A new outlook projects stronger employment growth in Texas for 2026, though researchers say immigration limits, weaker business sentiment and geopolitical tensions could curb momentum.

Texas is now expected to add nearly 280,000 jobs in 2026, according to a model-based forecast released Friday by the Federal Reserve Bank of Dallas. That would translate to a 1.9% annual employment growth rate, a pace closer to the state’s long-term growth trend and stronger than earlier estimates.

Stronger Start to the Year Lifts Forecast

The revised outlook follows solid job gains in December and January, which helped improve the state’s employment picture after a sluggish 2025.

“Texas employment growth strengthened notably in December and January, contributing to an increase in the employment forecast for 2026,” Luis Torres, a senior economist at the Dallas Fed, said in a release.

The Dallas Fed said its forecast is based on an average of four models using projected national GDP, oil futures and a range of Texas and U.S. economic indicators. Recent labor data helped drive the higher estimate. In January, Texas employment grew at an annualized rate of 2.3%, following a 2.2% annualized increase in December. Dallas Fed researchers said January alone accounted for 27,000 jobs, with major gains in construction, leisure and hospitality, education and health care services, and professional and business services.

Forecast Still Comes With Significant Caution

Despite the stronger headline number, Dallas Fed economists said the forecast range remains wide. The bank’s model suggests, with 80% confidence, that employment growth could land anywhere between 1.1% and 2.7% this year. Researchers said they expect the final number to come in near the lower end of that range.

Torres pointed to several factors weighing on the outlook, including lower immigration, higher productivity, softer business activity and growing geopolitical uncertainty.

“Declining immigration is constraining labor supply, higher productivity is suppressing labor demand, business activity captured by our Texas Business Outlook Surveys recently moderated, and geopolitical uncertainty is elevated,” Torres said. He added that higher oil prices would help the state economy only if they remain elevated over time.

Immigration Limits Continue to Weigh on Growth

The lower end of the forecast, 1.1%, matches the Dallas Fed’s February projection. That earlier estimate came after Texas added almost no jobs in 2025, a sharp slowdown that economists linked largely to labor supply challenges tied to the Trump administration’s immigration crackdown.

Pia Orrenius, another senior economist at the Dallas Fed, said in February that Texas is unlikely to return quickly to its traditional pace of job growth because of those labor constraints. Even so, she described the outlook as relatively favorable given the circumstances.

Major Texas Metro Areas Showed January Gains

All of the state’s major metro areas posted strong employment growth in January, according to the Dallas Fed. Dallas recorded job growth at a 4.8% rate, while Fort Worth grew at 2.9%. Austin and San Antonio expanded even faster, both at 5.9%, although unemployment also edged higher in those two markets. Jobless rates in Dallas and Fort Worth remained unchanged.

National Hiring Data Offers Mixed Signals

The improved Texas forecast arrives as the national labor market also showed fresh strength. A Labor Department report released Friday said U.S. employers added 178,000 jobs last month, far above economists’ expectations, with construction and health care leading the gains.

Still, analysts cautioned against reading too much into that number. The increase followed a weak February, when the country lost more than 130,000 jobs, according to Bureau of Labor Statistics figures. Some of the gains in health care were also linked to Kaiser Permanente employees returning to work after a strike.

Stephen Brown, chief North America economist at Capital Economics, said the stronger March data mostly reflected a rebound from temporary disruptions rather than a major acceleration in labor market strength. He also warned that higher oil prices could create additional economic pressure.

Business Surveys Suggest a More Cautious Mood

Other recent data from Texas businesses points to a more restrained outlook. A Dallas Fed survey of manufacturing executives showed slower growth in March than in February, while a separate survey of service-sector leaders found revenue was nearly flat.

Executives in both sectors also reported a weaker outlook for future business activity and rising economic uncertainty. Many specifically cited the war in Iran as a growing concern.

For now, the updated forecast offers a more optimistic view of Texas job growth in 2026. But economists say the state’s labor market still faces meaningful obstacles that could limit how much momentum it can sustain through the rest of the year.