Outlook for the Economy LUIS TORRES RESEARCH ECONOMIST WESLEY MILLER RESEARCH ASSISTANT TECHNICAL REPORT 2 MAY 217 TR
Contents About this Report... 3 March 217 Summary... Economic Activity... 7 Business Cycle Index and Leading Index... 7 Major Metros Business Cycle Index... 7 Border Metros Business Cycle Index... 8 Consumer Confidence Index... 8 Financial Activity... 9 3-Year Mortgage Rate and 1-Year Bond Yield... 9 Housing... 9 Housing Sales... 9 Major Metros Housing Sales... 1 Months of Inventory... 1 Major Metros Months of Inventory... 11 Home Days on Market... 11 Energy... 12 Production of Crude Oil and Rig Count... 12 Crude Oil and Natural Gas Prices... 12 Manufacturing... 13 Manufacturing Outlook Survey... 13 Services... 13 Services Sector Outlook Survey... 13 Retail Sector... 1 Employment... 1 Employment Growth Rate... 1 Major Metros Employment Growth Rate... 1 Border Metros Employment Growth Rate... 1 Unemployment Rate... 1 Major Metros Unemployment Rate... 1 Border Metros Unemployment Rate... 17
Unemployment Insurance Claims: Initial Applications... 17 Labor Force Participation Rate... 18 Manufacturing Employment... 18 Major Metros Manufacturing Employment... 19 Border Metros Manufacturing Employment... 19 Construction Employment... 2 Total Private Employee Hourly Earnings... 2 Major Metros Total Private Employee Hourly Earnings... 21 Manufacturing Employee Hourly Earnings... 21 Major Metros Manufacturing Employee Hourly Earnings... 22 Prices... 22 CPI Inflation Rates... 22 CPI Inflation Rates (Dallas Components)... 23 Trade... 23 Exports (All Commodities)... 23 Manufacturing Exports... 2 Exports by Country... 2 Real Trade Weighted Value of U.S. Dollar... 2 2
About this Report Real Estate Center economists continuously monitor many facets of the global, national, and economies. Outlook for the Economy summarizes significant state economic activity and trends. All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month-over-month, unless stated otherwise. This publication is designed to be a one-stop resource for economic indicators. We hope you find them as useful as we do. Your feedback is always appreciated. Send comments and suggestions to info@recenter.tamu.edu. Dr. Luis Torres and Wesley Miller Data current as of April, 217 217, Real Estate Center. All rights reserved. 3
March 217 Summary 1 The economy advanced amid booming oil production and a strong housing market. crude oil production reached a 12-month high despite flat prices evidence of oil production efficiency. Increased energy activity generated record employment growth in the mining and logging industries. Construction employment, in response to a surge in residential construction activity, posted its strongest first quarter in three years. The drop in initial unemployment insurance claims corroborated the strength of the labor market. Potential headwinds to the economy include trade uncertainty (especially with Mexico), volatile energy prices, and tax policy uncertainty. Economic indicators fared better in, with the Business Cycle Index (a measure of current economic activity in the state) continuing its upward trend. The Dallas Fed's Leading Index, which signals future directional changes in the business cycle, rose marginally at.3 percent. Increased well permits, fewer initial unemployment insurance claims, and the decline in the value of the dollar drove the index forward. Declines in the average weekly hours worked in manufacturing and in help-wanted advertising slowed this month s growth. The major metro Business Cycle Indices indicated that economic activity advanced throughout the Urban Triangle. Texans confirmed these favorable economic conditions with a 13.1 percent increase in the Consumer Confidence Index and a solid month of retail consumption. Interest rates remained stable even as the Federal Reserve raised the federal funds rate by a quarter point for the second time in three months. The ten-year U.S. Treasury bond ticked up to 2. percent, reflecting a weak national jobs report and turmoil in the Middle East. Furthermore, the Federal Home Loan Mortgage Corporation s 3-year fixed-rate balanced at.2 percent for the fourth consecutive month. housing sales rose 3.3 percent after a weak showing last month. Demand held steady as the average number of days on market remained at 7. Soft sales in February allowed supply to gain ground, resulting in the largest increase in months of inventory (2.9 percent) since January 211; however, inventory levels remain historically low at an average of 3.7 months. The median price dipped somewhat for new homes. (For additional housing commentary and statistics, see Housing Insight at recenter.tamu.edu.) West Intermediate crude oil price fell to $9.33 per barrel 2 but maintained 31. percent year-over-year growth as crude stockpiles increased. The number of active rigs in rose 1.7 percent to 3 more than twice the number in May 21. crude oil production jumped to a 12-month high of 3.2 million barrels per day 2 (bpd), led by the Permian Basin, where output rose to 1 All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month-over-month, unless stated otherwise. 2 Non-seasonally adjusted.
