January 29, 2021

Pandenomics: Where Do We Go From Here? Keith R. PhillipsKeynote Speaker

The views expressed are my own and

do not necessarily reflect official positions

of the Federal Reserve System.

National Economy

U.S. Economy Likely to Grow Strongly in Second Half of 2021

• After growing a healthy 1.4% in 2019, job growth fell sharply to -6.2% in 2020, while real GDP growth slowed less: from 2.3% to -2.5%

• Labor market well below full employment at 6.7% unemployment rate

• Inflation slightly below Fed target of 2%

• Pandemic has been main driver of economic growth – vaccines suggest strong growth in second half of the year

• Upward sloping yield curve reflects positive outlook over next 12 months

• Blue Chip Forecasters project GDP to grow about 4.0% this year• Jobs likely to improve by less than output with Blue Chip year-end UR forecast of 5.5%

Historic Monthly Job Loss in April, Rebound Dissipating

5

-20787

4781

-25000

-20000

-15000

-10000

-5000

0

5000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Thousands, SA

NOTE: Data up to December 2020.

SOURCE: Bureau of Labor Statistics

14.8

6.7

22.9

11.7

0

5

10

15

20

25

Percent

NOTES: U6 Unemployment rate includes marginally attached and part-time for economic reasons workers. Gray shaded areas indicate NBER recessions. Data up to

December 2020.

SOURCES: Bureau of Labor Statistics; NBER.

1994-2007:Q3 Average

1994-2007:Q3 Average

Unemployment Rate has Declined, but Remains High

3Public

Core Inflation Below 2 Percent Goal

7Public

1.13

1.73

-2

-1

0

1

2

3

4

5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Headline PCE inflation

Trimmed Mean PCE inflation

Percent, Y/Y

NOTE: Data up to November 2020.

SOURCES: Bureau of Economic Analysis; Federal Reserve Bank of Dallas.

Fed 2 percent target

-4

-3

-2

-1

0

1

2

3

4

10-year minus 1-year Treasury rate, monthly

NOTE: Data through December 2020.

Steepening Yield Curve Signals Positive Outlook

Percentage points

7 months negative

GDP Growth Expected to Increase about 4.0 percent – Surpass pre-COVID Levels

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-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Percent, SAAR

SOURCES: Bureau of Economic Analysis; Blue Chip Economic Indicators.

2017 2.3% Q4/Q4

2018 3.0% Q4/Q4

2019 2.2%Q4/Q4

2020 -2.5%Q4/Q4

2021 3.9%Q4/Q4

Texas Economy

• Despite sharp decline in the energy sector, Texas jobs declined less than the national average.

• Better performance likely due to less pandemic hit, increased preference for low cost, low density areas to live and work.

• Data through mid-January suggests weak job growth due to COVID surge but data since mid-January shows declines in COVID – hints at improvement in jobs in February.

• COVID will have long-last structural impact on many industries, suggesting that while Texas job growth will be strong this year, it will not fully recover to pre-COVID levels

Texas Economy Declined Less than Nation Last Year –Will likely Grow Faster than the Nation this Year

Pandenomics: This Texas Recession Like No Other, Much Sharper, Shorter-Lived Decline, Steeper Recovery

88

90

92

94

96

98

100

102

-2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

1982 1986 2001 2008 2020

% of peak employment

Months after business cycle peak

NOTES: Shown is Texas nonfarm payroll employment. Recessions are indexed to on peak employment: March 1982, January 1986, March 2001, August 2008, and February

2020.

SOURCE: BLS.

13

Pandenomics: Unlike Other Texas Recessions, Manufacturing

Activity has Outperformed Services

0.8

4.6

-80

-60

-40

-20

0

20

40

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Services Revenue (TSSOS)

NOTES: Data through January 2021. Dashed lines are post-recession averages TMOS 9.7; TSSOS 11.9.

SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys (TBOS).

Diffusion index, SA

Mfg Production (TMOS)

0.507

-3.58

-17

-35

-30

-25

-20

-15

-10

-5

0

5

10

Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct.

High income

Middle income

Low income

Employment level relative to Jan. 2020

NOTE: Data through Oct. 22, 2020. High income is greater than $60,000 per year; middle income is between $27,000 and $60,000 per year; low income is less than $27,000 per

year.

