Keith Phillips, Sr. Economist and Advisor

Keith Phillips, Sr. Economist and Advisor

2013 Texas Economic Out look:Sl ight ly S lower But St i l l Good to be in

Texas

National Economy Still Growing at a Modest Pace

• International weakness slowing US exports• Federal government spending, Affordable Care

Act restraining growth • Meantime housing sector, consumer finances,

and state and local government improving • Q1 RGDP growth weaker than expected while

May job growth slightly stronger than expected

• 2013 Likely another year of moderate growth

Home Construction Picking Up

0

50

100

150

200

250

300

350

400

450

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

Millions, units Billions, $2000

Source: Bureau of Economic Analysis, U.S. Census Bureau and author’s calculations.

Real single-family construction

Single-family building permits

Home Prices Showing Signs of Improvement

90

110

130

150

170

190

210

230

250

270

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U.S.

Texas

California

Florida

Nevada

FHFA House Price Index, 2000=100

Lower Prices and Interest Rates Helping Housing Affordability – No Bubble Now

Source: NAHB - Wells Fargo Housing Opportunity Index

(Percent of homes sold for which the median family income could qualify)

  1999:Q4 2013:Q1 Low PointDate of Low

PointUnited States 64 74 40 2006 : Q3

Los Angeles 43 40 22006 :

Q1/Q2/Q3New York 55 30 5 2006 : Q3/Q4Miami 59 63 10 2007 : Q1Austin 56 69 50 2000 : Q4Dallas 64 71 54 2007 : Q3Houston 66 70 47 2007 : Q3San Antonio 64 73 47 2006 : Q3

2000 2002 2004 2006 2008 2010 20120.600000000000001

0.700000000000001

0.800000000000001

0.900000000000001

1

1.1

1.2

1.3

1.4

0.99

1.1

Household Balance Sheets in Better ShapeRatio, personal debt per capita/

personal income per capita

U.S.

Texas

Job Growth Persistently Positive but not as Strong as Typical Rebound

-1000

-800

-600

-400

-200

0

200

400

600

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Thousands (SA)

-8.9

-5.3

-0.3

1.4

4.0

2.32.22.62.4

0.1

2.5

1.3

4.1

2.0

1.3

3.1

0.4

2.52.9

2.6

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

SAAR, Percent

2013 2.3% Q4/Q4

2012 1.7% Q4/Q4

June Blue Chip Survey Projects RGDP Growth of 2.3% in 2013

Past Several Years Texas Economy Has Grown above Trend and Stronger than Nation • In past three years growth in energy, high-tech and

exports provided a stimulus to Texas. Housing market less of a drag than nationally.

• In last three years Texas job growth has been above trend and faster than the national average.

• In 2012 growth in energy and exports slowed but construction and government improved – overall job growth at 3.3%.

• This year manufacturing, energy and Fed. Govt. will be slower while construction continues to accelerate

• This year I expect job growth of about 2.0%– 3.0% - slightly weaker than 2012.

Texas Economy Growing Above Trend(Texas Business Cycle Index)

-8

-6

-4

-2

0

2

4

6

8

10

12

Texas Coincident Index Suggests Economy Growing Above TrendM/M SAAR M/M SAAR

NOTE: Shaded areas represent Texas recession.

2.5% trend

Texas was Third Fastest Growing Job Growth State in 2012

-1

0

1

2

3

4

5

6

7

ND UT

TX NV

CO

MT

AZ

CA

NC SC HI

TN ID FL IN LA GA NJ

US

KS

WA

MN

MA

OK

KY IA MD

AK

MS

NY IL VA SD VT

OR

NH MI

MO WI

NE

OH RI

DE

PA AL

NM CT

DC

AR

WV

ME

WY

Y/Y Percent Change, December 2012

U.S.

TX

Source: Bureau of Labor Statistics

Texas Jobs Growing Faster Than Nation’s – Pickup in 2012

-3.8

0.8

1.6 1.7 1.82.2 2.3

3.3

2.4

-5

-4

-3

-2

-1

0

1

2

3

4

5

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

U.S.

Texas

Job Growth Y/Y, Percent

-3.4

2012 Texas State and Local Government Jobs Bounced Back from 2011 Fiscal Cliff

95

100

105

110

115

120

125

U.S.

Texas

Index, Jan 2000 = 100

U.S. State and Local Share of Total Nonfarm Jobs- 14.1%

Texas State and Local share of Total Nonfarm Jobs - 14.4%

Texas Unemployment Rate Has Declined Sharply

6.4

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Percent, SA

US unemployment rate

Texas unemployment rate

7.5

Most industries Adding Jobs – Manufacturing Weakening

-2

0

2

4

6

8

10

12

14

16

18

Q/Q, SAAR Texas Industry Employment 2012 Q1 : 2013 Q1

Mining

ConstructionTrans., trade ,

UtilitiesManufacturing

Busincess Serv.

