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January 29, 2021
Pandenomics: Where Do We Go From Here? Keith R. PhillipsKeynote Speaker
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The views expressed are my own and
do not necessarily reflect official positions
of the Federal Reserve System.
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National Economy
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U.S. Economy Likely to Grow Strongly in Second Half of 2021
• After growing a healthy 1.4% in 2019, job growth fell sharply to -6.2% in 2020, while real GDP growth slowed less: from 2.3% to -2.5%
• Labor market well below full employment at 6.7% unemployment rate
• Inflation slightly below Fed target of 2%
• Pandemic has been main driver of economic growth – vaccines suggest strong growth in second half of the year
• Upward sloping yield curve reflects positive outlook over next 12 months
• Blue Chip Forecasters project GDP to grow about 4.0% this year• Jobs likely to improve by less than output with Blue Chip year-end UR forecast of 5.5%
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Historic Monthly Job Loss in April, Rebound Dissipating
5
-20787
4781
-25000
-20000
-15000
-10000
-5000
0
5000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Thousands, SA
NOTE: Data up to December 2020.
SOURCE: Bureau of Labor Statistics
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14.8
6.7
22.9
11.7
0
5
10
15
20
25
Percent
NOTES: U6 Unemployment rate includes marginally attached and part-time for economic reasons workers. Gray shaded areas indicate NBER recessions. Data up to
December 2020.
SOURCES: Bureau of Labor Statistics; NBER.
1994-2007:Q3 Average
1994-2007:Q3 Average
Unemployment Rate has Declined, but Remains High
3Public
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Core Inflation Below 2 Percent Goal
7Public
1.13
1.73
-2
-1
0
1
2
3
4
5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Headline PCE inflation
Trimmed Mean PCE inflation
Percent, Y/Y
NOTE: Data up to November 2020.
SOURCES: Bureau of Economic Analysis; Federal Reserve Bank of Dallas.
Fed 2 percent target
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-4
-3
-2
-1
0
1
2
3
4
10-year minus 1-year Treasury rate, monthly
NOTE: Data through December 2020.
Steepening Yield Curve Signals Positive Outlook
Percentage points
7 months negative
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GDP Growth Expected to Increase about 4.0 percent – Surpass pre-COVID Levels
9Public
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Percent, SAAR
SOURCES: Bureau of Economic Analysis; Blue Chip Economic Indicators.
2017 2.3% Q4/Q4
2018 3.0% Q4/Q4
2019 2.2%Q4/Q4
2020 -2.5%Q4/Q4
2021 3.9%Q4/Q4
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Texas Economy
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• Despite sharp decline in the energy sector, Texas jobs declined less than the national average.
• Better performance likely due to less pandemic hit, increased preference for low cost, low density areas to live and work.
• Data through mid-January suggests weak job growth due to COVID surge but data since mid-January shows declines in COVID – hints at improvement in jobs in February.
• COVID will have long-last structural impact on many industries, suggesting that while Texas job growth will be strong this year, it will not fully recover to pre-COVID levels
Texas Economy Declined Less than Nation Last Year –Will likely Grow Faster than the Nation this Year
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Pandenomics: This Texas Recession Like No Other, Much Sharper, Shorter-Lived Decline, Steeper Recovery
88
90
92
94
96
98
100
102
-2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
1982 1986 2001 2008 2020
% of peak employment
Months after business cycle peak
NOTES: Shown is Texas nonfarm payroll employment. Recessions are indexed to on peak employment: March 1982, January 1986, March 2001, August 2008, and February
2020.
SOURCE: BLS.
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13
Pandenomics: Unlike Other Texas Recessions, Manufacturing
Activity has Outperformed Services
0.8
4.6
-80
-60
-40
-20
0
20
40
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Services Revenue (TSSOS)
NOTES: Data through January 2021. Dashed lines are post-recession averages TMOS 9.7; TSSOS 11.9.
SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys (TBOS).
Diffusion index, SA
Mfg Production (TMOS)
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0.507
-3.58
-17
-35
-30
-25
-20
-15
-10
-5
0
5
10
Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct.
High income
Middle income
Low income
Employment level relative to Jan. 2020
NOTE: Data through Oct. 22, 2020. High income is greater than $60,000 per year; middle income is between $27,000 and $60,000 per year; low income is less than $27,000 per
year.
