1. 2014 Economic Outlook:
S t i l l G o o d t o b e i n Te x a s
Keith Phillips, Sr. Economist and Advisor

2. National Economy Still Growing at a Modest
Pace
• International weakness slowing US exports
• Uncertainty surrounding federal government
spending, Furloughs, Debt Ceiling, Affordable
Care Act restraining growth
• Meantime housing sector, consumer finances,
and state and local government improving
• 2013 another year of moderate growth with
some improvement likely in 2014

3. Home Construction Picking Up
Millions, units
2.00
Billions, $2000
450
400
Real single-family
construction
1.75
350
1.50
300
1.25
250
1.00
200
150
Single-family
building permits
0.75
100
0.50
0.25
50
1970
1974
1978
1982
1986
1990
1994
1998
Source: Bureau of Economic Analysis, U.S. Census Bureau and author’s calculations.
2002
2006
2010
0

4. 270
FHFA House Price Index, 2000=100
Home Prices Increasing
250
U.S.
Texas
230
California
Florida
Nevada
210
190
170
150
130
110
90
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

5. Lower Prices and Interest Rates Helping Housing
Affordability – No Bubble Now
(Percent of homes sold for which the median family income could qualify)
United States
1999:Q4
64
2013:Q3
65
Los Angeles
New York
Miami
Austin
Dallas
Houston
San Antonio
43
55
59
56
64
66
64
21
23
55
63
60
62
66
Date of Low
Low Point
Point
40
2006 : Q3
2006 :
2
Q1/Q2/Q3
5
2006 : Q3/Q4
10
2007 : Q1
50
2000 : Q4
54
2007 : Q3
47
2007 : Q3
47
2006 : Q3
Source: NAHB - Wells Fargo Housing Opportunity Index

6. Household Balance Sheets in Better Shape
Ratio, personal debt per
Student loan
Other
capita/personal income per capita
9%
3%
U.S.
Credit card
1.4
6%
1.3
1.2
1.35
U.S.
Auto loan
7%
HE revolving
5%
1.19
Mortgage
70.1%
1.1
Texas loan
Student
Other
4%
Texas
11%
1
1.00
Credit card
7%
0.9
Auto loan
13%
0.8
0.96
Mortgage
63.6%
HE revolving
1%
Note: Data are through second quarter, 2013.
2…
2…
2…
2…
2…
2…
0.6
2…
0.7

7. 600
Job Growth Persistently Positive but not as Strong as
Typical Rebound
Thousands (SA)
400
200
0
-200
-400
-600
-800
-1000
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13

8. U.S. Leading Index Suggests Moderate Pick Up Over Next 6 Months
Annualized
% change
20
15
6-month
12-month
10
5
0
-5
-10
-15
-20
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010

9. November Blue Chip Survey Projects RGDP Growth of
SAAR, Percent
2.1% in 2013, 2.8% in 2014
8.0
6.0
2012 2.0%
Q4/Q4
4.9
3.9
4.0
3.9
3.7
2013 2.1% 2014 2.8%
Q4/Q4
Q4/Q4
3.2
2.82.8
2.0
1.3
1.6
2.8
1.4
1.2
2.8
2.5
1.1
0.1
0.0
-0.4
-1.3
-2.0
-4.0
-5.4
-6.0
-8.0
-8.3
-10.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

10. Past Several Years Texas Economy Has Grown
above Trend and Stronger than Nation
• In past three years growth in energy, high-tech and
exports provided a stimulus to Texas. Housing market
better shape than nationally
• This year manufacturing, energy and Fed. Govt. have
slowed while residential construction continues to grow
strongly
• This year I expect job growth of about 2.5% - slightly
weaker than 2012 (3.3%)
• In 2014 Texas growth will be very similar to 2013

11. M/M SAAR
12
Texas Economy Growing Above Trend
(Texas Business Cycle Index)
10
8
6
4
2
2.5% trend
0
-2
-4
-6
-8
NOTE: Shaded areas represent Texas recession.

12. Texas was Third Fastest Growing Job Growth State in
2012
Y/Y Percent Change,
December 2012
7
6
5
4
TX
3
U.S.
2
1
0
ND
UT
TX
NV
CO
MT
AZ
CA
NC
SC
HI
TN
ID
FL
IN
LA
GA
NJ
US
KS
WA
MN
MA
OK
KY
IA
MD
AK
MS
NY
IL
VA
SD
VT
OR
NH
MI
MO
WI
NE
OH
RI
DE
PA
AL
NM
CT
DC
AR
WV
ME
WY
Source: Bureau of Labor Statistics
-1

13. Texas 4th Fastest this Year
2013 YTD Annualized Change
4
3
TX
2
US
1
0
-1
ND
FL
ID
TX
DE
MI
GA
WA
UT
OR
MS
CO
NE
US
NC
SC
WV
MN
CA
WI
MA
ME
AZ
IN
WY
LA
SD
NY
MO
IL
KS
RI
AR
NJ
HI
NV
MD
CT
TN
MT
NH
OK
VA
OH
IA
VT
PA
DC
NM
AL
KY
AK
Source: Bureau of Labor Statistics, Data through August
-2

14. Texas Jobs Growing Faster Than Nation’s
5
Job Growth Y/Y,
Percent
U.S.
4
3.3
Texas
3
2.4
2.2 2.3
2
1.6 1.7 1.7
0.8
1
0
-1
-2
-3
-3.4
-4
-3.8
-5
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012