Finance , Insurance,Real Estate

Leisure and Hospitality

Information Services

Health and Education

Govt.

Texas Real Retail Sales Growing Moderately

90

100

110

120

130

140

150

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Index, SA, Real $Jan. 2000=100

Texas

U.S.

Texas Construction Contract Values Slightly Picking Up

0

1000

2000

3000

4000

5000

6000

7000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Real $, Mil5MMA, SA

ResidentialNon Residential

Non Building

Total

Home Inventories Relative To Sales Falling to Lean Levels

0

2

4

6

8

10

12

14

16

18

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Texas

U.S.

Months

4.2

5.1

2.4

0.56

0.67

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

TX Delinquencies TX Foreclosures Started

US Delinquencies US Foreclosures Started

.35

2.9

Mortgage Foreclosures Sliding, Delinquency Rates High but Falling, TX Better than US

Texas Mortgages Less at Risk of Default

52.4

34.9

40.2

31.9

25.2

21

8.5

23.2

0

10

20

30

40

50

60

70

Nevada Arizona Florida Michigan California Idaho Texas U.S.

Percent of Mortgages "Under Water"Q2 2011 - Q4 2012 Percent

16.1

5

10

15

20

25

30

35

0

50

100

150

200

250

300

350

400

450

'89 '96 '03 '10

Real, Millions $, 5MMA Percent

Office Vacancy Rate

Office and Bank Buildings

Contract Value

16 Percent Threshold

Note: Shading represents Texas Recessions.

Declining TX Office Vacancy Rate Suggests Office Construction May Pick Up

TX Manufacturing Production and Orders Generally Weak

-100

-80

-60

-40

-20

0

20

40

60

80

100

Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

Production

Volume of New Orders

Index

May.-13

Texas Exports Moving Sideways After Strong Growth in 2009 -2011

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

110.0

80

100

120

140

160

180

200

220

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U.S. minus Texas

Texas

Index, SA RealJan. 2000=100

Texas Value of the Dollar

Drilling Rig Count Increasing Slightly

0.000

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

200

300

400

500

600

700

800

900

1000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gas price(*10) Oil price

Rig Count

All Texas Metros Moved From Recovery to Expansion

90

92

94

96

98

100

102

104

106

108

110

Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

Houston

S.A.

Ft. Worth

Austin

Dallas

Nonfarm Employment IndexAug. 2008=100

TX

El Paso

Corpus Christi

Metros with Big Presence of Fed. Govt. and Health Care Struggling

96

98

100

102

104

106

108

110

112

114

July '10 July '11 July '12 July '13

Austin

Houston

DFW

BorderSan Antonio

El Paso

Index, Nov.2009=100, SA

Federal Govt. Educ. & Health Svc.Border, SA, El Paso 3.6% 16.9%Rest of Texas 1.5% 12.1%

NOTE: Figures are shares of total nonfarm employment.SOURCE: Texas Workforce Commission.

Recent Increase in TLI Components Have Been Mixed

0.25

-0.03

0.43

0.04

-0.28

-0.08

0.27

-0.06

0.54

-0.40 -0.30 -0.20 -0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60

Average Weekly Hours

Help Wanted Index

Texas Stock Index

New Unemployment Claims

Well Permits

Real Oil Price

U.S. Leading Index

Texas Value of the Dollar

Net Change in Texas Leading Index

Texas Leading Index Components, 3 month contribution to change

February -April

2013 Job Growth Forecast is for Slightly Slower Growth - 2.0% to 3.0 %

95

100

105

110

115

120

125

130

135

9.0

9.5

10.0

10.5

11.0

11.5

12.0

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

Millions

Thou

sand

s

Index

Leading Index

Texas Nonfarm Employmentand TLI Forecast (with 80%

confidence band)

Summary• U.S. economy continues to grow at a moderate,

disappointing pace • Texas has faced similar headwinds (weak consumer

spending, housing) but has grown faster due to strong growth in energy and exports and fewer problems in housing.

• Texas job growth picked up in 2012 to 3.3 percent mainly due to improvement in state and local government jobs.

• 2013 TX job growth will likely slow somewhat to between 2.0 and 3.0 percent as energy, exports and federal government slow and construction picks up.

• Risks to the outlook include political and international uncertainty and continued uncertainty with US fiscal spending.