|Texas Border Economy||Texas Border Economy||James P. Gaines, Luis B. Torres, Wesley Miller, Paige Silva, and Griffin Carter||2020-07-23T05:00:00Z||technical-report||Texas Economy|
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Labor-market conditions improved along the Texas-Mexico border as the statewide stay-at-home mandate expired. Nonfarm employment added 14,000 jobs, pushing joblessness down in every border metro except Laredo. Other economic indicators, however, continued to be weighed down by COVID-19-related disruptions. Housing sales were sluggish, as was overall construction activity. Commodity trade values hovered around decades-low levels while restrictions on nonessential travel between the U.S. and Mexico curtailed retail sales. A full recovery is unlikely to be reached until the spread of coronavirus is contained and international crossings return to more normal levels.
Economic activity remained stunted along the border, according to the Dallas Fed's Business-Cycle Indices. Hiring resumed, but still-elevated joblessness and depressed retail sales kept Laredo's index down 67.2 percent on a seasonally adjusted annualized rate (SAAR). The McAllen metric fared nearly as bad, plummeting 65.4 percent. In Brownsville and El Paso, where the local economies averaged about 3.5 percent growth in 2019, the indexes decreased 50.1 and 45.0 percent, respectively. Border crossing data show traffic rebounded somewhat in May after slowing to a halt in the previous two months, but levels were well below normal (Figures 1 and 2). Retail sales along the border will continue to be constrained as long as cross-border traffic is limited, given the importance of purchases of goods and services by Mexican nationals. Currently, nonessential travel restrictions, which ban Mexican tourists from entering the U.S., are in place until August 21, 2020.
Border nonfarm employment recovered 14,000 jobs in May but fell short of the 2 percent growth statewide. The majority of positions added belonged to the leisure/hospitality sector, while state and local government employment declined across the board. The retail sector was the second largest contributor to Brownsville and McAllen's 1,400 and 3,800 total job gains, respectively. The same industry registered net increases in El Paso, where hiring in other services boosted the metro's overall employment by 8,100. In Laredo, mining/logging/construction and professional/business services supported the 700-job-payroll expansion. The transportation/utilities sector, however, registered its third straight monthly contraction, shedding 500 jobs.
On the Mexican side of the border, manufacturing and maquiladora employment1 dropped 7,700 jobs in April, falling 3.2 percent year to date (YTD). Reynosa accounted for half of the layoffs, with employment declining 8.6 percent YTD. Matamoros employment decreased for the third consecutive month to contract 4 percent YTD. In Nuevo Laredo and Juarez, maquiladora jobs were down 3.7 and 1.3 percent, respectively, from year-end levels. Chihuahua employment fared slightly better, flattening on the year. U.S. manufacturing production improved 3.8 percent in May with the motor vehicle and parts sector rebounding in particular. Overall activity, however, was still down 17.2 percent YTD. The pandemic presents additional challenges to Mexico's manufacturing and maquiladora employment.
Unemployment rates along the border fell by 0.7 percentage points but remained greater than the statewide average of 13 percent. El Paso joblessness decreased to 14.8 percent, while the metric slid to 16.9 and 18.3 percent in Brownsville and McAllen, respectively. Laredo joblessness was the exception, increasing 0.7 percentage points to 14.4 percent.
Weekly initial unemployment insurance claims trended down in May (Figure 3), suggesting joblessness may further decline in June. The border's labor force expanded 4.2 percent, ranging from 3.5 percent growth in Brownsville to 4.6 percent in El Paso.
Average real private hourly earnings improved year over year (YOY) for the second straight month, although the rate of increase slowed. Inflation-adjusted wages in the Rio Grande Valley ticked up just 0.9 and 0.3 percent in Brownsville and McAllen, respectively. Laredo's hourly earnings rose 2.3 percent in real terms, down from a near 8 percent jump the previous month. El Paso was the exception, where real wages rose 3.2 percent on average.
Total construction values fell more than 40 percent to a five-year low as nonresidential construction pulled back. Activity in El Paso's school and hospital sectors slowed, offsetting improvements in Laredo and Brownsville. Residential values decreased as the multifamily sector returned to the sluggish pace established during the first quarter after a brief surge in April. El Paso apartment values accounted for most of the drawback, although the West Texas metro's increased single-family activity made up for the same sector's decline in Laredo.
In the currency market, the peso per dollar exchange rate balanced at 23.52 after the inflation-adjusted rate2 inched up 3.6 percent in April. Still, total trade values passing through the border slid 2.1 percent to a 14-year low. Laredo exports were the main culprit, sinking by more than a tenth as machinery and plastics shipments decreased. Trade through El Paso also declined, but activity rebounded 17.8 and 13.9 percent in Brownsville and McAllen, respectively. The Rio Grande Valley's trade values, however, were only two-thirds of year-end levels. The United States-Mexico-Canada Agreement, replacing the North American Free Trade Agreement, took effect on July 1, 2020 and is intended to reaffirm North American trade relationships. Its impact on the U.S. automotive industry, however, is uncertain in an environment weakened from coronavirus-induced consumer concerns.
Border housing sales ticked down 0.4 percent in May, resulting in a 20.4 percent YTD decline. McAllen was responsible for the overall monthly stagnation with sales falling 4.7 percent as activity slumped for homes priced less than $100,000, offsetting increases in higher-priced cohorts. Brownsville sales flattened, while the El Paso metric rose just 1.6 percent. In Laredo, sales accelerated 7.5 percent with improvements across the price spectrum but fell 8.3 percent YTD.
Single-family housing construction permits increased for the first time in sixth months. Issuance in both Brownsville and Laredo recovered almost 18 percent, while McAllen permits surged 12.5 percent. El Paso's metric jumped 5.4 percent, but YTD levels ran 15 percent ahead of last year's permits during the same period. The trend, however, remained flat. Private single-family construction values in the West Texas border metro shot up 40 percent in May after dropping by the same degree the previous month. On the other hand, construction values continued to decrease in the Rio Grande Valley and backtracked in Laredo after a brief improvement the prior month.
Months of inventory (MOI) posted historical readings across the board. As the supply of active listings in El Paso sank to a record low, the metro's MOI fell to 2.4 months. Brownsville and McAllen's metric inched down to 5.9 and 5.8 months, respectively. Meanwhile, Laredo's MOI ticked up to an all-time high of 9.8 months.
Despite inventory expansions, Laredo's average number of days on market (DOM) remained stable at 52 days, indicating healthy demand. McAllen's metric was also largely unchanged relative to the month prior at 78 days but still shed two weeks compared with year-ago levels. Robust demand in El Paso pulled the DOM down to 65 days. Brownsville's DOM stabilized at 111 days after plummeting to an abnormally low 83 days the previous month.
The median home price flattened to $168,900 and $185,300 in El Paso and Laredo, respectively, with annual price-appreciation in the latter below 2 percent. Brownsville's median price decreased $2,400 to $160,500 but maintained strong YOY growth. On the other hand, McAllen's median price rose $9,400 to $170,200 amid a shift in the metro's sales distribution. So far the coronavirus has not had a disastrous effect on home prices.
1 Mexican manufacturing and maquiladora employment is generated by the Instituto Nacional de Estadística y Geografía. Its release typically lags the Texas Border Economy by one month.
2 The real peso per dollar exchange rate is inflation adjusted using the Texas Trade-Weighted Value of the Dollar. Its release typically lags the Texas Border Economy by one month.
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