Regional Economic Update

Economic Policy Advisor and Senior EconomistAnil Kumar

Texas economy expanding at a moderate pace but job growth decelerated in Q4

Jobs grew at 2.5 percent annual rate in December 2.4 percent rate in 2018 (faster than 2.1 percent in 2017)

Labor markets remain tight Construction activity softened and house price growth decelerating Wage and price pressures moderating Exports strong despite recent dollar strength Expect 1-2 percent job growth in 2019—slower than 2018

Overview

11.1

17.011.3

-50

-40

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Manufacturing Production (TMOS)Service Sector Revenue (TSSOS)Retail Sales (TROS)

Index, 3MMA, SA

NOTES: Data through December 2018. Dashed lines are post-recession averages (Jan. 2010-Dec. 2017).SOURCES: Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS) and Texas Retail Outlook Survey (TROS).

TBOS Headline Indexes Show Signs of Slower Growth

-8

-6

-4

-2

0

2

4

6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Texas

U.S.

Q/Q job growth, SAAR Texas: 2.5U.S.: 2.1

NOTE: Dashed lines indicate long-run averages (Jan. 1990-Dec 2017).SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.

Texas Payroll Employment Growing Moderately

1.7 1.32.3

1.0

2.21.4

2.52.0

1.2

4.5

2.43.1

1.82.5

012345

Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

U.S. TexasM/M job growth, SAAR

3.1

-1.0

3.0 3.34.1

1.6

3.6

6.1

3.4

5.6

-3.0

2.8

1.1 0.9

3.3

1.6

5.8

1.3

3.7

2.1

10.2

-0.3

-4

-2

0

2

4

6

8

10

12

Trade,transp., util.

(20%)

Govt.(15.4%)

Prof. & bus.svcs. (13.9%)

Educ. &health

(13.7%)

Leisure &hosp.

(10.8%)

Mfg.(7.1%)

Fin. act.(6.2%)

Const.(6%)

Other svcs.(3.4%)

Oil & gas(1.9%)

Info. (1.6%)

NOTES: Quarters are Q3 and Q4 2018. Numbers in parentheses refer to share of state employment in December 2018.SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.

Percent, Q/Q job growth, SAAR

Job Growth Mostly Broad-based Across Sectors

3.1

1.8

3.5

4.9

0.6

3.9

2.8

3.9

1.91.7

1.2

0.2

0

1

2

3

4

5

6

Dallas(21%)

Fort Worth(8.4%)

Houston(24.7%)

Austin(8.5%)

San Antonio(8.4%)

El Paso(2.5%)

NOTES: Quarters are Q3 and Q4 2018. Numbers in parentheses refer to share of state employment in December 2018.SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.

Percent, Q/Q job growth, SAAR

Q4 Job Growth Slower in Most Metros

3.93.7

3

4

5

6

7

8

9

10

11

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Percent, SA

NOTE: Data through December 2018.SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by Federal Reserve Bank of Dallas.

Texas Unemployment Rate Holds Steady and Remains Near Historical Lows

Texas

U.S.

0

1

2

3

4

5

6

7

8

9

10

2011 2012 2013 2014 2015 2016 2017 2018

U.S.

Houston

Texas

San Antonio

Dallas

Austin

Ft. Worth

Months of inventory

NOTE: Data through Dec. 2018.SOURCES: Multiple Listing Service; Texas A&M Real Estate Center.

Existing Home Inventories Edge Up but Remain Still Low

-15

-10

-5

0

5

10

15

20

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Percent, Y/Y, SA

NOTE: Data through October 2018.SOURCE: Standard & Poor's.

Dallas

U.S.

House Price Growth Decelerates More in Texas than U.S.

Most Measures Point to Slower House Price Growth

House Price Changes in Texas and the U.S.Latest Period Year/Year 2017 Year/Year

Texas U.S. Texas U.S. Texas U.S.FHFA House Price Index (Q3) 4.5 5.1 5.7 6.3 7.7 6.6S&P/Case Shiller Index (Oct.) 3.0 6.1 3.9 5.5 7.7 5.8

MLS Median Sales Price (Dec.) -5.2 -11.3 1.1 1.2 4.3 4.0NOTES: Dallas is used to approximate Texas for the S&P/Case Shiller Index; all data is annualized.SOURCES: FHFA, S&P/Case Shiller, MLS.

