Texas not headed for recession, says Dallas Fed economist

DALLAS, Texas — Despite the impact of the oil price slump, the Texas economy is not headed for recession, Federal Reserve Bank of Dallas senior economist Keith R. Phillips said in a new video from the Dallas Fed.

In fact, based on current data, the probability that Texas will go into recession this year is around 15 per cent or lower, Phillips says.

Recessions are defined by significant declines in broad-based indicators of the economy, such as job growth, unemployment and gross domestic product.

The Texas Business Cycle Index—a model created by the Dallas Fed that aggregates such broad indicators of the economy—currently suggests that the state’s economy continues to expand, Phillips said.

Click here to watch production manager Dave Kuhnert explain how EndurAlloy™ production tubing has cut Crownquest Operating LLC’s Permian Basin well operating costs and extended well run-times.

“If you look at the Texas Business Cycle Index over the last year, despite the big decline in energy prices and the decline in the oil and gas industry, the Business Cycle Index continues to grow, suggesting that Texas remains in expansion and has not gone into recession,” said Phillips.

The expansion has weakened, to be sure, Phillips said, pointing to the slowdown in job growth from 3.7 per cent in 2014 to a mere 1.3 per cent last year.

Forward-looking measures of the economy such as the Dallas Fed’s Texas Leading Index point to continued slow growth ahead, but not recession, he said.

In addition, the Bank’s newest Texas Employment Forecast released on May 20 was revised upward to 1.5 per cent, suggesting that 179,000 jobs will be added in the state in 2016.

“Jobs have to decline in order for there to be a recession, and the forecast suggests that jobs will continue to grow and thus we will not be in a recession,” Phillips said.

“There’s still a possibility that things will weaken. There are also elements of data revisions that can affect what we know about the economy, so there’s still some uncertainty there, but I think our best forecast is that Texas will continue to grow this year.”

Phillips is an assistant vice president and senior economist at the San Antonio Branch of the Dallas Fed.