August 5, 2022
The Dallas-Fort Worth economy expanded significantly in June. Payroll employment grew at an annualized rate of 3.2%, bolstering growth in the Dallas and Fort Worth business cycle indices. In late July, restaurant dining was slightly below pre-pandemic levels and COVID-19 cases were trending up. Activity in the office market continued to pick up in the second quarter, driving down vacancy rates, and industrial leasing and construction remained remarkably strong.
Payrolls in DFW rose 7.9% annualized (77,100 jobs) in the second quarter, consistent with gains seen in the first quarter (Chart 1). Growth was broad-based across all sectors. Employment in the goods sector rose 5.7%, as payrolls rose in both manufacturing (6.9%, or 5,000 jobs) and building and construction (4.3% , or 2400). On the services side, leisure and hospitality led the growth (17.3%, or 15,900 jobs), followed closely by professional and business services (14.4%, or 25,100). The payroll in the “other services” sector rebounded after contracting in the previous quarter.
Business cycle indices
The Dallas and Fort Worth business cycle indices continued to rise strongly in June, supported by strong job growth and low unemployment. The Dallas index climbed 10.8% annualized, marking the 25th consecutive month of growth, and 16.9% from its pre-pandemic peak (Chart 2). The Fort Worth index rose 4.1% at an annualized rate, surpassing its pre-pandemic peak by 6.3%.
After a decline in cases in the spring of 2022, the seven-day average of daily new COVID-19 cases in DFW began to increase in May and increased further in June and July (Chart 3). Community spread has recently increased due to the highly contagious BA.5 subvariant. As of July 21, the number of cases was 29 per 100,000 population. COVID hospitalizations are also on the rise and are expected to return to high levels by the end of August if current trends persist, according to projections from the University of Texas Southwestern Medical Center.
As the omicron variant of COVID-19 surged earlier this year, the number of sit-down dinner reservations at Dallas restaurants turned negative, falling below pre-pandemic levels to hit a low of -33.9% at the beginning of February. As the initial wave of omicron receded, sit-down restaurant reservations soared and largely tracked 2019 levels from March to May. Since then, activity in Dallas has seen greater fluctuations and was 10.5% below 2019 levels as of July 20, based on a seven-day moving average (Chart 4). Restaurant activity in Texas was strong at 12.3% above 2019 levels, while the United States was 4.1% below.
Commercial real estate
Demand for office space slows; Decline in vacancy rate
Demand for office space at DFW slowed in the second quarter but remained positive. Net uptake was 556,000 square feet, or one-third of the first-quarter total, according to data from CBRE Research (Chart 5). The vacancy rate fell again, from 24.6% in the first quarter to 24.0% in the second. Sublease space availability reached 9.4 million square feet, or 14.7% of total available space, with Class A properties accounting for well over 70% of sublease listings. The volume of space under construction reached 5.9 million square feet in the second quarter. Business contacts expect demand to continue to recover this year given the positive outlook for the DFW labor market.
Industrial leasing remains strong
The strong momentum in industrial leasing continued in the second quarter, driven by demand from wholesalers, retailers, manufacturers and logistics providers. Net absorption was 9.7 million square feet, marking the 47th consecutive quarter of positive absorption, according to CBRE (Chart 6). The vacancy rate climbed to 5.1%, partly due to an increase in square footage of new construction. The pandemic has spurred growth in online sales, which has been a boon for fulfillment centers such as DFW. Industrial construction continued to expand in the second quarter, reaching a new high of 62.8 million square feet, with just over a quarter of pre-vacated space. DFW ranks #1 among US metros in area under construction.
NOTE: Data may not match previously published figures due to revisions.
About the Dallas-Fort Worth Economic Indicators
Questions can be directed to Laila Assanie at [email protected] Dallas-Fort Worth Economic Indicators is released monthly after the release of state and metro employment data.