The Texas economy is feeling a persistent downdraft from the beleaguered energy sector. In March, Texas lost a net of 12,000 jobs, just the second monthly loss since late 2010. This kept the state’s unemployment rate steady at 4.3 percent, well below the national average of 5.0 percent for the month. We expect job growth to cool statewide, stepping down from a 2.4 percent annual gain in 2015, to about 1.5 percent this year. Real state GDP lost momentum in 2015Q3, the last data point available, when it barely increased at a 0.1 percent annual rate, following a weak 0.5 percent gain in 2015Q2. Over the four quarters from 2015Q4 through 2016Q3, we show a moderate decline in Texas real GDP, driven by the worst drilling conditions since the mid-1980s. Fortunately, oil prices have found some footing, increasing from the February low of $26 per barrel for West Texas Intermediate crude oil, to near $45 by late April. We expect drilling activity to stabilize by late summer as long as recent price gains are durable.
Although Texas as a whole is struggling from the energy sector havoc, the Austin area economy is standing out with a sustained outperformance of job growth over Texas since 2009. The area created over 40,000 jobs in the year ending 2016Q1 from a year ago. Consequently, the area’s unemployment rate fell to 3 percent by March 2016. Most of the jobs created in the interval came from trade, transportation, and utilities followed by leisure/hospitality and education/health services. Austin continues to be ranked among the top cities expected to prosper in the next decade and among the best cities for small business and job growth. We expect more companies to expand or relocate their businesses there over the next few years. In 2016Q1, companies like Comprehensive Healthcare Management, Hyperwallet Systems, Shopgate, Conde Nast, Eseye, and LKQ have relocated to Austin. Companies like Indeed, Mirna Therapeutics, Vast, Vyopta, Flint Hills Resources, Xeris Pharmaceuticals and many others have expanded their footprints in the area creating hundreds of jobs.
Austin’s real estate market is tight due to the need to accommodate its ever growing population and to satisfy growing office space demand. Single-family home sales grew by 9 percent in March 2016 from a year ago and median single-family home prices grew by 8 percent to $278,000 in the interval. Tighter vacancy rates to as low as 4 percent pushed multifamily apartment rents to grow by more than 6 percent in 2015Q4. Austin’s year-over-year office space vacancy rate dropped to 11.2 percent in 2016Q1 as the city’s positive net absorption decreased. We expect Austin’s home price growth to be around 7-8 percent in 2016/17.
Click here for the complete Austin Regional Economic Update: Austin 2016Q2.