Texas metros bouncing back

December 4, 2018
​​​​NEW YORK (HSH) – Five Texas cities have landed on HSH’s list of the top ten metros that have recovered most since the Great Recession.

Austin-Round Rock home prices are 72.55 percent above the last housing boom’s peak, the second-highest of all metros studied.

Dallas-Plano-Irving (68.51 percent above peak) and Fort Worth-Arlington (59.85 percent) ranked fourth and fifth, respectively.

Houston-The Woodlands-Sugar Land followed closely behind at sixth with its home prices 57.05 percent above the prerecession peak. ​​No. 8 San Antonio-New Braunfels had home prices 44.47 percent above peak.

The rest of the top ten are:

  • No. 1 Denver-Aurora-Lakewood, 87.88 percent above peak;
  • No. 3 San Francisco-Redw​ood City-South​​​ San Francisco, 68.90 percent;
  • No. 7 Nashville-Davidson-Murfreesboro-Franklin, Tenn., 56.70 percent;
  • No. 9 Buffalo-Cheektowaga-Niagara Falls, N.Y., 43.61 percent; and
  • No. 10 San Jose-Sunnyvale-Santa Clara, Calif., 43.37 percent.

So far, 73 U.S. home markets have seen their home values recover fully from the huge downturns some areas saw during the recession.

Outlook for the Texas Economy

January 2018 Summary1

A strong U.S. economy and rising energy prices supported growth in the Texas economy. Texas crude oil production reached a cycle-high as global trade factors tipped in the state’s favor. The bomb-cyclone storm jolted the demand for utilities but stifled activity in the service sector. Texas created 16,000 jobs amid solid growth in the goods-producing sector. The labor market tightened further, driving the economy towards full employment. Potential headwinds to the Texas economy include decreased housing affordability, energy price volatility, and trade uncertainty.

The Texas economy advanced as the Dallas Fed’s Business-Cycle Index (a measure of current economic activity in the state) posted 4.8 percent quarterly annualized growth. The metropolitan business cycle indices were positive across the Texas Urban Triangle, led by Austin at 8.0 percent. Dallas and San Antonio maintained solid growth at 4.2 and 3.7 percent, respectively, while rebuilding efforts supported 5.7 percent growth in Houston. Meanwhile, weaker job creation in Fort Worth slowed the index to 1.8 percent.

The Texas Leading Economic Index (a measure of future directional changes in the business cycle) reached a two-year high amid higher oil prices, gains in the U.S. leading index, and declines in the Texas value of the dollar (a weight on Texas export competitiveness). Despite lagging wages, the Texas Consumer Confidence Index jumped 13.3 points as the business-cycle expansion continued.

Robust U.S. and global economic growth heightened inflation expectations and elevated interest rates. In their January meeting, the Federal Reserve Board hinted at three federal funds rate hikes this year as the national economy hovered around full employment. The ten-year U.S. Treasury bond yield rose 18 basis points to 2.58 percent, its largest monthly gain in over a year. The Federal Home Loan Mortgage Corporation 30-year fixed-rate jumped above 4 percent, maintaining upward momentum. While rates remained low by historical standards, even slight increases could hinder mortgage financing, particularly for first-time homebuyers.

Shortages of homes priced less than $300,000 restrained Texas housing sales to 1 percent growth and heightened affordability challenges. Current residential construction activity, measured by the Residential Construction Cycle (Coincident) Index, inched forward as industry employment expanded. Growth in weighted building permits and housing starts accelerated the Texas Residential Construction Leading Index (RCLI) to its highest level since 2007, signaling improvements in residential construction activity to start the year. On the demand side, economic growth decreased the statewide foreclosure rate to 0.6 percent, down from its 2010 peak of 2.1 percent. (For additional housing commentary and statistics, see Texas Housing Insight at recenter.tamu.edu.)

The average West Texas intermediate crude oil spot price increased to $63.702, the highest since 2014, driven by robust global demand and diminishing U.S. stockpiles. The number of active rigs in Texas rose to 4562, up 35.7 percent year over year, as activity accelerated in both the Permian and Eagle Ford Basin. Higher crude oil prices pushed Texas production above 3.9 million barrels per day2, accounting for 41 percent of national output. The opening of the Midland-to-Sealy Pipeline in November 2017 improved the regional supply chain and is scheduled to expand operations this year. The Henry Hub natural gas spot price jumped 14.4 percent to $3.69 per million BTU2 (British thermal units) after the bomb-cyclone storm lingered in the southern and northeastern United States but normalized later in the month.

