Looking at Slowing Employment Growth in the Austin Area

In January of 2016, employment in the Austin metro had grown by 4.5% year over year. By December of 2016, year over year employment growth had slowed to 3.3%. As of October 2017, year over year employment growth slowed further to 2.2%. Throughout much of 2016 and 2017, job creation in the Austin metro area remained positive, but it was steadily declining. Moreover, it was falling well short of the high rates of growth seen in previous years.

At CAPCOG, we observed this trend and decided we should dig into the data a bit more. Are we looking at the beginnings of a recession in the local economy? Are other metro areas in Texas showing similar signs of slowing down? And wouldn’t you know it – while in the midst of developing this post, the Bureau of Labor Statistics (BLS) released employment figures for November 2017, and for the first time in a while, they show a strong positive uptick – up to 2.8% employment growth year over year, compared to 2.2% in October. Now, one month’s worth of data doesn’t indicate a trend, but as we look at nearly two-year’s worth of data showing slowing job growth in the Austin metro area, it’s at least encouraging to see that sharply positive movement at the end of the line.

Which Sectors Are Driving the Slowdown?

With that context in mind, let’s look at the data more closely. The following figure shows year over year job creation rates across a range of industry sectors for the state of Texas and the Austin, Dallas, Houston, and San Antonio metro areas.

If one selects the Austin geography and scrolls through different industry sectors, it becomes apparent that the drivers of declining job creation rates in Austin are the Information, Leisure & Hospitality, Professional & Business Services, and Retail sectors. For example, the Leisure & Hospitality sector saw year over year employment growth rates fall from 8.3% in January, 2016 to 1.6% in September, 2017, before rebounding in October and November. The Professional & Business Services sector followed a similar trajectory – from 6.7% in January 2016 to -1.5% in September 2017, before posting stronger figures to close out 2017. Of note – the Retail sector does not show the same rebound at the end of 2017 that other sectors show.

The decline in the Professional & Business Services sector is particularly noteworthy, as so much of the recent economic success that Austin has enjoyed is attributed to this sector. It is also worth noting that statewide figures for job creation in this sector diverge from the Austin metro area’s experience. Each of the geographies shown in the figure show slowing job creation in the Professional & Business Services sector starting in January 2016, but Dallas, Houston, and San Antonio all show rebounding growth by at least summer of 2016. Austin’s continued decline in this sector indicates there may be factors negatively influencing the Professional and Business Services Sector in Austin specifically.

Some Possible Explanations

There may not be one single cause that neatly fits the data to explain why employment growth in Austin has slowed in the sectors outlined above, but let’s not let that stop us from speculating a bit.

Possibility 1: Low unemployment means the workers just aren't there

One possible explanation we’ll examine is the overall low rate of unemployment in the region. As of November, 2017, the unemployment rate in the metro area was 2.7%. Simply put, it is impossible to create jobs at the high rates the region has seen in previous years if there aren’t enough workers to take the jobs.

Source: Bureau of Labor Statistics

There are two easy arguments to make against limited labor availability as a sufficient explanation for slowing job growth, however:

• The positive uptick in job creation shown across multiple sectors toward the very end of 2017 isn’t reflected in the labor force or unemployment figures. In other words, if unemployment rates were driving the slowdown, there’s nothing in the unemployment data that explains the positive shift in job creation at the end of 2017.

 

• Job postings for the region are down for 2017, relative to 2016. Put another way, if positions were being created at the same rate and the problem was limited supply of workers, one would expect to see rising rates of available jobs being posted. Instead, we’re seeing the opposite. The Austin Chamber produces an excellent monthly report on regional job postings, for those interested in more information.

Possibility 2: Maybe population growth is slowing down?

It’s worth noting that these employment estimates are more current than our most recent population estimates. The most current Census estimates for the Austin metro area are from July, 2016.

Source: U.S. Census Bureau

It’s possible that population growth has slowed, and the population estimates have not caught up to the trend yet. If that’s the case, though, one might expect to see that trend reflected in the local housing market. Housing starts across the Austin metro area have been strong in 2017, though, at one point “reaching their highest level since late 2006,” according to the Austin American Statesman.

Possibility 3: Maybe the Austin job market is just not that special anymore?

Being without an easy explanation for what caused job creation in the Austin metro area to slow for most of 2016 and 2017, and without enough data to show a strong rebound on deck for 2018, let’s refer back to the employment growth graphic at the start of this post. The following table uses that data to compare growth rates in January 2016 to November 2017 for each of the geographies analyzed.

Geography (Metro Area)	Employment Growth Rate (January, 2016)	Employment Growth Rate (November, 2017)
Austin	4.5%	2.8%
Dallas-Fort Worth	3.1%	2.8%
Houston	0.3%	1.8%
San Antonio	3.3%	2.9%
Texas (Statewide)	1.4%	2.7%

Let’s treat Houston as an outlier (albeit, a large one) because of low oil and gas prices, followed by Hurricane Harvey. Looking at the remaining geographies, each grew at quite similar year over year rates in November, 2017 - between 2.7% and 2.9%. Given the similarity of those growth rates, is it possible that the best explanation for slowing job growth in the Austin metro area is that the Austin economy is reverting to the mean? Have the competitive edges that fueled the Austin area’s rapid growth been blunted, resulting in an economy that looks less weird and more in-line-with-statewide-averages?

We’ll update this data visualization as new data are released, and with any luck, we’ll get a clearer picture of what trends are developing in the Austin area economy.* In the meantime, cross your fingers for a few more months of strong job growth.






* Or, Amazon will locate HQ2 in Austin, bringing opportunities for many and a whole slew of new questions for the region. One thing it will certainly do is significantly complicate trend lines for economic time series data.