SOURCES: Paychex; Intuit; Earnin; Kronos; Opportunity Insights.

Employment Among High Income Earners Recovered Quickly While Low Income Earners were Hit Harder

Despite Large Decline in Energy Sector, Texas Job Growth Not as Weak as the Nation’s

15Public

NOTES: Long-run trend growth is 1.1 percent for the U.S. and 2.1 percent for Texas.

SOURCES: Bureau of Labor Statistics, Texas Workforce Commission; FRB Dallas.

-6.2

-4.5

-8

-6

-4

-2

0

2

4

6

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

U.S. Texas

Percent change, year/year, SA

Oil Prices Decline sharply

Texas Unemployment Rate Close to Nations

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6.77.2

3.0

5.0

7.0

9.0

11.0

13.0

15.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Percent, SA

US unemployment rate

Texas unemployment rate

NOTES: Data through December 2020.

SOURCE: Bureau of Labor Statistics.

All Texas Metros were Hit Hard Early in Pandemic

-8.4

-7.3

-8.0

-7.3-7.7

-6.7-7.1

-10.0

-5.0

0.0

Houston(24.2%)

Dallas(21.2%)

Austin(8.9%)

Fort Worth(8.6%)

San Antonio(8.3%)

El Paso(2.5%)

Corpus Christi(1.4%)

Employment (June/Feb 2020)

NOTES: Data refer June/Feb 2020 non-annualized job growth. Numbers in parentheses refer to share of state employment in December 2020.

SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.

Percent change, SA

Austin Employment Improving the Most Since Mid-Year

2.2

3.4

5.1

2.8

1.3

2.0

-1.0

-2.0

0.0

2.0

4.0

6.0

Houston(24.2%)

Dallas(21.2%)

Austin(8.9%)

Fort Worth(8.6%)

San Antonio(8.3%)

El Paso(2.5%)

Corpus Christi(1.4%)

Employment (Dec/June 2020)

NOTES: Data refer Dec 2020/June 2020 non-annualized growth. Numbers in parentheses refer to share of state employment in December 2020.

SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas.

Percent change, SA

During Pandemic Texas Job losses Widespread Across Industries, Oil & Gas, Leisure & Hospitality Hardest Hit

19

-6.5

-2.7

-5.9

-4.0-5.3

-23.2

-4.2

-1.2-3.0

-8.2

-15.6

-4.8

-1.1

-3.3

-0.7

-3.9

-17.0

-4.7

-0.2

-4.9

-10.5

-26.7-30

-25

-20

-15

-10

-5

0

Total Trade,Transp.& Util.

(20.3%)

Gov't(15.6%)

Prof. &Bus. Serv.(14.8%)

Educ. &HealthServ.

(13.8%)

Leisure& Hosp.(9.5%)

Mfg.(7.0%)

Fin.Activ.(6.6%)

Constr.(6.0%)

Info. &Other Svcs

(4.8%)

Oil & Gas,Mining Sup.

(1.3%)

U.S. Texas

Job growth (percent)

NOTE: Data show December 2020/Feb. 2020 non-annualized growth. Numbers in parenthesis indicate share of total state employment for December. Texas employment early

benchmarked through second quarter 2020.

SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; FRB Dallas.

20

Single-family Housing Market Takes Off in Pandemic, Helped by Falling Mortgage Rates

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

90

110

130

150

170

190

210

230

2013 2014 2015 2016 2017 2018 2019 2020

Texas single-family housing permits

Texas home sales

30-year Fixed Rate Prime Mortgage

NOTES: Data through Dec. 2020.

SOURCES: MLS; A&M Real Estate Center; Freddie Mac Primary Mortgage Market Survey; U.S. Census.

Index, Jan 2013 = 100, 3MMA, SA Interest rate, monthly average

21

Energy Sector Declined Sharply with Fall in Oil prices: Rig Count Now Increasing from Very Low Levels

173

175

$52.83

0

20

40

60

80

100

120

0

100

200

300

400

500

600

700

800

900

1000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Oil price

Rig Count

NOTES: Data are weekly. Data through the week of Jan. 22, 2021.

