Recoveries don’t last forever.
The Texas economy, which was waylaid by the pandemic in early 2020, was hitting on all cylinders during the rebound that followed.
Nonfarm employment grew 6% in 2021, more than making up for the retreat the year before. This year, the state is on pace to grow jobs by 3.5%, which translates into adding 452,000 positions statewide, according to projections by the Federal Reserve Bank of Dallas.
That growth is much smaller than expected in August, largely because of a major downward revision in estimates for the second quarter. But Texas’ job growth rate still surpasses the nation’s – and would be two-thirds higher than the state’s average growth since 2010.
Don’t expect anything like it in the new year: “We’re increasingly convinced there’s a downturn coming in 2023,” said Pia Orrenius, senior economist at the Dallas Fed. “Whether it’s a growth slowdown or an outright recession, we don’t know yet.”
A recession would mean a reduction in total employment. A slowdown in growth would mean that Texas adds jobs at a slower pace than 2.1%, the average annual growth rate since 2010.
“A growth recession would be somewhere below our trend – maybe 1%,” Orrenius said.
The Dallas Fed is scheduled to release official projections for 2023 Texas job growth in just over a month, but others already are weighing in.
The Texas Real Estate Research Center said Texas job gains would moderate next year – and return to the longer-term trend.
Comerica Bank’s chief economist said Texas’ job growth in 2023 “will probably be 1% to 2%.”
“It will still be positive but quite a bit slower than what we’ve seen since the pandemic,” said Comerica’s William Adams.
Ray Perryman, a Waco economist who’s tracked Texas trends for over 40 years, said the state has added so many jobs in so many industries. He expects the pattern to continue and said Dallas-Fort Worth has “one of the most diverse and dynamic economies anywhere.”
“I expect there to be some slowing in the coming months, but do not anticipate a major downturn in the state or region,” Perryman wrote in an email.
The oil and gas industry, which is part of the mining and logging sector, has been leading the way in job growth. Texas added over 42,000 jobs in mining and logging in the 12 months that ended in November, the Texas Workforce Commission said.
That’s a one-year gain of nearly 23%, and prospects remain bright, in part because of rising natural gas exports. Energy-related manufacturing also has been strong, Orrenius said: “Oil prices are still high and the industry has a pretty robust outlook.”
Other areas of potential growth next year include public education and health care. “Those employers are still trying to hire, and they’ve had constraints on the supply side,” she said.
Next year’s most vulnerable sectors will be those most affected by rising interest rates.
“The housing market and residential construction – and anything related, including Realtors, banks and builders – they’re all going to be hurt,” Orrenius said.
Even in a slowdown, Texas is expected to continue drawing newcomers — a key factor in the state’s growth.
“A big part of that is we allow you to build things in Texas,” said Adam Perdue, an economist with the Texas Real Estate Research Center. “That’s attracting these people – giving them opportunities they couldn’t find elsewhere.”
The state’s affordability remains a major strength, especially compared with California and New York.
“Texas has been outbuilding many other parts of the U.S. in terms of adding housing,” said Taner Osman, research manager at Beacon Economics.
It’s become a virtuous cycle, he said, with Texas attracting more residents, which attracts more employers, which attracts more workers – and leads to more building.
The approach has worked well, he said, and will continue in in 2023 and beyond.
“Worker availability is what’s going to drive economic growth over the next few years,” Osman said. “And I don’t think Texas is going to have any trouble in that regard.”
