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For nearly two years, Texas has led the country in job growth, most recently adding more than 400,000 new jobs between August 2022 and 2023, according to a Department of Labor Statistics report released Sept. 19.
So why is the state’s unemployment rate tied for fifth-worst in the country? Texas unemployment has stagnated at 4.1% for four consecutive months, falling below the August national average of 3.8%. It hit 4% in February, and still has not returned to pre-pandemic levels, according to data from the Federal Reserve Bank of Dallas.
Far from a sign of trouble, however, economic experts say the state’s unemployment rate is actually a promising measure of the economy’s growth. The higher unemployment rate is a reflection of an expanding labor force, which has been bolstered by rising domestic migration into the state and more native residents opting to remain in Texas than any other state in the country, experts said.
“The irony lies in the fact that it can work in the opposite direction as well,” stated Peter Rodriguez, the dean of Rice University’s Jones Graduate School of Business. “Although the unemployment rate may decrease, this decline can be attributed to disillusioned workers leaving both the workforce and the state.”
The Texas labor force — which describes the number of people employed or looking for a job — topped 15.1 million in August, setting a new state record. And while both Texas and the U.S. saw around 63.4% of people participating in the labor force before the pandemic, Texas’s labor force participation rate has recovered to 64.2% as of last month. The national rate has yet to bounce back to pre-pandemic levels, hitting 62.8% in August.
Pia Orrenius, Vice President and Senior Economist at the Dallas Fed, suggests that low unemployment rates can occasionally cause the economy to stagnate. She explains that companies, particularly smaller ones that typically experience rapid growth, benefit from having a broader pool of potential hires.
According to Orrenius, when labor markets are extremely tight, as has been observed nationally, it hampers the process of connecting workers with suitable jobs. Employers face significant challenges in hiring due to the scarcity of available candidates. Consequently, it turns into a competition where companies resort to poaching employees from other organizations, resulting in considerable disruption.
As Texas has added more jobs month after month, the state’s growing population — and therefore growing labor force — has been able to accommodate the rising demand for labor, Orrenius added.
However, signs of change may be on the horizon: Texas added 12,400 jobs in August, down from 28,200 jobs added in July, according to a Dallas Fed report. Orrenius said the fluctuation indicated a “very sharp slowdown,” particularly with almost zero jobs added in the private sector.
Though seasonal fluctuations are not uncommon, especially with August as back-to-school month, Orrenius said post-pandemic job growth has been gradually slowing down in the state. The Dallas Fed expects job growth statewide to dip to about 2% in the last few months of the year, close to Texas’s trend-level growth of 2.1%, said Roberto Coronado, Dallas Fed senior vice president and senior economist, at a Texas Tribune event last week.
Private sector job growth has also dipped nationwide, with private employers adding 177,000 jobs in August, a decline from 324,000 jobs added in July, according to a report from payroll processing firm ADP.
According to Orrenius, the sectors that are most affected by changes in the interest rate, such as manufacturing, construction, technology, and real estate, have experienced lesser job growth this year compared to the previous year. The Federal Reserve, which has increased interest rates 11 times since March 2022, decided against maintaining steady rates in its recent meeting.
According to Rodriguez, the current decrease in technology hiring across the state aligns with the overall national trend in the industry, particularly when compared to the rapid increase immediately after the economy was hit hard by the pandemic.
He stated that while there have been traditional markets in Texas that appear to follow a cyclical pattern, such as the energy sector which has been relatively stable, possibly experiencing slight growth recently, overall they are witnessing similar trends as the rest of the nation.
During a statement on Tuesday, Coronado addressed the potential impact of remote work’s sustained popularity on the commercial real estate market in the state. Particularly in cities like Austin, where nearly half of the workforce successfully operated remotely during the pandemic, businesses are facing difficulties in persuading employees to return to the office, he remarked.
“From a commercial real estate standpoint, this creates intriguing dynamics,” stated Coronado. “With infrastructure in place and underutilized office spaces, there are associated costs that the economy must navigate through.”
Disclosure: Rice University and Rice University – Jones Graduate School of Business have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.
