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. However, even with some support from firming oil prices, the downdraft in the energy sector will continue well into the second half of this year, if not longer.
In North Texas we are seeing the an increasing divergence in job creation between the western half of the Dallas-Fort Worth metro area and the eastern half. The divergence appears to have its roots in the energy sector. The overall Dallas-Fort Worth metro area is still showing strong job creation, with March payroll employment up a strong 3.8 percent over the previous 12 months. However, when we just look at the western half of the metro area, the Fort Worth-Arlington metropolitan division, year-over-year job growth has eased to 1.9 percent as of March. The eastern half of the metro area, the Dallas-Plano-Irving metro division has shown an increase in job growth to a 4.7 percent year-over-year rate as of this March. While Forth Worth is showing more evidence of the drag from weak oil prices, we expect that job growth in Dallas will also ease over the next year. However, the boom in residential, retail construction and office construction on the north side of the Dallas metro division will provide insulation from the downdraft in the energy sector for much of North Texas.
Despite the drag from weak oil prices, the Texas economy retains numerous advantages. Chief Executive Magazine ranked Texas as the best state in the country for businesses for the 12th consecutive year. Rounding out the top five states were Florida, North Carolina, Tennessee and Indiana. The strong business climate here is driving up the demand for commercial space, pushing rents up, particularly in the Dallas uptown area.
Click here for the complete North Texas Regional Economic Update: NorthTexas 2016Q2.