Texas Economy Softens Amid Job Growth Decline and Uncertain Outlook

Texas, a state renowned for its robust economy, is experiencing a notable softening in its growth trajectory amidst a landscape of uncertainty. While the state continues to boast a lower unemployment rate compared to the national average, recent indicators point towards a moderation in key economic sectors. The construction industry, a significant driver of employment and investment, has witnessed a decline across various categories, reflecting a broader trend of economic slowdown.

Texas Economy Softens Amidst Uncertainty

Payroll employment in Texas contracted by 1.3 percent in June, marking a sharp departure from the robust job gains observed earlier in the year. This contraction in employment, coupled with revised lower data for the preceding two months, suggests a potential deceleration in economic growth during the second half of 2025. Despite this slowdown, the state's unemployment rate has dipped to 4.0 percent, indicating a resilient labor market.

The Texas economy is grappling with a confluence of factors that are contributing to the current softness. Policy changes, global economic conditions, and uncertainty surrounding trade agreements have created headwinds for businesses across various sectors. Construction activity has declined across all categories since January, with nonbuilding construction, residential construction, and nonresidential construction experiencing notable reductions.

Construction Declines Across Sectors

The decline in construction is attributed to a number of factors, including the completion of infrastructure projects, uncertainty about future economic conditions, and relatively high interest rates. Rising costs of construction materials and labor are also putting pressure on real estate projects. The slowdown in residential construction is particularly noteworthy, as it reflects weakness in the housing market.

While multifamily construction values have increased in recent months, the growth rate has slowed compared to previous periods. This suggests that the demand for rental properties remains relatively strong, but the overall construction sector is facing significant challenges.

Labor Market Retains Strength Despite Slowdown

Despite the economic softness, the Texas labor market continues to exhibit strength. The unemployment rate remains low at 4.0 percent, and average hourly earnings increased by 4.9 percent year-over-year in June. These figures indicate that businesses are still hiring and providing competitive wages.

However, there are concerns about the potential for further slowdown in employment growth in the coming months. The Texas Business Outlook Survey (TBOS) indicates that businesses are more cautious about their hiring plans due to the uncertain economic climate. This suggests that the state's economic recovery may be more gradual than initially anticipated.