Memorandum

DATE: December 2, 2016

TO: Honorable Members of the Budget, Finance, & Audit Committee:Jennifer S. Gates (Chair), Philip T. Kingston (Vice Chair), Erik Wilson, Rickey D. Callahan,Scott Griggs, Lee M. Kleinman

SUBJECT: Is the Worst Over? Texas Economy Gaining Speed

On Monday, December 5, 2016, the Federal Reserve Bank of Dallas will brief the Budget, Finance,& Audit Committee on Is the Worst Over? Texas Economy Gaining Speed. We have attached thebriefing for your review.

Please let me know if you need additional information.

abM. Elizabeth.ReichChief Financial Officer

[Attachment]

cc: Honorable Mayor and Members of the City CouncilA.C. Gonzalez, City ManagerLarry Casto, City AttorneyCraig D. Kinton, City AuditorRosa A. Rios, City SecretaryDaniel F. Solis, Administrative JudgeRyan S. Evans, First Assistant City Manager

Ehc D. Campbell. Assistant City ManagerJill A. Jordan, P.E., Assistant City ManagerMark McDaniel. Assistant City ManagerJoey Zapata. Assistant City ManagerSana Syed. Public Information OfficerElsa Cantu. Assistant to the City Manager — Mayor & Council

CITY OF DALLAS

DaiI.as, The City That Works: Diverse, Vibrant and Progressiv&

Pia M. Orrenius

Federal Reserve Bank of Dallas

December 5, 2016

Is the Worst Over?

Texas Economy Gaining Speed

The views expressed herein are those of the presenter and do not reflect those of the Federal Reserve Bank of Dallas or Federal Reserve System.

Budget, Finance and Audit Committee

After Great Recession, 11th District was

first to recover all lost jobs

SOURCES: Bureau of Labor Statistics; FRB Dallas.

90

95

100

105

110

115

Peak=t t+12 t+24 t+36 t+48 t+60 t+72 t+84 t+96 t+108 t+120

Index, each District's peak

employment = 100Dallas

Minneapolis

New York

Kansas CityBoston

Richmond

PhiladelphiaSt. LouisCleveland

Chicago

San Francisco

Atlanta

U.S.

2

What a difference an oil boom makes…

11th District and the Great Recession

– Last in, first out; in expansion since November 2011

2014: blistering Texas job growth at 3.7% (U.S. 2.2%)

– Oil prices drop by 70%

2015: state growth slips under nation

– Texas job growth of 1.3% (U.S. 2.0%)

2016: growth slows further

– Texas job growth of 1.5% YTD (U.S. 1.5%)

3

In 2014, Texas 4th in job growth

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

NV

ND

CO

TX

FL

GA

OR

UT

WA

CA

SC

DE

MA

TN ID NC

U.S

.A

RA

Z RI

LA

OK MI

NY

OH

KY

WY

WI

NM IN IL

MO

MD

AL

PA

MN

SD

KS

CT

NJ

NH IA NE

MS

VA

ME

MT HI

VT

AK

WV

Texas

U.S.

Percent Change, SAAR

SOURCES: Bureau of Labor Statistics; FRB Dallas. 4

Wages: Oil boom helped fuel job and

wage growth in Texas

0

5

10

15

20

25

30

35

Lowest wage quartile Lower-middle wagequartile

Upper-middle wagequartile

Highest wage quartile

Texas U.S. minus Texas

Percent change 2005-2015

NOTES: Calculations include workers over age 15 but exclude the self-employed. Wage quartiles and employment growth based on the Texas and

U.S. wage distributions from the 2005 and 2015 American Community Survey (ACS).

SOURCES: 2005 and 2015 ACS.

5

In 2015, Texas slips to 26th in job growth

SOURCES: Bureau of Labor Statistics; FRB Dallas.

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

ID UT

FL

OR

AZ

CA

TN

CO

GA

SC

WA

VA

DE

NV

AR HI

NJ

NC

U.S

.K

Y MI

INM

DN

HN

EM

NT

XO

HM

SN

YM

T IAM

A RI

SD

WI

AL

VT IL

MO

PA

CT

ME

NM

KS

AK

OK

LA

WV

WY

ND

TexasU.S.