SOURCES: Paychex; Intuit; Earnin; Kronos; Opportunity Insights.
Employment Among High Income Earners Recovered Quickly While Low Income Earners were Hit Harder
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Despite Large Decline in Energy Sector, Texas Job Growth Not as Weak as the Nation’s
15Public
NOTES: Long-run trend growth is 1.1 percent for the U.S. and 2.1 percent for Texas.
SOURCES: Bureau of Labor Statistics, Texas Workforce Commission; FRB Dallas.
-6.2
-4.5
-8
-6
-4
-2
0
2
4
6
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
U.S. Texas
Percent change, year/year, SA
Oil Prices Decline sharply
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Texas Unemployment Rate Close to Nations
16Public
6.77.2
3.0
5.0
7.0
9.0
11.0
13.0
15.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Percent, SA
US unemployment rate
Texas unemployment rate
NOTES: Data through December 2020.
SOURCE: Bureau of Labor Statistics.
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All Texas Metros were Hit Hard Early in Pandemic
-8.4
-7.3
-8.0
-7.3-7.7
-6.7-7.1
-10.0
-5.0
0.0
Houston(24.2%)
Dallas(21.2%)
Austin(8.9%)
Fort Worth(8.6%)
San Antonio(8.3%)
El Paso(2.5%)
Corpus Christi(1.4%)
Employment (June/Feb 2020)
NOTES: Data refer June/Feb 2020 non-annualized job growth. Numbers in parentheses refer to share of state employment in December 2020.
SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.
Percent change, SA
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Austin Employment Improving the Most Since Mid-Year
2.2
3.4
5.1
2.8
1.3
2.0
-1.0
-2.0
0.0
2.0
4.0
6.0
Houston(24.2%)
Dallas(21.2%)
Austin(8.9%)
Fort Worth(8.6%)
San Antonio(8.3%)
El Paso(2.5%)
Corpus Christi(1.4%)
Employment (Dec/June 2020)
NOTES: Data refer Dec 2020/June 2020 non-annualized growth. Numbers in parentheses refer to share of state employment in December 2020.
SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.
Percent change, SA
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During Pandemic Texas Job losses Widespread Across Industries, Oil & Gas, Leisure & Hospitality Hardest Hit
19
-6.5
-2.7
-5.9
-4.0-5.3
-23.2
-4.2
-1.2-3.0
-8.2
-15.6
-4.8
-1.1
-3.3
-0.7
-3.9
-17.0
-4.7
-0.2
-4.9
-10.5
-26.7-30
-25
-20
-15
-10
-5
0
Total Trade,Transp.& Util.
(20.3%)
Gov't(15.6%)
Prof. &Bus. Serv.(14.8%)
Educ. &HealthServ.
(13.8%)
Leisure& Hosp.(9.5%)
Mfg.(7.0%)
Fin.Activ.(6.6%)
Constr.(6.0%)
Info. &Other Svcs
(4.8%)
Oil & Gas,Mining Sup.
(1.3%)
U.S. Texas
Job growth (percent)
NOTE: Data show December 2020/Feb. 2020 non-annualized growth. Numbers in parenthesis indicate share of total state employment for December. Texas employment early
benchmarked through second quarter 2020.
SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; FRB Dallas.
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20
Single-family Housing Market Takes Off in Pandemic, Helped by Falling Mortgage Rates
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
90
110
130
150
170
190
210
230
2013 2014 2015 2016 2017 2018 2019 2020
Texas single-family housing permits
Texas home sales
30-year Fixed Rate Prime Mortgage
NOTES: Data through Dec. 2020.
SOURCES: MLS; A&M Real Estate Center; Freddie Mac Primary Mortgage Market Survey; U.S. Census.
Index, Jan 2013 = 100, 3MMA, SA Interest rate, monthly average
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21
Energy Sector Declined Sharply with Fall in Oil prices: Rig Count Now Increasing from Very Low Levels
173
175
$52.83
0
20
40
60
80
100
120
0
100
200
300
400
500
600
700
800
900
1000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Oil price
Rig Count
NOTES: Data are weekly. Data through the week of Jan. 22, 2021.
SOURCES: Oil and Gas Journal; Baker Hughes.
