The Houston and Texas economies grew briskly in the first half of the year, but the pace is expected to slow as trade tensions, labor shortages and rising wages weigh on the expansion, according to the Federal Reserve Bank of Dallas.
Economists at the Dallas Fed described the rate of job growth as “blistering” in the first six months of 2018. Employment in Texas grew at an annual rate of 3.6 percent, the strongest job growth in the nation, according to the Dallas Fed. Houston added jobs even faster, growing at annual rate above 4 percent, according to U.S. Labor Department data.
The robust growth was supported by the strengthening oil and gas industry and the booming U.S. economy. Crude prices topped $70 a barrel before retreating recently while local energy companies reported healthy profits. In the second quarter, the U.S. economy grew 4 percent rate for the first time since 2014 while employers continued to add jobs month after month.
Unemployment in Texas dipped in June to 4 percent, near its record low of 3.9 percent in November, which means that people who want to work are generally working. Any slack in the labor market has been largely absorbed, according to the Federal Reserve Bank, which is putting pressure on companies to raise wages. The bank is receiving anecdotal reports of worker shortages across industries and skills.
One food manufacturer told the Dallas Fed, “Lack of available labor is our No. 1 impediment to growth. We cannot find the people to add a third shift.”
Such shortages and higher wages that employers may have to pay to attract workers are expected to contribute to slower growth in the second half of the year, according to the Dallas Fed. The brewing trade wars with China and other countries as well as uncertainty over the future on the North American Free Trade Agreement, could hurt exports and further weigh on the state’s growth.
The Houston economy is also expected to slow as the boost from rebuilding after Hurricane Harvey fades, which should also drag on the state’s economic growth. Houston accounts for about 25 percent of the state’s jobs.
“A historically tight labor market, uncertainty surrounding U.S. trade policy, including NAFTA, and an unexpected downturn in oil prices remain key downside risks to the outlook,” said Dallas Fed senior business economist Laila Assanie.
Oil settled at $67.63 in New York Friday, up 82 cents or 1.2 percent.
But even with the slowdown, Texas is still expected to grow faster that other states in the second half of 2018, according to the Dallas Fed. In Houston, economic activity expanded for the ninth consecutive month, according to a monthly survey of about 50 local businesses on eight factors including prices, production, sales and inventories.