Construction industry ; Energy industries ; Manufacturing industries ; Housing

D'Ann Petersen

Laila Assanie

English

Research Papers in Economics

FEDERAL RESERVE BANK OF DALLAS • JULY/AUGUST 2007    15    SouthwestEconomy
RegionalUpdate
Broad measures of economic activity sug-
gest that the Texas economy has been ex-
panding at a slower pace this year. 
  Total employment increased 2 percent 
through June, well below the vigorous 3.4 
percent pace of 2006 (Chart 1).1 The Dallas 
Fed’s Texas Business-Cycle Index, an aggre-
gate measure of the state’s economic health, 
has averaged year-to-date growth of 3.5 per-
cent, compared with 4.2 percent last year.
  Service-sector  employment  grew  at  a 
respectable 2.2 percent in Texas during the 
first half of 2007, but the state isn’t getting 
the boost it did last year from the goods-
producing sector. Growth in the goods sec-
tor slowed dramatically, from 5.3 percent in 
2006 to an annualized pace of 1.3 percent 
this year (Chart 2).
  The slowdown in goods-sector job growth 
occurred  in  all  three  major  industry  catego-
ries—construction, manufacturing and energy. 
  Construction  and  manufacturing  have 
been hindered by weakness in the housing 
sector, according to recent data and the July 
Beige Book, the Dallas Fed’s anecdotal re-
port on the Texas economy. Energy-sector 
activity remains at high levels but has been 
restrained by lower natural gas prices, a tight 
labor  market  and  higher  costs,  including 
wage pressures.
Housing Measures Down 
  The housing sector is becoming a drag 
on economic growth in Texas as homebuild-
ers across the state continue to curb new-
home  construction  in  response  to  weaker 
demand and higher inventories (Chart 3). 
  Single-family building permits have fallen 
34.5 percent since June of  last year, and starts 
are down 12.2 percent. Single-family contract 
values are 20 percent below June 2006 levels. 
While the Texas housing market remains better 
off than other areas of the country, the recent 
Beige Book found builders don’t foresee a re-
vival in the near future. 
  Manufacturing employment rose in the 
second  quarter  after  falling  the  previous 
three months. Still, year-to-date factory em-
ployment is down 1.1 percent, matching the 
national decline. 
Chart 4 Job Growth Mixed in Selected Texas Manufacturing Industries  Chart 3 Texas Builders Continue to Pull Back
Chart 2 Texas Goods Sector Loses Steam in 2007 
Index, January 2000 = 100 
Chart 1 Job Growth Picks Up in Texas, U.S. but Trails 2006 Pace
Percent* 
U.S.
Texas
Single-family contracts
Single-family permits
* Quarter-over-quarter.
SOURCE: Texas Workforce Commission, seasonally adjusted by the Dallas Fed.
’07 ’06 ’05 ’92 ’91 ’90
Single-family housing starts
SOURCES: Census Bureau; McGraw-Hill; Dodge Construction.
Job growth (percent)*
Service-providing
Goods-producing
Goods-producing
17% Service-
providing
83%
Percent*
*June-over-December.
Total
manufacturing
Computer &
related products
Construction
related
Chemicals Electrical eqpt.,
appliances
Transportation
equipment
* December-over-December.
–4
–3
–2
–1
0
1
2
3
4
5
6
–6
–4
–2
0
2
4
6
2007 2006 2005 2004 2003 2002 2001 2000
(Year-to-date
annualized)
50
100
150
200
250
300
2007 2006 2005 2004 2003 2002 2001 2000
–8
–6
–4
–2
0
2
4
SOURCE: Texas Workforce Commission, seasonally adjusted by the Dallas Fed.
SOURCE: Texas Workforce Commission, seasonally adjusted by the Dallas Fed.
’95 ’94 ’93 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97 ’96
  Several  key  industries  contributed  to 
the Texas loss (Chart 4). Employment fell by 
4,000 (6.9 percent) at computer-related firms, 
largely due to outsourcing and restructuring in 
the high-tech sector. Jobs were down by 500 
(5 percent) in electronic equipment, including 
home appliances. They fell by 1,400 (2.8 per-
cent) in construction-related manufacturing, a 
result of the housing downturn. Together, these 
three industries make up 25 percent of Texas 
factory employment.
  Some areas of strength remain. Commer-
cial construction activity continues to expand, 
retail  sales  receipts  through  May  indicate 
healthy  growth  and  Texas  exports  recently 
rebounded, growing 4.5 percent in May. 
  The  outlook  for  the  Texas  economy 
continues  to  be  positive,  with  the  Dallas 
Fed’s Texas Leading Index suggesting 2007 
job growth of about 2.8 percent—right at the 
historical average for the state economy.
—Laila Assanie and D’Ann Petersen
Note
1 2007 employment data are subject to revisions. Past 
revisions have been substantial.
Texas Economic Growth Downshifts

Regional Update : Texas economic growth downshifts

http://dallasfed.org/assets/documents/research/swe/2007/swe0704g.pdf

Regional Update : Texas economic growth downshifts

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Research Papers in Economics