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After two years of fast economic growth, Texas is poised to see a “soft landing” in 2023, according to a senior economist at the Federal Reserve Bank of Dallas.
Texas has seen “mounting” signs of an economic slowdown in the last few months — such as slower inflation and job growth — even as the state led the country in job growth last year, labor economist Pia Orrenius said. Coming into 2023, there’s worry of an impending recession as the Federal Reserve tries to tame national inflation. Still, Texas is likely to see a 1.4% increase in job growth this year, though this figure could also go as high as 2.2% or as low as 0.7%.
“We … ran a number of different models and did some real stress tests on those models, but we really couldn’t get the forecast to incorporate a contraction in our region, at least not at this time,” Orrenius said during a Dallas Fed event Friday.
While this year’s job growth is expected to be lower than that of the last two years — a 3.5% increase in 2022 and a 6% jump in 2021 — Orrenius said the forecast is still more optimistic than in much of the country due to the state’s flexible labor force. This includes the fact that much of Texas’ workforce growth is through people accepting jobs here and moving from other states or countries.
“If there is a downturn, there would be less migration into the state, and that’s a shock absorber for us,” she said. “That’s going to put less pressure on unemployment.”
In addition, Orrenius said, a robust energy sector is also “a large positive” for the state’s economic prospects, despite that industry providing “less of a boost” than in the past.
“The fundamentals of state growth in this region are really healthy,” she said. “Texas, we believe, is better poised for a soft landing than the nation.”
The Dallas Fed event coincided with news of unexpectedly high job growth nationwide in January. According to the Bureau of Labor Statistics’ latest nonfarm employment data, employers across the U.S. added 517,000 new jobs last month — more than 2.5 times the increase that economists had forecast. The country’s unemployment level also dropped slightly to 3.4% — the lowest rate in over five decades.
It’s unclear what these latest figures look like in Texas because the federal agency has yet to release data for individual states. But the state led the U.S. in job growth in 2022 by adding 650,100 nonfarm payroll jobs, and it continued a 14-month streak of record employment with its December figure.
This doesn’t mean the Federal Reserve’s interest rate hikes are not having a broad impact in the economy, Orrenius noted.
In Texas, she pointed to decreasing home prices from the recent peak in mid-2022, as well as declining volumes of commercial and residential real estate and consumer loans. In addition, the state is seeing slower growth in sales tax revenue, which indicates less of an increase in consumption. Similarly, inflation in the state is dropping month over month.
“The Fed’s speed bumps are having the intended effect,” she said.