2.21 million bpd 1. The Henry Hub spot price of natural gas settled below $2.9 per million BTU 1 (British thermal units) for the second straight month as global supply continued to saturate. The utilization of horizontal drilling technology in the U.S. has flooded natural gas inventories, despite historically low prices. The Energy Information Administration predicts that the U.S. will be a net exporter of natural gas by 218 the first time in nearly years. remained the largest gasproducing state, accounting for 23.8 percent of national production. monthly nonfarm employment added only 9, jobs, but pushed the first quarter increase to 77,3, making 217 the strongest start in three years. The unemployment rate ticked up to. percent as labor force growth outperformed employment increases. All of the major metros (except Houston) exhibited a slight rise in unemployment. However, the number of initial unemployment insurance claims in fell to an eight-year low and provides a better contemporaneous measure of the health of economy. Every major metro added jobs this month and maintained positive year-over-year growth. Houston led the state with 8, new jobs, followed by a 7,-job increase in Austin its largest gain since 21. Increased activity in the energy and housing industries generated a 1,-job increase in the goods-producing sector. The mining and logging industries added,8 jobs, the largest monthly gain in series history (beginning in 199), amid increased drilling activity in the Permian Basin. The upswing in housing starts created 9, new construction jobs in the first quarter the strongest start for construction employment since 21. Manufacturing added only 1,7 jobs, all of which occurred in the durable goods subsector. The Manufacturing Outlook Survey s employment index remained positive but fell 1.2 points, reflecting the industry s marginal job increase. Additionally, factory activity increased for the ninth consecutive month and expectations of business conditions remained positive. The service-providing sector was stagnant, losing 1, jobs in March, but maintained an overall positive first quarter growth. The professional and business services industries added 13,2 service jobs, while financial services employment increased by 2,8. A slow month for leisure and hospitality resulted in over 12, jobs lost, offsetting most of these gains. Following a weak February, the trade, transportation, and utilities subsectors continued to slide, losing another, jobs, primarily in the retail trade subcategory. The Retail Outlook Survey reported mixed signals; the employment index was positive at 2.7, while the hours worked index fell to -1., indicating shorter workweeks. However, the sales index increased 3. points and inventory levels decelerated. Despite a monthly increase in retail sales 3, retailers outlook on the future continued to fall. 3 The Federal Reserve Bank of Dallas seasonally adjusts nominal retail sales data and the data release typically lags the Outlook for the Economy by one month. The series is converted into real terms using the Consumer Price Index.
Respondents noted similar sentiments in the Service Sector Outlook Survey, where expectations of economic conditions declined. Multiple respondents commented on the shortage of skilled workers and the impact of future immigration reform. Health care respondents expressed concerns about increased regulation and uncertainty regarding the Affordable Care Act. Real total private employee hourly earnings in ticked up. percent, slightly faster than national wages. hourly wages approached the national level in 21, before declining with the oil bust, and are currently recovering. Wage growth was relatively flat in the major metros, rising.9 percent and.1 percent in Dallas and San Antonio, respectively. Wages fell by half a percent in Austin and Fort Worth, and were stagnant in Houston. Despite the overall wage gap between and the nation, real manufacturing employee hourly earnings were 1. percent higher in. Fort Worth has the highest wages, paying. percent and 1. percent more than the national and statewide averages, respectively. Houston and San Antonio manufacturing wages remained below the state average but continued their upward trend. Falling oil prices drove down the U.S. Consumer Price Index to 2. percent through cheaper gasoline. Price decreases were widespread, as the core inflation rate, which excludes the oftenvolatile energy and food sectors, declined for the first time in six years. The Consumer Price Index for Dallas dipped to 2.3 percent, as falling gasoline prices offset inflation in housing and medical services. U.S. exports fell to $191 billion despite rising 1.8 percent and 17.9 percent to Mexico and Canada, respectively. Trade with Mexico boosted commodity exports and, specifically manufacturing exports, for the third consecutive month. Declines in the trade-weighted value of the dollar, which fell 2.1 percent, supported the recent export growth. The trade-weighted value of the dollar is generated by the Federal Reserve Bank of Dallas. Its release typically lags the Outlook for the Economy by one month.
