Dallas Fed Projects Texas Job Growth Slowing to 1.2 Percent in 2026

The Federal Reserve Bank of Dallas forecasts that Texas employment will rise by 1.2% in 2026, a significant deceleration from the state's historical average of 2%. The bank projects the addition of approximately 173,600 jobs this year, which would push total statewide employment past 14.5 million by December.

Dallas Fed senior business economist Luis Torres attributed the projected slowdown primarily to labor supply constraints rather than weakening demand. He noted that these constraints are reflected in the state's first-quarter benchmark revisions. While Texas population and business growth have historically outpaced the national average, Torres indicated that the labor market itself is now the binding factor limiting how quickly the state can add workers.

Year-to-date job growth stands at 1.0%, following a nearly flat July. August showed a rebound, with the state adding 18,500 jobs at an annualized rate of 1.6%. This monthly swing highlights the volatility in current hiring trends. The August gains were driven by professional and business services, construction, government, manufacturing, and leisure and hospitality. Financial services, trade and transportation, and education and health services also contributed to the increase.

Conversely, oil and gas employment remained flat for the month, while other services and information sectors recorded losses. The state's Leading Index declined over the three months ending in August. This drop was influenced by lower oil prices, reduced average weekly hours, and softness in the Texas Stock Index. However, the index's decline was partially offset by decreased unemployment claims and an uptick in well permits, suggesting the economic slowdown is not uniform across all sectors.

The Dallas Fed's 80% confidence band places 2026 job growth between 0.8% and 1.6%. The next update on employment projections is scheduled for October 16. For commercial real estate stakeholders, the distinction between supply-side constraints and demand-side weakness is critical. A tighter workforce pool may still support rent growth even as headline job totals moderate, though slower employment gains generally track with reduced tenant demand for office, industrial, and multifamily properties.

Construction and manufacturing performed strongly in August, indicating continued activity in industrial and multifamily development pipelines despite elevated financing costs. A recent Texas real estate forecast suggests similar momentum moderation heading into 2027. Investors are monitoring whether job growth stabilizes near the 1.2% projection or drifts toward the lower end of the confidence band, particularly in submarkets tied to the state's industrial pipeline. The coming data will reveal if August's rebound was a temporary spike or if labor supply constraints continue to weigh on hiring.