Texas active rig count$/barrel
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Recent Economic Activity
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23
Despite Pandemic Surge, Texas Job Growth Strong in December
-0.1
0.7
-0.2
0.8
-0.1
-3.7
0.30.1
0.7
-0.3
0.50.6
1.0
0.0
1.7
0.4 0.3 0.4
-0.5
0.30.5
0.2
-4
-3
-2
-1
0
1
2
Total Trade,Transp.& Util.
(20.3%)
Gov't(15.6%)
Prof. &Bus. Serv.
(14.8%)
Educ. &HealthServ.
(13.8%)
Leisure& Hosp.(9.5%)
Mfg.(7.0%)
Fin.Activ.(6.6%)
Constr.(6.0%)
Info. &Other Svcs
(4.8%)
Oil & Gas,Mining Sup.
(1.3%)
U.S. Texas
Job growth (percent)
NOTE: Data show December 2020/November 2020 non-annualized growth. Numbers in parenthesis indicate share of total state employment for December. Texas
employment early benchmarked through second quarter 2020.
SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; FRB Dallas.
Texas added jobs in December, the US lost jobs
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Output Growth Stalls Out in January, According to Texas Businesses
24
4.6
-100
-50
0
50
0.8
-100
-50
0
50
-1.0
-100
0
100
2019 2020 2021
NOTE: Data through Jan. 2021. SOURCE: Dallas Fed Texas Business Outlook Surveys.
Diffusion index, SA
Manufacturing production
Servicesrevenue
Retailsales
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Texas, U.S. Surpass Previous Peaks in COVID hospitalizations
25
0.0
0.1
0.2
0.3
0.4
0.5
3/1 3/22 4/12 5/3 5/24 6/14 7/5 7/26 8/16 9/6 9/27 10/18 11/8 11/29 12/20 1/10 1/31
Texas U.S.
NOTE: Data up January 27, 2021. Data normalized using 2020 Census population estimate.
SOURCES: Texas Department State Health Services; covidtracking.com.
Currently hospitalized per thousand, 7dma
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Mobility and Engagement Index Down in Mid-January from Mid-December
-42.5 -45.9
-32.3
-43.1-38.1
-110
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
US TX
Index
NOTE: Weekly mobility and engagement index up to Jan 23, 2020.
SOURCE: Federal Reserve Bank of Dallas.
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Homebase Staffing Levels Decline from Mid-Decemberto Mid-January
-20.7-25.1
-60
-50
-40
-30
-20
-10
0
10
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Number of Hourly Workers Working
% change from Jan, 7 day MA
NOTE: Texas data up to Jan 25, 2020.
SOURCE: Homebase.
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Initial Jobless Claims Up 26 percent in January in Texas
0
500
1000
1500
2000
2500
3000
3500
Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan.
Initial claims, state UI and federal PUAIndex, first week of March = 100
U.S.
Texas
NOTE: Data through the week ending January 23.
SOURCE: Department of Labor.
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The Texas Weekly Employment Estimate Suggests Job Growth Slowed Sharply in January
1.9
1.7
-0.1
0.7
0.2
0.80.6
0.4
-0.3
-1
-1
0
1
1
2
2
3
3
May '20 June July Aug Sept Oct Nov Dec Jan '21
4-week % change
SOURCE: Federal Reserve Bank of Dallas.
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Outlook for 2021
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Of 10 Largest States, Population Growth Strongest in Texas Last Year
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More Than One-Third of Texas Firms Expect it to Take More Than a Year for Revenues to Return to pre-COVID Levels
28%
42%
25%
6%
Less than 6 months6-12 monthsMore than a yearNever
30%
30%
37%
3%
When do you expect your firm's revenues to return to pre-COVID levels?
NOTES: This question was only posed to those indicating January revenues are below normal (59 percent of all firms). Data collected Jan. 12-20. 148 responses. Results are preliminary.SOURCES: Federal Reserve Bank of Dallas, January 2021 Texas Business Outlook Surveys.