Economic Activity 1 1 13 13 12 12 11 11 1 Business Cycle Index and Leading Index (Index Jan 27 = 1) Business Cycle Index Leading Index (Right Axis) 12 11 11 1 1 9 9 8 8 1 7 Sep-7 May-8 Sep-9 May-1 Sep-11 May-12 Sep-13 May-1 Sep-1 May-1 Note: Seasonally adjusted. For more information, see Business Cycle Index. Source: Federal Reserve Bank of Dallas 1 Major Metros Business Cycle Index (Quarter-over-Quarter Percent Change) 1 - -1 Austin-Round Rock Fort Worth-Arlington Dallas-Plano-Irving Houston-Sugar Land-Baytown -1 San Antonio Note: Seasonally adjusted. For more information, see Business Cycle Index. Source: Federal Reserve Bank of Dallas 7
2 Border Metros Business Cycle Index (Quarter -over- Quarter Percent Change) 1 1 - -1-1 -2 Brownsville-Harlingen El Paso Laredo McAllen-Edinburg-Mission Note: Seasonally adjusted. For more information, see Business Cycle Index. Source: Federal Reserve Bank of Dallas Consumer Confidence Index (Index Jan 27 = 1) 2 19 18 17 1 1 1 13 12 11 1 9 8 Note: Seasonally adjusted and detrended. Source: Conference Board 8
Financial Activity 7.. 3-Year Mortgage Rate and 1-Year Bond Yield (Percent) Mortgage Bond.. 3. 2. 1. Note: Seasonally adjusted. Sources: Federal Home Loan Mortgage Corporation and Federal Reserve Board Housing 11 11 1 1 9 9 8 8 7 7 Housing Sales (Index Jan 27 = 1) Sep-7 May-8 Sep-9 May-1 Sep-11 May-12 Sep-13 May-1 Sep-1 May-1 Note: Seasonally adjusted and detrended. Sales for the include all existing homes and new single-family homes; new non-single-family homes are not included. includes all existing and new homes. For more information, see Housing Sales. Sources: U.S. Census Bureau, National Association of Realtors, and Real Estate Center at A&M University 9
Major Metros Housing Sales (Index Jan 27 = 1) 13 12 12 11 11 1 1 9 9 8 8 7 7 Austin-Round Rock Dallas-Plano-Irving Fort Worth-Arlington Houston-The Woodlands-Sugar Land San Antonio-New Braunfels Note: Seasonally adjusted and detrended. For more information, see Housing Sales. Source: Real Estate Center at A&M University 11 Months of Inventory (Months) 1 9 8 7 3 Sep-7 May-8 Sep-9 May-1 Sep-11 May-12 Sep-13 May-1 Sep-1 May-1 Note: Seasonally adjusted and detrended. Months of inventory for the is estimated using weights for all existing homes and new single-family homes; new non-single-family homes are not included. includes all existing and new homes. For more information, see Months of Inventory. Sources: U.S. Census Bureau, National Association of Realtors, and Real Estate Center at A&M University 1
Major Metros Months of Inventory (Months) 9 8 7 Austin-Round Rock Dallas-Plano-Irving Fort Worth-Arlington Houston-The Woodlands-Sugar Land San Antonio-New Braunfels 3 2 1 Note: Seasonally adjusted and detrended. For more information, see Months of Inventory. Source: Real Estate Center at A&M University Home Days on Market (Days) 11 1 Existing Home Days on Market New Home Days on Market 9 8 7 Note: Seasonally adjusted and detrended. For single-family homes. Source: Real Estate Center at A&M University 11
Energy (Number of rigs) 12 1 8 2 Production of Crude Oil and Rig Count (Count) (Millions of barrels per day) Production of Crude Oil (Right Axis) Number of Operating Rigs 3. 3 2. 2 1. 1. Sep-7 May-8 Sep-9 May-1 Sep-11 May-12 Sep-13 May-1 Sep-1 May-1 Note: Seasonally adjusted and detrended. For more information, see Production of Crude Oil and Rig Count. Sources: Baker Hughes and U.S. Energy Information Administration $/Barrel Crude Oil and Natural Gas Prices ($) $/million BTU 1 12 Crude Oil Natural Gas (Right Axis) 1 12 1 1 8 8 2 2 Note: Seasonally adjusted and detrended. For more information, see Crude Oil and Natural Gas Prices. Source: U.S. Energy Information Administration received from Thomson Reuters 12
