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For immediate release: December 28, 2007

Texas Job Growth, Foreign Investment in Texas and Airline Industry Focus of Dallas Fed Report

DALLAS—The latest issue of the Federal Reserve Bank of Dallas' Southwest Economy features articles on the Dallas Fed’s job growth forecast, foreign direct investment in Texas and airline bookings as an economic indicator.

In “Revising the Texas Index of Leading Indicators,” senior economist and policy advisor Keith R. Phillips and economic analyst José Joaquin Lopez state that job growth in Texas will probably slow, but a recession over the next three to nine months is unlikely.

The findings are based on movements of a new, experimental version of the Texas Leading Index (TLI). The TLI, produced monthly by the Dallas Fed, combines eight measures that tend to lead changes in the Texas business cycle by about three to nine months. The TLI is a major component of the Dallas Fed’s job growth forecast, which provides a timely, broad reading of the Texas economy.

The experimental TLI may better reflect the growing importance of services and globalization to the Texas economy, according to the authors. The Texas forecasting model based on changes in the TLI predicts job growth will be 2.1 percent in 2008, down from 3.3 percent in 2007.

Southwest Airlines executive chairman Herb Kelleher, a member of the Dallas Fed board, gives his assessment of the economy in this month’s “On the Record” conversation. Based on a weakening demand for airline travel, Kelleher sees a gradual softening of the economy that started in early 2007.

“Some analysts regard airline bookings as a lagging indicator, but I have always seen them as somewhat of a leading indicator,” Kelleher asserts.

Despite the decline in airline bookings and discretionary travel, Kelleher does not believe a recession is under way.

“In the absence of globalization and diversification, I suspect we would be in a recession right now,” Kelleher said.

In “Globalizing Texas: Direct Investment and Business Cycles,” senior economist Anil Kumar finds that Texas has seen a faster trend toward foreign direct investment (FDI) in the service sector than the rest of the nation, despite an overall downturn in incoming foreign fixed assets.  

“The sheer size of FDI fixed assets and FDI-related employment reflects the state’s success in attracting overseas investors,” Kumar writes. “Recent declines in FDI intensity, however, suggest that the state has lost some of its appeal—particularly for manufacturers.”

He notes that the availability of better data on a state level would improve understanding of how globalization affects the Texas economy.

An increase in hiring of temporary employees in Texas could portend growth in the state’s labor market, writes economic analyst Raghav Virmani in “Short-Timers Hint at Trends in Permanent Jobs.”

“Econometric analysis confirms that the temporary workforce has been a reliable predictor of total employment, with each 10 percent change implying a 0.7 percent change in the overall number of jobs,” he writes.

In October 2007, Texas temporary employment growth stood at 4.5 percent, Virmani writes, noting that it takes about five months for total private employment to reach the level predicted by changes in temporary employment.


Media contact:
James Hoard
Phone: (214) 922-5307