Texas monthly nonfarm employment added 16,000 jobs led by growth in the goods-producing sector. Theunemployment rate held at 4 percent, slightly below the national level, while metropolitan unemployment balanced even lower. Houston was the exception with unemployment above 4 percent but remained below its 5.8 percent long-run average. Reduced initial unemployment insurance claims corroborated the general labor force tightening and could drop the unemployment rate even lower. Data revisions indicated an improved labor force participation rate at 63.4 percent, rather than slipping below 63 percent as previously reported.  An aging workforce, however, continues to pressure labor force participation downward throughout the nation.

At the Texas metropolitan level, Houston added the most jobs at 5,300, primarily from gains in education, health services, and the energy sector. Austin had the largest proportional increase at 0.5 percent, as retail jobs stabilized after a six-month decline. Manufacturing rebounded in San Antonio after a fourth-quarter slide last year, balancing total monthly growth at 1,600 new jobs. North Texas employment stagnated for the second straight month as professional-business services and wholesale trade hindered Dallas and Fort Worth, respectively. The sluggish stint, however, should be transitory as the region’s economic expansion generated the most job creation across the state in 2017.

Statewide, the goods-producing sector added 7,200 jobs as higher oil prices boosted energy sector activity. The manufacturing sector improved, adding 2,400 jobs, but could stagger amid potential U.S. tariffs on foreign steel and aluminum. Manufacturing job growth hovered around 3 percent (quarterly annualized) in Austin, Dallas, and Fort Worth, followed by Houston at 1.5 percent.

The Dallas Fed’s Texas Manufacturing Outlook Survey noted positive, yet slowing employment trends in the industry. The production index extended a 19-month upward trend with 25 percent of companies increasing capital expenditures. Companies revealed reinvestment plans following the recent tax cuts and favored the weakened value of the dollar. Skilled labor shortages remain the primary complaint across the manufacturing sector.

Rebuilding efforts along the Gulf Coast propelled construction employment growth above 11 percent (quarterly annualized). The total value of Texas construction rose 2.4 percent on a three-month moving average after sliding through most of 2017. Multifamily residential construction accounted for most of the monthly uptick, followed by school and hospital construction. Additionally, hotel and motel investment poured into all the major metros except Austin.

Texas’ service-providing sector inched forward, creating 8,800 new jobs, nearly 30,000 less than a year ago. Steady contractions in retail trade and the information sector hindered this month’s expansion. The Texas Service Sector Outlook Survey corroborated lackluster employment growth as all the labor indices decelerated. The revenue index fell sharply after the cold front stormed through the state early in the month. Respondents expressed concerns regarding NAFTA renegotiations and the lack of the H-2B visa “returning worker” exemption.

The cold weather disproportionately affected the retail industry, resulting in 2,400 lost jobs. The Texas Retail Outlook Survey reflected the seasonal impact as the sales index crashed 28.8 points into negative territory, while the future business conditions indices held firm. Labor market tightness forced retailers to compete for the limited supply of skilled workers through wage and benefit increases.

Despite low unemployment levels, employee compensation remained stagnant as real Texas private hourly earnings fell 0.8 percent, pulling YOY growth into negative territory. Houston and San Antonio wages suffered disproportionately, contracting more than 3 percent YOY. Hourly earnings fell 0.3 and 0.4 percent YOY, respectively, in Austin and Fort Worth. Dallas remained the exception with 2.1 percent YOY wage growth but showed signs of slowing.

While Texas wages lagged the national level by $0.44, Texas manufacturing jobs paid a 10 percent premium in hourly earnings relative to U.S. average. Fort Worth had the highest manufacturing wages, paying 47.1 percent more than the statewide average but dipped 3.6 percent YOY. Manufacturing earnings were relatively unchanged in Houston and Dallas compared to January 2017. San Antonio remained the outlier for manufacturing wage growth, rising 14.4 percent YOY but remained 15.4 percent below the Texas average.

The U.S. Consumer Price Index (CPI) surpassed 2 percent growth YOY for the fifth consecutive month as cold weather elevated energy costs. The core inflation rate, which excludes the often-volatile energy and food sectors, approached the 2 percent YOY benchmark amid rising medical care and transportation prices. The Dallas CPI was higher at 2.7 percent YOY after balancing above 3 percent in 4Q17. Affordable housing constraints pushed Dallas residents into the rental market, where prices inflated 5 percent YOY.