Manufacturing Manufacturing Outlook Survey (Index) Note: Seasonally adjusted. For more information, see Manufacturing Outlook Survey. Sources: Federal Reserve Bank of Dallas and Institute for Supply Management. index is adjusted - to be on scale with index. Services Services Sector Outlook Survey (Index) Note: Seasonally adjusted. For more information, see Services Sector Outlook Survey. Sources: Federal Reserve Bank of Dallas and Institute for Supply Management. index is adjusted - to be on scale with index. 13
Index Retail Sector (Index; Year-over-Year Percent Change) Year-over-Year Percent 2 2 3 1 2 1 1-1 - -2-1 -3 - - Dallas Federal Reserve Bank Retail Survey Retail Sales (Right Axis) -1-2 -2 Note: Seasonally adjusted and inflation adjusted. For more information, see Retail Sector. Sources: Retail Sector Outlook Survey from the Federal Reserve Bank of Dallas, Retail Sales from Comptroller of Public Accounts Employment Employment Growth Rate (Quarter-over-Quarter Annualized Percent Change) 2-2 - - -8 Note: Seasonally adjusted, 3-month moving average. March 217 is preliminary. For more information, see Employment Growth Rate. 1
8 Major Metros Employment Growth Rate (Quarter-over-Quarter Annualized Percent Change) 2-2 - - Austin-Round Rock Dallas-Plano-Irving Fort Worth-Arlington Houston-Baytown-Sugar Land San Antonio -8 Note: Seasonally adjusted, 3-month moving average. March 217 is preliminary. For more information, see Employment Growth Rate. 8 2 Border Metros Employment Growth Rate (Quarter-over-Quarter Annualized Percent Change) -2 - - -8-1 Brownsville-Harlingen El Paso Laredo McAllen-Edinburg-Mission Note: Seasonally adjusted, 3-month moving average. March 217 is preliminary. For more information, see Employment Growth Rate. 1
11 1 9 8 7 Unemployment Rate (Percent) 3 Note: Seasonally adjusted. March 217 is preliminary. For more information, see Unemployment Rate. 9 Major Metros Unemployment Rate (Percent) 8 7 3 Austin-Round Rock Dallas-Plano-Irving Fort Worth-Arlington Houston-Baytown-Sugar Land San Antonio 2 Sep-7 May-8 Sep-9 May-1 Sep-11 May-12 Sep-13 May-1 Sep-1 May-1 Note: Seasonally adjusted. March 217 is preliminary. For more information, see Unemployment Rate. Sources: Bureau of Labor Statistics and Real Estate Center at A&M University 1
13 Border Metros Unemployment Rate (Percent) 12 11 1 9 8 7 Brownsville-Harlingen El Paso Laredo McAllen-Edinburg-Mission Note: Seasonally adjusted. March 217 is preliminary. For more information, see Unemployment Rate. Sources: Bureau of Labor Statistics and Real Estate Center at A&M University Unemployment Insurance Claims: Initial Applications (Year-over-Year Percentage Change) 1 12 1 U.S. 8 2-1 -3 Note: Seasonally adjusted. For more information, see Unemployment Insurance Claims: Initial Applications. Source: Department of Labor 17
7 Labor Force Participation Rate (Percent) 3 2 Note: Seasonally adjusted. For more information, see Unemployment Rate. Manufacturing Employment (Quarter-over-Quarter Percent Change) 2-2 - - -8-1 -12-1 -1-18 -2 Note: Seasonally adjusted, 3-month moving average. March 217 is preliminary. For more information, see Employment Growth Rate. 18
Major Metros Manufacturing Employment (Quarter-over-Quarter Percent Change) 1 1 2-2 - -1-1 -18-22 -2 Austin-Round Rock Dallas-Plano-Irving Fort Worth-Arlington Houston-Baytown-Sugar Land San Antonio -3 Note: Seasonally adjusted, 3-month moving average. March 217 is preliminary. For more information, see Employment Growth Rate. 3 2 1-1 -2-3 Border Metros Manufacturing Employment (Quarter-over-Quarter Percent Change) - - Brownsville-Harlingen El Paso Laredo McAllen-Edinburg-Mission Note: Seasonally adjusted, 3-month moving average. March 217 is preliminary. For more information, see Employment Growth Rate. 19
