Business Cycle Indexes & Texas Leading Index

Source: Beverly Kerr with the Greaer Austin Chamber of Commerce

  • Following a steep contraction in March and April, Austin’s overall economic activity, as represented by the Metro Business Cycle Index, expanded in June (5.3%) and July (1.2%).
  • Austin’s Business Cycle Index in July is 9.5% below what it was in February, before the impact of COVID-19, while the state index is 10.0% below.
  • The Texas Leading Index increased for the third consecutive month in July.

The latest update to the Federal Reserve Bank of Dallas’ Business Cycle Indexes reveals Austin’s overall economic activity expanded in June and July following three months of unprecedented decline. The metro’s index reached a peak of 1,000.4 (Oct. 1980=100) in February and was 15.0% below that by May. June and July’s gains have raised the index to 905.9 or 9.5% below Austin’s pre-pandemic peak.

The Metro Business Cycle Index is a broad measure of economic activity. It summarizes movements in locally measured payroll employment, the unemployment rate, inflation-adjusted wages, and inflation-adjusted retail sales. The indexes are weighted so that movements in the index represent underlying co-movements in the indicators and thus the underlying state of the economy and illustrate each metro’s patterns of recessions and expansions. The Texas Business Cycle Index is constructed using payroll employment, gross state product, and the unemployment rate.

Austin’s index rose every month from July of 2009 through December 2019 and the average annual rate of growth since 2010 has been over 7%.

The two graphs below show views of the indexes for Texas’ largest metros over longer and shorter range spans. The first indicates the path over the last four decades and the second shows the indexes rebased from 1980 to 2007 to isolate the relative growth paths of the metros since just before the last recession.

Following the Great Recession, the five major metros began expanding again in the second half of 2009. Between the end of 2009 and the end of 2019, Austin’s index grew by 102%, while Dallas, Fort Worth, San Antonio, and Houston’s grew by 79%, 62%, 60% and 38%, respectively.

Dallas and Houston’s pandemic-related contractions were more moderate (11.9% and 11.0%, respectively) than Austin’s 15.0% decline. While Austin’s index in July sits at 9.5% below February, Dallas’ and Houston’s indexes are 8.4% and 7.4% below February. Fort Worth and San Antonio had sharper declines in March and April (over 20%), but expansion over the last three months now puts Fort Worth’s index at 11.6% below February and San Antonio’s stands at 12.3% below.

Based on the Business Cycle Index, the current level of economic activity in Austin is comparable to where Austin was in September 2018 and Dallas’s level is comparable to August 2018. Fort Worth’s and Houston’s indexes in July are comparable to where they were in September 2017, and San Antonio’s is comparable to October 2016.

In addition to the Business Cycle Index, which is a coincident index, the Dallas Fed also produces a Texas Leading Index to forecast future economic activity for the state. The Texas Leading Index increased for the third consecutive month in July.

The following graph shows the three-month and one-month percent change through July in the eight different components of the Leading Index.

Seven of the eight indicators gave positive contributions to the leading index in July. The Dallas Fed summarized in their release: “A sharp increase in help-wanted advertising provided the strongest positive signal, followed by a gain in the U.S. leading index. Moderately positive contributions also came from gains in average weekly hours worked in manufacturing, the stock prices of Texas-based companies, permits to drill oil and gas wells, and the price of oil, along with a decline in the Texas trade-weighted value of the dollar. A rise in initial claims for unemployment insurance gave a slightly negative contribution.”

The Dallas Fed’s Texas Employment Forecasting Model utilizes past changes in state employment and the Texas Leading Index to project job growth. Changes in the Leading Index have an impact on employment with a lead time of three months. However, due to the rapid onset of the COVID-19 pandemic, current job growth projections are being produced by a model based on expectations for U.S. GDP, estimates of direct COVID-19 impacts, and expected prices of West Texas Intermediate crude oil. Based on this top-down model they estimate that Texas jobs will continue to recover in the second half of the year but not enough to fully offset the losses in March and April. The Texas Employment Forecast currently projects jobs in December 2020 will be 12.2 million. In the January 2020 forecast, December 2020 jobs were expected to total nearly 13.2 million.

All data displayed and discussed above is seasonally adjusted.

The Metro Business Cycle Index, as well as the Texas Business Cycle and Leading Indexes are included in the Chamber’s monthly Economic Indicators report and associated Excel files. The Metro Business Cycle Index is also featured on the Chamber’s Economic Recovery Dashboard.

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