The Outlook for the Texas Economy Keith Phillips, Sr. Economist and Advisor
National Economic Overview
Growth in US Economy Positive But Sluggish Market working to heal itself asset prices falling, inflation and interest rates low increases investment opportunities Federal government and Fed also very stimulative so why is growth so timid? Housing and consumer spending typically ignite the recovery but not this time state and local government also atypically weak, US policy and European debt uncertainty But it is also true that we need fewer homes built, and consumers and governments need to pay down debt
Home Construction Generally Neutral Millions, units Billions, $2 2. 45 1.75 1.5 1.25 Real singlefamily construction 4 35 3 25 1..75.5 Single-family building permits 2 15 1 5.25 197 1974 1978 1982 1986 199 1994 1998 22 26 21 Source: Bureau of Economic Analysis, U.S. Census Bureau and author s calculations.
26 House Price Index, 2=1 Home Price Declines Continue 24 22 2 U.S. Texas California Florida Nevada 18 16 14 12 1 2 21 22 23 24 25 26 27 28 29 21 211
Asset-Backed Commercial Paper Market Generally Stable Through September Percentage Points 4. SA, Bil.$ 14 3.5 12 3. 2.5 2. 1.5 1..5 Asset-backed CP Outstanding Asset-backed CP less Treasury Yield 1 8 6 4 2. 22 23 24 25 26 27 28 29 21 211
Job Growth Positive but Weaker than Spring Months Thousands (SA) 6 4 last 3 months = 96, Avg. Feb., March, April = 215, 2-2 -4-6 -8-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11
U.S. Leading Index Suggesting Recovery Likely to Continue Annualized 2 15 1 6-month 12-month 5-5 -1-15 -2 196 1965 197 1975 198 1985 199 1995 2 25 21
Oct. Blue Chip Survey Projects Positive RGDP Growth to Continue but at a Slow Pace SAAR, Percent 8. 6. 4. 2. 1.7 3.8 3.9 3.8 2.5 2.3 1.3 2.5 2.2 2.5 1.9..4-2. -.7-4. -6. -8. -1. 23 24 25 26 27 28 29 21 211-8.9-6.7
1-yr./1-yr. Yield Spread Suggests Little Chance of Recession Over Next 4 Quarters Percentage points 5 4 Through September 3 2 1-1 -2-3 Only false signal -4 1958 1962 1966 197 1974 1978 1982 1986 199 1994 1998 22 26 21
Percent of pre-crisis trend -2 Current Recovery Similar to Past Recoveries that Followed Banking Crisis Average path of GDP after banking crises (Selecting 28 as the first year of the crisis in the US) -1 1 2 3 4 5 6 7-4 -6-8 -1-12 -14-16 US Mean of countries experiencing banking crises Years after banking crisis; First year of crisis = year
Texas Came Into Recession Late and Recovery has been Stronger Texas began a recession in the second half of 28 due to a deepening financial crisis, and declines in energy prices and in high-tech demand. Texas jobs declined about 3.5 percent (about 366, net job loss) in 29. Rebounds in energy, high tech, and exports provided a stimulus to Texas in 21. Housing market less of a drag than nationally. Job growth was about 2.1 percent in 21. This year Texas job growth has continued to be faster than the national average although the pattern of growth has been similar - growth will likely be about 2. to 2.5 percent. Next year TX job growth likely about 1.5 2. %.
Texas Jobs Growing Faster Than Nation s Y/Y, Percent 5 4 3 U.S. Texas 2 1.7 2.1 2.1 1.1-1 -2-3 -4-3.8-5 199 1992 1994 1996 1998 2 22 24 26 28 21
Most Texas Industries Adding Jobs, Energy Booming Texas Industry Employment 21 Q3 : 211 Q3 Q/Q, SAAR 25 Mining 2 15 1 5 Construction Business Services Trade, Trans. & Leisure & Utilities Hospitality Manufacturing Financial Firms Information Health and Education Government -5-1
Texas UR Has Remained Stubbornly High 1.5 Percent, SA US unemployment rate 9.5 9.1 8.5 8.5 7.5 Texas unemployment rate 6.5 5.5 4.5 3.5 2 21 22 23 24 25 26 27 28 29 21 211
Household s Deleveraging Good for Long- Term but Weakens Spending in Short-Term Ratio, personal debt per capita/personal income per cap ita 1.4 1.3 1.2 1.1 Auto Loan 6% HE Revolving 5% Credit Card 6% Student Loan 5% Other 3% U.S. 1.33 1.33 Mortgage 75% U.S. Texas 1.9 1.15 1 1.1.9.8.7.6 Student Loan 7% Credit Card 8% Auto Loan 12% HE Revolving 1% Mortgage 68% 2 23 26 29 Other 4% Texas
Texas Real Retail Sales Gradually Picking Up Index, SA, Real $ 16 15 14 13 Texas 12 U.S. 11 1 9 2 21 22 23 24 25 26 27 28 29 21 211
M/M SAAR 12 1 8 6 4 2-2 -4-6 -8 Texas Economy Growing Moderately (Texas Business Cycle Index) M/M SAAR 12 1 8 6 4 2-2 -4-6 -8 NOTE: Shaded areas represent Texas recession.
