Comerica Bank's Texas Index Rose in October

Rhea-AI Summary

The Comerica Texas Economic Activity Index increased by 5.3% annualized in the three months through October and was up 2.2% from a year earlier. The Texas labor market is cooling, with slower job growth and rising unemployment claims. Housing starts slumped by 4.7% in October, but house prices rose for the seventh consecutive month. Industrial electricity sales surged, while active oil drilling rigs fell sharply. Real GDP in Texas was up 5.7% in the first three quarters of last year, but high inflation and interest rates are likely to weigh on economic activity in 2024.

Positive

• None.

Negative

• Slower job growth and rising unemployment claims
• Housing starts slumped by 4.7% in October
• High inflation and interest rates are likely to weigh on economic activity in 2024

Insights

Economist

The Comerica Texas Economic Activity Index is a critical measure for understanding regional economic performance, particularly for a state with the size and economic significance of Texas. The reported 5.3% annualized growth over the recent three-month period suggests robust economic activity, which can be a positive signal for businesses operating within the state and may influence investor sentiment positively. However, the cooling labor market, as indicated by slower job growth and higher jobless claims, could signal potential challenges in the workforce that may lead to decreased consumer spending and impact businesses reliant on domestic consumption.

Furthermore, the slump in housing starts and residential construction indicates a cooling housing market, which can be a leading indicator of broader economic slowdown due to its ripple effects on related industries. The rise in house prices despite reduced housing starts reflects a complex dynamic of supply constraints and population growth, which could lead to affordability issues and impact consumer spending power.

The surge in industrial electricity sales may indicate robust industrial activity, which can be beneficial for businesses in the energy sector. However, the sharp fall in active oil drilling rigs could have implications for the energy industry's long-term output and employment levels, warranting close monitoring by stakeholders in the energy sector.

The strong GDP growth reported for Texas is a positive indicator, but the cautionary note regarding persistent headwinds such as inflation and interest rates suggests that businesses and investors should prepare for potential challenges in the year ahead. The mixed signals presented by the various components of the index underscore the complexity of economic forecasting and the importance of monitoring a range of indicators to form a comprehensive view of the economic landscape.

Market Research Analyst

The divergence between employment growth and jobless claims in Texas presents an interesting case for businesses looking to understand consumer behavior. Slower job growth combined with increased jobless claims could lead to changes in consumer confidence and discretionary spending, which are critical factors for companies in the retail and service sectors. The data on real consumer spending, which fell by 3.3% in October, already hints at a more cautious approach by consumers, potentially impacting sales and profitability for consumer-facing businesses.

For the real estate and construction sectors, the current data suggests a market that is becoming increasingly complex. The decrease in housing starts and construction activity could lead to a reduction in demand for building materials and services, while the continued rise in house prices despite these trends suggests a market that remains tight. Companies in these sectors will need to navigate carefully, balancing the potential for reduced volumes with the opportunities presented by high prices.

The strong dollar's impact on hotel occupancy rates is another key insight for the hospitality and tourism sectors. With American tourists increasingly traveling internationally, local businesses in these industries might need to adjust their strategies to attract domestic travelers or pivot towards international visitors to maintain occupancy rates and revenues.

Overall, the mixed economic signals highlighted by the index underscore the need for businesses to remain agile and responsive to changing economic conditions. Companies that can adapt to these trends, whether by adjusting their workforce strategies, pricing models, or marketing efforts, will be better positioned to navigate the uncertainties of the Texas economy in 2024.

Financial Analyst

The Comerica Texas Economic Activity Index provides valuable insights for financial analysts and investors looking to gauge the economic health of the region. The index's components reflect a diverse range of economic activities and its movements can influence investment decisions in sectors such as energy, construction and consumer goods. The upward trend in industrial electricity sales suggests that certain sectors of the Texas economy are experiencing increased production, which could translate into higher corporate earnings for companies in those industries.

The decline in active oil drilling rigs, despite higher oil production and employment compared to the previous year, may indicate efficiency improvements or technological advancements within the energy sector. This could have implications for the valuation of energy companies, particularly if they are able to maintain or increase production with fewer rigs. Investors would do well to analyze company-specific data to understand how these broader trends are impacting individual firms within the sector.

For the housing market, the complex interplay of rising house prices and declining starts and construction activity could suggest a shift in the investment landscape. Real estate investment trusts (REITs) and construction companies might face a challenging environment and their financial performance will likely reflect the ability to adapt to these market conditions.

Given the strong GDP growth yet persistent economic headwinds, financial analysts should consider both the macroeconomic indicators and sector-specific data when evaluating investment opportunities in Texas. The potential for continued economic growth amidst inflationary pressures and high interest rates requires a nuanced approach to risk assessment and portfolio management.

