1. Keith Phillips, Sr. Economist and Research Officer 2014 Mid-Year TX Economic Outlook: Strong Growth to Continue

2. National Economy Picking Up Last year, international weakness, policy uncertainty, sharp cuts in federal spending, and increased regulation restrained consumer and business spending. Meanwhile housing sector, consumer finances, and state and local government improved. Growth picking up this year – despite slower growth due to weather in first quarter, strong second quarter bounce back - healthier growth likely to continue in rest of the year

3. Home Construction Has Picked Up – Weather Impacted Q1 Data

4. Home Prices Increasing

5. Lower Prices and Interest Rates Helping Housing Affordability – No Bubble Now Source: NAHB - Wells Fargo Housing Opportunity Index (Percent of homes sold for which the median family income could qualify) 1999:Q42014:Q2Low Point Date of Low Point United States6463402006 : Q3 Los Angeles43182 2006 : Q1/Q2/Q3 New York552352006 : Q3/Q4 Miami5948102007 : Q1 Austin5660502000 : Q4 Dallas6456542007 : Q3 Houston6656472007 : Q3 San Antonio6461472006 : Q3

6. Household Balance Sheets in Better Shape

7. Job Growth Persistently Above 200K per Month Over Past 6 Months

8. U.S. Leading Index Suggests Continued Good Growth over Next 6 Months

9. RGDP Grew 3.1% in 2013, August Blue Chip Survey Projects 2.9-3.0% Over Next Four Quarters

10. In Past Several Years, Texas Economy Has Grown Above Trend and Stronger than Nation In past three years growth in energy, construction and exports provided a stimulus to Texas. In 2013 manufacturing and federal government slowed somewhat. Energy and residential construction grew strongly but moderated. This year I expect strong job growth around 3.5% - faster than 2013 (2.7%)

11. Texas Economy Growing Above Trend (Texas Business Cycle Index)

12. Texas was Third Fastest Job Growth State in 2012

13. While Texas Slowed in 2013, It Remained Well Above the National Average

14. Texas Continuing to Lead Most States

15. Texas Jobs Growing Faster Than Nation’s

16. Texas Unemployment Rate Has Continued to Fall Sharply since Second Half of 2013

17. Job Growth Broad-Based Across Industries

18. Texas Construction Contract Values Continue to Increase

19. TX Home Inventories Remain at Historically Low Levels

20. Delinquent Mortgages Increased Slightly, but Foreclosures in TX fell to Lowest in Decades

21. Texas Mortgages Less at Risk of Default

22. Low TX Office Vacancy Rate Corresponding to Increasing Office Construction

23. TX Manufacturing Production and Orders Improving Since mid-2013

24. Texas Exports Increasing Faster than U.S.

25. Energy Prices, Drilling Rig Count Increased in First Half of 2014

26. Texas State and Local Government Jobs Growing after 2011 Fiscal Cliff

27. All Texas Metros Moved From Recovery to Expansion Long Before U.S.

28. Recent Gains in TLI Indicators Strong and Broad-Based

29. 2014 Texas Job Growth Likely to be about 3.5%

30. Summary U.S. economy hit hard by cold weather, snow in first quarter – rebounding since then. Texas has accelerated in first half of year with strength across a broad range of industries. In second half of 2014 most sectors will continue strong. Texas job growth likely will be faster this year than last – around 3.5% San Antonio continues to do well despite the cuts in federal government spending – going forward labor supply will likely be a constraint on job growth

31. San Antonio Economic Indicators Monthly San Antonio Economic Indicators available Includes analysis of regional business conditions, labor and housing markets, and leading indicators Published the fourth Thursday of each month http://www.dallasfed.org/researc h/update/sa/index.cfmhttp://www.dallasfed.org/researc h/update/sa/index.cfm