Texas Economy Drags Amid Trade and Immigration Battle

A new report from the Federal Reserve Bank of Dallas shows that Texas’ economy is slowing as job growth narrows, construction declines and inflation increases.

According to a new report from the Fed’s Texas Business Outlook Surveys, President Donald Trump’s (R) aggressive trade and immigration policies in the first half of his second term have created uncertainty for industries that are heavily dependent on immigrant labor and international trade.

“Certainly from the private sector, this volatility obviously creates uncertainty,” said Ed Hirs, an economist and energy fellow at the University of Houston. “I would delay any investments, and really anything I’m doing. It’s pretty clear the economy is on a path to recession. It’s pretty clear the economy is on a path to inflation,” he warned.

Texas’ job growth fell 1.3% in June, with year-to-date growth at 1.8%.

Businesses cited workforce disruptions tied to immigration enforcement. Ray Perryman, a longtime Texas economist, estimated that undocumented immigrants make up half of the state’s agricultural workers, 40% of construction workers and 30% of hospitality workers.

“If you want to build anywhere, grow anywhere or go anywhere, you really need these folks,” he argued. However, despite the reported slowdown, Texas is outperforming the national economy.

Texas’ June job growth rate exceeded the U.S. average of 0.7%, and its unemployment rate dropped to 4%. Luis Torres, a Dallas Fed economist and the report’s author, credited Texas’ diverse economy with helping it combat downturns.

Inflation remains modest, but the consumer price index rose in May after months of decline.

The report warned of “the beginning of tariff pass-through,” with the effective U.S. tariff rate jumping to 17.5% from 2.4% earlier this year.

Construction activity is faltering, with contract values down 26% since January and home values down 7%.

Trade uncertainty is driving cancellations and delays, said Ken Simonson, the chief economist of the Associated General Contractors of America. “Ever-changing announcements about tariffs… are making owners hesitant to commit to new projects,” he added.