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US chart of the week – Texas boom

Summary:
Recent data suggest that the ‘Texas boom’ is continuing. The outlook for the state remains very robust thanks to rising oil prices.From a macroeconomic perspective, Texas is, in our view, the pivotal state to watch this year. Texas has been a major driving force of US growth lately, propelled by the domestic energy boom – the epicentre of which is the Permian Basin that straddles Texas and New Mexico.In Q4 2017 (latest data available), oil-rich Texas, which accounts for 9.0% of US GDP – making it the second biggest US state by GDP after California – grew a particularly solid 4.5% y-o-y, dwarfing nationwide growth of 2.6%.Recent employment data suggests that activity in Texas accelerated further in Q1 2018, mirroring the ongoing rise in oil prices, and surging local oil production. Texas’

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Recent data suggest that the ‘Texas boom’ is continuing. The outlook for the state remains very robust thanks to rising oil prices.

From a macroeconomic perspective, Texas is, in our view, the pivotal state to watch this year. Texas has been a major driving force of US growth lately, propelled by the domestic energy boom – the epicentre of which is the Permian Basin that straddles Texas and New Mexico.

In Q4 2017 (latest data available), oil-rich Texas, which accounts for 9.0% of US GDP – making it the second biggest US state by GDP after California – grew a particularly solid 4.5% y-o-y, dwarfing nationwide growth of 2.6%.

Recent employment data suggests that activity in Texas accelerated further in Q1 2018, mirroring the ongoing rise in oil prices, and surging local oil production. Texas’ employment grew 2.4% y-o-y in Q1 2018 from 2.1% in Q4 2017 . This is much higher than the growth of nationwide employment, which rose 1.6% y-o-y in Q1 and 1.5% in Q4.

The boom in Texas is also a reminder that the sharp rise in oil prices has an ambivalent effect on US growth. The US oil/GDP relationship has evolved in recent years as domestic oil production has risen from c. 5mb/d in 2008 to 10.5mb/d in April 2018. The solid economic growth in Texas is reverberating positively on the rest of the country. Big oil-consuming states like California seem to be able to ‘swallow the pill’: employment there grew a still-solid 2.1% in Q1 2018, showing no meaningful hit to growth from rising oil prices.

However, the increasing dependence of the US economy on Texas, and the rising gap in growth with other, more manufacturing-oriented states like New York and Illinois, needs to be watched. We would prefer to see more broad-based GDP growth.

US chart of the week – Texas boom

Thomas Costerg
Thomas covers the US and Canadian economies from New York. He was previously based in London, covering the UK and the euro area. Thomas started his career with Lehman Brothers in London in 2007 and also worked at a Paris-based private bank and asset manager. Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

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