Construction Employment (Quarter-over-Quarter Percent Change) 1 1 - -1-1 -2-2 Note: Seasonally adjusted, 3-month moving average. March 217 is preliminary. For more information, see Employment Growth Rate. Total Private Employee Hourly Earnings (Year-over-Year Percent Change) 3 2 1-1 -2-3 - - Notes: Inflation adjusted, seasonally adjusted and detrended. March 217 is preliminary. For more information, see Total Private Employee Hourly Earnings. 2
Major Metros Total Private Employee Hourly Earnings (Year-over-Year Percent Change) 1 8 2-2 - - -8-1 -12-1 Austin-Round Rock-San Marcos Fort Worth-Arlington San Antonio-New Braunfels Dallas-Plano-Irving Houston-The Woodlands-Sugarland Notes: Inflation adjusted, seasonally adjusted and detrended. March 217 is preliminary. For more information, see Total Private Employee Hourly Earnings. 2 2 Manufacturing Employee Hourly Earnings (Year-over-Year Percent Change) 1 1 - -1 Notes: Seasonally adjusted and detrended. Inflation adjusted. March 217 is preliminary. For more information, see Total Private Employee Hourly Earnings. 21
Major Metros Manufacturing Employee Hourly Earnings (Year-over-Year Percent Change) 3 3 2 2 1 Dallas-Plano-Irving Fort Worth-Arlington Houston The Woodlands Sugar Land San Antonio-New Braunfels 1 - -1-1 Notes: Seasonally adjusted and detrended. Inflation adjusted. March 217 is preliminary. For more information, see Total Private Employee Hourly Earnings. Prices 7 CPI Inflation Rates (Year-over-Year Percent Change) Dallas 3 2 1-1 -2-3 Note: Seasonally adjusted. For more information, see CPI Inflation Rates. 22
1 13 11 9 7 3 1-1 -3 - -7-9 -11-13 Apr-11 Oct-11 Apr-12 CPI Inflation Rates (Dallas Components) (Year-over-Year Percent Change) Food and Beverages Transportation Oct-12 Apr-13 Oct-13 Note: The Dallas CPI is composed of the following major groups: Food and Beverages, Housing, Apparel, Transportation, Medical Care, Recreation, Education and Communication, and Other Goods and Services. The four major components are included in the graph above. Apr-1 Oct-1 Housing Medical Apr-1 Oct-1 Apr-1 Oct-1 Trade 3 3 2 2 1 1 - -1-1 -2-2 Exports (All Commodities) (Year-over-Year Percent Change) Note: Inflation adjusted with Bureau of Labor Statistics export indices. For more information, see Exports. Sources: International Trade Administration, Foreign Trade Division, and U.S. Census Bureau 23
Manufacturing Exports (Year-over-Year Percent Change) 3 3 2 2 1 1 - -1-1 -2-2 -3 Note: Inflation adjusted with Bureau of Labor Statistics export indices. For more information, see Manufacturing Exports. Sources: International Trade Administration, Foreign Trade Division, and U.S. Census Bureau 1 9 8 7 Exports by Country (Percent) Netherlands 3 Mexico China 2 Canada 1 Brazil ROW 27 28 29 21 211 212 213 21 21 21 217 Note: For more information, see Exports. Sources: International Trade Administration, Foreign Trade Division, and U.S. Census Bureau 2
12 11 11 1 1 9 9 8 Real Trade Weighted Value of U.S. Dollar (Index January 27 = 1) 8 Sep-7 May-8 Sep-9 May-1 Sep-11 May-12 Sep-13 May-1 Sep-1 May-1 Note: For more information, see Real Trade Weighted Value of U.S. Dollar. Sources: Federal Reserve Bank of Dallas and Federal Reserve Bank of St. Louis 2
MAYS BUSINESS SCHOOL A&M University 211 TAMU College Station, TX 7783-211 http://recenter.tamu.edu 979-8-231 DIRECTOR GARY W. MALER ADVISORY COMMITTEE DOUG ROBERTS, CHAIRMAN Austin MARIO A. ARRIAGA Conroe RUSSELL CAIN Port Lavaca ALVIN COLLINS Andrews JACQUELYN K. HAWKINS Austin DOUG JENNINGS, VICE CHAIRMAN Fort Worth BESA MARTIN Boerne TED NELSON Houston C. CLARK WELDER San Antonio BILL JONES, EX-OFFICIO Temple i