The Texas Economy Is Looking Up and Up for 2018

Not that long ago, the plunge in oil prices was acting as a huge drag on the Texas economy. Even with many parts of the country experiencing a recovery, Texas had many local economies that would have felt absolutely like a full-blown recession in other areas of the country. And then Hurricane Harvey came along, trying to stunt the local Texas recovery.

The saying that “nothing lasts forever” proved yet again to be true. Texas recovered handily in 2017, even considering the big impact of the hurricane. And now the Texas economy is looking up for even better growth in 2018.

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24/7 Wall St. has tracked multiple issues, releases and trends acting as a would-be boost for further growth in the year ahead. While the major recovery in oil and gas prices is a key driver, other factors are at work as well. There are still some uncertainties that have been highlighted along with the growth-oriented forecasts.

It was just on January 18 that disclosed that Dallas and Austin were two of the 20 cities in the final running for Amazon’s second headquarters. Austin was recently ranked as the most educated city in Texas. And the Austin facility owned by Apple may also be a beneficiary for the recently announced $350 billion commitment to America as well.

Texas is perhaps the biggest winner in worker migration in the United States. Crain’s recently reported that Dallas-Fort Worth was the second most common moving destination in 2017, with Austin coming in fifth place for 2017. Houston was ranked as the seventh most popular destination for people to move to in 2017.

Trulia’s most recent housing and renting data trends for Houston showed a 3% week-over-week rise in average listing prices and a 3% drop in median rent per month. Trulia’s Dallas trends showed a 4% week-over-week rise in average listing price and a 0% rise in median rent per month, followed by an Austin trends report showing a 3% week-over-week rise in average listing price and a 0% rise in median rent per month. Trends in San Antonio showed a 2% week-over-week rise in average listing price and a 0% rise in median rent per month.

The Dallas Fed released its Texas Manufacturing Outlook late in December, and the strength of 2017 is expected to rise in 2018. The outlook commentary of the report said:

Expectations regarding future business conditions remained highly optimistic. The index of future general business activity inched up to 40.9, while the index of future company outlook held steady at 40.1. Other indexes for future manufacturing activity showed mixed movements but remained solidly in positive territory.

On Friday, the Texas Workforce Commission showed that Texas remains one of the top states for jobs. It said:

Texas’ seasonally adjusted unemployment rate was to 3.9 percent in December and remains below the U.S. unemployment rate of 4.1 percent. The Texas economy added 306,900 seasonally adjusted nonfarm jobs over the year, including 400 jobs added in December. Annual employment growth for Texas was 2.5 percent in December, marking 92 consecutive months of annual growth.

The Federal Reserve recently released its Beige Book report, with data used and collected prior to January 8. It is important to understand that this report is compiled from comments received by contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials. The Beige Book said:

Reports from the 12 Federal Reserve Districts indicated that the economy continued to expand from late November through the end of the year, with 11 Districts reporting modest to moderate gains and Dallas recording a robust increase.

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And the Beige Book’s report on the Dallas Fed showed growth in manufacturing and nonmanufacturing and showed wage pressure. That report said of the region:

Economic activity grew robustly, a pickup in pace from the more moderate expansion seen throughout most of 2017. The manufacturing sector remained a bright spot, although growth accelerated in most other sectors as well. Employment growth picked up, and wage and price pressures remained elevated. Labor shortages persisted, with several reports that difficulty hiring was impeding growth to some extent.

The Federal Reserve Bank of Dallas also broke out much more detailed data in its Beige Book. The accelerated growth was seen across the manufacturing, retail, nonfinancial services and energy sectors. Home sales were also up and loan demand grew. Hiring was higher, even as wage and price pressures remained elevated, and numerous business contacts were optimistic that tax reform would provide a tailwind to business growth ahead.

While much of the Beige Book’s commentary was in what happened in the past month and a half of 2017, 24/7 Wall St. wanted to parse out some of the commentary about how 2018 is starting to look:

Prices: Looking ahead, overall price expectations increased, with some manufacturers and retailers specifically noting plans to increase prices in 2018 in response to higher labor and input costs. Energy Outlook: Energy executives responding to the Dallas Fed Energy Survey expect oil prices to be about $59 per barrel by year-end 2018, on average, and about $66 per barrel longer term (three to five years). Outlooks for 2018 improved but remain conservative, with contacts expecting drilling activity, production and employment to grow this year. Manufacturing: Overall capital spending plans increased noticeably as half of the 104 firms responding expect increased capital expenditures six months from now (the highest share since 2006). Optimism in firms’ outlooks picked up notably, with some manufacturers indicating the new tax law may be a tailwind for manufacturing going forward. However, difficulty hiring remains a headwind, and uncertainty about NAFTA remains. Retail Sales: Outlooks among retailers in general remained quite positive. Nonfinancial Services: Overall, outlooks were more optimistic, although uncertainty remained with comments surrounding trade negotiations and government regulations. A number of contacts expect the new tax law to boost activity in 2018. Construction and Real Estate: Homebuilders generally did not report concern about the changes in the mortgage interest and property tax deductions in the new tax law, but they did note ongoing pushback from buyers on new home pricing. Financial Services: Contacts expressed higher levels of optimism about overall business activity and total loan demand going forward, with nearly two-thirds of bankers expecting stronger loan demand six months from now. Agriculture: Uncertainty about NAFTA is also a headwind for the agriculture sector, as many producers rely on export markets to move their production.

It’s too early for any formal outlooks for all of 2018. After all, businesses have had limited outlooks for so long that they are not always willing to go too many months out in forecasting. Stay tuned.

By Jon C. Ogg

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