Texas Border Business
By Roberto Hugo González / Texas Border Business
The Research Department of the Federal Reserve Bank of Dallas presented “The Twists and Turns of 2025 and a Look Ahead to 2026 Texas Economic Outlook” through a virtual broadcast from Dallas in February 2026 at the offices of Atlas, Hall & Rodriguez, LLP. (AHR), attorneys and counselors, which hosted the event.
“It was our pleasure to host friends and clients at our McAllen office,” said Danny Gurwitz, Managing Partner of Atlas, Hall & Rodriguez, LLP. “Understanding statewide current economic data and trends and comparing it to what we see locally is essential for informed decision making, and we were glad to provide an opportunity for our guests to gain valuable insights from The Research Department of the Federal Reserve Bank of Dallas.”
The presentation was delivered by Pia Orrenius and Robert Leigh of the Federal Reserve Bank of Dallas. Orrenius serves as Vice President and Senior Economist, leading the regional and microeconomics research group with a focus on economic growth, labor markets, and demographic change. Leigh is a research analyst who contributes to economic analysis on Texas activity, labor markets, and business sentiment.
See the gallery below for more images from the event:
According to the presentation, “the Texas economy experienced a notable slowdown in 2025,” marked by near-zero job growth and below-average output expansion. Texas job growth fell to about 0.1 percent while GDP grew roughly 2.6 percent, indicating output expanded without proportional hiring. The report compares the pattern to the “jobless recovery” of 2002–2003.
The slowdown was attributed to higher tariffs, falling immigration, federal government cutbacks, policy uncertainty, job losses in energy and high-tech sectors, and a downturn in residential construction. Still, the outlook for 2026 calls for a pickup in growth supported by “momentum in AI investment and data center construction,” along with fiscal support, easier financial conditions, deregulation, and economic activity tied to the FIFA World Cup.
Headline unemployment remains relatively low at about 4.3 to 4.4 percent, but broader measures of underemployment are rising. The presentation notes that “productivity gains are suppressing hiring, while the immigration crackdown is limiting labor supply,” as both international and domestic migration into Texas have slowed.
Job growth is concentrated in construction and health services. Residential construction is declining due to falling home prices and high mortgage rates, while non-residential activity has increased. “Growth in data center construction is far outpacing overall construction activity since 2022,” with projects totaling $18.3 billion, or 9.6 percent of construction in 2025. Texas ranks second nationally in data center construction.
Housing pressures are also emerging. Rapid increases in homeowners’ insurance costs and rising mortgage delinquency rates, now above 2019 levels, may be adding strain. In energy, peak grid demand is expected to rise due to large users such as data centers, while oil prices remain “below breakeven for new wells.”
Trade conditions shifted after tariff-related frontrunning, with imports falling sharply, especially from China. However, firms reported easing price growth expectations, and USMCA compliance has increased to avoid higher tariffs, with future renegotiations described as “pivotal for Texas.”
Texas businesses reported improving expectations for future activity and capital expenditures. The Dallas Fed employment forecast projects 1.1 percent job growth for 2026, suggesting expansion at a modest pace.
The presentation concludes that Texas remains economically resilient but is transitioning toward a more productivity-driven, capital-intensive expansion. Job growth is expected to pick up but remain mild as AI investment supports activity while low oil prices and housing weakness continue to weigh on growth.
