It was a year in which the Texas economy continued to be crushed. Or so we thought.
After recovering all of its pandemic-related job losses by November 2021, the state continued strong growth through most of 2022, adding workers at more than twice the normal pace.
In August, the Dallas Fed predicted Texas would add more than 674,000 jobs for the year, after raising its monthly employment forecast several times.
This was before the significant downward revision based on the quarterly employment report. That was also before the spike in interest rates started cutting deeper into the housing market and other parts of the economy.
A few weeks ago, the Dallas Fed nudged its full-year growth forecast for Texas to 452,000 jobs this year.
This is an impressive increase and far exceeds the average annual net income over the past 10 years. But that's a third lower than expected just four months ago.
“It's still a very good year, but it's slowing down. It's slowing down faster than we expected,” said Luis Torres, senior business economist at the Dallas Fed.
The U.S. Bureau of Labor Statistics, which compiles employment statistics, won't benchmark 2022 performance until February and March. However, the Dallas Fed and other regional banks use seasonal adjustments and benchmarks more frequently.
Employment in Texas has increased 3.5% this year, compared to 3.2% in the U.S., according to Dallas Fed estimates this month. Employment in Texas increased 5.1% in the 12 months ending in November, according to BLS estimates.
The difference between the two estimates for Texas is about 177,000 jobs. What does such a difference mean?
“What's surprising is that we're not growing much faster than the country. And we thought so, right?” Torres said. “That's important for families and businesses to know. They may think we'll be fine even if the U.S. economy is down. That's not necessarily true.”
The Dallas Fed's latest economic outlook for Texas, released in mid-December, is titled “Slowing Economic Growth.”
The report, authored by Torres and senior economist Pia Olenius, notes significant downward revisions to the Texas employment forecast after benchmarking, and notes other developments.
In Texas' service sector, sales are declining further while economic perceptions continue to deteriorate, the survey shows. Texas manufacturing output remained flat and new orders declined for the sixth consecutive month, the report said. Texas businesses also have a harder time passing higher costs on to customers.
“Interest rates are rising too fast,” one building materials company told the Dallas Fed in November. “It's going to be a hard landing.”
“Recession is coming!” said the metal manufacturer. “We're just waiting for the backlog to clear. Then the layoffs will start.”
When oil prices are as high as they are now, Texas has a history of weathering economic downturns better than the rest of the country, the report said. But growth across the state is slowing.
“As employment and production growth slows, price and wage pressures ease, and business pessimism increases, there is no guarantee that Texas will be protected from a downturn in U.S. economic activity,” said Dallas Fed economists. said.
Olenius said the downward revision in Texas employment was one of the largest on record, citing two unusual circumstances: the Federal Reserve's large interest rate hikes to fight inflation and the effects of the lingering pandemic.
“The Fed hit the brakes in a very big move, which is very unusual,” Olenius said. “And it's been very difficult to make regular statistical adjustments to the data during the pandemic.”
The BLS has made some significant revisions to its employment data through March 2022. Dallas-Fort Worth's annual job growth rate was revised downward by 60,700 jobs, a decrease of 1.5 percentage points. Growth rates in some major cities, including Washington, Minneapolis, and Atlanta, were cut even further.
Olenius said there may be a silver lining to Texas' payroll decline: “Maybe we're getting closer to achieving our goals of slowing the economy and slowing inflation.” Told.
Many have long expected Texas' growth rate to slow. “Since mid-year, every jobs report has felt like a pretty surprising number, almost always higher than expected,” said Mallory Vachon, senior economist at Labor IQ by ThinkWhy in Dallas. A company that tracks jobs and salaries.
Wage growth has been particularly steep in D-FW this year, but the momentum is starting to shift. Texas had 869,000 job openings in October, a high level but down from 1 million the previous month. Statewide employment in October was the lowest since January.
The number of Texans leaving their jobs has declined for the second month in a row and is at its lowest point in a year. Layoffs are also on the rise.
According to LaborIQ, the number of job openings, new hires and turnover are all expected to decline next year. These indicators remain higher than historical averages, but are expected to “normalize” by 2023.
“We were expecting a much faster slowdown, but things are actually starting to moderate,” said Jay Denton, chief analytics officer at LaborIQ. “Recruiters don't like this because it's harder to move people around and there aren't as many job openings.
“But it's good for recruiters. Attrition is down and compensation isn't as high as it used to be,” he said.
High interest rates threaten Texas' tremendous growth, he said. Domestic migration has brought in thousands of new workers and employers, and high mortgage rates have made it more difficult to sell a home and move to Texas.
“We are a very growing state, especially in housing construction,” Denton said. “If that volume decreases, it will have an impact not only on the construction industry but also on employment.”
Despite the headwinds, Dallas-Fort Worth and Austin will continue to be the No. 1 and No. 2 job markets next year, according to LaborIQ's 150 metro area rankings. Houston is also in the top 10.
This list takes into account growth in employment, wages, education, working age population, and more.
Even if the economy takes a downturn next year, “Texas' major cities will continue to be top of mind if you're looking to enter a market where you can be successful long-term,” Denton said.