Percent change, SAAR

6

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S.

Texas

Q/Q percent change, SAAR

Texas job growth bounces back after

slowing in the energy bust

NOTES: Quarterly employment is last month of a quarter. Partial Q4 2016 based on October 2016 data.

SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal adjustments by FRB Dallas.

1.3

1.1

7

Dallas Job Growth Above Texas’

3.1

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Dallas Texas

Y/Y percent change, SA

NOTE: Last data points for Texas and Dallas are 2016 YTD annualized employment growth through October.

SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by the Dallas Fed.8

Dallas Fed Business Outlook Surveys

also suggest activity has picked up

SOURCES: Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey (TMOS); Texas Service Sector Outlook Survey (TSSOS).

-40

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Index, 3MMA, SA

12.2

10.7

Revenue (TSSOS)

Production (TMOS) Mean TMOS since 2007 = 4.7

Mean TSSOS since 2007 = 10.7

Nov. '16

9

0

20

40

60

80

100

120

140

0

100

200

300

400

500

600

700

800

900

1000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rig count, weekly Nominal price, $ weekly

Natural Gas Price

WTI Oil Price

Texas Rig Count

Texas’ bust: Falling oil prices brought

down rig count, drilling activity ceased

NOTE: Natural gas price is multiplied by 10.

SOURCES: Baker Hughes; Energy Information Administration; Wall Street Journal.10

NOTES: Line depicts the mean and bars depict the range of responses. 63 E&P firms answered this question from March 16-24, 2016. Other U.S.

includes Bakken, Kansas, Gulf of Mexico and others.

SOURCE: Federal Reserve Bank of Dallas Energy Survey.

Louisiana

Permian Basin

Eagle FordOther U.S. Other Texas

Oklahoma

Onshore Gulf Coast

$50 $51 $53$55 $55 $56

$62

0

10

20

30

40

50

60

70

80

90

100

Dollars per barrel

3 28 8 18 11 8 5

Number of responses

In the top two areas in which your firm is

active: What WTI oil price does your firm

need to profitably drill a new well?

11

Oil production has been slow to fall

because Permian going strong

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2013 2014 2015 2016

Million barrels per day

TX Oil Production

Eagle Ford Oil

Production

Permian Basin Oil

Production

NOTE: Texas oil production data through August, Eagle Ford and Permian Basin oil production data through December.

SOURCES: Oil and Gas Journal; Baker Hughes.12

Energy’s role declining in Texas

Oil and gas industry shrinking

– 6.0 percent of GDP, down from 14 percent at peak in 2014

– 1.7 percent of employment, down from 2.6 percent at peak in 2014

But Texas still home to

– 36 percent of U.S. crude oil production, 25 percent of U.S. natural gas production

– 29 percent U.S. refinery capacity, > 60 percent of U.S. petrochemical production

13

Natural gas exports to Mexico

0

20

40

60

80

100

120

140

90

110

130

150

170

190

2010 2011 2012 2013 2014 2015 2016

Average price (cents per kWh), SA Billions CF

Natural gas exports to

Mexico

Electricity prices

NOTE: Black line indicates date of reform, Aug. 2014.

SOURCES: EIA; Sistema de Información Energética.14

Goods sector job declines severe, and

some weakness spread to services

-30

-25

-20

-15

-10

-5

0

5

10

15

Trade,Transp. &

Util. (20%)

Gov. (16%)

Educ. &HealthServ. (14%)

Prof. &Bus.

Serv. (14%)

Leisure& Hosp.(11%)

Mfg. (7%)

Fin. Act.(6%)

Constr.(6%)

Oil & GasExtract.,Mining

Supp. (2%)

Info. (2%)

2014

2015

2016 YTD

Percent change in employment, SAAR

NOTES: 2016 YTD is the annualized percent change through October; each sector’s share of employment in October is in parentheses.

SOURCES: Bureau of Labor Statistics; TWC; seasonal and other adjustments by FRB Dallas.15

SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal adjustments by FRB Dallas.

