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Moody's experts predict Texas cities will lead the recovery

Texas cities will outpace the rest of the country coming out of the recession.

But that doesn't mean there won't be bumps in the road to recovery, the folks at Moody's Analytics said Tuesday at their annual Dallas economic confab.

There's still some bad news – more woes in store for the battered real estate sector. But Moody's predicts that Texas will find new jobs in health care, high tech and energy.

"This region really does lead the nation in terms of recovery and will be one of the first regions to achieve a new employment peak," Steven Cochrane, Moody's Analytics' managing director, told more than 100 local businesspeople at the session. "The recession was just so shallow here because the housing cycle was shallow.

"Income growth was more stable, and state fiscal conditions are better," he said. "There is a smaller hole to dig out of."

Jobs picture

Moody's is forecasting that most Texas markets – including the Dallas-Fort Worth area – will have made up for employment lost during the recession and be adding jobs by late next year or early 2012.

"The central part of the country and all of Texas will be among the first to reclaim all of its lost jobs," Cochrane said.

The Dallas area is expected to increase employment by about 1.5 percent in 2010 and 3 percent in 2011.

Oil and gas and high tech will be among the sectors that drive job creation in Texas during the next few years, Moody's predicts.

The just-passed federal health care legislation could also add significantly to the employment base, since Texas is one of the states with the highest percentage of consumers who lack medical insurance.

Big growth driver

"We will probably see this as a big growth driver in all of the South long term," Cochrane said.

Moody's analysts aren't bullish about the country's housing market. They expect further weakness this year and a slow turnaround when it comes.

"Foreclosures are at best peaking now," Moody's Analytics director Edward Friedman said. "Maybe it will be another three or for months before they finally peak completely, and we see the true turnabout we need to believe the housing market is headed on the right track."

That's why Moody's is forecasting further declines in nationwide home prices during the next six months. "We think another 5 or 10 percent," Friedman said.

The drag of housing

Unlike in most economic rebounds, the housing market will continue to drag, he said.

"The housing sector – isn't that the sector that leads the recovery?" Friedman said. "Not this time."

Moody's estimates that U.S. households have lost almost $6 trillion in housing values during the recession.

"The rebound so far has only been in the stock market," Friedman said. "You are not getting your housing construction rebound."

Texas home prices aren't likely to see much of a bounce during the next couple of years, the analysts predict.

"Housing isn't a significant driver in the Texas economy right now," Cochrane said.

Moody's also has red flags flying over the U.S. commercial real estate market but doesn't think commercial price adjustments will hurt the economy as badly as the housing sector shakeout has.

"Nonresidential construction is pretty far down," Friedman said.

"How much further down could it go?"