Increased trade in transportation equipment and primary metal manufacturing held Texas total commodity and manufacturing exports near record levels, despite a pause in the petroleum industry. Bolstered by higher oil prices,Texas crude oil exports increased 167 percent YOY and accounted for 87 percent of the national total. The Texas trade-weighted value of the dollar3 extended its downward trend, falling 8.8 percent YOY and boosting the attractiveness of Texas goods and services to foreign consumers.

Strong global economic growth and the falling value of the dollar should support export growth early this year. Mexican and Canada received nearly half of January exports, remaining Texas’ primary trade partners. This trilateral relationship highlights the importance of a successful NAFTA renegotiation. The potential of increased tariffs and global trade conflicts present an additional headwind to Texas trade activity.

____________________

1 All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month-over-month, unless stated otherwise.
2 Nonseasonally adjusted.

3 The Texas trade-weighted value of the dollar is generated by the Federal Reserve Bank of Dallas. Its release typically lags the Outlook for the Texas Economy by one month.

WalletHub: Texas has sixth-highest property tax rate

​​WASHINGTON, D.C. (WalletHub) –

Texas has the sixth-highest property tax rate in the nation, according to online financial website WalletHub.

The Lone Star State’s tax rate is 1.86 percent, WalletHub says, putting it behind New Jersey (2.4 percent), Illinois (2.32 percent), New Hampshire (2.19 percent), Connecticut (2.02 percent), and Wisconsin (1.95 percent).​

To rank the states, WalletHub compared U.S. Census Bureau data for the 50 states and the District of Columbia. Analysts divided the median real estate tax payment by the median home price in each state. They used the resulting rates to obtain the dollar amount paid as real estate tax on a house worth $184,700, the median value for a home in the U.S.​

Texas Housing Insight-REC TAMU


James P. Gaines, Luis B. Torres, Wesley Miller, and Bailey Cuadra (Feb 6, 2018)

2017 Annual Summary
The Texas housing market held steady as sales rose 4 percent, maintaining the current four-year average. Demand remained robust, particularly in the resale market as buyers searched for affordable housing. Rapid home price increase and stagnant wages pared Texas’ affordability advantage, presenting a growing problem throughout the state. Supply conditions showed signs of improvement but failed to relieve pronounced market imbalances, particularly for homes priced below $300,000. Marked shortages will likely continue unless builders shift construction toward this price cohort, a difficult task amid rising land cost and skilled-labor shortages.

In 2018, single-family housing sales are projected to reach 6.6 percent growth before moderating in 2019. Economic acceleration and employment growth in Texas bodes well for housing demand. Price pressures are projected to ease slightly as homebuilders stretch to increase production in the entry- and first move-up markets, where houses generally range between $150,000 and $250,000.

Supply*
The Texas Residential Construction Cycle (Coincident) Index, which measures current construction activity, accelerated 3.8 percent annually as residential construction values and industry employment advanced. Growth in weighted building permits and housing starts pushed the Texas Residential Construction Leading Index (RCLI) up 3.6 percent, signaling increased residential construction activity in early 2018.

In response to market imbalances, developers accelerated building activity at the earliest stage of the construction cycle. The number of vacant developed lots (VDLs) in the Texas Urban Triangle reached its highest level since 2011, continuing a four-year climb after bottoming out in 2014. In Dallas-Fort Worth (DFW) and Austin, the number of VDLs increased 6.1 and 6.6 percent, respectively, as builders scrambled to satisfy housing demand. San Antonio VDLs reached 2010 levels during steady 3.3 percent growth. Houston also posted 3 percent growth amid a fourth quarter recovery following Hurricane Harvey. Despite recent increases, VDLs were nowhere near pre-recessionary levels in actual or per capita terms.

Similarly, Texas single-family housing construction permits (unweighted) grew 8.2 percent annually but lagged well below their 2006 peak. Permits in Dallas and Fort Worth increased 12.1 and 26.3 percent, respectively, after marginal gains in 2016. Austin recorded similar permit growth at 12 percent. San Antonio permits slid in the fourth quarter but maintained 16.3 percent annual growth. Houston remained the national leader in single-family permits issued, despite more moderate 3.4 percent growth.

Upward trending supply factors supported 4.6 percent growth statewide in single-family private construction values. The boost in VDLs and single-family permits materialized into 11.4 and 7.6 percent growth in Austin and DFW construction values. A sluggish fourth quarter weighed on San Antonio, but early gains led to 6.4 percent growth annually. Houston single-family construction values stabilized, ticking up 1.2 percent after two straight annual contractions. Residual building stimulus from the hurricane recovery should support further growth into 2018.

