Texas Border Business
Texas Border Business presents a four-part series featuring economic briefings from Luis Torres of the Federal Reserve Bank of Dallas, offering business and community leaders a data-driven view of the forces shaping Texas and the Rio Grande Valley. The presentations, shared during the RioPlex Leadership event organized by RioPlex and executed by its Executive Director, Mario Reyna, explore key trends including stalled job growth, rising artificial intelligence investment, the strength of trade with Mexico, and the outlook for 2026, helping regional stakeholders better understand the economic conditions influencing workforce demand, investment, and long-term competitiveness across South Texas.
By Roberto Hugo González / Texas Border Business
Texas is expected to return to employment growth in 2026, though at a slower pace than the state’s historical average, according to economist Luis Torres of the Federal Reserve Bank of Dallas. His outlook suggests a year of gradual improvement shaped by productivity gains, investment, and continued uncertainty.
Torres said job growth should resume following a year of flat employment, but it is unlikely to reach the long-term trend of roughly 2 percent annual growth. “It’ll pick up from that zero growth in 2025,” he said, “but probably will not get to that historical average.”
The forecast was shared during the RioPlex Leadership event, where regional stakeholders examined economic signals affecting South Texas and the Rio Grande Valley. The gathering was organized by RioPlex and executed by its Executive Director and Board Secretary, Mario Reyna.
Torres said several forces are expected to support activity in 2026. Investment tied to artificial intelligence, data centers, and infrastructure is likely to remain strong, continuing to bolster economic output. Easier financial conditions and federal fiscal measures could also provide additional momentum.
At the same time, productivity gains are expected to keep labor demand in check. Torres noted that innovation allows firms to expand without hiring at the same pace seen in previous growth cycles. “Productivity gains are keeping labor demand in check,” he said.
Labor supply constraints remain another limiting factor. Torres pointed to slower domestic and international migration into Texas, which has reduced the pool of available workers. As a result, even as demand improves, hiring may remain restrained.
Several headwinds could weigh on growth. Torres identified weakness in residential construction as an ongoing concern, noting that the housing market has yet to fully recover. Lower oil prices may also dampen activity in the energy sector, which has traditionally provided an added boost to the state economy.
Federal funding decisions present additional uncertainty. Torres said potential reductions in support for healthcare and education could affect both employment and services, particularly in regions that already lag behind national averages in those areas.
Business sentiment, however, remains cautiously optimistic. Surveys conducted by the Federal Reserve Bank of Dallas show that while firms continue to cite slowing demand as their top concern, expectations for future business activity and capital spending have improved.
Torres also highlighted the role of international events and trade. Large-scale global events are expected to provide a temporary lift to economic activity, while continued trade with Mexico remains a source of stability for Texas exports and manufacturing.
Summarizing the outlook, Torres described 2026 as a year of modest recovery rather than rapid expansion. Employment is expected to grow, but gradually, shaped by technology, productivity, and structural changes in the economy.
For regional leaders, the forecast reinforces the need for long-term planning. As the Texas economy evolves, preparing workers for technology-driven industries, supporting infrastructure, and strengthening cross-border ties will be central to sustaining growth in South Texas and beyond.
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