Texas economy

Texas economy continues to grow, but optimism is fading

Texas’ economy, which has grown at a solid 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.

labor market

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

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

In San Antonio, unemployment rose slightly in May after falling to its lowest level in two years in April. At a rate of 3.5%, it was still lower than the state and country as a whole.

May saw a net gain of 4,000 jobs in the San Antonio metro area, according to the Texas Workforce Commission.

The housing market is cooling

The scorching housing market is finally cooling in major metropolitan areas across the state — including San Antonio, where the median home price hit a record high of $348,800 in May — the Dallas Fed said.

Homebuyers, reduced in recent years to battling other bidders to try to clinch 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 house prices remain high, and with high mortgage rates, “traffic from new home buyers has been disappointing,” the Dallas Fed said.

The slowdown is most pronounced in the entry-level market. And in South Texas, the affordability gap is widening, with median home prices rising more sharply than median incomes.

That means tenants “could be forced to remain tenants,” according to a recent report on the state of housing from Rice University’s Kinder Institute.

But rising rents are also slowing the pace of new arrivals.

Rental rates in San Antonio rose in June for a sixth consecutive month, apartment listing data shows. Rents are up 13.8% from a year ago and 20.9% since the coronavirus pandemic began in March 2020.

More and more renters are “cost-burdened,” the Kinder Institute said, meaning they spend more than 30% of their income on housing.

This is a problem that has repercussions for the entire regional economy.

“If these workers struggle to find housing,” the report says, “it can make staffing even more difficult or burden our already stressed transportation system with even more long-distance commuters.”

had to happen

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.

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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