Manufacturing Services
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Jobs May Not Return to pre-COVID Levels this Year Due to Large Amount of Structural Changes in the Economy
29 28
17
12
3 1
1 0 0 1
14
25-30
-20
-10
0
10
20
30
40
Telecommuting Technology adoption Contactlessproduct/service delivery
Other newproduct/service
offerings
Office space Business travel
Texas Businesses Report on Expected Permanent Structural Changes Due to COVID-19
Per
cen
t n
oti
ng
incr
ease
NOTES: 369 respondents. Firms were asked, “Are there structural changes your firm has made or plans to make as a result of the COVID-19 pandemic that you expect to be permanent? If yes, please specify any changes, and whether it is an increase or decrease.SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys.
Per
cen
t n
oti
ng
dec
reas
e
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Energy Survey Suggests Mild Improvement this Year
34
-100
-80
-60
-40
-20
0
20
40
60
80
Business Activity Capital Expenditures Employment Company Outlook Uncertainty End of Year PriceForecast
Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020
Diffusion index Price per barrel
NOTE: Price forecast is average year-end forecast of WTI oil price among respondents.
SOURCE: Federal Reserve Bank of Dallas Energy Survey.
$58.54
(2021)
$56.92
(2020)
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Short-term Outlook Improving More in Manufacturing than Services
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
TMOS company outlook
TSSOS company outlook
Index, 3MMA
NOTES: Data through January 2021. Dashed lines are post 2008-2009 recession averages.
SOURCES: Federal Reserve Bank of Dallas Outlook Surveys: Manufacturing (TMOS); Service Sector (TSSOS).
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Texas Leading Index Components Mostly Positive in December
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-0.18
0.00
0.10
0.19
0.20
0.32
0.33
0.34
1.30
-0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
New unemploymentclaims*
Average weekly hours
Texas Stock Index
Help-wanted index
U.S. leading index*
Real oil price
Well permits
Texas value of the dollar*
Net change inTexas Leading Index
NOTE: December 2020, seasonally adjusted. Texas value of the dollar is a preliminary estimate from the Dallas Fed.
SOURCE: Federal Reserve Bank of Dallas.
Net contributions to change in Texas Leading Index
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Green Shoots? Texas Business Applications Increase to Historic Levels
0
20
40
60
80
100
120
140
160
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
NOTE: Data for Texas business applications through Q4 2020.
SOURCE: U.S. Census.
Count, Thousands
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Dallas Fed 2021 Texas Jobs Forecast Projects Some Weakness Over Next Few Months, Strong Growth of 4.2 percent for the Year
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-74.4
26.4
-80.0
-60.0
-40.0
-20.0
0.0
20.0
40.0
NOTE: Forecast scenario estimates Texas payroll employment for 2021 are based on monthly hospitalization projections for COVID-19 in Texas, direct COVID-19 impacts in March, April, and May, US GDP growth estimates for 2021, and WTI prices following the futures contract curve as of 1/28.SOURCE: Federal Reserve Bank of Dallas.
Percent, SAAR
-4.5
4.2
-15-10
-505
10Percent, Y/Y
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• Pandemic is unprecedented and has many aspects of a natural disaster instead of a typical recession
• Texas outperformed the nation last year despite a large decline in the energy sector
• Movement of people and firms out of high-density, high cost of living areas should continue to benefit Texas
• Pandemic will likely cause significant amount of long-term structural change that may delay return of jobs to pre-COVID levels
• Jobs in Texas are forecasted to grow about 3.1 to 5.3 percent - at 4.2 percent will be 0.8 percent below pre-COVID level but 4.3 percent below trend
Summary
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How Did My Forecast From Last Year Do?
Last year stated: “Texas jobs grew 2.0 percent in 2019 and will likely grow about 2.1 percent this year – with greater downside
than upside risks”
– Instead growth declined from 1.9% in 2019 to -4.5% in 2020
Obviously did not forecast the pandemic – if trust my forecast than economy likely would have grown about 2.0
percent last year without pandemic – so in December 2020 TX jobs were 6.5% below trend
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Publications and Surveys:
Texas Employment Forecast
Metro Economic Indicators
Regional Economic Updates
Southwest Economy
Heart of Texas
Dallas Fed Blog
National Economic Updates
International Economic Updates
Texas Business Outlook Surveys
Energy Survey
Dallas Fed Resources
COVID-related:
Mobility and Engagement Index
Real-Time Population Survey
Texas Weekly Employment Estimate
Weekly Economic Index