The deep contraction in the Texas oil and gas sector seems to be over, though a full rebound remains elusive, an economist in the state said.

A survey of July data from the Federal Reserve Bank of Dallas found the state added a seasonally adjusted 21,700 jobs, the fastest pace so far this year. The bank, however, said it expected the rate of employment to grow by 0.8 percent for the rest of the year, compared with growth of 1.3 percent last year.

Karr Ingham, an economist who created a so-called petro index to gauge the health of the industry, said there were "encouraging signs" that the worst was over for the No. 1 oil producer in the country, though some metrics still suggested the state may still be skimming the bottom of a downturn.

By his estimate, total crude oil production in July was 98.7 million barrels, about 7.8 percent less than July 2015. Oil prices, meanwhile, were 20 percent lower year-on-year. For natural gas, the production of 708.9 billion cubic feet was lower by 5.2 percent, while prices declined 9.3 percent from July 2015.

The workforce, however, increased by 100 and the number of drilling rigs deployed in the state, a loose barometer of industry confidence, is at its highest level since March. According to Ingham, however, those trends were offset by fewer permits for new drilling and fewer well completions.

Crude oil prices are recovering from below the $30 range from early 2016, though trends since early July show volatility in the industry remains, with lows of $40 per barrel and highs near $50 per barrel recorded. Data from Baker Hughes show the state added four drilling rigs for the week ending Sept. 2, but the level was still 134 less than the same week last year.

The state bank warned earlier this year that the pressure from low oil prices was spilling over to other parts of the economy, with banks in southern U.S. states facing increasing risk.

Despite the monthly gains in hiring, the bank said the rate of unemployment increased in eight of the nine major metropolitan areas. The Houston area, where many energy companies have their headquarters, saw the unemployment rate in July increase from 4.9 percent to 5.4 percent.