DALLAS, Texas - A big reason for the drop off in job growth is less immigration, a new report from researchers with Federal Reserve Bank of Dallas states.
Net domestic migration to Texas has slowed, the report points out.
The report, with 30-plus pages of charts, is titled “The Twists and Turns of 2025 and a Look Ahead.” It was penned by Dallas Fed economists Pia M. Orrenius and Robert Leigh. They say the report provides an economic outlook on Texas for 2026.
In their introduction, the researchers provide these bullet points:
▪ Texas’ economy slowed in 2025
▪ Output growth was below average, and job growth was near zero
▪ Higher tariffs, falling immigration, federal government cutbacks & widespread policy uncertainty contributed to lower growth
▪ Texas also contended with job losses in energy and high-tech and a
downturn in residential construction
▪ Outlook for 2026 calls for a pickup in growth
▪ Momentum in AI investment and data center construction will carry forward
▪ Fiscal policy will add to growth, as will easier financial conditions and deregulation
▪ FIFA World Cup!
▪ Headwinds include labor supply constraints, residential housing markets, low oil prices, and cuts to safety net programs
▪ Outcome of USMCA renegotiation also pivotal for Texas
On Employment and Economic Activity, Orrenius and Leigh point out that Texas job growth fell to near zero in 2025. They say U.S. job growth could also be near zero after benchmark revisions. Meanwhile, GDP growth held up in both Texas and the U.S. Headline unemployment remains low, but broader jobless measures are rising, they say.
On Domestic and International Migration, Orrenius and Leigh says a big reason for the drop off in job growth is less immigration. They say net domestic migration to Texas has also slowed.
The report provides a wealth of information about Construction and Real Estate. The researchers say Texas job growth has been concentrated in the Construction and Health sectors. Construction contract values recovered in the middle of the year mid despite declining residential construction. The recovery was driven by growing non-residential activity and by soaring non-building activity.
The construction of data centers is playing a big part, the report points out. Growth in data center construction has far outpaced overall construction activity since 2022, with Texas second among states for data center construction (behind Virginia).
Meanwhile, Rrsidential construction in Texas has been suppressed by falling prices and high mortgage rates, the report states. Existing homeowners have also struggled due to rising insurance costs. High insurance costs and property taxes may be contributing to rising delinquency rates, which are now above the 2019 level.
On Energy, data centers and other large users will be driving an expected increase in peak grid demand in Texas, Orrenius and Leigh say. Electricity prices are beginning to rise in top data center markets, but less so in Texas. And oil prices are muted and below breakeven for new wells.
The report also looks at International Trade & Tariffs. After front-running, U.S. imports have fallen under the pressure of tariffs, while USMCA compliance has increased sharply to avoid higher tariffs. Despite tariffs, Texas firms see an easing in price growth going forward.
Texas businesses report improving outlooks, the report says, with the researchers forecasting employment growth in Texas in 2026 to be 1.1 percent.
There are other worries besides growth, the report states, with Texans’ uninsured rate projected to rise.
For their conclusion, the researchers provide these bullet points:
▪ Texas grew in 2025 without adding jobs, this hasn’t happened since the jobless recovery of 2002-2003.
▪ Despite this, there are few signs of broad-based labor market slack, and the headline unemployment rate is relatively low and stable
▪ Job growth should pick up in 2026, but it will be mild
▪ Productivity gains are suppressing hiring, while the immigration crackdown is limiting labor supply
▪ A continuing AI boom and OBBBA tax provisions will likely boost activity, while low oil prices and a residential construction bust are a drag on growth
▪ FIFA World Cup will be an additional boost
▪ Other concerns that bear watching include safety net cuts and federal funding reductions, especially to health care and education
Editor's Note: Click here to see all the charts.
