Mine Yücel

English

Research Papers in Economics

3 OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
A
After decades of faring better than the
rest of the country, Texas’ economic
growth has lagged both the nation’s and
its own past performance for almost three
years.
The most recent U.S. recession was
short-lived, beginning in March 2001 and
ending that November, according to the
National Bureau of Economic Research. It
took Texas another 20 months—until July
2003—to bottom out, based on the Texas
Coincident Index.
1 Employment growth
picked up in Texas in 2004. But while the
1.7 percent increase put Texas on par with
the nation, it still left the state below its
historical pace. What are the reasons for
Texas’ prolonged downturn? Why did the
state lose its edge?
Past Performance
Texas employment growth, on aver-
age, exceeded the nation’s from 1970
through 2004, with a 2.8 percent rate to
the country’s 1.8 percent (Chart 1). The
Texas in the Most Recent 
Recession and Recovery
Mine Yücel
Chart 1
Texas Bests U.S. Employment Growth for More Than 30 Years
Percent
–2
–1
0
1
2
3
4
5
6
7
8
United States
Texas
’05 ’03 ’01 ’99 ’97 ’95 ’93 ’91 ’89 ’87 ’85 ’83 ’81 ’79 ’77 ’75 ’73 ’71
U.S. average
Texas average
NOTES: Data are year-over-year, seasonally adjusted, annualized rates. Shaded bars signify national recessions.
SOURCES:Bureau of Labor Statistics; Federal Reserve Bank of Dallas; National Bureau of Economic Research.
What are the 
reasons for 
Texas’ prolonged
downturn? Why
did the state
lose its edge?4 FEDERAL RESERVE BANK OF DALLAS | OCTOBER 2005
sector losing 280,000 jobs nationwide
from March 2001 to July 2003. These job
losses plus those in high tech constituted
50 percent of the total U.S. employment
decline. Texas lost 21,200 transportation
jobs, which, combined with its high-tech
losses, accounted for 62 percent of the
state’s total.
2
Chart 5 illustrates Texas’ high-tech
roller coaster. California  is included as a
comparison, along with the United States.
High tech grew very fast in the 1990s but
came back down just as fast. High-tech
production in Texas grew six times as fast
as the state’s overall output. During the
recession, Texas high-tech manufacturing
lost 107,400 jobs, nearly a third of its
employment. Even though California
started with a higher base and therefore
grew less in percentage terms, more jobs
were created in Texas. During the build-
up, total high-tech manufacturing jobs
increased by 47,000 in Texas, while they
rose by only 17,000 in California. In semi-
conductors, for example, California added
22,000 jobs, while Texas added 35,000.
Texas also grew faster than the nation in
telecom services, adding 50,000 jobs dur-
ing the ’90s, then losing 30,000 during the
recession.
Elsewhere in this publication, “Do
Higher Oil Prices Still Benefit Texas?” dis-
cusses how the relationship between oil
and the Texas economy has evolved.
When the industry was a larger share of
the Texas economy, higher oil prices were
always a net benefit to the state. That
state’s ability to dodge national recessions
is one reason Texas has done so much bet-
ter. Eight of the 10 post–World War II
recessions followed oil price shocks. And
unlike the nation as a whole, Texas bene-
fited from high oil prices, especially in the
1970s through early 1990s.  As can be seen
in Chart 2, the Texas economy followed
changes in oil prices fairly closely, with
employment rising and falling with the oil
price. The Texas employment cycle started
diverging from oil-price movements in
the 1990s as the economy diversified away
from oil and gas. 
High oil prices were a boon to the
Texas economy and helped it grow, even
during national recessions, as seen in
Chart 3. Oil prices that nearly tripled from
$4 to above $10 per barrel (refiners’ acqui-
sition cost) sent the United States into
recession in December 1973 but boosted
output and employment in Texas (Chart
3a). Oil prices started creeping up again
in the late 1970s and rose from around $12
per barrel in 1978 to almost $30 when Iraq
invaded Iran in September 1980. The U.S.
economy went into recession—again,
without Texas (Chart 3b). 
But just as high oil prices helped
Texas, low ones hurt it. The nation went
into recession again in August 1981, and
Texas followed 10 months later, the result
of oil prices that began falling from record
highs in March 1982 and the pull of the
national downturn (Chart 3c). 
Texas had its own recession in 1986,
when oil prices collapsed and the real
estate boom cratered. Low oil prices ben-
efited the national economy but sent
Texas into a steep decline. However, Texas
skirted the national recession again in
1990, when West Texas Intermediate
crude spiked to $45 per barrel with the
Iraqi invasion of  Kuwait (Chart 3d). 
This Time Around
Texas looked much more like the
nation in the 2001 recession than it did in
past downturns, for two reasons (Chart 4).
First, although oil prices were high, this
recession was primarily due to a high-tech
bust, not an oil price shock. Second, high
oil prices do not help the Texas economy
as much as they have in the past.
The collapse of  high tech in the
recent recession was greatly felt in Texas.
The state had a larger share of high-tech
employment than the U.S. average, so job
losses in those industries were relatively
higher. From March 2001 through July
2003 (the Texas recession), 39 percent of
