Falling Oil Will Slow Texas Economy, Fed Says

DALLAS -- Texas job growth is expected to moderate but remain healthy in 2015 as lower oil prices slow growth, Federal Reserve Bank of Dallas senior economist and research officer Keith Phillips said Jan. 13 in San Antonio.

Phillips presented the Bank's annual Texas Economic Outlook before local business leaders at the Dallas Fed's San Antonio Branch.

Texas job growth will likely slow from about 3.6% in 2014 to between 2% and 2.5% 2015, Phillips said. That equates to about 235,000 to 295,000 new jobs in Texas in 2015, down from an estimated 408,000 jobs created in 2014.

"The sharp decline in oil prices has created much uncertainty in our outlook for state job growth this year, but we're viewing it as a headwind for the Texas economy," Phillips said. "However, Texas has a diversified economy, and while the drop in oil prices slows job growth, it won't send the state into a recession like it did in the 1980s."

Sustained oil prices of $50 a barrel or lower will sharply curtail drilling and extraction in the state, Phillips said. This will negatively affect parts of Texas that are more dependent on energy production, including the Permian Basin in West Texas and the Eagle Ford Shale in South Texas.

Job growth in the Houston region—which has a large share of energy-related jobs—will slow significantly but remain positive in 2015, he added.

Slowing exports may be another headwind for the Texas economy in 2015, according to Phillips. Texas exports have declined in recent months, and a strong U.S. dollar may further dampen exports this year.

In a Jan. 12 research report, RBC Capital Markets lowered its outlook for Texas homebuilders based on the falling oil price. The report came less than two months after RBC issued a report entitled “Concerns about the impact of lower oil prices on housing demand in Texas are overstated.”

“Subsequently . . . crude oil has fallen below $50/barrel which has resulted in the curtailment of capital expenditures for E&P [exploration and production] projects,” analysts explained. “We expect that layoffs and the ripple effect on support services will have a decidedly negative impact on housing demand in Texas.”