Oil & gas cities lose jobs, other major

metros slow in first half of 2016…

98

100

102

104

106

108

110

112

114

116

118

2013 2014 2015 2016

Index, Jan. ‘13=100, SA

Dallas

Austin

San

Antonio

Ft. Worth

Houston

Corpus

Christi

Midland &

Odessa

16

End of the petrochemical construction

boom weighs on state construction

spending

0

1

2

3

4

5

6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Billions real $, 5MMA, SA

Residential

Nonresidential

Nonbuilding

NOTE: Last data point is October.

SOURCE: Federal Reserve Bank of Dallas 17

Texas exports off oil boom highs due to

slowing demand, dollar, lower oil prices

SOURCES: U.S. Census Bureau; WISERTrade.

80

100

120

140

160

180

200

220

240

260

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Index, real $, Jan. '00=100, SA

U.S. minus Texas

Texas

41%

9%11%

17%

14%

4%4%Mexico

Canada

EuropeanUnion

Asia, excl.China

Latin America,excl. Mexico

China

Other

Q3 2016

18

Signs of trouble in banks…commercial

& industrial loan quality worsens in

Texas

0

10

20

30

40

50

60

70

80

0

200

400

600

800

1,000

1,200

1,400

1,600

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Loans past due 90+ days

Nonaccrual loans

Total C&I loans

C&I loans

(billions of dollars)

Nonperforming C&I loans

(millions of dollars)

NOTE: Data through 9/30/16.

SOURCES: Quarterly Reports of Condition and Income; Federal Financial Institutions Examination Council.19

...while U.S. C&I loan quality remains

relatively stable

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0

5

10

15

20

25

30

35

40

45

50

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Loans past due 90+ days

Nonaccrual loans

Total C&I loans

Nonperforming C&I loans

(billions of dollars)

C&I loans

(billions of dollars)

NOTE: Data through 9/30/16.

SOURCES: Quarterly Reports of Condition and Income; Federal Financial Institutions Examination Council.20

U.S.6.9

11th District7.3

-10

-5

0

5

10

15

20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

District loan growth slowed, moved

down to national level

Y/Y percent growth

NOTE: Data through 9/30/16.

SOURCES: Quarterly Reports of Condition and Income; Federal Financial Institutions Examination Council.21

What are the bright spots?

Conditions are improving in the most recent data

– Employment, activity, rig count, loan growth

State’s diverse economy benefits from U.S. growth, has own advantages

– Business climate, low cost of living attract firms, people

Some slowing was welcome

– Labor markets still tight

– Single-family housing markets tight

22

Unemployment rate still lower in Texas,

although gap with U.S. has narrowed

SOURCE: Bureau of Labor Statistics.

4.94.7

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Texas

U.S.

Percent, SA

23

House prices still rising…

SOURCE: Multiple Listing Service.

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S.

Thousands of real $, 4MMA, SA

Texas

$212,610

$236,083

24

Texas home inventories at historic lows

but Houston trending up

SOURCE: Multiple Listing Service.

0

1

2

3

4

5

6

7

8

9

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Months in Inventory, SA

Texas

San Antonio

Ft. Worth

Houston

Dallas

Austin

25

Apartment construction robust but off

its highs; single-family still relatively flat

0

25

50

75

100

125

150

175

200

225

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Single Family Permits

Multifamily Permits

Residential Housing Starts

Index, 5MMA, Jan. ‘05=100, SA

SOURCE: U.S. Census Bureau. 26

State in-migration has yet to turn

down…

SOURCE: U.S. Census Bureau.

0

50

100

150

200

250

300

350

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

Domestic migration

International

Net Migration (Thousands)

27

Domestic Migration to Dallas

Accelerates After 2005

0

20

40

60

80

100

120

140

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Domestic International Natural Increase

Thousands

NOTE: Estimates not available for Census years.

