollar 6 Texas San Antonio 5 TX growth was strong and broad based in 1 initial oil price decline from $16 to $8 had positive impact. 15 Movement of oil prices from $8 to $5 having sharply negative impacts but growth likely to remain positive. - - -6 199 199 1996 1998 6 8 1 1 1 SOURCE: Oil and Gas Journal, Bureau of Labor Statistics, Federal Reserve Bank of Dallas. 5 This year Texas job growth likely to moderate to.5 1.5% Bottom line: Texas jobs likely to continue to grow but not nearly as strongly as last year. San Antonio likely will have faster job growth than Texas this year. 16