After dipping in 2016, total Texas housing starts finished the year up 3 percent—slightly above the 2.4 percent national rate. Market forces pulled construction activity from the saturated multifamily sector to the undersupplied single-family industry. At the national level, housing starts fell 9.3 percent for multifamily homes, while rising 8.4 percent in single-family construction. In DFW, the building boom continued as single-family starts rose 10.8 percent, the sixth-straight year of double digit growth. Single-family starts in San Antonio and Houston posted their strongest gains since 2014 at 10 and 8.2 percent, respectively. After spiking 29.5 percent last year, Austin maintained elevated single-family start levels, leading the state in per capita terms. Despite these supply-side shifts, builders struggled to fully satisfy single-family demand amid rising costs and skilled-labor shortages.

Growth in supply factors did not keep pace with housing demand, thereby magnifying market imbalances. The Texas months of inventory (MOI) settled at 3.7 months after a 9 percent slide in the second half of the year; a MOI around six months is considered a balanced housing market. Fewer active listings combined with constant demand pressure prevented inventory levels from expanding. The MOI remained particularly constrained for homes priced under $300,000, where the supply of active listings bottomed out around three months, marking the closest resemblance to stabilization this decade. Consequently, rampant demand spilled over to the higher-end markets, where inventory levels were more sustainable.

Inventories stabilized in both the new and existing home market. The Texas MOI for existing homes ticked up to 3.4 months, its first annual increase since the data series began in 2011. In the new home market, the MOI held steady around its three-year trend of five months. However, the current balancing could be transitory as inventories in trended downward in both markets during the second half of the year.

Statewide, North Texas observed the tightest housing supply. Fort Worth maintained the lowest inventories at 1.9 and four months for existing and new homes, respectively, followed by Dallas at 2.1 and 4.4 months. Austin inventories showed signs of improving, surpassing 8 percent growth for both resale (2.1 months) and new home MOI (4.7 months), respectively. In contrast, inventory levels continued to decline in San Antonio to 3.1 and 4.5 months in the existing and new home markets, respectively. The supply of resale homes was similarly constrained in Houston at 3.4 months, while the new home MOI remained at more balanced levels above five months.

Demand
Total Texas housing sales managed 4 percent annual growth, outpacing the national rate for the second straight year. Sales increased uniformly across the state, rising between 3 and 4 percent in all the major metros except Houston. Sales in Houston slowed abruptly during the summer months and after the hurricane but recovered enough to match last year’s growth rate at 2.6 percent.

In the new home market, disappointing fourth quarter sales volume drove Houston’s annual growth rate below zero for the third straight year. On the other hand, positive year-end performance in DFW and San Antonio pushed annual new home sales up 12.7 and 6.1 percent, respectively. In Austin, new home sales activity decelerated but maintained 6.1 percent annual growth.

Rapid price increase and supply constraints shifted the sales distribution away from the lowest price cohort (homes priced under $200,000), where sales accounted for 41 percent of homes sold through a Multiple Listing Service (MLS)—down from 68 percent in 2011. Every other price cohort posted double-digit annual growth, led by homes priced $300,000–$400,000 at 16.3 percent.

After sinking to a record low last year, the homeownership rate in Texas and the nation ticked up to 63.8 and 61.7 percent, respectively. The recent rise in home purchases by Millennials relieved some of the downward pressure associated with an aging population. Of the Texas major metros, San Antonio maintained the highest homeownership rate at 62.3 percent, followed by Dallas at 61.8 percent. Homeownership in Austin and Houston dwindled to record lows of 55.6 and 58.9 percent, respectively.

Texas housing demand remained robust as the average days on market (DOM) hovered at 58 days for the third consecutive year. Homes priced $200,000–$300,000 sold the fastest, averaging 52 days on the market, while homes under $200,000 averaged just over 60 days. Demand was softer in the top price cohort (homes priced above $500,000), where homes sold on average after 88 days, down from 118 days in 2011.

Resale demand reached an all-time high as homebuyers searched for lower-priced alternatives. The existing home days on market remained historically low at just 52 days. Rising prices pulled many prospective buyers into the resale market. In Dallas and Fort Worth, the resale DOM settled at 32 and 34 days, respectively, amid soaring home values. In San Antonio, the average existing home sold after 50 days, nearly half the average in 2011. In contrast, the resale DOM in Austin and Houston expanded for the second straight year to 43 and 48 days respectively, indicating a slight softening of demand.