1.01.0

0123456789

10

2001 2004 2007 2010 2013 2016

Texas U.S.

Percent seriously delinquent

NOTES: Data through Q3 2018. Seriously delinquent includes 90+ days past due and severe derogatory.SOURCE: Federal Reserve Bank of New York Consumer Credit Panel/Equifax.

Mortgage Loans

8.9

7.8

02468

10121416

2001 2004 2007 2010 2013 2016

Credit Card Loans

13.4

11.4

0

5

10

15

20

2001 2004 2007 2010 2013 2016

Student Loans

5.14.2

0

2

4

6

8

2001 2004 2007 2010 2013 2016

Auto Loans

Delinquency Rates Reflect Still-healthy Household Financial Situation

Percent seriously delinquent

Percent seriously delinquent Percent seriously delinquent

4.54.7

3.1

4.03.8

2.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Wages Input costs (excluding wages) Selling prices

Firms Expect Lower Wage and Price Pressures in 2019

2018 2019 (expected)

Percent

NOTE: Data collected Dec. 18–26, 2018 with 317 firms responding.SOURCE: FRB Dallas Texas Business Outlook Surveys.

521

51.57

35.0

0

20

40

60

80

100

120

140

160

0

200

400

600

800

1,000

1,200

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

TX rig countNatural gas price

Oil price

NOTES: Natural gas price is multiplied by 10. Data through week of January 18, 2018.SOURCES: Wall Street Journal; Baker Hughes; Energy Information Administration.

Rig count, weekly Nominal price, $, weekly

Rig Counts Flatten After Recent Declines in Oil Prices

Energy Sector Business Activity Slowed Significantly in Q4

-50

-40

-30

-20

-10

0

10

20

30

40

50

2016 2017 2018

Index

SOURCE: Federal Reserve Bank of Dallas Energy Survey.

2.32018:Q4

165.1

275.9

120.4

80

90

100

110

120

130

140

80

100

120

140

160

180

200

220

240

260

280

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

U.S. ex. Texas

Texas

Index, January '00=100, SA

NOTE: Exports lines through October 2018, value of the dollar line through November, and pie charts refer to Q3 2018.SOURCES: U.S. Census Bureau; WISERTrade.

Texas trade-weightedvalue of the dollar

Index, January '00=100, SA

33.7

21.913.2

12.8

8.65.44.4

MexicoAsia, excl. ChinaLatin America, excl. MexicoEUCanadaChinaOther19.9

17.9

15.114.7

7.6

7.4

17.6

Oil and gasPetroleum and coal productsChemicalsComputers and electronicsTransportation equipmentMachinery, excl. electricalOther

Texas Exports Pick Up Despite Stronger Dollar

14.06.8

-3.5

-80

-60

-40

-20

0

20

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

General Business Activity (TMOS)General Business Activity (TSSOS)General Business Activity (TROS)

NOTES: Data through December 2018. Dashed lines are post-recession averages (Jan. 2010-Dec. 2017).SOURCES: Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS), and Texas Retail Outlook Survey (TROS).

Index, 3MMA, SA

Perceptions of Broader Business Conditions Moderate Significantly

Texas economy expanding at a moderate pace but job growth decelerated in Q4

Labor markets remain tight House price growth decelerating Wage and price pressures expected to moderate in 2019 Lower oil prices likely to affect energy sector activity Expect 1-2 percent job growth in 2019—slower than 2.4 percent in

2018 Key downside risks: Lower oil prices, higher rates, strong dollar, labor supply

constraints, tariffs, and trade policy uncertainty

Summary

3.7 3.8 3.9 4.1 4.4 4.7

7.4 7.5

0

1

2

3

4

5

6

7

8

9

10

U3(total unemployed workers)

U3+discouraged workers

U4+marginally attached to

the labor force

U5+part-time for economic

reasons

Broader Measures of Unemployment Well Below Pre-recession AveragesTexas Nov. 6MMA

Texas Pre-recession avg. '00-'06

U.S. Nov. 6MMA

U.S. Pre-recession avg. '00-'06

Percent

NOTES: Data through November 2018. Discouraged workers calculated as a percent of the civilian labor force plus discouraged workers. Marginally attached workers calculated as a percent of the civilian labor force plus all marginally attached workers. Part time for economic reasons calculated as a percent of the civilian labor force plus all marginally attached workers. U6 (Broader unemployment rate) equals U3 plus discouraged workers plus marginally attached plus part time for economic reasons.SOURCES: BLS/CPS.

