Emily Carr and Ethan Dixon
Texas’ economy has shown signs of expansion recently, but job growth has slowed. The Dallas Fed’s Texas Business Survey (TBOS), a measure of economic activity, showed a modest increase in service revenues, a resumption of retail sales growth, and stabilization in manufacturing production.
Home sales and energy activity were flat, while bank lending fell slightly, the Bank Situation Survey found, according to Beige Book.
Demand expectations rose broadly in November and business confidence improved. The decline in the federal funds rate has had a modest but overall positive impact, with most companies needing additional time to see if there is a larger impact, and other companies cites rising long-term interest rates as a headwind.
Those involved in the survey clearly had more positive than negative opinions about the outlook for the economic situation under the incoming Trump administration, but some expressed concern about possible changes to trade and immigration policies. There is also.
Employment growth shows instability
Job growth has slowed recently, combined with a downward revision for the first half of 2024, leaving it below this year’s trend. Employment growth slowed to an annualized 1.6% in the year to November from 2.4% in 2023. Growth in the second quarter fell from 1.8% to 0.4% due to benchmark data revisions. Texas employment rose at an annual rate of 0.9% in November, slowing from a steady pace in the third quarter.
TBOS provides an alternative measure of employment growth. While this study does not measure the number of jobs created, it provides a broad measure of employment trends by calculating the percentage of companies adding employees each month minus the percentage of payroll cuts. is provided. This penetration index is not subject to revision and is a weighted average of two separate data series: the Texas Manufacturing Outlook Survey (TMOS) and the Texas Services Sector Outlook Survey (TSSOS). Employment increased in November (Chart 1). Employment growth was broad-based, with the largest gains in manufacturing and retail.
Texas companies’ outlook is more optimistic
The TBOS Business Outlook Index, which is an equally weighted average of TMOS and TSSOS, turned positive, ending two consecutive years of negative indicators (Chart 2). Negative values ​​indicate that a company’s outlook is deteriorating on a net monthly basis, while positive values ​​indicate that it is improving.
The outlook index stabilized in September after the Federal Reserve cut its policy rate for the first time that month. The index entered positive territory in October and rose further after the general election in November. Another forward-looking indicator, business expectations for general corporate activity six months ahead, also rose.
Large businesses (those with 500 or more employees) were significantly more optimistic than small businesses (those with fewer than 100 employees). The outlook for energy-related manufacturing improved the most, along with the services, leisure and hospitality industries. A transportation services official expressed confidence that “the new administration will enact policies to increase oil and gas production.” It is worth noting that energy production reached a record high in 2023 and continues to trend upward.
TBOS’s special question on the demand outlook provided further insight. This also reflects an improvement from the mixed outlook in August. Respondents were asked about their expectations for demand for their products and/or services over the next six months compared to the past six months, excluding seasonal fluctuations (Figure 3).
If the proportion of companies is large, it is expected to increase, and if the proportion of companies is small, it is expected to decrease. This is especially true for manufacturing, leisure and hospitality, and transportation services companies.
The general economic situation is expected to improve, facilitating an improved outlook. This is a change from a year ago, when industry-specific circumstances and company-specific factors were also key drivers (Exhibit 4).
One manufacturer cited the idea that “the economy will recover thanks to a more pro-business environment,” and a professional services firm suggested a “psychological uplift in the economy” since the November election. Contacts’ optimism about accelerating growth contrasts with Blue Chip and other experts’ forecasts for 2025, which note that national economic growth will slow compared to 2024.
Policy changes, potential risks in 2025
The incoming Trump administration has promised deregulation and tax cuts, which businesses have generally welcomed. However, there are also risks from proposed tariff increases, particularly targeting manufacturing and retail sectors, but also involving broader supply chains and input costs.
“Concerns about potential tariffs against Mexico and China have frozen most manufacturing expansion and relocation plans,” one researcher said. One restaurant worries that a trade war or tariffs could increase business costs and cause supply line disruptions similar to or worse than those experienced during COVID-19. expressed.
Additionally, several industries could be affected by stricter immigration policies and mass deportations. The expert group said large-scale deportations “could have a serious impact on agriculture, construction, services and food manufacturing.” A shortage of construction workers and higher raw material prices due to tariffs could limit efforts to expand housing supply.
Deep cuts in government spending will also have a negative impact on businesses and industries that rely on government contracts and the provision of social and health services. One health care company expressed concern that “the election reinstates an administration that has already proven detrimental to public services and the federal government’s efforts to support those most in need.”
About the author
Emily Carr is a senior business economist in the Research Department at the Federal Reserve Bank of Dallas.
Ethan Dixon is a research analyst in the research division of the Federal Reserve Bank of Dallas.
The views expressed are those of the author and are not attributable to the Federal Reserve Bank of Dallas or the Federal Reserve System.
