Economic Outlook of Texas 2023 Predictions

Publisher: r2 Technologies

Article by: Kaitlyn Apgar

At the TechServe and ESOA meeting on January 18, 2023, Laila Assanie presented information collected by the Federal Reserve Bank of Dallas to highlight key points in the economic outlook of Texas. The main key points were as follows. Firstly, there is a slowing in the regions economy effected by a decrease in home buying, new orders, lending and more. Secondly, we see more worry and risks of a recession, higher wages, labor constraints, inflation, and interest rates. Finally, there is also hope for a softer landing partially boosted by the job growth seen in Texas, at a 3.5% rate, slightly overperforming from the national average.

Texas, like many states, saw a sharp decrease in jobs during 2020. Texas was able to recover at a quick rate and nearly return to match our previous potential growth rate based on past years. This is expecting to slow down to a possible 2% increase in 2023, whereas previously we saw an increase as high as 6% the past 2 years, before it slowed to 3.5%. The places most affected by increases in jobs were in order: Austin, DFW, Midland-Odessa, Houston, San Antonio, El Paso, and Corpus Christi. Midland and Odessa saw a higher growth as oil prices rose and the oil rigs began to increase production again.

Manufacturing output in Texas significantly contracted in early 2020 due to the impact of the COVID-19 pandemic. However, it began to recover in 2021 and reached a robust level as the economy reopened and businesses resumed operations. However, recent data suggests that the recovery may be short-lived as manufacturing output in Texas is now decreasing. This trend is causing concerns that it could potentially go negative, which would be like the decline seen during the 2008 recession. To further this, data collected in late 2022 to present has shown a decrease in the volume of new manufacturing orders.

Additionally, we are seeing is a decrease in loan volumes because of high-interest rates caused by inflation. The high-interest rates are making it more difficult for businesses and individuals to borrow money, which could have a negative impact on economic growth. This has affected not only business, but also the home market.

Home sales have been buckling under the pressure of rising interest rates as mortgage rates increase. This has been paired with an increase in the inventory of homes for sale each month, resulting in a challenging market for home sellers. Additionally, home prices and apartment rents have been falling, with larger decreases being seen in metropolitan areas. This trend has led to the presumption that more people are living together in preparation for an economic downturn. The combination of rising interest rates, higher inventory, and falling prices and rents is making it harder for people to purchase or rent homes, which could indicate that people are becoming increasingly cautious about the economy. This situation is impacting the housing market and affecting people's ability to purchase or rent homes and is likely to continue to be a concern for the economy as a whole.

On the business side, businesses are finding it harder to pass on rising costs to consumers The inflation rate is seen to be affecting businesses and customers more. Businesses are facing rising costs in the form of higher wages, increased materials, and transportation costs. However, they are finding it harder to pass on these costs to consumers without complaints and decreased purchases, which could lead to decreased profits and economic growth.

This trend of rising costs but inability to pass them on to consumers may lead to decreasing profits for businesses and affecting their ability to sustain and grow. This could lead to businesses cutting back on spending and investment, which could further slow economic growth. Additionally, as inflation affects customers more, they may reduce their spending, which will also affect businesses and their revenue.

During 2008, the economy was partially boosted in Texas by the oil and gas industry. One of the key findings of the study is that energy, which has traditionally been a major driver of economic growth in Texas, is less of a boost than it has been in the past. This trend is noticeable because despite high energy prices, oil drilling in Texas has subdued instead of rising to meet the demand. This is possibly due to a combination of factors, including the increased use of renewable energy sources, the overall predicted decrease in demand for fossil fuels over the next few decades, and a desire to keep prices elevated.

Wage growth and price increases have been elevated the past few years increasing at a rate faster than previously seem in 2019. Both numbers are expected to moderate more in 2023, while still remaining elevated. ?Wage growth set to remain elevated at a 5.6% increase, compared to 3.9% and 2.1% in wage growth we say in 2019 and 2020. Price growth diffusion has fallen to about twenty on the diffusion index, a high spike in input costs was seen in 2008, before falling along with selling prices in the recession.

In a study conducted from September to December of 2022, it was found that people's top fears included worries of a recession, labor shortage, wage increases, and elevated input costs due to inflation. Most of these concerns have increased as compared to previous months, while concerns over labor shortages have slightly decreased. Despite this, the economy in Texas remains robust and is expected to continue to grow, although at a slower pace than in previous years and possibly below the trend that the state has been catching up to since the sharp fall in 2020.

Overall, growth is predicted to slow as signs of slowing are spreading but remains currently at robust levels. We are hoping for a soft landing when it comes to the outlook of the economy. However, there are to note more downsides than upsides based on the data collected and presented.