Biden announces sweeping new vaccine rules
In his most forceful pandemic actions and words, President Joe Biden announces sweeping new federal vaccine requirements in an all-out effort to increase COVID-19 vaccinations and curb the surging delta variant. (Sept. 9)
Considering there are labor shortages, supply chain problems and an ongoing pandemic, it’s perhaps not surprising that the pace of economic activity in Texas might be slowing.
But the good news is the economy is expected to continue to grow anyway.
Robert Kaplan, president of the Federal Reserve Bank of Dallas, said this week that the state’s economy has likely mirrored the trend of its national counterpart in the third quarter, which ends this month. His forecast signals some recent softening, because business activity across the country “downshifted slightly to a moderate pace” in July and August, according to a new report from the U.S. Federal Reserve.
But even amid a slowdown, Kaplan said Texas should continue to outpace the overall national rate of economic growth, primarily because of what he said has been an influx of new businesses and residents that — so far at least — has persisted throughout the coronavirus pandemic.
“We have got a big tailwind in terms of migration of people and firms to this state,” Kaplan said, speaking during a virtual town hall event held by the Dallas Fed.
The Dallas Fed’s own official snapshot of business activity in the region — contained in its chapter of the Federal Reserve’s national report, which is published about every six weeks and is called the Beige Book — had yet to document a significant slowdown. It said a “solid expansion continued” through August, even though “surging COVID-19 cases has added uncertainty to (business) outlooks.”
Other economists said economic activity in Texas still appears to be brisk, particularly given an extremely tight labor market and the ongoing difficulty obtaining goods and materials that many companies have been experiencing because of high demand and supply chain disruptions caused by the pandemic.
“What we are hearing from our clients is that business activity, especially in manufacturing, is still very strong,” said Jason Schenker, president of Prestige Economics in Austin.
“The biggest concern is getting materials and how much they cost,” Schenker said. “And it’s the same thing with people — getting people and how much does it cost to hire them.”
He said the resurgence of the coronavirus, fueled by the delta variant, could put a damper on the recovery of certain sectors, such as the travel industry and some hospitality-related businesses. However, because of the availability of vaccines, “I don’t see it as a threat to the economy overall,” he said.
Concerns that Texas abortion law might negatively impact economy
Still, plenty of uncertainties remain for the Texas economy. One is the state’s restrictive abortion law that took effect Sept. 1 and has triggered anger nationally among abortion rights supporters.
Gov. Greg Abbott, who signed the law, said this month that neither it nor other socially conservative measures pushed by the Republican-controlled state Legislature will hurt the Texas business climate.
“People vote with their feet,” Abbott said in an interview at the time with CNBC, pointing to what has been a steady drumbeat of corporate relocations and expansions in the state in recent years. “This is not slowing down businesses coming to the state of Texas.”
But Waco-based economist Ray Perryman said he thinks it’s only a matter of time.
Perryman said the abortion law and other controversial legislation — such as recently approved changes to the state’s voting laws — open the state to potential boycotts and will hurt it as a destination for tourism, conventions and major events. The measures also will stem the flow of new businesses and residents, he said, because some companies won’t want to be seen as endorsing certain policies.
“Texas has performed exceedingly well in recent years and has many competitive strengths, but this spate of legislation that restricts human rights and well-being cannot hep but limit the state’s fortunes in the future,” said Perryman, who is president of the Perryman Group, an economic research and analysis firm. “These policies are a definite negative that we will be dealing with going forward.”
The Texas abortion law is the most restrictive in the nation, prohibiting abortions as early as the sixth week of pregnancy.
Kaplan didn’t comment on the new law during the Dallas Fed’s recent town hall event. Responding to a broad question about the Texas economy, however, he noted that the success the state has had in attracting new residents and businesses “is not an entitlement.”
“People are still making judgements around the country every week — people and firms — about moving here,” he said.
COVID-19 still top concern for Texas economy recovery efforts
While it’s likely to take time for the full economic impact of the new abortion law to manifest itself — if it has an impact — immediate concerns for the Texas economy include the resurgent coronavirus, the tight labor market and the supply chain problems.
The Federal Reserve’s Beige Book report said the recent economic slowdown nationally is “largely attributable to a pullback in dining out, travel, and tourism” in most regions of the country, “reflecting safety concerns due to the rise of the delta variant, and, in a few cases, international travel restrictions.”
In other instances, the report said, business activity has declined because of “supply disruptions and labor shortages, as opposed to softening demand.”
Such issues are as prevalent in Texas as anywhere else, although they had yet to become a notable drag on the state through August. But that likely changed in September, Kaplan indicated in his recent comments.
“The recovery in Texas pretty much mirrors the shape of the U.S. recovery,” he said. “If we see a little bit of sluggishness in the third quarter (nationally), it wouldn’t surprise me to see a little bit of sluggishness in Texas in the third quarter.”
Still, “a little bit of sluggishness” may not take much of the shine off what in recent months has been a relatively strong recovery in the state.
A barometer of Austin-area business activity devised by the Dallas Fed, called the Austin business-cycle index, expanded at an annualized rate of nearly 24% in July — the most recent figure available and the highest pace in more than a year
“The economy is still chugging along,” Schenker said. “The delta variant presents risks and the unvaccinated (people) present risk. But the economy has continued to generally improve, and now the question is how do we manage liftoff?”