Business Cycle Pattern Similar Across Major Metros Private Employment Index Jun. 28= 1 14 12 1 98 Austin El Paso S.A. Houston Texas Ft. Worth Dallas 96 94 92 9 Jun-8 Jun-9 Jun-1 11-Jun
Texas Construction Contract Values Generally Flat Real $, Mil 5MMA, SA 7 6 Total 5 4 3 Residential Non Residential 2 1 Non Building 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211
Home Inventories Relative To Sales Below National Average Months 18 16 14 12 1 8 6 4 2 Texas U.S. 7.9 7.1 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11
5 Mortgage Foreclosures Flat, Delinquency Rate High but Falling, TX Better than US TX Delinquencies TX Foreclosures Started 4.5 US Delinquencies US Foreclosures Started 4 3.5 3.6 3 2.8 2.5 2 1.5 1 1..8.5 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211
Commercial Real Estate Remains Weak but likely to avert a crisis Banks headquartered in the Eleventh District have 22% share of gross assets in commercial RE loans vs. 11% in nation In June, 4.% (March was 4.3) of CRE loans in Eleventh District banks were noncurrent vs. 5.8% (was 6.3) in nation Vacancies and rents flattening out after falling Growing signs that prices are close to bottom, sales are increasing, but significant new construction not expected until at least 212.
TX Manufacturing Production and Orders Continue to Increase but at Slower Pace Index 1 8 6 4 Oct-11 2-2 -4-6 Production -8 Volume of New Orders -1 Jun-4 Dec-4 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
Texas Exports Surpass Pre-Recession Level (by about 12% ) Index, SA Real 2 18 16 14 12 1 8 Texas Value of the Dollar Texas U.S. minus Texas 2 21 22 23 24 25 26 27 28 29 21 11. 15. 1. 95. 9. 85. 8. 75. 7. 65. 6.
TX Petrochemical, high-tech, transportation equipment and ag exports have surged Index, 25Q1=1 Real $, SA 17 TX total Computers & Electronics Transportation Equipment Agriculture and Food Chemicals Machinery Petroleum and Coal Products 5. 45. 15 4. 13 35. 3. 11 25. 2. 9 15. 7 1. 5. 5 25 26 27 28 29 21 211.
High-Tech Output Plunged During Recession, Rebounded Strongly, Now Growing Moderately Percent, 6 4 Semiconductor and other electronic components Computer and peripheral 2-2 -4 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 21 21 1
Drilling Rig Count has Returned to High Levels 1 Rig Count 16. 9 14. 8 12. 7 1. 6 8. 5 6. 4 3 Oil price Gas price 4. 2. 2 2 21 22 23 24 25 26 27 28 29 21 211.
State and Local Governments Continue to Cut Jobs Due to Budget Shortfalls Index, Jan 2 = 1 125 12 U.S. Texas Texas State and Local share of Total Nonfarm Jobs - 15.% -3.% 115-3.2% 11 U.S. State and Local Share of Total Nonfarm Jobs- 14.4% 15 1 95 2 21 22 23 24 25 26 27 28 29 21 211
In Recent Months TLI Components Have Weakened Texas Leading Index Components, 3 month change June -August -2.69 Net Change in Texas Leading Index -.17 Texas Value of the Dollar.38 U.S. Leading Index -.43 Real Oil Price -.28 Well Permits -.15 New Unemployment Claims -.65 Texas Stock Index -1.6 Help Wanted Index -.34 Average Weekly Hours -3. -2.5-2. -1.5-1. -.5..5 1.
Millions Texas Jobs Likely to Grow 2. 2.5% in 211 Slowing moderately in 212 ( to about 1.5%) Index 11.5 13 11. Leading Index 125 12 1.5 115 1. 9.5 Texas Nonfarm Employment and TLI Forecast (with 8% confidence band) 11 15 1 9. Jan- Jan-2 Jan-4 Jan-6 Jan-8 Jan-1 Jan-12 95
Summary U.S. economy is expanding at a weak pace Texas is facing similar headwinds but growing faster due to strong growth in energy and exports and fewer problems in housing. 211 job forecast is for growth of 2.% to 2.5% - slightly slower in 212 to about 1.5-2.%. Austin will continue to be a growth leader although may see some slowing due to high-tech slowdown Risks to the outlook include political uncertainty in the Middle East, European Debt issues, State and Local Government Spending, U.S. Fiscal Crisis, inflation.