New home demand balanced on a three-year trend in Texas, averaging 90 days on the market. The lack of new home inventory and rising prices challenged the Austin market, holding the DOM at 99 days. Despite higher inventory levels in Houston, new home demand was also soft with an annual DOM of 95 days. New home demand eased in San Antonio, particularly late in the year, pushing the DOM up to 86 days. New homes sold fastest in Dallas and Fort Worth, averaging 82 and 76 days on the market, respectively.

Interest rates closed the year on a high note after U.S. legislators passed tax legislation, and the Federal Reserve raised the federal funds rate for a third time in 2017. Investors sold off bonds in expectation of rising inflation and further interest rate increases. The ten-year U.S. Treasury bond yield increased nearly half a percent annually, settling at 2.33 percent. As expected, the Federal Home Loan Mortgage Corporation 30-year fixed-rate ticked up similarly to 3.99 percent, mirroring changes in the ten-year bond yield. Rates remained low by historical standards but showed signs of trending upward.

Prices
The health of the Texas economy combined with housing supply constraints elevated home prices to record levels. The median sale price increased by more than $13,000 to an annual average of $222,106, with home values appreciating across the state. Most of the price pressure occurred in the resale market, where the statewide median jumped 6.8 percent to $211,844. The resale median price was highest in Austin at $291,904, but North Texas posted the largest percentage growth. In Dallas ($266,775) and Fort Worth ($210,100), the median resale price rose 9.3 and 11.9 percent, respectively, as single-family demand boomed. Price increase was more modest in Houston and San Antonio, but they also recorded annual records with a median resale price of $216,467 and $199,583, respectively.

Softer demand and more sustainable inventory levels held new home prices to moderate growth. The median price for new homes sold through an MLS ticked up only 1.4 percent to $290,662. Similarly, new home prices in the major metros increased modestly compared to the resale market. Dallas maintained the highest median price at $351,559, up 2.2 percent over the year, while the Fort Worth median approached $300,000. The median price for new homes in Austin rose to $316,088, just $15,000 higher than the resale median. In Houston and San Antonio, new home prices actually depreciated, falling to $305,422 and $257,635, respectively.

In terms of price per square foot (ppsf), the new home median rose 3.2 percent as homebuilders reduced square footage amid rising land costs and burdensome regulations. The median lot size for new homes fell for the third consecutive year to 2,373. In contrast, the statewide median ppsf for existing homes accelerated 6.3 percent, surpassing $106 for the first time in series history.

At the metro level, Austin led the state in median ppsf for both new and existing homes at $140.94 and $145.04 ppsf, respectively, and was the only major metro to pay a premium for existing-home square footage. However, the median ppsf for existing homes in Dallas jumped 9.3 percent to $123.87, a little less than six dollars below the new home ppsf. The spread between new and existing ppsf was wider in the remaining metros but continued to converge. The median new home ppsf settled at $121.15 and $119.23 in Fort Worth and San Antonio, respectively, while the resale ppsf rose to $108.04 and $104.79. The median ppsf was lowest in Houston at $116.03 and $100.21 for new and resale homes, respectively.

The Texas sale-to-list price ratio hovered around 0.96 in both the new and resale home market. New home ratios inched down in all major metros except Houston, indicating slightly weaker demand. For existing homes, Dallas and Fort Worth recorded sale-to-list price ratios around 0.98 as homes continued to fly off the market. Austin and Houston posted slight dips to 0.97 and 0.95, respectively, but remained historically high. In general, elevated sale-to-list price ratios across the state indicated a continuing sellers’ market across the housing spectrum.

Texas housing affordability remained favorable compared to other stats but continued the steady decline that began in 2013. Rapid price increase, fueled by shortages of homes priced under $300,000, challenged Texas buyers. Stagnant wages failed to keep pace with home values, driving the Real Estate Center Affordability Index to 1.5, its lowest level since the housing crisis. The index indicated that a family earning the median income could afford a home 50 percent more than the median sale price. For much of the past decade, Texans enjoyed the capability of affording homes priced twice that of the median. Fort Worth and Houston boasted the highest affordability conditions at 1.8 and 1.7, respectively, but had substantial declines over the past year. In Austin and Dallas, affordability fell below 1.5 amid rampant home price increases. San Antonio fared similarly with a significant drop in the affordability index from 2.4 to 1.6.

Furthermore, the Explosive Behavior Map indicated a misalignment in North Texas home prices relative to their fundamental-based normative values. This behavior stretched south into Waco and College Station-Bryan. Recent price movements in the remaining major metros, as well as in Midland, also warrant careful attention

Monthly Review of the Texas Economy

 The Texas economy continues to outpace the U.S. economy in job creation. The state gained 306,900 nonagricultural jobs from December 2016 to December 2017, an annual growth rate of 2.5 percent, higher than the nation’s employment growth rate of 1.4 percent.

