Texas Is Turning the Corner, But It will Be a Slow Turn

Texas narrowly missed a technical recession over 2015 and 2016 as real state gross domestic product declined every other quarter from 2015Q2 through 2016Q2 (we define a technical recession as two or more consecutive quarters of declining real GDP). Moreover, the positive quarters separating the negative ones during that stretch were only weakly positive. That pattern broke in the third quarter of 2016, when real gross state product increased at a 4.3 percent annualized rate, above the surprisingly upbeat 3.5 percent annualized growth rate of U.S. GDP for that quarter. Our Texas State Index also began to turn up in the third quarter of 2016, posting three consecutive monthly gains so far, from September through November. WTI crude oil prices now look like they have support at more than $52 per barrel. The state drilling rig count has increased steadily since last May, reaching 362 rigs as of early February, more than double the May 27 low of 173 rigs. Despite the many positive signals, we are taking a cautious view and forecasting annual growth in Texas for 2017 at just below the U.S. average. One cautious signal comes from job growth. Texas had only two months of net job losses through 2015 and 2016, both occurring in March of those years. This past December, Texas came close to a third month of net job losses, posting a meager gain of only 800 net new jobs statewide. Also, we do not expect oil prices to return to the pre-2015 heights any time soon. Our year-end forecast for WTI is $58/bbl. Finally, Houston, a big part of the Texas economy, may take many more months to find its balance as large projects wind down this year.

For a PDF version of the complete Texas Economic Outlook, click here: TX_Outlook_0217.

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