Texas Border EconomyTexas Border EconomyJames P. Gaines, Luis Torres, Wesley Miller, and Bailey Cuadra2018-05-11T05:00:00Zresearch-article
Texas Economy

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March 2​​018 Border Summary

Employment growth and historically low unemployment improved economic conditions on the Texas-Mexico border. The Texas border metros added 5,600 jobs in the first quarter as favorable currency fluctuations boosted retail trade. Trade activity reached record levels as the North American economy pushed forward. These improvements have not yet lifted wages, thereby heightening the region's housing affordability problem. Uncertainty regarding the North American Free Trade Agreement (NAFTA), international trade, and immigration reforms present the largest headwinds to the Texas border metros throughout this year and could quickly reverse the business-cycle momentum into negative territory.


Economic activity remained stagnant along the border economies but showed signs of improvement as the Dallas Fed's Business-Cycle Indices turned favorably. Brownsville's economic downturn flattened as the retail and residential construction industries accelerated. In McAllen, the business-cycle turned positive amid solid employment growth. El Paso remained the bright spot on the border as the business-cycle index reached an annual high at 2.8 percent. On the other hand, the Laredo index contracted 0.9 percent on a seasonally adjusted annualized rate (SAAR) as low unemployment failed to slow sliding wages.

Weakened nonresidential construction activity pulled total border construction values down 0.4 percent on top of a 6 percent slide last month. The decline occurred primarily in Brownsville where office and hotel construction contracted significantly. School building projects were completed in Laredo but picked up in both El Paso and McAllen. On the residential side, single-family housing construction values trended upward in Brownsville and El Paso but displayed negative movements in Laredo and McAllen. Relatively slow population growth continued to hinder residential investment in the border economies.

Border employment posted 2 percent growth SAAR, adding 5,600 jobs1 through the first quarter. At the individual metro level, growth rates improved across the board as a stronger peso stimulated the retail industry. Laredo led the growth at 2.9 percent SAAR with 900 new jobs this quarter as hiring in professional and business services accompanied trade-related gains. In absolute terms, El Paso added the most quarterly jobs at 2,700, its strongest start since 2010. McAllen created 1,800 jobs, primarily retail and the education and health services sector, pushing growth up 2.4 percent. Brownsville's year-long employment contraction showed signs of stabilization as its growth rate inched positive. That said, declines in information and government related jobs continued to pressure local employment downward.

On the Mexican side of the border, manufacturing and maquiladora employment2 returned to its downward trend, shedding 2,000 jobs after a brief pause last month. Juarez and Chihuahua City lost about 700 and 800 jobs, respectively, while Matamoros accounted for the majority of the decline with 1,200 fewer jobs. On a positive note, Reynosa added more than 1,100 jobs despite ongoing violence in the region. While crime has not spilled across the border, concerns regarding Reynosa's business climate weighed on the McAllen economy.

Unemployment rates2 along the border remained historically low but exhibited some upward pressure, rising every month so far this year. Laredo's unemployment rate ticked up to 3.9 percent, slightly below the state average, while El Paso reached 4.5 percent. The unemployment rate was higher in Brownsville and McAllen at 6.5 and 6.9, respectively, but remained well below year-ago levels.

Despite relatively low unemployment, real private hourly earnings suffered in the border metros. The wage crash continued in Laredo, dropping 7.9 percent year over year (YOY) with few signs of slowing. Brownsville wages trended downward but hinted at stabilization with a 0.3 percent monthly increase. El Paso paid the highest wages but recently lost its footing, falling 1.8 percent this year. McAllen's wages held firm just below the El Paso level.

