Texas economy

Texas economy continues to grow, but is expected to slow

Texas’ economy, which has grown at a strong pace in recent months, is expected to slow in the second half of the year amid a weakening economic outlook for the country.

New analysis from the Federal Reserve Bank of Dallas paints the picture: The country’s economic recovery from the COVID-19 pandemic is continuing, and Texas is recovering at a faster rate than the country as a whole. Still, revenue growth for Texas companies remains constrained by supply chain disruptions and labor shortages, and companies are becoming more pessimistic as inflation remains high and interest rates rise. increase.

“The data still looks pretty healthy, especially on the labor market side,” said Laila Assanie, senior business economist at the Dallas Fed. “But what has changed is the outlook.”

In a June survey of 366 Texas business executives, half cited supply chain disruptions as the top factor limiting their company’s revenue, and 41% said shortages of labor was a key issue. These figures are consistent with the results of the survey earlier this year.

But a new problem emerged in June: 26% of executives cited “weak demand” as affecting their business, up from 15% in March. This is a sign that inflation and a darkening economic outlook are causing some customers to spend more cautiously.

The labor market, meanwhile, remains tight, with employers in all sectors reporting labor shortages. In Texas, Assanie said, employment in most industries has returned to pre-pandemic levels.

Employment in the state grew at an annualized rate of 6.2% in May, double the national rate. The unemployment rate stood at 4.2% in May, higher than the national rate of 3.6%, but reflecting the growth in the state’s labor force.

Housing market cooling

The scorching housing market is finally cooling in major metropolitan areas across the state, including Houston, where the median home price recently hit a record high of $351,000, according to the Dallas Fed. Homebuyers – in recent years reduced to battling other bidders for a chance at a deal – could find themselves courted by sellers and lenders in the near future. Incentives such as mortgage rate buyouts and closing cost assistance are being reintroduced.

But housing prices remain high and renters “could be forced to stay renting,” according to a recent report on the state of housing in Houston and Harris County from Rice University’s Kinder Institute. The region’s affordability gap widened as median home prices rose more than median incomes.

About half of Harris County renters are “cost-loaded,” meaning they spend more than 30% of their income on housing. It’s a problem that has implications for the wider regional economy, the report notes.

“If these workers have trouble finding homes in Harris County,” Dallas Fed economists wrote, “it can make staffing even more difficult or burden our already stressed transportation system with even more long-distance commuters”.

Businesses continue to face higher labor, material and energy costs, but small businesses and those in the service sector are finding it increasingly difficult to pass these costs directly to consumers. , noted the Dallas Fed. This is another sign that customers are increasingly in demand and spending more cautiously.

had to happen

As business leaders across the country grow increasingly pessimistic about the national outlook, the Dallas Fed expects Texas’ economic expansion to continue in the second half of the year, albeit at a slower pace. slower.

“Our growth has been off the charts for the last year and a half,” Assanie said, “and obviously we can’t keep up with that.”

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