- Texas is outpacing most states in population and GDP growth, a Wells Fargo analysis found.
- Job growth is still increasing in many sectors such as manufacturing and healthcare.
Texas is becoming the poster child of the US economy.
A new Wells Fargo analysis determined that Texas is outpacing many states regarding GDP and employment growth, despite some struggles in commercial real estate.
These findings echo a Bank of America report from earlier in December that determined the Southeast's economy may outpace other regions of the US.
In 2023, Texas experienced the third-fastest growth in terms of population, increasing 1.6% between July 2022 and July 2023 — compared to 0.5% nationwide. This amounted to about 473,000 new residents, many moving from different states.
In 2023, net domestic migration — the number of people who moved into Texas from another state, minus those who moved out — was around 187,000 people, second to Florida. Between 2021 and 2022, more than 668,300 people moved into Texas overall — over 102,000 from California — according to Census Bureau data. An additional 128,500 people came from other countries between July 2022 and July 2023.
Texas' economy is growing fast and adding jobs
Compared to the country's 4.9% GDP growth in the third quarter, Texas had 7.7% growth. Texas has also far outpaced US real GDP growth for the last five quarters, positioning the state to become a "superstar economy." Texas is outpacing all but six states in real GDP growth since the fourth quarter of 2019 at 12%.
Wells Fargo predicts that Texas' growth will slow in 2024 but will still remain elevated in the long run, as employers in Texas have recently slowed their hiring pace, particularly in tech. Unemployment in Texas, which measures 4.1%, is slightly above the national average at 3.7%.
Austin's unemployment rate of 3.5% in October, lower than the state's other major cities, has risen from below 3% in mid-2022 amid a hiring slowdown in sectors such as information and professional and technical services. Still, manufacturing hiring is still strong, particularly in energy production and construction, and education and healthcare have also seen modest increases due to population growth.
Texas added 26,800 jobs in November even amid a hiring deceleration. Wells Fargo analysts noted Texas has seen employment growth faster than many states at 3% year-over-year in November — above the national average of 1.8%. Payrolls have increased in Texas by almost 24% since January 2020.
A promising real estate future
Wells Fargo predicts Texas' real estate market may improve over the next few years after high mortgage rates led to a fall in home sales. Comparing November 2023 and November 2021, home sales have fallen 31% — though new home sales have been more resilient. Overall, Texas home prices are still rising but slower than in the first two years of the pandemic, though home prices have fallen nearly 13% in Austin since peaking in July 2022.
As homebuying activity has stabilized over the last few months, Wells Fargo sees improving housing activity provided the Federal Reserve eases policy next year, which will lower financing costs.
Austin remains one of the country's most expensive cities, though it has also built housing at a faster rate than most US cities recently. Upzoning measures have been passed to make housing more affordable for lower- and middle-income residents.
Commercial real estate has struggled statewide despite continued demand in the hotel, retail, and industrial sectors, especially as the state plows ahead on retail construction. The Dallas-Fort Worth metro has the most industrial space under construction of any market nationwide.
Still, vacancy rates have increased, office space is in less demand, and new construction in some sectors has decelerated. Per Wells Fargo, office vacancy rates are 18.7% in Houston and 17.8% in Dallas.