Texas Job Growth Accelerates, Wage Pressures Broaden

Texas employment growth accelerated in the second quarter, with jobs increasing at an annualized 2.4% pace, up from 1.5% in the first quarter, according to the Federal Reserve Bank of Dallas. For the first half of 2026, employment expanded 1.9% annualized, in line with the state's long-run average near 2%. The U.S. grew 0.6% over the same period, giving Texas back its usual one-percentage-point growth premium.

The report, written by senior business economist Laila Assanie and research analyst Robert Leigh, said the Dallas Fed's Texas Business Outlook Surveys point to continued acceleration into the summer. The three-month moving average of the manufacturing employment index climbed to its highest level since early 2023, and the smoothed service-sector index turned up after weakness earlier in the year. Several survey contacts said solid demand had finally prompted them to hire after delaying through the uncertainty of late 2025.

Job gains were broad, led by leisure and hospitality and construction. The Dallas Fed said the data center building boom likely boosted construction hiring, and the FIFA World Cup matches in Arlington and Houston in June and July likely buoyed leisure and hospitality payrolls.

Staffing services payrolls in Texas jumped an annualized 22.0% in the first half, adding 32,000 jobs, versus 3.8% growth nationally. The Dallas Fed treats temporary staffing as a leading indicator because firms can add or cut contract workers quickly. Texas businesses told the Dallas Fed they are using temp hires to keep up with demand, not as a hedge against an uncertain outlook. A recruiting firm said, "[There is] real difficulty finding the right talent when a need does arise," and another contact said, "The past two to three months have been very busy. Many companies…can't find the right talent on their own."

The same pressure shows up on the supply side. Texas' unemployment rate was 4.4% in June, above the national rate of 4.1% in July. More striking, the labor force contracted an annualized 0.7% in the first half, after growing 1.2% a year earlier. The Dallas Fed said the stall will further constrain workforce availability if it persists. In a July special question, 14% of firms said immigration policy changes over the past year had hurt their ability to hire and retain foreign-born workers. Many of those firms said they had shifted toward contract labor and subcontracting as a result.

Data center construction is straining the market for skilled trades. Contacts reported shortages of concrete workers and electricians, with heavy poaching driving turnover and forcing firms to repost jobs filled three to six months earlier. One heavy industrial construction contractor told the Dallas Fed, "We have been paying what I believe to be a very competitive wage for skilled concrete workers, $28–32 per hour. The data centers are offering $45 per hour and a $150 per diem for concrete workers." The shortages echo a widening skills gap documented in hiring across other sectors.

Wage pressures that started in manufacturing are now spreading through the service economy. Average annual wage growth in Texas accelerated from 3.5% to 4.0% between March and June. Manufacturers reported wage growth of 4.8% over the past year, the strongest since December 2023. Service-sector wage growth reversed its earlier downtrend and moved up to 3.8% in June, a sign that pay demands are no longer confined to manufacturing. Expectations for service-sector wage gains over the next 12 months accelerated to 3.5% from 3.0% in March.

A specialty coffee company described the broader pressure: "We are really beginning to see resistance to current wage levels in the café environment, from entry level baristas to café managers. We are also having a very difficult time hiring equipment technicians."

Inflation has overtaken other risks as the top concern among Texas businesses. Nearly half of the Dallas Fed survey respondents ranked inflation among their three biggest worries in June, up from 40% in March and the highest share since the question was introduced in September 2022. Aggregate 12-month expectations have stayed stable: firms expect input costs to rise 3.7% and selling prices to grow 2.8%. Philadelphia Fed firms expected selling prices to rise 2.8% over the next year, slightly lower than the 3.1% they reported in the first quarter. Richmond Fed manufacturing and service-sector expectations ticked up to 3.6% in June from 3.4% in March. The Atlanta and Richmond Feds' national CFO survey and the NFIB's June small-business survey also found rising inflation concerns, and longer-run price expectations remained contained.

The Dallas Fed economists said the responses suggest firms treat inflation as an upside risk to monitor, not a certainty locked into pricing plans. Some of the price anxiety traces to specific shocks. Firms that reported a negative impact from the Iran war in April had significantly higher selling price expectations than unaffected firms, and the same pattern appeared among companies that reported tariff effects in August 2025. Many firms reported no direct impact, though costs can still spread through supply chains.

The surveys also show business output still expanding. The manufacturing production index stayed positive, and the new orders index pointed to moderate demand growth. The service-sector revenue index rose to its highest readings in a year and a half. Other regional Fed surveys and the ISM Purchasing Managers Index also show continued expansion in both manufacturing and services.

Business outlooks have firmed as well. TBOS company outlooks improved in June and July after a weak start to the year. Despite uncertainty over inflation and trade policy, Texas firms are pushing ahead. Demand has held up. Contacts said employees are also asking for higher pay to offset fuel costs and general inflation.

The stronger first half prompted the Dallas Fed to raise its 2026 Texas job growth forecast to 2.0% from 1.1% at the start of the year.