SOURCES: Oil and Gas Journal; Baker Hughes.

Texas active rig count$/barrel

Recent Economic Activity

23

Despite Pandemic Surge, Texas Job Growth Strong in December

-0.1

0.7

-0.2

0.8

-0.1

-3.7

0.30.1

0.7

-0.3

0.50.6

1.0

0.0

1.7

0.4 0.3 0.4

-0.5

0.30.5

0.2

-4

-3

-2

-1

0

1

2

Total Trade,Transp.& Util.

(20.3%)

Gov't(15.6%)

Prof. &Bus. Serv.

(14.8%)

Educ. &HealthServ.

(13.8%)

Leisure& Hosp.(9.5%)

Mfg.(7.0%)

Fin.Activ.(6.6%)

Constr.(6.0%)

Info. &Other Svcs

(4.8%)

Oil & Gas,Mining Sup.

(1.3%)

U.S. Texas

Job growth (percent)

NOTE: Data show December 2020/November 2020 non-annualized growth. Numbers in parenthesis indicate share of total state employment for December. Texas

employment early benchmarked through second quarter 2020.

SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; FRB Dallas.

Texas added jobs in December, the US lost jobs

Output Growth Stalls Out in January, According to Texas Businesses

24

4.6

-100

-50

0

50

0.8

-100

-50

0

50

-1.0

-100

0

100

2019 2020 2021

NOTE: Data through Jan. 2021. SOURCE: Dallas Fed Texas Business Outlook Surveys.

Diffusion index, SA

Manufacturing production

Servicesrevenue

Retailsales

Texas, U.S. Surpass Previous Peaks in COVID hospitalizations

25

0.0

0.1

0.2

0.3

0.4

0.5

3/1 3/22 4/12 5/3 5/24 6/14 7/5 7/26 8/16 9/6 9/27 10/18 11/8 11/29 12/20 1/10 1/31

Texas U.S.

NOTE: Data up January 27, 2021. Data normalized using 2020 Census population estimate.

SOURCES: Texas Department State Health Services; covidtracking.com.

Currently hospitalized per thousand, 7dma

Mobility and Engagement Index Down in Mid-January from Mid-December

-42.5 -45.9

-32.3

-43.1-38.1

-110

-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

US TX

Index

NOTE: Weekly mobility and engagement index up to Jan 23, 2020.

SOURCE: Federal Reserve Bank of Dallas.

Homebase Staffing Levels Decline from Mid-Decemberto Mid-January

-20.7-25.1

-60

-50

-40

-30

-20

-10

0

10

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Number of Hourly Workers Working

% change from Jan, 7 day MA

NOTE: Texas data up to Jan 25, 2020.

SOURCE: Homebase.

Initial Jobless Claims Up 26 percent in January in Texas

0

500

1000

1500

2000

2500

3000

3500

Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan.

Initial claims, state UI and federal PUAIndex, first week of March = 100

U.S.

Texas

NOTE: Data through the week ending January 23.

SOURCE: Department of Labor.

The Texas Weekly Employment Estimate Suggests Job Growth Slowed Sharply in January

1.9

1.7

-0.1

0.7

0.2

0.80.6

0.4

-0.3

-1

-1

0

1

1

2

2

3

3

May '20 June July Aug Sept Oct Nov Dec Jan '21

4-week % change

SOURCE: Federal Reserve Bank of Dallas.

Outlook for 2021

Of 10 Largest States, Population Growth Strongest in Texas Last Year

More Than One-Third of Texas Firms Expect it to Take More Than a Year for Revenues to Return to pre-COVID Levels

28%

42%

25%

6%

Less than 6 months6-12 monthsMore than a yearNever

30%

30%

37%

3%

When do you expect your firm's revenues to return to pre-COVID levels?

NOTES: This question was only posed to those indicating January revenues are below normal (59 percent of all firms). Data collected Jan. 12-20. 148 responses. Results are preliminary.SOURCES: Federal Reserve Bank of Dallas, January 2021 Texas Business Outlook Surveys.

