Texas growth will slow — but no recession — the Fed predicts

Plunging oil prices means that Texas job growth will slow this year from its big 2013 spurt — but not to levels that would come close to a statewide recession — a Federal Reserve Bank of Dallas economist predicted Tuesday.

Texas jobs will increase by 2 to 2.5 percent this year, or between 235,000 and 295,000 net new jobs, said Keith Phillips, Dallas Fed senior economist and research officer who is based in San Antonio.

That will be less than the projected Texas 3.6 percent job growth for 2014, which created an estimated 408,000 new Texas jobs. Texas’ December jobs report will be issued later this month.

Texas’ job growth will be similar to that of the nation as a whole, Phillips said. That’s a change from previous years that saw Texas job growth consistently higher than the country overall.

Texas has been a job growth leader nationally the past five years, since the 2007-09 recession, because of strong performances from the energy, construction and export sectors, Phillips explained.

The main difference for 2015 will be falling rig counts in energy drilling statewide and a drop in export volumes due to the strong value of the U.S. dollar, Phillips said. A tighter labor market, which forces wages up, also will slow Texas economic growth, he added.

When oil prices fell from about $107 a barrel at the end of June to about $80 in October, the Texas economy grew rapidly without harm. “People still were making a lot of money” when oil was priced at $80 a barrel, Phillips said.

But the continued move to $50 a barrel and lower is another matter, Phillips said. “Fifty dollars is below the breakeven point for the majority of shale drilling,” he said.

“My forecast for oil prices is: I don’t know,” Phillips told more than 100 invited business and civic leaders at a forecast luncheon at the Dallas Fed’s San Antonio branch office.

Statewide office vacancy rates have fallen below the 16 percent rate that triggers commercial office construction. But because of low oil prices, some office construction projects will be called off, he said, especially in Houston.

Texas was in a similar position economically in 1998-99. In fact, 1999 was the one of the few years Texas job growth fell below the national rate. Texas’ 1998 job growth rate was 3.6 percent, the same as 2014. Phillips said Texas’ 1999 job growth, when oil fell to $11 a barrel, was the 2 to 2.5 percent range he is predicting for 2015.

But he pointed out that he didn’t expect oil prices to fall to $20 a barrel, which would be the equivalent to 1999’s $11. “But drilling costs are higher” than in the 1980s and 1990s, he said.