the jobs lost nationwide were in high
tech—426,800 of them in manufacturing
and 610,000 in  services. Fifty-one percent
of the 208,900 jobs lost in Texas were in
high tech—51,900 of them in manufac-
turing and 55,500 in services. 
The events of September 11 also con-
tributed to Texas’ steep downturn. The
transportation industry is important to
the state’s economy and has a larger share
of total employment than in the nation.
Transportation was especially hard-hit by
fallout from the terrorist attacks, with the
Chart 2
Texas Economy Follows Oil Prices
Detrended Texas employment 2005 U.S. dollars per barrel
Employment cycles
Oil price
–6
–4
–2
0
2
4
6
8
’05 ’03 ’01 ’99 ’97 ’95 ’93 ’91 ’89 ’87 ’85 ’83 ’81 ’79 ’77 ’75 ’73
0
10
20
30
40
50
60
70
80
90
NOTE: Employment data are seasonally adjusted and have had the time trend removed.
SOURCES:Bureau of Labor Statistics; Federal Reserve Bank of Dallas; Department of Energy.
After oil prices crashed,
Texas diversified and
the industry became a
much smaller share of
the state’s economy.5 OCTOBER 2005 | FEDERAL RESERVE BANK OF DALLAS
changed in the late 1980s, when volatile
energy prices helped erode the promi-
nence of energy-intensive and energy-
producing industries.
After oil prices crashed, Texas diversi-
fied and the industry became a much
smaller share of the state’s economy. For
example, oil and gas output, which
accounted for nearly 20 percent of total
Texas output in 1981, accounts for only
about 6 percent today. Similarly, oil and
gas jobs account for only 2 percent of
Texas employment, down from a high of
about 5 percent in 1982. The upshot is
that rising oil prices benefit Texas much
less now than they did in the past. 
Texas is still a large producer and
exporter of oil and gas, and when prices
go up, it helps producers, royalty owners
and the state through increased severance
taxes. So, unlike the rest of the country,
Texas gets an offset. But that offset is
much less now than it was 25 years ago.
In sum, Texas’ economic perform-
ance has been below par the past three
years. Unlike other downturns, the 2001
recession was primarily due to a high-tech
bust, not an oil price shock. And although
oil prices were relatively high, they did not
benefit Texas as much as in the past
because the state economy has diversi-
fied. In addition, high tech grew very fast
in Texas in the 1990s, to a share that was
higher than the national average. Texas’
higher share of industries that were hard-
hit in the recent recession was a major
factor in the state’s prolonged downturn.
Yücel is a senior economist and vice presi-
dent in the Research Department of the
Federal Reserve Bank of Dallas.
Notes
1 The Texas Coincident Index aggregates the
movements of key regional indicators—
employment growth, the unemployment rate
and gross state product—to gauge the state’s
overall economic direction. 
2 One point to note is that both high-tech and
transportation employment were falling even
before the onset of the recession. The two sec-
tors were responsible for 73 percent of all job
losses in Texas from December 2000 to July
2003.
Chart 5
The Boom and Bust of High-Tech 
Manufacturing…
Jobs: Index, January 1990 = 100
Texas
United States
’05 ’03 ’01 ’99 ’97 ’95 ’93 ’91 ’04 ’02 ’00 ’98 ’96 ’94 ’92 ’90
California
60
80
100
120
140
160
…and Telecom Services
Jobs: Index, January 1990 = 100
Texas
United States
70
90
110
130
150
170
190
210
’05 ’03 ’01 ’99 ’97 ’95 ’93 ’91 ’04 ’02 ’00 ’98 ’96 ’94 ’92 ’90
California
Chart 4
Texas Looks More Like the Nation
(Total nonfarm employment)
Index, April 2001 = 100
Texas
United States
U.S. recession
April – November 2001
97
98
99
100
101
102
Dec.
’04
July
’04
Feb.
’04
Sep.
’03
Apr.
’03
Nov.
’02
June
’02
Jan.
’02
Aug.
’01
Mar.
’01
Oct.
’00
SOURCES:Bureau of Labor Statistics; Federal Reserve Bank of 
Dallas; National Bureau of Economic Research.
SOURCES:Bureau of Labor Statistics; Federal Reserve Bank of
Dallas.
Chart 3
Texas and U.S. Economies in 
Previous Recessions
a. Texas Skirts Recession in the 1970s…
(Total nonfarm employment)
Index, December 1973 = 100
94
96
98
100
102
104
106
108
110
Texas
United States
Sept.
’75
June
’75
Mar.
’75
Dec.
’74
Sept.
’74
June
’74
Mar.
’74
Dec.
’73
Sept
’73
June
’73
U.S. recession
December 1973 – March 1975
b.  …and Again in 1980
(Total nonfarm employment)
Index, February 1980 = 100
94
96
98
100
102
104
106
108
110
Texas
United States
June
’81
Apr.
’81
Feb.
’81
Dec.
’80
Oct.
’80
Aug.
’80
June
’80
Apr.
’80
Feb.
’80
Dec.
’79
Oct.
’79
Aug.
’79
U.S.
recession
February –
July 1980
c. Texas Follows Nation into Recession in 1981…
(Total nonfarm employment)
Index, August 1981 = 100
94
96
98
100
102
104
106
108
110
Texas
United States
Nov
’83
Aug.
’83
May
’83
Feb.
’83
Nov.
’82
Aug.
’82
May
’82
Feb.
’82
Nov.
’81
Aug.
’81
May
’81
Feb.
’81
U.S. recession
August 1981 – 
November 1982
d. …but Dodges the 1990 Downturn
(Total nonfarm employment)
Index, August 1990 = 100
Texas
United States U.S.
recession
August 1990 – 
March 1991
94
96
98
100
102
104
Feb.
’92
Nov.
’91
Aug.
’91
May
’91
Feb.
’91
Nov.
’90
Aug.
’90
May
’90
Feb.
’90
SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas; 
National Bureau of Economic Research.

Texas in the most recent recession and recovery

http://dallasfed.org/assets/documents/research/pubs/fotexas/fotexas_yucel.pdf

Texas in the most recent recession and recovery

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