DALLAS, Jan. 22, 2024 /PRNewswire/ -- The Comerica Texas Economic Activity Index increased by 5.3% annualized in the three months through October and was up 2.2% from a year earlier.  Five of the Index's nine components rose in the month, while four fell. The Texas labor market is cooling: Employment rose by a modest 18,600 in October and growth was notably slower compared to 2022 when 52,500 jobs, on average, were added per month. Also indicating a softer job market, continuing jobless claims rose again and were above 100,000 for the fourteenth consecutive month. And the unemployment rate held at 4.1% for the sixth consecutive month, three tenths of a percentage point above the national rate.

Housing starts slumped by 4.7% in October and were down 11.7% from a year earlier. Residential construction, down 12.6% through October versus the same period in 2022, is a drag on Texas' economy as soaring mortgage rates and high prices sideline many would-be homebuyers. Despite this, house prices rose in October for the seventh consecutive month. Strong growth of population and employment, and limited housing supply are supports for Texan house prices. Seasonally-adjusted industrial electricity sales surged by 3.8% and were up 7.9% from a year earlier. Seasonally-adjusted active oil drilling rigs fell sharply by 3.2% and were down by nearly 17% from a year earlier. Despite the reduction in active drilling rigs, oil production and employment are notably higher than in 2022. Hotel occupancy fell again and has been down in seven of the ten months through October.  The strong dollar and the end of years of pandemic-related travel restrictions have American tourists traveling more internationally, diverting demand from in-state destinations. Tax receipts show real consumer spending fell by 3.3% in October and come on the heels of a slight contraction in the third quarter. Nonetheless, consumer spending was up by 1.4% through October compared to the same period last year.

Real GDP in the Texan economy was up a solid 5.7% in the first three quarters of last year from the same period in 2022, indicating strong momentum heading into the final quarter. While Texas likely outpaced the national economy again last year, high inflation, high interest rates, and a cooler housing market will be persistent headwinds to Texas and are likely to weigh on economic activity in 2024.

The Comerica Texas Economic Activity Index is a monthly composite indicator of state economic activity. The Index provides a wholistic advance view of the state of Texas's economy, using economic data that are available about one quarter earlier than real GDP is released. The index is comprised of nine components: Nonfarm payroll employment, continuing claims for unemployment insurance, housing starts, house prices, industrial electricity sales, the Texas rotary rig count, foreign trade, hotel occupancy, and sales tax revenue. All data are seasonally adjusted with nominal values converted to constant dollar values as appropriate. To filter out month-to-month volatility in the index components, the index is calculated from the three-month moving averages of its components. Values for a minority of components are projected from the prior months' release due to the timing of data releases.

Comerica Bank, a subsidiary of Comerica Incorporated (NYSE: CMA), is a financial services company headquartered in Dallas, Texas, and strategically aligned by three business segments:  The Commercial Bank, The Retail Bank, and Wealth Management. Comerica focuses on building relationships and helping people and businesses be successful, providing more than 400 banking centers across the country with locations in Arizona, California, Florida, Michigan and Texas. Founded 175 years ago in Detroit, Michigan, Comerica continues to expand into new regions, including its Southeast Market, based in North Carolina, and Mountain West Market in Colorado. Comerica has offices in 17 states and services 14 of the 15 largest U.S. metropolitan areas, as well as Canada and Mexico. Comerica reported total assets of $85.8 billion at Dec. 31, 2023. Learn more about how Comerica is raising expectations of what a bank can be by visiting www.comerica.com, and follow us on Facebook, X (formerly known as Twitter), Instagram and LinkedIn.  

To subscribe to our publications or for questions, contact us at ComericaEcon@comerica.com. Archives are available at http://www.comerica.com/insights.

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SOURCE Comerica Bank

FAQ

What was the percentage increase in the Comerica Texas Economic Activity Index for the three months through October?

The Comerica Texas Economic Activity Index increased by 5.3% annualized in the three months through October.

How much did the Texas labor market grow in October?

Employment rose by a modest 18,600 in October, notably slower compared to 2022 when 52,500 jobs, on average, were added per month.

What happened to housing starts in Texas in October?

Housing starts slumped by 4.7% in October and were down 11.7% from a year earlier.

What was the change in industrial electricity sales in Texas?

Seasonally-adjusted industrial electricity sales surged by 3.8% and were up 7.9% from a year earlier.

How did the real GDP in Texas perform in the first three quarters of last year?

Real GDP in the Texan economy was up a solid 5.7% in the first three quarters of last year from the same period in 2022.

What are the potential headwinds to Texas's economic activity in 2024?

High inflation, high interest rates, and a cooler housing market are likely to weigh on economic activity in 2024.