Outlook for the Texas Economy | August 2023

Outlook for the Texas Economy summarizes significant state economic activity and trends. All measurements are calculated using seasonally adjusted data, and percentage changes are calculated month over month, unless stated otherwise. Click here to receive email notifications each time this report is published.

Texas’ economy began showing signs of the Federal Reserve’s actions, and consumer confidence plummeted from price increases in gasoline. However, Texas’ labor market remains strong. Despite the cooling economy, the business outlook for both retail and service sectors remained positive. Crude oil exports rebounded after three months of reduction, and the state’s housing market picked up from last month’s decrease.

CPI Rises as Shelter Climbs for 40^th Month

The Consumer Price Index (CPI) jumped 0.6 percent month over month (MOM). According to the Bureau of Labor Statistics, the index for gasoline contributed over 50 percent of the monthly increase. The shelter index rose for its 40th consecutive month as rents rose. August’s CPI changed 3.7 percent year over year (YOY), which is still above the 2 percent goal the Fed seeks to pursue. As the Fed continues to fight inflation, their eyes will also be on minimizing the negative impact those rate increases will have on the labor market in the coming months.

Employment Balances Amidst Contrasting MSA Employment

Total nonfarm employment expanded 0.12 percent MOM, remaining relatively unchanged as Dallas and Houston added 16,900 and 11,300 workers, respectively. The state payroll netted 16,700 new workers in July, helped largely by gains in the government sector (up 12,100) and the service-producing sector (up 11,800). Leisure and hospitality continued into its second month of strong growth while education and health services struggled with 7,300 layoffs.

Job seekers continued to display optimism in the job market, as evidenced by the high participation rate of 64.6 percent. The unemployment rate remained unchanged for the fourth month in a row at 4.1 percent, and the continued unemployment claims averaged around 125,100 applications on a weekly basis. Over the course of a year, Texas attracted 432,903 new workers, continuing to surpass the record high total labor force.

Rebounded Home Sales Speed up Market Time by Two Days

Amid a slowdown in the real estate industry, Texas’ total home sales improved from last month’s three year low after reaching over 27,000 transactions in August. The sales activity picked up at an impressive rate of 9.5 percent MOM, but the activity level was still 8 percent lower than last year’s reading. Sales ticked up uniformly this month in all four major metros, growing between 0.8 percent to 9.7 percent (see table).

Reduced home sales were mostly reflected by constrained sales of existing homes, while the new construction market hiked in demand. Sales for new construction grew by 20 percent in a year. Correspondingly, the market share of new construction sales climbed five percentage points to 21.7 percent. This indicates that for every five closed listings, one was a new home. Both demand and supply factors contributed to the increasing trend for new homes. The shortage of existing homes is due to current owners’ reluctance to give up their homes in exchange for a higher-cost home.

Merchants are Optimistic about Future Business

Service sector sentiment rose more quickly this month than last, according to the Dallas Fed’s Service Sector Outlook Survey. The labor market within the service sector continued to grow, with both the employment index and the hours worked index remaining strong. Strong expectations for future general business remained unchanged.

Retail sales saw little growth as the Dallas Fed’s Retail Outlook Survey remained in negative territory. Retailers’ perception of broader business conditions continued to worsen with the outlook uncertainty index falling by eight points. The employment index remained unchanged but strong, indicating employment is continuing to grow. Expectations for future retail growth continued to increase as the future sales index rose over five points. The future general business activity index and the future employment index remained positive.

Global Trade Showed Little Movement

Texas’ all-commodity exports moderated at a 0.8 percent MOM increase. Demand for the top three manufacturing exports experienced fluctuations with petroleum/coal rising 3.3 percent MOM, while chemicals and computer/electronic products fell 7.1 percent and 2.8 percent MOM, respectively. Demand for Texas’ crude oil exports grew 3.1 percent MOM with many European countries such as France, Italy, Ireland, and the UK accounting for most of the increase.