This was the year the Texas economy kept crushing it. Or so we thought.
After recovering all its pandemic job losses by November 2021, the state continued to grow strongly through most of 2022, adding workers at over twice its usual rate.
In August, after having upgraded monthly job estimates several times, the Federal Reserve Bank of Dallas projected that Texas would add over 674,000 jobs for the full year.
That was before a major downward revision based on a quarterly census of employment. It also was before fast-rising interest rates started cutting deeply into the housing market and other parts of the economy.
A few weeks ago, the Dallas Fed ratcheted back its full-year growth estimate for Texas — to 452,000 jobs this year.
That’s an impressive increase, far higher than average annual net gains over the past decade. But it’s a third lower than was estimated just four months earlier.
“It is still a really good year, but we’re slowing down — and we’re slowing down at a faster pace than we thought,” said Luis Torres, senior business economist for the Dallas Fed.
The U.S. Bureau of Labor Statistics, which compiles jobs data, will not benchmark 2022 results until February and March. But the Dallas Fed and other regional banks do seasonal adjustments and benchmarks more often.
By the Dallas Fed’s estimate this month, Texas has grown jobs 3.5% this year compared with 3.2% for the U.S. By the BLS’ estimate, Texas employment has grown 5.1% for the 12 months ended in November.
The gap between the two Texas estimates is about 177,000 jobs. What’s the significance of such a difference?
“What’s surprising is that we’re not growing at such a higher rate than the nation, and we thought we were, right?” Torres said. “That’s important for families and companies to know. They may think we’re going to be fine if the U.S. economy goes into a downturn. That’s not necessarily true.”
The Dallas Fed’s latest economic outlook for Texas, released in mid-December, is titled: “Slowing economic growth.”
Written by Torres and senior economist Pia Orrenius, the report notes the big downward revision after benchmarking the Texas job estimates and cites other developments.
In Texas’ services sector, surveys show revenue slipping further while perceptions of business conditions continue to worsen. In Texas manufacturing, output was flat and new orders fell for a sixth month in a row, the report said. Texas companies also find it harder to pass along higher costs to customers.
“Rates are rising too fast,” a building materials company told the Dallas Fed in November. “We are going to have a hard landing.”
“Recession is coming!” said a metal manufacturer. “We are just waiting for the backlog to evaporate. Then layoffs start.”
When oil prices are high, as they are today, Texas has a history of weathering downturns better than the nation, the report said. But statewide growth is decelerating.
“As job and output growth slow, price and wage pressures weaken, and businesses grow more pessimistic, there is no guarantee that Texas will be protected from a downshift in U.S. economic activity,” the Dallas Fed economists wrote.
The downward revision in Texas jobs was one of the largest ever, Orrenius said, and she cited two extraordinary circumstances: the Federal Reserve’s big interest rate hikes to combat inflation and the lingering effects of the pandemic.
“The Fed slammed on the brakes with some really big moves, and that’s very unusual,” Orrenius said. “And it’s been very difficult to do regular statistical adjustments to the data in the pandemic.”
The BLS made some major revisions to jobs data through March 2022. Annual job growth for Dallas-Fort Worth was revised down by 60,700, a reduction of 1.5 percentage points. A few major metros had even deeper cuts in their growth rate, including Washington, Minneapolis and Atlanta.
Texas’ lower job numbers may have a silver lining, Orrenius said: “Maybe we’re closer to achieving the goal of slowing the economy and slowing inflation.”
Many had been expecting Texas’ growth to slow earlier: “Since the middle of the year, every jobs report felt like it was pretty surprising — almost always higher than we anticipated,” said Mallory Vachon, senior economist at LaborIQ by ThinkWhy, a Dallas firm that tracks jobs and pay.
While wage growth jumped this year, especially in D-FW, momentum has begun to turn. In October, Texas had 869,000 job openings, which is high but down from 1 million the month before. In October, statewide hiring was at its lowest level since January.
The number of Texans quitting their jobs fell two months in a row and was at the lowest point in over a year. Layoffs are rising, too.
Job openings, new hires and the number of people quitting their jobs are all projected to decline next year, according to LaborIQ. While those measures will remain higher than historical averages, they’re expected to “normalize” in 2023.
“We expected a more significant slowdown sooner, but we’re really seeing things start to moderate,” said Jay Denton, chief analytics officer at LaborIQ. “Recruiters don’t like it because it’s tougher to get people to move and there aren’t as many job openings.
“But it’s a good thing for hiring managers: Fewer workers are leaving and compensation isn’t skyrocketing like before,” he said.
High interest rates threaten Texas’ outsized growth, he said. Domestic migration has pulled in thousands of new workers and employers, and high mortgage rates make it more difficult to sell a house and move to Texas.
“We’re such a growth state, especially with housing construction,” Denton said. “As that volume slows, it will impact jobs, and not just in construction.”
Despite the headwinds, Dallas-Fort Worth and Austin remain the No. 1 and No. 2 job markets for next year, according to LaborIQ’s ranking of 150 metros. Houston has been among the top 10, too.
The list considers growth in jobs, pay, education, working-age population and more.
Even if the economy goes south next year, Texas’ top metros will continue to be a top draw, Denton said, “if you’re looking to land in a market where you can be successful for the long term.”
