AT A popular café in Sweetwater, Texas, a lunchtime crowd gathered for a home-style spread of chicken, brisket, beans, corn and cobbler. A group of men passed the time talking about their children, the oil business, and big-government liberals: how, exactly, were they planning to pay for their stimulus package? The men had reason to complain: oil is trading at less than $50 a barrel. Still, they were sanguine. A man from Coahoma even had a sympathetic word for Barack Obama: he himself had been on the city council for 12 years, and it was nothing but a headache.

Their calm is not so surprising. Times are tough in Texas, and things will get worse before they get better. But compared with what has happened in other states, Texas's wounds are scratches.

Until recently some watchers thought Texas could dodge the downturn altogether. The state began 2008 in fighting form. In January 2008 unemployment was just 4.4%, according to the Texas Workforce Commission (TWC). Important parts of the economy such as manufacturing, exports and energy were soaring. The state added thousands of jobs each month, more than any other state, although unemployment kept inching upwards. The housing crisis looming over much of the country seemed manageable; home prices had never reached stratospheric levels.

Then things changed. Tom Pauken, the chairman of the Texas Workforce Commission (TWC), says the trouble started when Hurricane Ike made landfall last September. The storm caused billions of dollars' worth of damage to Houston and Galveston and, just as the state was picking up the pieces, Hurricane Wall Street roared in. Here, as in housing, Texas was not especially hard-hit. But it was hit hard enough. “We can't control our situation any more because of the credit issues,” says Mr Pauken.

Now there is almost nowhere to hide. Exports have fallen since the dollar started to strengthen against the euro and the pound. Manufacturers are reporting sharp declines in production, new orders and shipments. Almost half of those included in a monthly survey by Federal Reserve Bank of Dallas have cut jobs. Oil and natural-gas prices are down.

Tech companies in Austin, including Dell, AMD and Freescale, have cut hundreds of jobs. Southwest Airlines, based in Dallas, plans to reduce its fleet. Peanut farmers are struggling after a salmonella outbreak killed eight people around the country and spooked customers.

In December 2008 and January 2009 the state lost tens of thousands of jobs. Unemployment reached 6.4% in January. (That was more than a point below the national level, 7.6% in January.) And the worst is to come. Susan Combs, the state comptroller, has estimated that Texas will lose 111,000 jobs in 2009. Keith Phillips, a Fed economist based in San Antonio, has a gloomier perspective: he recently predicted that almost 300,000 jobs will go.

There are some bright spots. Builder, a trade publication, recently ranked America's healthiest housing markets. The five top spots went to Houston, Austin, Fort Worth, San Antonio and Dallas—all in Texas. The number of starts had slowed in each city, but all added jobs and people in 2008. “We've seen better days, but we're not pitiful,” says Kay Vinzant, of the Heart of Texas Builders Association.

Education and health care are growing along with the population. The state's energy industry has become more broad-minded. Ten years ago Sweetwater was a dusty backwater best known for having the world's largest rattlesnake round-up (see article). Today it is the windpower capital of the country.

Ray Perryman, an economist who focuses on Texas, mentions another point of solace: state finances are in reasonably good shape. The comptroller, in her biennial revenue estimate, predicted that Texas would have about $77 billion to spend in 2010-11: down 10.5% from the previous round, because of declining sales and property taxes. Fortunately the state has several billion dollars in its Economic Stabilisation Fund, set aside against the possibility of a downturn. With Texas's share of the federal stimulus set at $17 billion, the state may not even need to tap this “rainy day” fund. But even if it comes through the downturn in relatively good shape, there is the future to worry about. Many now fear that Texas's low-tax, low-spend model will need revision.