By Dan Zehr - American-Statesman Staff
Photo By: ILANA PANICH-LINSMANA - Worker washes a rig at Latshaw Drilling’s Oil Rig 43 in Midland, Texas, on Feb. 8, 2017.
With the Texas economy “firing on all cylinders,” statewide job growth will accelerate in 2018, but the increasingly tight labor market here and across the country will limit the surge, according to a forecast from the Federal Reserve Bank of Dallas.
The Dallas Fed now expects Texas employers to add around 366,000 jobs, an increase of 3 percent. The state added 305,900 jobs in 2017, up 2.5 percent, ranking third-fastest among all states after two years of job growth that trailed the national average.
“It’s hard to find weakness right now,” said Keith Phillips, senior economist and assistant vice president of the Dallas Fed’s San Antonio branch. “It reflects a very broad-based strength across industries and sectors.”
The rebound to the 3 percent job-growth threshold, up from 2.5 percent in 2017, marks a return toward the booming expansion rates the Lone Star State enjoyed before oil and gas prices plummeted in 2014.
The downturn in the energy sector and its ripple effects through the other, closely related industries in Texas weighed on job growth until last year, when energy prices stabilized and manufacturing output increased.
Oil prices have stabilized and, absent a sustained drop below $40 a barrel, should help continue job gains across the oil and gas and related industries, Phillips said. Energy sector firms in the state expect oil prices around $59 a barrel at the end of 2018, according to a monthly Dallas Fed survey.
Phillips said the latest survey showed a strong increase in capital expenditures during the fourth quarter, suggesting that oil and gas companies were ramping up activity as they readied for 2018.
“Our energy survey suggests that, barring some big shock that would affect (oil and gas) prices, 2018 will be a good year for the energy sector,” he said.
The other factor that could deal a significant blow to job growth is the possibility of changes in trade policy, particularly with Mexico, according to the forecast.
Yet, even if oil prices and trade restrictions remain stable in 2018, Texas employers probably won’t return to the sizzling job-growth rates they generated before oil and gas prices dropped in 2014. Back then, statewide payrolls had expanded by 3.6 percent.
“The model doesn’t suggest it will go back to 3.6 percent,” Phillips said, “partly because labor market tightness is going to restrict job growth.”
In November, the state’s seasonally adjusted unemployment rate dropped to 3.8 percent – its lowest point on record, going back to the 1970s. On top of that, the national unemployment rate has dropped to 4.1 percent. Austin dipped to a seasonally adjusted 2.8 percent in November.
“Despite all the oil booms in the ’70s and ’80s, the (Texas) unemployment rate had never gotten this low,” Phillips said. “Normally when our rate is low, we see net migration from other states at quite a healthy pace. But it’s going to be more difficult to bring workers into Austin and the rest of the state if economic conditions in the regions they live in now are also very strong.”
That means more difficulty for employers seeking to fill jobs, but offers up a silver lining for workers: A labor market that tight should push wages higher.
That’s especially true for workers with high-demand skills, including welders, electricians, computer programmers and many other specialists. But with an historically low unemployment rate and employers noting their expectations to boost wages in 2018, more of the year’s gains could flow to workers’ pockets.
“Maybe wages didn’t increase as much as we thought they would this year,” Phillips said, “but the probability of a significant wage increase is higher than last year, simply because the unemployment rate is even lower.”
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