The peso per dollar exchange rate1 dipped for the third consecutive month to 18.59, down 3.6 percent YOY. A lower exchange rate traditionally supports higher retail activity on the U.S. side of the border as Mexican nationals increase cross-border purchases. Consequently, the value of exports in Texas border metros increase 1.9 percent to a record $12.9 billion. The U.S. economic expansion lifted Texas import values up 2.2 percent to $17.8 billion. Laredo generated 63 percent of total trade values, followed by El Paso at 22 percent. While accounting for just 5 percent of border trade, Brownsville bested El Paso and McAllen this month with a $60 million increase distributed evenly between imports and exports. Trade activity fell for the second straight month in McAllen but should improve after infrastructure improvements on the Mexican side of the Pharr International Bridge.


Border housing sales stabilized after a two-month slide but remained down 3.3 percent YTD. Improvements in Brownsville and Laredo supported a monthly uptick of 0.8 percent. Led by the existing-home market, sales in Brownsville and Laredo increased 3.7 and 5.8 percent, respectively, after both falling 4.7 percent last month. Soft new-home demand pulled El Paso's total sales down 3 percent YTD despite reaching a record high in the resale market. On the other hand, sales trended downward for both new and existing homes in McAllen, pulling total sales down 4.1 percent YOY.

On the supply side, the number of single-family housing construction permits issued in the border metros fell to 618 from 636 the previous month, as El Paso and McAllen adjusted to fading demand for new homes. El Paso and McAllen issued 225 and 219 permits, respectively, accounting for 72 percent of the border total. Monthly permits in Laredo ticked up to 92 but failed to relieve substantial new-home shortages. Brownsville issued 86 permits this month, a 26 percent increase YTD, despite soft demand and ample inventory.

Despite a downturn in permits, private single-family construction values posted a 1.3 percent increase, pushing YTD growth above 6 percent. Although demand shifted toward lower-priced homes, El Paso's single-family construction values led the way with 7.4 percent growth, followed by Brownsville at 4.7 percent. Laredo built on to last month's stabilization, rising an additional 2.4 percent. McAllen was the exception, where values fell more than 3 percent for the second straight month.

The supply of homes for sale declined along the border (except in Laredo) but held above the statewide level. The total months of inventory (MOI) in El Paso and Laredo settled around 5.2 months but exhibited opposite trends. El Paso inventories extended a steady decline since its 2014 peak, while Laredo inventories increased five out of the last six months. Surpluses persisted in Brownsville and McAllen with 9.1 and 8.6 MOI, respectively, but displayed downward pressure.

On the demand side, Laredo maintained the lowest average number of days on market (DOM) at 63 days. The El Paso DOM settled at 93 days, a week less than last year's level. Preferences shifted from the new-home to the resale market as homebuyers searched for lower-priced options. Similarly, housing demand faltered in the Rio Grande Valley, primarily for new homes, elevating the total DOM to 129 and 102 days in Brownsville and McAllen, respectively.

In the Texas border economies, lower-priced housing generally offsets below-average wages, thereby balancing affordability pressures. Lagging wage growth, however, intensified the regional affordability problem. The Texas Affordability Index dropped to 1.4 from 1.5 the previous year in both Brownsville and McAllen. This value indicates that families earning the median income in those metros can afford homes priced 40 percent more than the respective median sale price. The metric hovered around 1.6 for the Rio Grande Valley until late 2016. The Laredo index settled similarly at 1.4. El Paso bucked the trend and pushed the index above 1.7, making it the most affordable metropolitan area in the entire state.

A relaxation in home price appreciation supported El Paso's affordability advantage. Median price growth settled at 1.9 percent YOY, less than half the rate of growth through 2017. El Paso's median price hovered around $152,000, falling further behind Laredo's median at $167,000. After tailing off last year, Brownsville's median price spiked 9.5 percent YTD to $139,000 in convergence with the McAllen median. Rising home prices will continue to strain affordability unless the border region successfully boosts wage growth.


1 Monthly numbers are reported instead of a three-month moving average for consistency.

2 Mexican manufacturing and maquiladora employment is generated by the Instituto Nacional de Estadística y Geografiía. Its release typically lags the Texas Border Economy by one month. For consistency, monthly numbers are reported instead of a three-month moving average.


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