Economic data from Texas suggests a potential downturn, according to the Dallas Federal Reserve
The Texas economy is currently experiencing a notable slowdown, as indicated by slower job growth, increased costs, and labor force challenges. This economic downturn is occurring during the Trump administration's reshaping of global trade and immigration policy.
Economic Growth and Labor Impact
Texas' economic growth has slowed compared to 2024, but remains above the national average. Stricter immigration enforcement and less interstate migration have reduced labor force growth, which is crucial since Texas industries heavily rely on immigrant labor. Despite this, the state's unemployment rate remains relatively low, near 4%.
Trade and Tariffs
The impact of trade deals on Texas' economy is varied. Tariffs are benefiting some manufacturers competing against imports through reshoring investment but increasing costs for manufacturers integrated into global supply chains, causing transition costs. The Dallas Federal Reserve reports that uncertainty from tariffs is causing businesses to delay investments, raising input costs and contributing to inflationary pressures.
Construction and Inflation Effects
Tariffs have directly impacted the construction sector by raising prices of imported building materials, leading to abnormal construction price inflation. This inflationary pressure, combined with labor shortages worsened by immigration enforcement, is constraining new housing starts and causing construction spending to decline. High mortgage rates, partly due to the Federal Reserve's response to inflation, further suppress home buying.
Trade Uncertainty and Business Climate
Companies with international operations express concerns about the high and erratic U.S. tariffs, making the U.S. a less attractive place for manufacturing. This uncertainty is impacting investment decisions and overall business confidence.
Slower Housing Market and Construction Decline
Residential construction in Texas is 7% lower, indicating a weaker housing market. The report shows construction has decreased across the board in Texas, with the average construction contract value for the past five months falling 26%. The Association of General Contractors of America claimed rapidly changing tariffs were creating cost uncertainty, forcing builders to pause or cancel new projects.
The Dallas Fed survey in late July showed businesses are starting to feel the effects of a loss of foreign-born workers, and the Washington Post reported on Aug. 9 that the administration has also used tariffs to benefit U.S. military interests and individual companies like Chevron and Starlink.
Despite these challenges, the report shows that year-over-year inflation in Texas has increased just 1% as of May, and the Texas unemployment rate declined to 4.0 percent in June, with average hourly earnings increasing 4.9 percent year-over-year. However, the report concludes that low inflation readings are concerning and puzzling, with tariffs not yet showing a significant impact on prices.
The Federal Reserve Bank of Dallas released a report on August 11 indicating that the Texas economy is slowing down. International companies are considering leaving the U.S. due to higher tariffs, according to Michelle Schulz, founder of Schulz Trade Law in Dallas.
References
[1] Dallas Fed. (2025). Texas Economic Indicators. Retrieved from https://www.dallasfed.org/research/economics/indicators
[2] National Association of Home Builders. (2025). Building Material Price Index. Retrieved from https://www.nahb.org/en/research/reports/building-material-price-index.aspx
[3] Texas Workforce Commission. (2025). Texas Labor Market Review. Retrieved from https://twc.texas.gov/news/ifl-releases-texas-labor-market-review
[4] Mortgage Bankers Association. (2025). Mortgage Application Index. Retrieved from https://www.mba.org/industry-research-and-data/mortgage-applications
[5] National Association of Manufacturers. (2025). Manufacturers' Outlook Survey. Retrieved from https://www.nam.org/-/media/files/nam-content-items/manufacturers-outlook-survey/manufacturers-outlook-survey-2q2025.pdf
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