Texas Economic Outlook: Recovery in 2010 Keith Phillips Federal Reserve Bank of Dallas San Antonio Office

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1 Texas Economic Outlook: Recovery in 2010 Keith Phillips Federal Reserve Bank of Dallas San Antonio Office The views expressed in this presentation are strictly those of the author and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or of the Federal Reserve System. Any secondary distribution of this material is strictly prohibited. May be quoted with appropriate attribution to the author.

2 National Economic Overview

3 Home Construction Showing Signs of a Bottom Millions, units Billions, $ Real singlefamily Single-family building permits Source: Bureau of Economic Analysis, U.S. Census Bureau and author s calculations.

4 Steep Home Price Declines Abating in Many Markets (OFHEO Price Indexes) 4-Q Percent Change TX 0-10 U.S. FL NY -20 CA

5 Lower Prices and Interest Rates Helping Housing Affordability (Percent of homes sold for which the median family income could qualify) 1999:Q4 2009:Q2 Low Point Date of Low Point United States : Q3 Los Angeles : Q1/Q2/Q3 New York : Q3/Q4 Miami : Q1 Austin : Q4 Dallas : Q3 Houston : Q3 San Antonio : Q3 Source: NAHB - Wells Fargo Housing Opportunity Index

6 TED Spread Falling to Normal Levels Percentage Points '05 '06 '07 '08 '09

7 Asset-backed Commercial Percentage Points 4.0 Paper Spread Back to Normal SA, Bil.$ Asset-backed CP Oct Asset-backed CP less Treasury Yield Oct '02 '03 '04 '05 '06 '07 '08 '09 0

8 Percent 6 Quality Spread Also Showing Significant Improvement Baa/Aaa Spread

9 Negative Fundamentals Weighing on Consumption Rising unemployment, job insecurity Tight credit conditions Loss of wealth, need to save Bottom line: Consumption very weak and will gradually improve in 2010

10 Jobs Declines Slowing From Huge to Large Thousands (SA) October January -741 Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09

11 U.S. Leading Index Suggesting Recovery Before End of Year Annualized % change Sept month 12-month

12 SAAR, Percent 8.0 September Blue Chip Survey Projects Positive RGDP Growth in Q % 2.9% 2.8% 2.7% '03 '04 '05 '06 '07 '08 '09 '10 -.7% %

13 This Will Be the Longest Recession Since 1933 Dec'07-present 23and counting Mar'01-Nov'01 Jul'90-Mar' Jul'81-Nov'82 16 Jan'80-Jul'80 6 Nov'73-Mar'75 16 Dec'69-Nov'70 11 Apr'60-Feb'61 10 Aug'57-Apr'58 8 Jul'53-May'54 10 Nov'48-Oct'49 11 Feb'45-Oct'45 8 May'37-June'38 13 Aug'29-Mar'

14 Concerned About a Double- Dip? How will we Know When Next Recession is Coming?

15 Percentage points 5 10-yr./1-yr. yield spread turns negative prior to recessions Only false signal -3-4 '59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07

16 Real-time probability of recession has performed well

17 Probability of Recession is Updated on Dallas Fed Web Site Go to then click on Economic Data, then Quick Slide Show of U.S. Economy Or

18 Texas

19 Through Most of 2008 Texas Was Stronger Than Nation High energy prices provided a stimulus to Texas in first half of 2008 but fell sharply since then. High-tech fared better than overall manufacturing until second half of 2008 Texas Job growth in 2008 was about 0.6 percent versus -2.2 percent in nation. Texas began a recession in the second half of 2008 due to a deepening national and international financial crisis, and a decline in high-tech and energy. Texas jobs will likely decline this year about 3.0 percent (about 319,000 net job loss). Next year Texas jobs will likely grow about 1.0 percent

20 Texas Jobs Declining Sharply this Year Y/Y, Percent U.S. Texas

21 Texas UR Has Increased Sharply Percent, SA But Remains Below the Nation s U.S. Unemployment Rate Texas Unemployment Rate

22 September Marked 13 th Consecutive Decline in the TX Business Cycle Index M/M SAAR M/M SAAR NOTE: Shaded areas represent Texas recession.

23 All Major Metros in Decline Business Cycle Index Jan 2000= Houston Texas Ft. Worth S.A. Austin Dallas

24 Texas Housing Price Changes Better OFHEO metro 4-Q Percent Change than National Average 8 Austin 6 Houston Ft.Worth Dallas Texas San US

25 Existing Home Sales Beginning to Show Improvements in Most Markets Index, Jan'00=100, 6MMA Ft. Worth San Antonio Houston Texas Austin Dallas U.S

26 Months Home Inventories Relative To Sales Lower Than Nation in Texas MSAs Texas Austin Dallas Houston 6.3 San Antonio 8.1 Ft Worth 6.6 U.S

27 TX Foreclosure Rate High But Lower Percent Than Nation U.S. Subprime Texas Subprime U.S. Prime Texas Prime Percent Prime Subprime

28 Percent Seriously Delinquent Mortgage Share Rising More Slowly in TX Texas Subprime U.S. Subprime U.S. Prime Texas Prime Percent

29 Texas Construction Contract Values Inching Up Real $, Mil 5MMA, SA 3,500 3,000 Residential Nonresidential 2,500 2,000 1,500 1, Nonbuilding

30 What about Other Sectors of the Texas Economy?

31 Contracting Expanding Index, SA Declines in Texas factory activity are moderating (Texas Manufacturing Outlook Survey) 80.0 Production Volume of New Orders Volume of Shipments Capacity Utilization Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

32 Index, SA 200 Exports Have Begun to Increase Texas Texas 3MMA 120 U.S. ex Texas U.S ex Texas 3MMA

33 High-Tech Output Plunges - Weaker than 2001 Percent, Y/Y Semiconductor and other electronic components Computer and peripheral equipment

34 TX Energy Sector Has Also Fallen Off a Cliff Nominal Price, $ Rig count, weekly Weekly 1,000 Texas Rig Count Gas price Oil price Note: Gas price is multiplied by 10 0

35 TXLI Components Declined Sharply and Broadly early in 2009

36 Recent Movements in TXLI Components Much More Positive 3 month change (June- August) 1.92 Net Change in Texas Leading Index 0.55 Texas Value of the Dollar 0.72 U.S. Leading Index 0.44 Real Oil Price 0.40 Well Permits 0.73 New Unemployment Claims 0.52 Texas Stock Index Help Wanted Index 0.36 Average Weekly Hours

37 Recent Increase in Leading Index Suggest Jobs Reaching Bottom in Fourth Quarter Millions Texas Nonfarm Employment and TLI Forecast Index Leading Index Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan

38 Summary The U.S. recession likely over. Financial sector continuing to heal. Texas has performed better than nation, initially due to high-tech and energy housing also played an important role. Texas followed the nation into recession in second half of 2008 and is likely to flatten out over next several months Texas job growth will likely be about -3.0 percent (about 319,000 jobs) and will likely grow about 1.0 percent in 2010.

39 Soaring Deficits To Continue Over the Medium $Billions Term Jan forecast Sep forecast Jan forecast Fiscal 2010 Budget Aug Forecast

Your Texas Economy. Current through: Tuesday, Nov 20, 2018

Your Texas Economy. Current through: Tuesday, Nov 20, 2018 Your Texas Economy Current through: Tuesday, Nov 20, 2018 Overview of Texas Economy The Texas economy is growing robustly in 2018 2018 job growth through October is 2.9 percent annualized compared to 2.1