SOURCE: U.S. Census Bureau. 28

Dallas More Diverse Than

its Sister City

42.9 44.753.7

11.716.1

13.34.5

7.34.4

3.6

4.24.4

38.929.6 26.2

0

10

20

30

40

50

60

70

80

90

100

Texas Dallas Fort Worth

Hispanic

Other,nonhispanic

Asian,nonhispanic

Black,nonhispanic

White,nonhispanic

Percent

SOURCE: U.S. Census Bureau, 2015 American Community Survey 1-year estimates. 29

Texas economic outlook

2016 growth forecast is for 1.5 percent job growth

– 2nd half likely to grow 2.2 percent

– Houston, other energy metros will lag the rest of state

Unemployment rate should peak soon, then improve

2017 better; forecast for 1.5 to 2.0 percent growth

– Stronger U.S. and global economy; weaker/stable dollar

– Oil markets closer to balance?

– But some fiscal tightening relative to current cycle

30

Thank you!

For more information, visit

www.dallasfed.org

31

32

Despite robust job growth, high-wage

jobs in Texas are not growing as a share

of total jobs

-10.000

-5.000

0.000

5.000

10.000

15.000

Lowest wage quartile Lower-middle wagequartile

Upper-middle wagequartile

Highest wage quartile

Texas U.S. minus Texas

Percent change in the quartile, 2005-2015

NOTES: Calculations include workers over age 15 but exclude the self-employed. Wage quartiles and employment growth based on the Texas and

U.S. wage distributions from the 2005 and 2015 American Community Survey (ACS).

SOURCES: 2005 and 2015 ACS.

33

Dallas Stronger than Major Texas Metros

in 2016

4.5 4.4

3.1

3.9

2.8

1.5

4.44.6

1.3

3.1

1.31.2

4.1

0.20.1

0

1

2

3

4

5

2014 2015 2016 YTD

Dallas

San Antonio

Austin

Fort Worth

Houston

Percent change, YTD SAAR

NOTES: Data show seasonally adjusted annualized percentage employment growth December 2014–October 2016.

SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by the Dallas Fed.34

Fort Worth’s Median Age Slightly Higher

than Dallas and Texas

34.5

35.1

34.4

33

34

35

36

0

10

20

30

40

50

60

70

80

90

100

Dallas Fort Worth Texas

Under 15 years 15-24 years 25-54 years 55-64 years Over 64 years Median Age

Percent Age, years

SOURCE: U.S. Census Bureau, 2015 American Community Survey 1-year estimates. 35

Share of College Graduates Higher in

Dallas Relative to Fort Worth and Texas

16.0

21.2

27.2

23.2

12.3

17.6

25.3

28.7

18.7

9.7

14.7

25.2

30.9

20.0

9.3

0

5

10

15

20

25

30

35

Less than HighSchool

High School Some College Bachelor's Degree Graduate orProfessional

Degree

Dallas Texas Fort WorthPercent

SOURCE: U.S. Census Bureau, 2015 American Community Survey 1-year estimates. 36

Share of College Graduates Higher in

Dallas Relative to Fort Worth and Texas

17.6

28.4

16.0

35.5

14.7

29.3

0

5

10

15

20

25

30

35

40

No High School Diploma Bachelor's Degree or Higher

Texas Dallas Fort WorthPercent

SOURCE: U.S. Census Bureau, 2015 American Community Survey 1-year estimates. 37

Dallas Median Household Income Growth Slower, but Higher 2015 Income than Texas

0

5

10

15

20

25

30

Dallas Fort Worth Texas

Percent

$61,142

$60,756

$55,653

NOTE: Bars represent nominal median household income growth from 2006 to 2015. Values above bars represent nominal median

household income in 2015.

SOURCE: U.S. Census Bureau, 2006 and 2015 American Community Surveys.

38

Dallas Unemployment Dips in October

3

4

5

6

7

8

9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percent

Fort Worth

Texas

Dallas

SOURCE: Census Bureau; seasonal and other adjustments by Federal Reserve Bank of Dallas. 39

Business and Finance, and IT and

Telecom Big in Dallas

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5

Loca

tio

n q

uo

tien

t in

20

14

Percentage-point change in employment share, 2006-14

Defense & security

Information technology & telecommunications

Computer manufacturing Business & financial services

Transportation & logistics

Advanced materials

Energy & mining

Health

Education

Construction

Mature Star

Transitioning Emerging

NOTE: Bubble size represents industry share of metropolitan statistical area employment.SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations.

Recreation & food services

Government

8%

14%

5%

40