0

10

20

30

40

50

60

70

0

100

200

300

400

500

600

700

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

Texas

U.S.

NOTES: Data are through January 12, 2019. Dashed lines are pre-recession averages (2000-2006).SOURCE: United States Department of Labor.

Thousands, 4WMA, SA Thousands, 4WMA, SA

Low Initial Unemployment Claims Reflect a Tight Labor Market

90

100

110

120

130

140

150

160

170

180

190

200

2011 2012 2013 2014 2015 2016 2017 2018

Index, Jan. '11=100, 6MMA

NOTE: Data through Dec. 2018.SOURCES: Multiple Listing Service; Texas A&M Real Estate Center.

Existing-Home Sales Moderated Significantly in 2018

Ft. WorthAustin

San Antonio

Houston

TexasDallas

U.S.

15.0

10.512.9

-40

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Current selling price (TROS)

Current price finished goods (TMOS)

Current selling price (TSSOS)

Index, 3MMA, SA

NOTES: Data through Dec. 2018. Dashed lines are post-recession averages (Jan. 2010-Dec. 2017).SOURCES: Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS), and Texas Retail Outlook Survey (TROS).

TBOS Price Indexes Suggest Price Pressures Easing

29.0

20.316.1

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Current Wages and Benefits (TMOS)

Current Wages and Benefits (TSSOS)

Current Wages and Benefits (TROS)

Index, 3MMA, SA

NOTES: Data through Dec. 2018. Dashed lines are post-recession averages (Jan. 2010-Dec. 2017).SOURCES: Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS), and Texas Retail Outlook Survey (TROS).

TBOS Wage Indexes Ease but Remain Above Average

101

112

70

75

80

85

90

95

100

105

110

115

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Index, January '07 = 100

NOTE: Texas data through Dec. 2018; U.S. through Nov.SOURCES: Conference Board; FRB Dallas.

Texas

U.S.

Texas Leading Index Points to Slower GrowthThree-month percent change

*Estimated December value.NOTE: Change from Sept. to Dec. 2018.SOURCE: FRB Dallas.

-4 -3 -2 -1 0 1

Real oil price

Texas Stock Index

Texas value of the dollar*

New unemployment claims*

Help-wanted index

Well permits

U.S. leading index*

Average weekly hours

Net change in Texas Leading Index*

Labor Force Participation Rate

63.8

63.1

62

63

64

65

66

67

68

69

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Percent

Texas

U.S.

NOTE: Dashed lines refer to pre-recession averages (Jan. 2000 – Dec. 2006).SOURCE: Bureau of Labor Statistics.

Employment to Population Ratio

61.4

60.6

58

59

60

61

62

63

64

65

66

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Percent

Texas

U.S.

NOTE: Dashed lines refer to pre-recession averages (Jan. 2000 – Dec. 2006).SOURCE: Bureau of Labor Statistics.

132.7

90.173.572.1

20

40

60

80

100

120

140

160

180

200

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Multifamily permitsReal residential contract valuesHousing startsSingle-family permits

Index, January '06=100, 5MMA

NOTE: Permits and housing starts through October, contract values through November 2018. SOURCES: Bank of Tokyo-Mitsubishi; U.S. Census Bureau; F.W. Dodge.

Residential Construction Activity Softens

14.3

7.2

-50

-40

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

New Orders (TMOS)Growth Rate of Orders (TMOS)

Manufacturing Demand Growth DeceleratesIndex, 3MMA, SA

NOTES: Data through December 2018. Dashed lines are post-recession averages (Jan. 2010-Dec. 2017).SOURCE: Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey (TMOS).

Oil Price Expectations for 2019 Remain Disperse

0

5

10

15

20

25

30

35

< 50 50.00–54.99 55.00–59.99 60.00–64.99 65.00–69.99 ≥ 70

Percent reporting

NOTES: Executives from 160 oil and gas firms answered this question during the survey collection period, Dec. 12–20, 2018. For reference, WTI (West Texas Intermediate) spot prices averaged $49.22 per barrel during the period.SOURCES: Federal Reserve Bank of Dallas Energy Survey; Energy Information Administration.

Dollars per barrel