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Rebounding state economy expected to accelerate
Leading the Way

The Texas Comptroller of Public Accounts' latest Texas Index of Leading Economic Indicators brings welcome news about the Texas economy. Based on the index's results, Comptroller Carole Keeton Strayhorn predicted Texas would see accelerating economic growth over the next six months.

"The state's economy is finally rebounding after the sharp decline that began in the third quarter of 2001," Strayhorn said. The index, which tracks factors such as retail sales and initial claims for unemployment compensation to help analysts predict the future of the state economy, grew by 4.6 percent between April 2003 and April 2004.

The April figure came on the heels of 5.3 percent growth between March 2003 and March 2004. This upward tick was the largest percentage increase since June 1994.

In its nearly 24-year history, the index's annual growth rate has only exceeded 5.3 percent 10 times, and all of those instances occurred after extremely slow or negative economic growth.

Strayhorn said historically the Texas Index of Leading Economic Indicators has accurately signaled where the state's economy was headed.

Index history
The Texas index, developed by the Comptroller's office, has been revised over the years to account for changes in the structure of the state economy. The Comptroller's monthly index is patterned after the U.S. Leading Economic Indicators Index and uses the most current information, which usually lags by two months.

The Texas index has 10 indicators; nine that track economic factors on a statewide or regional level, plus the U.S. index itself, which tracks some of the same factors on a national level.

The Texas and U.S. indexes both monitor initial claims for unemployment compensation, stock prices, housing permits, consumer confidence and the average number of hours that manufacturing employees work per week. The Texas index also tracks help-wanted advertising, retail sales, oil prices and new business incorporations and registrations.

The indicators help economists anticipate major economic trends in Texas. For example, when business conditions begin to worsen, employers stop hiring and may lay off some workers. These moves prompt a decline in help-wanted advertising and a rise in unemployment claims, which signals an economic downturn, Strayhorn said. One of the components in the Texas index, therefore, is the number of initial claims for unemployment compensation.

Between March 2003 and March 2004, those claims declined by 15.4 percent. During that same period, help-wanted advertising, which is also part of the Texas index, increased 3.5 percent. The news got even better in April when unemployment claims dropped 21 percent and the help-wanted ads rose 4.7 percent over the previous year.

Confidence in the future
Another important indicator is the regional Consumer Confidence Index, which measures what consumers in the nation's southwest believe about the economy.

Between March 2003 and March 2004, the regional Consumer Confidence Index, which measures consumer confidence in Texas, Louisiana, Oklahoma and Arkansas, increased 52.5 percent, followed by an 11.5 percent increase in April, compared with April 2003.

"When people are confident, they brave the uncertainties of the stock market to try to take advantage of what they see as favorable stock prices on their way up," said Strayhorn.

The Comptroller's office tracks the stock prices of the 100 largest publicly traded employers in Texas through its Texas Stock Index, another leading economic indicator. Between March 2003 and March 2004, the stock index rose almost 50 percent. The April 2004 stock index showed another substantial increase of 33.5 percent over April 2003.

Demonstrating that the increase in Texans' positive outlook is translating into renewed economic vigor, the number of new business incorporations and registrations in Texas, another leading economic indicator, rose in March 2004 nearly 20 percent over the year before and then repeated almost the same gain in April.

Retail sales and permits
"With consumer confidence, stocks and new businesses on the rise, people also start to shop more," said Strayhorn. The Texas Leading Economic Indicators Index shows March retail sales rose by 6.8 percent over March 2003.

The index also keeps tabs on the construction industry, and one way to gauge the health of the construction industry is to watch the number of housing permits granted. Between March 2003 and March 2004, housing permits went up 3.3 percent.

Across the nation
The Texas economy is inextricably tied to the national economy, so the Comptroller's index incorporates the U.S. Leading Economic Indicators Index. As of March 2004, the national index grew by a solid 4.4 percent over the previous year.

Oil also plays a role in the state economy, and the 10.3 percent rise in the price of oil in March followed by a 29.1 percent increase in April are positive indicators for Texas' future.

The only indicator that did not increase was the average number of hours that Texans who work in manufacturing work per week. That number was down by 4.3 percent in March 2004 over the previous year.

It's all about jobs
In addition to the index, analysts keep tabs on job growth to gauge economic health. Based on a Texas Workforce Commission (TWC) survey of employers, Texas added 51,100 nonagricultural jobs between April 2003 and April 2004, according to Clayton Griffis, a TWC labor market analyst.

"That is the largest over-the-year growth since August 2001," Griffis said.

Of the various industrial sectors, TWC estimates Education and Health Services added 31,500 jobs between April 2003 and April 2004. The Leisure and Hospitality sector, which includes hotels, restaurants and amusement parks, came in second, with 18,500 new jobs.

Between March and April 2004, Texas added 17,000 jobs statewide, the largest single monthly gain since October 2003.

Manufacturing showed an overall loss of 19,600 jobs in April 2004 compared with April 2003. The sector added 300 jobs in March, however, and another 200 positions in April 2004.

"Although these gains may seem insignificant, they represent the first two-month period of job growth in manufacturing in over three years," Griffis said.

Real and robust
Although industrial production has been on the rise for more than a year, gains in productivity, which means producing more with fewer workers, have stalled manufacturing job growth, Strayhorn said.

"With nonfarm employment on the rise, however, and the unemployment rate beginning to fall, we have proof that the turnaround is real and robust," Strayhorn said.

Pam Wagner