15. Index, Jan
2000 = 100
Texas State and Local Government Jobs
Growing after 2011 Fiscal Cliff
125
Texas State and Local share of
Total Nonfarm Jobs - 14.3%
U.S.
120
Texas
115
110
105
100
95
U.S. State and Local Share of
Total Nonfarm Jobs- 14.0%

16. Texas Unemployment Rate Falling After Uptick
Earlier in the Year
Percent, SA
10.5
9.5
US unemployment rate
8.5
7.3
7.5
6.5
Texas unemployment rate
6.2
5.5
4.5
3.5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

17. Most Industries Adding Jobs –
Manufacturing, Construction Weakening
Q/Q, SAAR
16
14
Texas Industry Employment 2012 Q3 : 2013 Q3
Mining
12
10
Construction
6
4
2
0
-2
Leisure and
Hospitality
Business Serv.
8
Trans.,
Trade ,
Utilities
Finance ,
Insurance,
Real Estate
Manufacturing
Health and
Education
Information
Services
Govt.

18. Texas Real Retail Sales Growing Moderately
Index, SA, Real $
Jan. 2000=100
160
150
Texas
140
130
120
U.S.
110
100
90
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

19. Texas Construction Contract Values Picking Up
Real $, Mil
5MMA, SA
7000
6000
Total
5000
4000
3000
Residential
Non Residential
2000
1000
Non Building
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

20. Months
Home Inventories in TX Have Fallen to
Historically Low Levels
18
Texas
16
3.8
14
U.S.
4.9
12
10
8
6
4
2
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13

21. 5
Mortgage Foreclosures Sliding, Delinquency
Rates High but Falling, TX Better than US
TX Delinquencies
US Delinquencies
4.5
TX Foreclosures Started
US Foreclosures Started
4
3.5
3
2.6
2.5
2.3
2
1.5
0.60
1
0.5
.35
0.45
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

22. Texas Mortgages Less at Risk of Default
Percent
70
Percent of Mortgages "Under Water"
Q2 2012 - Q2 2013
60
50
40
36.4
31.5
30
24.7
22.5
20
15.4
14.5
11.6
10
4.3
0
Nevada
Arizona
Florida
Michigan
California
Idaho
Texas
U.S.

23. Declining TX Office Vacancy Rate Suggests
Office Construction May Continue to Pick Up
Real, Millions $,
5MMA
450
Percent
35
400
Office and Bank
Buildings
Contract Value
350
30
Office Vacancy
Rate
300
25
250
20
200
150
15
100
10
50
0
5
'89
'96
'03
'10

24. Index
100
TX Manufacturing Production and Orders
Growing at Mixed Pace
80
60
40
Nov.-13
20
0
-20
-40
-60
-80
Production
Volume of New Orders
-100
Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13

25. Index, SA Real
Jan. 2000=100
Texas Exports Picking Up
240
110.0
105.0
Texas Value of the Dollar
220
100.0
200
95.0
180
90.0
Texas
160
85.0
80.0
140
75.0
120
70.0
U.S. minus Texas
100
65.0
80
60.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

26. 1000
Oil Prices Falling, Drilling Rig Count Stable
160.000
Rig Count
900
140.000
800
120.000
700
100.000
600
80.000
500
60.000
400
40.000
Oil price
Gas price(*10)
300
20.000
200
0.000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

27. All Texas Metros Moved From Recovery to
Nonfarm Employment Index
Expansion
Aug. 2008=100
112
Austin
110
Houston
Ft. Worth
Corpus
TX Christi
108
106
Dallas
104
San Antonio
El Paso
102
100
98
96
94
92
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13

28. Metros with Big Presence of Fed. Govt. and
Health Care Slowing
Index, Nov.
2009=100, SA
116
114
Austin
112
Houston
110
DFW
Border
108
106
San Antonio
104
El Paso
102
Border, SA, El Paso
Rest of Texas
Federal Govt.
3.6%
1.5%
Educ. & Health Svc.
16.9%
12.1%
100
NOTE: Figures are shares of total nonfarm employment.
SOURCE: Texas Workforce Commission.
98
July '10
July '11
July '12
July '13

29. Mixed Growth in TLI Components
Texas Leading Index Components, 3 month change
August -October
Net Change in Texas Leading Index
0.80
Texas Value of the Dollar
0.14
U.S. Leading Index
0.59
Real Oil Price
-0.11
Well Permits
-0.12
New Unemployment Claims
-0.16
Texas Stock Index
0.23
Help Wanted Index
0.07
Average Weekly Hours
0.17
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00

30. Job Growth Likely to Increase Remain About
2.5% in 2014
Millions
Index
12.0
135
130
11.5
Leading Index
125
11.0
120
10.5
10.0
115
Texas Nonfarm Employment
and TLI Forecast (with 80%
confidence band)
110
105
9.5
100
9.0
Jan-00
95
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14

31. Summary
• U.S. economy continues to grow at a
moderate, disappointing pace
• Texas has faced similar headwinds (weak consumer
spending, housing) but has grown faster due to strong
growth in energy and exports and fewer problems in
housing.
• 2013 TX job growth slower, as energy, exports and
federal government slow and construction remains
strong.
• In 2014 residential construction growth will likely dampen
while manufacturing activity picks up – overall job growth
will be close to this year or slightly better.
• Risks to the outlook include political and international
uncertainty and continued uncertainty with US fiscal
spending.