Feb 7, 2023 - Business

Economists predict soft landing for Texas in 2023

Animated illustration of a trend line teetering back and forth as it balances on a briefcase

Illustration: Annelise Capossela/Axios

Texas is likely to avoid a major economic downturn this year, even if the country enters a mild recession, per a recent forecast by the Federal Reserve Bank of Dallas.

Driving the news: The Fed released its Texas Economic Outlook last week, forecasting a "soft landing" for the state this year.

The big picture: The Fed expects the Texas economy to grow more slowly this year than in 2022, but the state's robust energy and labor markets and growing population can serve as shock absorbers if the national economy takes a hit.

  • "The big question on everybody's mind looking into 2023 and what it's going to bring us is, 'Soft landing or recession?'" Pia Orrenius, senior economist at the Federal Reserve Bank of Dallas, said last week.

Threat level: The Fed says companies across Texas have listed weakening demand and a potential recession as their biggest concerns for 2023.

Context: Historically, Texas' unemployment rate has remained below the national rate during recessions, an indication that the state's workforce is able to respond "readily" to changes in the economic landscape, Orrenius said.

By the numbers: The state's job growth and overall population growth continue to bolster its economic standing.

  • Texas' jobs grew by 3.5% last year, hovering above the national job growth of 3%.

Zoom in: Austin was the state's "perennial overachiever" with 4.2% job growth in 2022, but Houston, Midland-Odessa and Dallas weren't far behind in their job growth, Orrenius said.

Job growth in select industries
Data: Bureau of Labor Statistics, Texas Workforce Commission, and FRB Dallas; Chart: Nicki Camberg/Axios

Yes, but: The Fed's latest interest rate hikes have led to the sharpest decline in home sales since 1999, fueling a drop in home prices as well, the Fed's housing data shows.

  • Austin is experiencing the sharpest decline in home prices — 9.2% —since mid-2022.
  • Home prices have fallen by 3.2% in North Texas, 2.7% in the Houston area, and 1.6% in San Antonio since the mid-2022 peak.

Of note: The growing number of work-from-home jobs has encouraged more people to move to medium-sized Texas cities such as Wichita Falls, where the cost of living is lower than the major cities.

What's next: The Fed is forecasting 1.4% in job growth for Texas this year, which is lower than in 2022, but is still better than contraction.

  • "We believe Texas is better poised for a soft landing than the nation," Orrenius said.
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