According to the Real Estate Center’s latest Monthly Review of the Texas Economy, the nongovernment sector added 269,500 jobs, an annual growth rate of 2.6 percent, also higher than the nation’s employment growth rate of 1.6 percent in the private sector.

Texas’ seasonally adjusted unemployment rate in December 2017 was 3.9 percent, lower than the 4.8 percent rate in December 2016. The nation’s rate decreased from 4.7 to 4.1 percent.

All Texas industries except the information industry had more jobs. The mining and logging industry ranked first in job creation followed by other services industry, manufacturing, construction, financial activities, leisure and hospitality, and professional and business services.

All Texas metro areas except Texarkana, Brownsville-Harlingen, Beaumont-Port Arthur, and Waco had more jobs. San Antonio-New Braunfels ranked first in job creation followed by Midland, College Station-Bryan, Austin-Round Rock, Corpus Christi, and Fort Worth-Arlington.

The state’s actual unemployment rate in December 2017 was 3.7 percent. Amarillo and Midland had the lowest unemployment rate followed by Austin-Round Rock, College Station-Bryan, and Lubbock.

2017 record year for San Antonio housing market

An aerial view of a lot of houses.

 

SAN ANTONIO – The area’s growing economy propelled the local housing market to another record sales year in 2017, but the supply of homes on the market remains extremely tight.

Home sales in the San Antonio-New Braunfels metro area increased by 3.8 percent in 2017 to a record 30,715, up from 29,596 in 2016, according to data released from the San Antonio Board of Realtors.

The median sales price climbed 4.9 percent to a record high of $214,300, up from $204,300 the year before.

High demand, a labor shortage and rising construction costs are driving up prices, experts say.

The local area’s inventory of available homes dropped to 3.1 months in December, which matches the record low set in December 2016.

“San Antonio is still doing pretty strong,” said Dr. Jim Gaines, chief economist at the Real Estate Center at Texas A&M. “It’s doing well economically, it’s still gaining jobs.”

 

Read more at mysanantonio.com

IKEA pieces fit for Bexar County store

IKEA closed on its plot in Live Oak on Dec. 5, according to deeds records, and construction of its future 300,000-square-foot store is scheduled to begin in March.

LIVE OAK, BEXAR COUNTY – IKEA completed its acquisition of 30 acres in Live Oak, and construction of its future 300,000-sf store is scheduled to begin March 2018.

The estimated $30 million project is expected to be completed in March 2019.

Following IKEA’s acquisition, real estate firm Weitzman announced it will start construction immediately on the Live Oak Town Center, of which IKEA will be the anchor tenant.

In addition to IKEA, the shopping center will have about 530,000 sf of retail, restaurant, entertainment and hospitality space.

The first phase will deliver in late 2019.

 

Read more at the San Antonio Business Journal

See also: San Antonio-New Braunfels Retail Market Research.

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Outlook for the Texas Economy

October 2017 Summary1

The Texas economy advanced as Houston’s recovery continued, and the price of oil reached an eight-month high. Rebounds in leisure-hospitality and accommodation-food services pushed monthly employment growth above 71,000 new jobs. The statewide unemployment rate fell to a record low 3.9 percent but failed to significantly boost wages. Gulf Coast rebuilding efforts supported the construction industry, generating rapid job creation and increased construction values. A combination of higher oil prices and declines in the Texas trade-weighted value of the dollar boosted crude oil exports to record levels. Potential headwinds to the Texas economy include energy price volatility and trade uncertainty, especially with Mexico.

Recently released 2Q17 gross state product data for Texas indicated 6.2 percent quarterly annualized growth amid accelerated activity in mining, manufacturing, and real estate. The economic expansion continued through the third quarter as the Texas Business Cycle Index (a measure of current economic activity in the state) posted over 5 percent quarterly annualized growth in each of the past three months. The Austin and San Antonio indices surpassed the state level at 7.2 and 5.7 percent quarterly annualized, respectively, after solid job gains and falling unemployment. Similarly, the Dallas index accelerated above 5 percent for the first time this year, while Fort Worth slowed slightly to 3.6 percent growth. Hurricane recovery efforts stabilized the Houston index after contracting 5.5 percent in the previous month.