Manufacturing Services

Jobs May Not Return to pre-COVID Levels this Year Due to Large Amount of Structural Changes in the Economy

29 28

17

12

3 1

1 0 0 1

14

25-30

-20

-10

0

10

20

30

40

Telecommuting Technology adoption Contactlessproduct/service delivery

Other newproduct/service

offerings

Office space Business travel

Texas Businesses Report on Expected Permanent Structural Changes Due to COVID-19

Per

cen

t n

oti

ng

incr

ease

NOTES: 369 respondents. Firms were asked, “Are there structural changes your firm has made or plans to make as a result of the COVID-19 pandemic that you expect to be permanent? If yes, please specify any changes, and whether it is an increase or decrease.SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys.

Per

cen

t n

oti

ng

dec

reas

e

Energy Survey Suggests Mild Improvement this Year

34

-100

-80

-60

-40

-20

0

20

40

60

80

Business Activity Capital Expenditures Employment Company Outlook Uncertainty End of Year PriceForecast

Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020

Diffusion index Price per barrel

NOTE: Price forecast is average year-end forecast of WTI oil price among respondents.

SOURCE: Federal Reserve Bank of Dallas Energy Survey.

$58.54

(2021)

$56.92

(2020)

Short-term Outlook Improving More in Manufacturing than Services

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

TMOS company outlook

TSSOS company outlook

Index, 3MMA

NOTES: Data through January 2021. Dashed lines are post 2008-2009 recession averages.

SOURCES: Federal Reserve Bank of Dallas Outlook Surveys: Manufacturing (TMOS); Service Sector (TSSOS).

Texas Leading Index Components Mostly Positive in December

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-0.18

0.00

0.10

0.19

0.20

0.32

0.33

0.34

1.30

-0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

New unemploymentclaims*

Average weekly hours

Texas Stock Index

Help-wanted index

U.S. leading index*

Real oil price

Well permits

Texas value of the dollar*

Net change inTexas Leading Index

NOTE: December 2020, seasonally adjusted. Texas value of the dollar is a preliminary estimate from the Dallas Fed.

SOURCE: Federal Reserve Bank of Dallas.

Net contributions to change in Texas Leading Index

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Green Shoots? Texas Business Applications Increase to Historic Levels

0

20

40

60

80

100

120

140

160

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

NOTE: Data for Texas business applications through Q4 2020.

SOURCE: U.S. Census.

Count, Thousands

Dallas Fed 2021 Texas Jobs Forecast Projects Some Weakness Over Next Few Months, Strong Growth of 4.2 percent for the Year

38

-74.4

26.4

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

NOTE: Forecast scenario estimates Texas payroll employment for 2021 are based on monthly hospitalization projections for COVID-19 in Texas, direct COVID-19 impacts in March, April, and May, US GDP growth estimates for 2021, and WTI prices following the futures contract curve as of 1/28.SOURCE: Federal Reserve Bank of Dallas.

Percent, SAAR

-4.5

4.2

-15-10

-505

10Percent, Y/Y

• Pandemic is unprecedented and has many aspects of a natural disaster instead of a typical recession

• Texas outperformed the nation last year despite a large decline in the energy sector

• Movement of people and firms out of high-density, high cost of living areas should continue to benefit Texas

• Pandemic will likely cause significant amount of long-term structural change that may delay return of jobs to pre-COVID levels

• Jobs in Texas are forecasted to grow about 3.1 to 5.3 percent - at 4.2 percent will be 0.8 percent below pre-COVID level but 4.3 percent below trend

Summary

How Did My Forecast From Last Year Do?

Last year stated: “Texas jobs grew 2.0 percent in 2019 and will likely grow about 2.1 percent this year – with greater downside

than upside risks”

– Instead growth declined from 1.9% in 2019 to -4.5% in 2020

Obviously did not forecast the pandemic – if trust my forecast than economy likely would have grown about 2.0

percent last year without pandemic – so in December 2020 TX jobs were 6.5% below trend

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424242Public

Publications and Surveys:

Texas Employment Forecast

Metro Economic Indicators

Regional Economic Updates

Southwest Economy

Heart of Texas

Dallas Fed Blog

National Economic Updates

International Economic Updates

Texas Business Outlook Surveys

Energy Survey

Dallas Fed Resources

COVID-related:

Mobility and Engagement Index

Real-Time Population Survey

Texas Weekly Employment Estimate

Weekly Economic Index