The Texas economy is showing signs of slowing down, according to a new report from the Federal Reserve Bank of Dallas. Job growth is cooling, construction is dropping, and inflation is creeping up. The report, based on surveys of business leaders across the state, paints a cautious picture.
Job growth in Texas fell by 1.3% in June compared to the previous month, with overall growth for the year at 1.8%. While that still beats the national average of 0.7% monthly growth, it signals a clear slowdown. The state’s unemployment rate, however, continued to fall, reaching 4%, which suggests some resilience.
One big factor in the slowdown is tougher immigration enforcement. Many Texas industries, like agriculture, construction, and hospitality, rely heavily on immigrant workers—many of whom are undocumented. A Texas economist estimated as much as half the farm workforce and significant portions of construction and hospitality workers fall into this category. The stricter immigration policies are making it harder for businesses to find and keep employees, leading to disruptions.
Trade uncertainty is another issue. Texas businesses depend a lot on international trade, and ongoing tariff changes are causing headaches. Although inflation hasn’t soared like some experts predicted, prices in Texas have started to rise recently. The consumer price index ticked up in May, and core inflation, which strips out food and energy costs, also increased by over 1%. The rising effective tariff rate — now 17.5%, up from 2.4% at the start of the year — is expected to push some costs onto consumers eventually.
One reason prices haven’t shot up more may be that customers are buying less, so businesses are reluctant to raise prices and risk losing sales. Stockpiling supplies ahead of tariff hikes may also be helping companies absorb some extra costs for now.
Construction is feeling the squeeze too. Contract values have dropped by 26% since January, and the housing market has shrunk by about 7% over the same period. Experts say the uncertainty around tariffs and possible retaliatory trade actions is making people hesitant to start new building projects. The head of the Association of General Contractors of America pointed out that this is causing delays and cancelations of many plans.
Despite these challenges, Texas’ economy remains stronger than many others in the U.S. The state’s diverse industries give it an edge in tough times. Still, experts warn that the combination of slowed job growth, immigration limits, trade wars, and rising costs could push Texas into a recession if the trends continue.
The report highlights a key question for Texas and the rest of the country: how to balance economic growth while managing the effects of changing immigration rules and trade policies as the future remains uncertain.