Economic growth in Texas is slowing but remains resilient, according to Senior Business Economist with the Dallas Federal Reserve Bank – San Antonio Branch, Luis Torres. Torres was the keynote speaker at the Hays Caldwell Economic Development Partnership (HCEDP) Economic Outlook Thursday at an event that took place on the campus of Texas State University. While job creation has eased, Torres noted that inflation is cooling, and the state’s economy continues to outperform the national average in key areas.
"We're slowing down," Torres said. "But the good news is that inflation is coming down, and the economy remains surprisingly strong and resilient."
Employment Trends
Torres said Texas employment saw a slight increase in November, surpassing October’s numbers but at a slower rate than usual. The state's annual employment growth rate for 2024 is projected at 1.6%, below the typical 2% trend but still ahead of the U.S. average.
"Texas normally grows faster than the rest of the country," Torres explained. "But in November, the U.S. outpaced us in employment growth. That said, Texas is still creating jobs, and unemployment remains low at 4.2%, matching the national rate."
The Dallas Federal Reserve’s surveys indicate a mixed outlook. Manufacturing activity has been flat due to the broader economic slowdown, while the service sector continues to expand. Businesses expect strong demand and improved operating margins over the next six months.
Industry Highlights
Trade, transportation, and utilities make up about 20% of Texas jobs, with overall job growth in these sectors described as "solid but slowing." Real Estate remains a sensitive area, with high mortgage rates hampering the housing market despite slight improvements in home sales and permitting activity.
Houston and Fort Worth are leading economic growth among Texas metro areas, driven by the energy and manufacturing sectors, respectively Torres said. In contrast, Austin's growth has slowed due to a dip in tech-related services.
The energy sector remains optimistic about 2025, with oil prices forecast to stabilize around $71 per barrel. However, natural gas production and energy-related loan values have declined, according to the Federal Reserve's energy survey.
Inflation and Wages
Inflation in Texas is trending downward, with the core Consumer Price Index at 2.7%, still above the Federal Reserve’s 2% target. Encouragingly, wage increases are expected to continue, while businesses report stabilizing or declining prices for goods and services.
"This is good news on the inflation front," Torres noted, emphasizing that stable prices alongside wage growth could support consumer confidence.
Positive Outlook for 2025
Texas businesses are optimistic, with 60% of surveyed firms expecting increased demand in the first half of 2025. Many attribute this optimism to a more favorable economic climate.
"Despite challenges, Texas continues to create businesses at a faster rate than the national average," Torres added. "The state remains a hub of resilience and opportunity."
While growth may be slower than in previous years, Torres emphasized that the state’s economy is still on solid footing, with strong fundamentals and positive expectations for the coming year.
A panel of Texas economic leaders followed Torres discussing the region’s economic trajectory and key industry trends for 2025. Panelists include:
Tony Bennett, Texas Association of Manufacturers
Gabriela Perdichizzi, Texas Association of Business
Aaron Demerson, President and CEO of the Texas Economic Development Corporation
HCEDP President/CEO Mike Kamerlander moderated the panel of experts.
Demerson took exception to Torres's previous remarks that the Texas economy was slowing.
“It’s not slowing down in Texas at all. Exciting things are happening here in our state," Demerson said.
Demerson emphasized that the "secret sauce" fueling Texas's growth is the intersection of workforce, economic development, and education.
"Our success lies in bringing together workforce, economic development, and education. “These relationships and partnerships are what get deals done and ensure our state’s future,” he added,
Challenges and Legislative Priorities
Despite Texas’s global standing as the eighth-largest economy, the panel acknowledged challenges such as water supply, workforce shortages, and energy reliability. Bennett stressed the importance of advanced manufacturing and innovation, underscoring the need for better research and development (R&D) tax incentives to remain competitive with other states and nations.
“Our R&D tax incentive is 5%, while California offers 15%, and China provides a staggering 200%,” Bennett said. "If we want to lead in advanced manufacturing and AI integration, we must address these disparities."
Water infrastructure was another pressing topic. Perdichizzi highlighted water as an essential infrastructure for communities and industries, advocating for a dedicated state water fund to ensure reliable supplies.
“Water is infrastructure and infrastructure is economic development. We need water; we need more of it in our communities and in our industries,” Perdichizzi said. “We need to be able to be a place that industries can rely on to have a reliable supply.”
Workforce Development and Higher Education
Workforce development emerged as a recurring theme. Panelists praised state programs like the Skills Development Fund but called for continued investment in upskilling and closing the talent pipeline gap.
“We’re working to re-skill millions of workers for emerging industries, especially in AI and advanced technology,” said Bennett.
Texas State University and new regional institutions like the Texas State Technical College campus in Lockhart were celebrated as vital to fostering a skilled workforce.
Incentives and Staying Competitive
The panel also tackled the controversial topic of business incentives. While Texas is conservative in its approach, panelists noted their necessity to compete with states like Louisiana, which aggressively pursue industries with lucrative packages.
"We don’t lead with incentives, but they’re a necessary tool to attract and retain businesses," said Demerson.
The recent passage of House Bill 5, aimed at providing incentives for large-scale projects, was applauded, but panelists urged vigilance to ensure Texas doesn’t fall behind in the incentive game.
Call to Action
The panel concluded with a call for engagement from businesses and communities during the upcoming legislative session.
“Don’t sit this one out,” Perdichizzi urged. “Stay involved and make your voices heard. Texas’s leadership listens, but they need input to craft policies that keep us ahead.”
As Texas continues to grow, its leaders remain focused on ensuring the state remains a global economic powerhouse by addressing challenges head-on and fostering collaboration between government, business, and education sectors.