There’s a saying: Don’t mess with Texas. But that’s not stopping J.P. Morgan Chase’s Michael Feroli.
The economist first poked the bear at the end of 2014 in a report that argued Texas’ economy was in for serious trouble owing to the sharp collapse in oil prices. The bear poked back, in the form of a tough rejoinder from the Dallas Fed’s then-President Richard Fisher, who likened the report to “bull droppings.”
In fact, in a March speech, he said The Wall Street Journal account cleaned up “my two-word response to this assertion,” which in its original utterance was much earthier.
Mr. Fisher, who has since retired as Dallas Fed president, argued Texas was no longer tied to the fate of the oil industry. He said the Lone Star State had diversified itself considerably and could withstand the big drop in oil prices and continue to be an engine of growth for the nation.
In a new report, Mr. Feroli was back to say he was right, and Mr. Fisher was wrong. “The only thing dropping in the Texas economy lately is the number of jobs,” he said in a report. The economist said Texas is now seeing the sort of job losses that would normally occur only in a recession.
Mr. Feroli pointed to a report from the Texas Workforce Commission showing the state lost 25,400 jobs in March. He said a proportional loss on the national scale would be if the U.S. lost 304,000 jobs – a recession-like outcome not seen in some time.
The downturn in Texas jobs last month was the first negative reading in 53 straight months.
While Texas has diversified, many of its jobs are still tied indirectly to the energy business, Mr. Feroli said. He added that investment declines tied to the oil sector appear to be hitting Texas particularly hard. He explained cuts in energy related capital expenditures alone could cut about 2.7 percentage points off the pace of economic growth in Texas in the first quarter, “a big hole to get out of to achieve positive growth.”
Mr. Feroli thinks Texas’ pain won’t last long term. A more nationally oriented financial system will help diffuse any negative impact on the credit sector, he noted. “Texas probably still faces some challenging months ahead, but for the medium and longer term we remain bullish,” Mr. Feroli said.
Mr. Fisher acknowledged Texas is facing what looks to be a “rough year,” although he added the downturn hitting his state to some degree tracks the slowing seen in the national economy.
“Energy prices have hurt,” Mr. Fisher said, but so too has the strong dollar, which weighs heavily on a strong exporting state like Texas. “We might expect a few more disappointing months in the Lone Star state, but if oil prices hold near current levels and the U.S. economy is able to regain its footing, Texas should eek out modestly positive job growth for the year,” he said.
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