The Texas Leading Economic Index (a measure of future directional changes in the business cycle) inched forward as growth in the U.S. leading index and higher oil prices outweighed a slowdown in monthly well permits issued. The Texas Consumer Confidence Index flattened after taking a double digit hit from Hurricane Harvey in the previous month but should trend upward as the economic expansion advances.

Interest rates elevated after the U.S. Senate approved a budget resolution, opening the door for tax reform. The potential deficit increase resulting from tax breaks would expand the number of bonds issued, weighing on the price of existing debt. If tax cuts sufficiently stimulate economic activity, it could attract investors away from bonds in favor of riskier assets. Yields received an extra boost after the release of the Federal Reserve Board minutes, indicating a high likelihood of raising the federal funds rate in December. As a result, the ten-year U.S. Treasury bond yield rebounded from a year-to-date (YTD) low last month, reaching 2.36 percent. The Federal Home Loan Mortgage Corporation 30-year fixed-ratealso reversed its downward trend, reaching 3.9 percent after slipping in the third quarter.

Texas housing sales expanded across the state despite shortages of homes priced under $300,000. Current residential construction activity, measured by the Residential Construction Cycle (Coincident) Index, flattened as industry employment gains offset falling construction values. However, rebounds in weighted building permits and housing starts accelerated the Texas Residential Construction Leading Index for the first time since March, signaling increased activity in upcoming months. (For additional housing commentary and statistics, see Texas Housing Insight at recenter.tamu.edu.)

The average West Texas intermediate crude oil spot price increased to $51.582, the highest since February, driven by geopolitical tension in the Middle East and hopes of extended OPEC production cuts. Despite the number of active rigsin Texas falling to 4422crude oil production rebounded 6.0 percent amid rising well completions. Increased shale activity could counter OPEC supply cuts, thereby hindering upward oil price momentum. The Henry Hub natural gas spot price fell to $2.88 per million BTU2 (British thermal unit) despite decreased global supply, a trend that could continue amid predictions of a colder-than-average winter in the northern United States.

Texas monthly nonfarm employment added 71,500 jobs as Houston landed back on its feet after two months of hurricane-related payroll declines. The Texas unemployment rate dipped to a record low 3.9 percent as labor markets tightened across the state. In Austin, the unemployment rate fell to 2.7 percent, the lowest since 1999. Unemployment fell to 3.2 percent in both Dallas and Fort Worth, while settling at 3.0 percent in San Antonio. Houston unemployment persisted above the state level at 4.4 percent, still well below its historical average. Revised data revealed a surge in initial unemployment insurance claims in Texas through September, rather than the large drop reported last month. However, the series shifted to more typical levels, falling 29.6 percent this month and should decline even further as the Houston economy recovers. Despite the tightening labor market, the Texas labor force participation rate remained at a historically low 63.0 percent.

This month’s payroll expansion occurred primarily in Houston, where recoveries in the leisure and hospitality industry as well as retail trade led to 27,300 total new jobs. Dallas added jobs in both goods-producing and service-providing sectors, elevating its 2017 job creation total to 41,500. San Antonio maintained the largest YTD job growth rate at 2.3 percent, adding over 2,300 jobs in each of the past five months. Austin and Fort Worth added 3,000 and 2,500 jobs, respectively, as growth in leisure and hospitality offset goods-producing employment contractions.

Statewide, the service-providing sector more than recovered the 15,800 jobs lost in August and September. The leisure and hospitality subsector led the charge with 34,700 jobs created, followed by accommodation and food services with 30,000. The Texas Service Sector Outlook Survey corroborated these trends as the wages and benefits, hours worked, and employment indices elevated. Increases in the revenue and service sector outlook indices reflected improved conditions after the hurricane.

The retail industry fared similarly well, recovering nearly a third of the 25,100 jobs lost between February and September. The Texas Retail Outlook Survey employment indices indicated job growth but slightly lower wage pressures. Despite approaching the holiday season, retailer optimism and future outlook decelerated.

The goods-producing sector maintained its steady expansion, adding 6,800 jobs and pushing the YTD total above 84,000. Supported by higher oil prices, Texas ranked second nationally in year-over year (YOY) employment growth in mining and logging at 16.9 percent, adding 3,200 in October. The construction industry created 4,500 jobs amid rebuilding efforts around the Gulf Coast, pushing annualized growth to 3.1 percent, nearly twice the national rate. The total value of Texas construction increased for the first time on a three-month moving average since May, led by investment in stores, restaurants, offices, and bank buildings. Residential construction values remained negative, but single-family home building ticked upward.

