The days of booming job growth in Texas may be ebbing, according to the Dallas Federal Reserve, which expects the state to return to more normal growth of 2% this year.
In their economic outlook for the Lone Star State released Friday,
"We see some slowing at the end of 2023, but we still see significant momentum enough to carry us through, we think, to reach average, typical growth in 2024," said Pia Orrenius, a vice president and senior economist at the bank.
Nonfarm job gains of 369,600 in Texas from December 2022 to December 2023 were the largest among states, the U.S.
Prior to the COVID-19 pandemic, Texas job growth was 2.1% in 2019 before dropping 4.4% in 2020 amid shutdowns.
Orrenius said subsequent growth was largely propelled by domestic and international migration that boosted the size of the state's labor force.
Risks to the outlook are mixed, with Orrenius noting downside risks include a resurgence in inflation, geopolitical and domestic election uncertainty, as well as consumer spending given slower growth in state sales tax revenue.
"We need to be watching the consumer to see if some of that resiliency is running out," she said.
Sales tax collections, the biggest state revenue source for the Texas budget, zoomed higher since fiscal 2019's $34 billion, rising to $43.12 billion in fiscal 2022 and $46.75 billion in fiscal 2023 with high inflation helping feed months of double-digit growth.
That growth slowed in fiscal 2023 amid cooling inflation and higher interest rates. In fiscal 2024, which began Sept. 1, sales taxes in October and January came in under the previous year's levels, marking the only two times the key revenue source fell since COVID-19 pandemic restrictions were lifted, according to Texas Comptroller Glenn Hegar's office. It reported January collections of $4.02 billion were down 2% compared to January 2023.
Hegar said while overall receipts from the retail trade sector were slightly higher, other sectors like wholesale trade and oil and gas mining were trending lower. Higher-than-normal refund activity was also a contributing factor in the decline.
In the first five months of fiscal 2024, the sales tax has generated $19.86 billion, up 0.59% from the previous year. The state does not tax personal income.
The Dallas Fed's economic outlook comes as municipal bond issuers in triple-A-rated Texas
Orrenius said the outlook for energy production was solid. Texas is the nation's top
State fossil fuel production tax revenue is down from peaks of $6.36 billion and $4.47 billion respectively that were reached in fiscal 2022, comptroller's office data said. In January, oil production tax revenue was up 3% at $500 million and natural gas tax collections fell 41% at $188 million.
Texas' oil and natural gas industry paid a record $26.3 billion in state and local taxes and royalties in fiscal 2023,
Kroll Bond Rating Agency said in a January rating report the Texas economy has expanded and diversified beyond the energy sector.
"The state's overall budgetary reliance on the oil and gas industry has declined, though increasing oil and gas activity over the last decade has contributed favorably to economic growth and the effect of large swings in oil and gas prices remains observable," the report said.
The Dallas Fed is also keeping its eye on climate change's impact on the Texas economy, according to Orrenius.
A Dallas Fed
In an October rating report, S&P Global Ratings said: "Given Texas' large geographic footprint and location along the U.S. Gulf Coast, we consider the state to have a higher exposure to acute physical risks within our credit rating analysis, including severe weather events, intermittent flooding, and extreme heat, as well as exposure to chronic physical risks, including sea-level rise and drought."
The Texas Gulf Coast
The Austin City Council will take up a resolution Thursday to create an environmental investment plan that could include a November bond election to address climate change.
"With this resolution, the city will kick off the process to put our money where our mouth is on climate action and resilience," Council Member Paige Ellis said in a statement. "Now it's time to strategically and comprehensively look at how we can fund an impactful environmental investment plan to reach our goals."
The Texas office market, which has been stung with vacancies, is on the Dallas Fed's radar screen, Orrenius said.
Houston's office market had the weakest performance in 2023's second quarter
Even if economic growth slows, robust revenue led to the buildup of huge reserves and allowed Texas to forego annual tax and revenue anticipation note sales with its last cash flow borrowing of $7.2 billion occurring in August 2020.
The state ended fiscal 2023
After transfers to the state's rainy-day and other funds, the available balance was $39.24 billion, which
With an abundance of cash, state lawmakers placed billions of dollars in spending on the Nov. 7 ballot in the form of constitutional amendments to reduce school property taxes and fund higher education research, water supply projects, power plants, and broadband.
In December, Fitch Ratings said, while the majority of the amendments passed by voters involve one-time funding, the additional $13.3 billion of property tax cuts
