Texas A&M: Economy On A Post-Pandemic Recovery Path

The Texas economy initially suffered more economic losses because of the COVID-19 pandemic than any previous crisis, according to Luis B. Torres, a research economist with the Texas Real Estate Research Center at Texas A&M.

One main reason is the downturn in the oil industry that occurred at the same time as the pandemic.

“It was a double whammy,” he said. “For example, between March 14 and April 4 of last year, the number of Texans laid off from their jobs skyrocketed from 18,445 to 314,239. This was far more than we saw in any previous recession, including the financial crisis of 2008-2009.”

Now, however, Torres said the Texas economy appears to be getting back on track. He bases his optimism on data produced in recent weeks by the index he developed to measure COVID-19’s effects on the state’s economy.

“It uses leading economic indicators — things like unemployment claims and new business applications — to tell us what’s going on in the right now and where the economy might be headed,” he said.

Torres compiles his findings into weekly reports available online and to subscribers. For each report, he analyzes data from the Texas weekly leading indicator, which covers new business applications, initial unemployment claims and inflation-adjusted oil prices and interest rates.

He also looks at weekly continuing unemployment claims and the number of new COVID-19 cases to determine how the economy is recovering from the pandemic.

“The news across these categories is good,” Torres said. “First, oil prices are above $60 per barrel, and demand for oil and natural gas is expected to recover this year as economies around the world rebound from the pandemic.”

In addition, Torres said that as of May 22, the state had seen eight straight weeks of drops in the number of initial jobless claims — the lowest level since before the pandemic.

“This is progress, but we still need to add almost 446,000 jobs before we reach the number of jobs we had before the pandemic,” he said.

Finally, Torres noted the real rate for the 10-year Treasury bill and the real price of West Texas Intermediate oil.

“Treasury bills are a good indicator of the cost of capital in the market,” he said. “Although their real rate has decreased slightly in recent weeks, we expect this to turn around as interest rates continue to climb during the economic recovery.”

Likewise, Torres said oil prices have dipped slightly in recent weeks but should continue to increase.

Torres noted several factors that might cause the Texas economy’s upward trajectory to falter.

“There is reason to be optimistic, but there is also reason to be cautious in making such predictions,” he said.

As an example, he noted that while leading indicators show the direction of economic change, they do not measure the magnitude of change. In addition, economists gain a better and more accurate understanding of the relationships between these variables when they have many business cycles to analyze. The pandemic represents just one business cycle.

In addition, Torres said that while more people become vaccinated against COVID-19 and the number of new cases continues to drop, any new waves of infections would almost certainly derail the state’s economic progress.

“But for now, at least, the data show that the Texas economy is gaining momentum with the prospect of higher future economic activity,” he said.