Texas manufacturing employment growth slowed from 5.4 to 4.1 percent annualized quarterly, shedding 900 jobs this month. Dallas posted the highest manufacturing growth rate at 8.0 percent, reaching a 20-year high after lackluster performance over the past two years. Fort Worth maintained 7.7 percent growth, thereby contributing to the robustness of the manufacturing industry in North Texas. Austin’s manufacturing growth rate accelerated to 4.8 percent after stagnating late this summer, while growth in San Antonio decelerated to 2.6 percent. The Houston annualized employment growth rate fell to -2.3 percent, a drastic slide from double-digit positive readings between April and July. Houston has lost over 4,000 durable-goods manufacturing jobs since August, all of which should recover as economic conditions normalize.

The Texas Manufacturing Outlook Survey confirmed the overall industry expansion, indicating increased activity and demand. The production index extended its positive trend to 16 months, and over 30 percent of respondents reported improved business activity. The hours worked and wage indices slowed, supporting recent labor market adjustments in manufacturing, particularly along the Gulf Coast. Respondents mentioned prolonged supply chain disruptions from the hurricane and subsequent flooding but remained optimistic for the fourth quarter.

Despite low unemployment levels, employee compensation remained relatively mute throughout the state. Real Texas private hourly earnings hovered around 1.9 percent YTD after sliding in August and September. Wages fell 1.1 and 2.2 percent YOY in Fort Worth and Houston, respectively. Hourly earnings rose 0.8 percent in Austin—barely above last year’s level. Wage growth was more favorable in Dallas and San Antonio, rising 2.4 and 2.1 YOY, respectively.

While Texas wages lagged the national level by $0.40, Texas manufacturing jobs paid an 11.3 percent premium in hourly earnings relative to U.S. average. Fort Worth had the highest manufacturing wages, paying 48.2 percent more than the statewide average but were flat on the year. Manufacturing earnings fell 1.2 percent in Houston amid production process disruptions. San Antonio remained the outlier for wage growth, rising 14.7 percent YTD while remaining 19.5 percent below the Texas average.

The U.S. Consumer Price Index (CPI) fell to 2.0 percent YOY after hurricane-related energy price spikes calmed. The core inflation rate, which excludes the often-volatile energy and food sectors, increased 1.8 percent YOY, indicating upward price pressure. Prices remained elevated in Houston as the local CPI rose 2.3 percent YOY, the highest since 2014. Gasoline and medical care expenses rose over 4.5 YOY, accounting for most of the Houston inflation.

The U.S. real goods trade deficit increased by $3.1 billion to $65.3 billion as commodity imports rose and exports flattened. Total Texas commodity and manufacturing exports surged 11.2 percent and 10.7 percent, respectively, as petroleum exports returned to pre-Harvey levels. Texas crude oil exports continued to hit record highs, rising 15.8 percent amid higher oil prices. Furthermore, the Texas trade-weighted value of the dollar3 fell 10.3 percent YTD, thereby increasing the attractiveness of Texas goods and services to foreign consumers.

Strong global economic growth and the falling value of the dollar will likely support upward trending export growth throughout the next two quarters. Mexico, Texas’ largest trade partner, received more than a third of September exports but slowed economically in recent months. NAFTA renegotiations and the potential of a Mexican recession remained potential headwinds to Texas-Mexico trade activity.

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1 All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month-over-month, unless stated otherwise.

2 Nonseasonally adjusted.

3 The Texas trade-weighted value of the dollar is generated by the Federal Reserve Bank of Dallas. Its release typically lags the Outlook for the Texas Economy by one month.

Manufacturing impact tops $40 billion

An employee at the Toyota Motor Manufacturing Texas Inc. plant in San Antonio works on the assembly line. The plant makes Tacoma and Tundra pickup trucks. A new study by Trinity University concludes that manufacturing had a $40.5 billion economic impact on San Antonio and surrounding communities in 2016.

SAN ANTONIO – The region’s manufacturing sector had an overall economic impact of $40.5 billion in 2016, according to a new study released by Trinity University.

The San Antonio Manufacturers Association (SAMA) commissioned the study, along with several other organizations.

With 1,544 companies considered manufacturers in San Antonio, the sector employed 51,904 people in 2016 with an average salary of $57,507; it paid nearly $3 billion in wages and salaries.

The transportation sector was the largest employer, accounting for nearly one-third of manufacturing workers—followed by equipment and metal products, diversified products, and materials and electricity.

Source: San Antonio Business Journal

Check out more San Antonio-New Braunfels Industrial Market Research.

Area: San Antonio-New Braunfels