Dallas Federal Reserve forecasts a soft landing for Texas economy in 2023

(AP Photo/David J. Phillip, File)
FILE – Traffic moves along Interstate 10 near downtown Houston, April 30, 2020.

The Federal Reserve Bank of Dallas predicts in an economic forecast that job growth will slow significantly in Texas in 2023.

Pia Orrenius is the Vice President and Senior Economist at the Federal Reserve Bank of Dallas. She said the slow is not necessarily negative for the Texas economy.

“We grew 3.5% last year, we expect to grow 1.4% this year. That is consistent with a soft landing for Texas. We’re not forecasting recession,” Orrenius said.

Orrenius said a potential recession is still the primary concern for businesses this year, followed by higher labor costs. From the reserve’s data, they concluded nearly 200,000 jobs will be added in Texas this year.

Orrenius also noted offices are still emptier than usual in Houston and across Texas. As work-from-home environments have increased, office vacancies have become more common.

Orrenius said employees may be avoiding returning to the office after working home during the pandemic.

“Probably, employers are trying to bring people back and people are resisting. That’s gonna take a while to resolve itself, but my guess is employers are gonna win out at the end of the day and we’re all gonna have to go back go the office.”

Office vacancies have been steadily increasing in Houston since even before the pandemic. The Federal Reserve’s data shows Houston had the highest percentage of vacancies in Texas since the mid 2010s. In 2022, Houston had an office vacancy rate of about 25%.

Still, overall, various cities in Texas have seen a slight decline in office vacancies over the past year.

Orrenius also concluded from federal reserve data overall that while signs of slowing are spreading, energy and labor markets are robust and healthy.

“If the U.S. has a very mild recession, then we may not follow,” Orrenius said. “If the U.S. were to go into a deep recession, then the story would be different. We would surely follow.”