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Dallas Fed Economists Predict Uneven Texas Recovery Amid COVID-19 Resurgence

The state’s economy is experiencing an uneven recovery as COVID-19 infections surge, but businesses remain optimistic, according to two economists with the Federal Reserve Bank of Dallas (Dallas Fed).

Emily Kerr, a senior business economist in the Research department at the Federal Reserve Bank of Dallas, and Christopher Slijk, an associate economist in the same department, said the Dallas Fed’s Texas Business Outlook Surveys (TBOs) show the recovery continued in some sectors in July but faltered in others.

The two economists said the Dallas Fed’s Business Outlook surveys, which have a track record of reliably reporting on Texas economic conditions, achieved a record 400-plus responses amid the coronavirus pandemic. The surveys have provided a window into the state’s economy during a time when traditional economic measures have failed to keep up with the rapidly changing COVID-19 environment.

Like other states, Texas has witnessed devastating economic fallout from COVID-19. The state’s economy shed 10 percent of its jobs from February to April. While employment has recovered some since June, it remained 6 percent below February’s pre-COVID-19 levels, the two authors said in insights they published on August 11.

The good news is the state enjoyed a sound pre-pandemic economy and, although Texas’ gross domestic product is expected to decline by more than 5 percent this year, it should expand by more than 6 percent next year, according to The Perryman Group, an economic research firm based in Waco, Texas.

The finance/insurance sector is one of the least impacted sectors, according to The Perryman Group, with a projected statewide employment decline of less than 1 percent by year-end. The sector is actually expected to finish the year with modest job growth in Austin, Dallas and Fort Worth, the firm said.

Other sectors, such as energy production, food service and the arts/entertainment sectors will continue to be challenged through the end of 2020.,

The two Fed economists said the seven-day average of new daily COVID-19 cases in the state rose to more than 10,000 in mid-July, prompting economic pullback and heightened uncertainty. By the first week of August, the state was recording an average of 7,562 cases per day, a decrease of 7 percent from the average two weeks earlier, according to The New York Times. Complicating matters, the state was dealing with a backlog of reported cases in mid-August due to a reporting error.

Concern over COVID-19’s summer resurgence was evident in some of the comments from recent Dallas Fed surveys:

“The resurgence of COVID around the globe has extended our view of how long it will take to recover from the economic shock.” (Chemical manufacturer)

“The uncertainty over the reopening of the economy is greater today than a month ago.” (Pipeline services firm)

“Restaurants are dying a slow, painful death.” (Restaurant owner)

Texas Businesses Still Optimistic

Despite the sober commentary, there is some good news on the horizon. Fewer than 10 percent of businesses report that it is likely they will fail over the next 12 months, according to Ms. Kerr and Mr. Slijk. This varies by sector, however, with the leisure and hospitality respondents among the most pessimistic, while less than 6 percent of manufacturers say they are at meaningful risk of failure.

“Nevertheless, when asked about more-tangible measures of future activity — how production and/or revenue six months ahead will compare to now — the most popular response among all businesses surveyed was that output will be stronger,” the authors wrote in their insights into the Texas economy. “This optimism, coupled with a downward trend in new COVID-19 infections in Texas in recent weeks gives hope that a more sure-footed rebound may be on the horizon.”

Bud Gill is vice president and assistant treasurer for FHLB Dallas.