|Texas Border Economy||Texas Border Economy||James P. Gaines, Luis Torres, Wesley Miller, and Bailey Cuadra||2017-06-14T05:00:00Z||research-article||Economy|
April 2017 Border Summary
Job gains pushed economic activity forward in El Paso and McAllen, but poor employment growth and depressed wages hindered Brownsville and Laredo. Decreasing trade activity also weighed on the two struggling metros.
Nonresidential construction activity continued to expand, but residential activity contracted. Single-family construction permits fell 6.9 percent, and housing sales dipped 3.1 percent.
Economic activity was steady along the Texas-Mexico border. The McAllen Business Cycle Index continued to climb, reaching positive annualized growth for the first time this year, and El Paso posted over 3.0 percent annualized growth for the fifth consecutive month. After sliding in the first quarter, the Brownsville Index appeared stable, ticking down just a tenth of a percent. However, falling wages dragged the Laredo index below 1.2 percent annualized growth.
Border construction values decreased 2.9 percent as declines in residential construction overpowered nonresidential activity. In El Paso, construction values dropped more than 22 percent in the residential and nonresidential components. Elsewhere on the border, investment in school buildings generated nonresidential construction value increases. So far this year, nonresidential construction values doubled in Laredo and quadrupled in McAllen. New schools, office buildings, and warehouses accounted for most of the new construction. Brownsville also exhibited growth in nonresidential construction values, increasing 59.0 percent year-to-date.
The border economies added 1,200 jobs1 in April, pushing the annualized employment growth rate to 2.4 percent. Individually, McAllen's growth rate jumped to an annual high of 3.4 percent and accounted for half the border employment gains. El Paso maintained the highest growth rate at 3.6 percent. The Laredo rate slowed to 0.5 percent and Brownsville observed a 0.7 percent contraction.
El Paso's unemployment rate rose to 5.3 percent despite eight straight months of employment gains. The McAllen unemployment rate averaged 7.9 percent from 2015 to 2016 but has since jumped to 8.6 percent. The combination of increased unemployment and job growth indicate a labor force expansion. Brownsville posted a similar unemployment increase, rising from 7.3 to 7.9 percent but without the strong job employment gains. Laredo maintained the lowest border unemployment rate at 4.9 percent.
In Brownsville and Laredo, depressed wages continued to afflict the labor market; real private hourly earnings fell 6.9 percent and 8.4 percent year-over-year, respectively. El Paso wages stagnated, falling 1.0 percent back to its 2016 trend. Wages ticked up only half a percent in McAllen but rose 11 of the last 12 months.
The peso per dollar exchange rate1, an important determinant of border economic performance, fell 2.7 percent to 18.77 pesos per dollar. Peso appreciation benefits border economies by stimulating consumption by Mexican nationals, particularly in the retail sector. The Laredo and Brownsville economies rely heavily on cross-border business transactions and, therefore, are disproportionately affected by currency fluctuations.
A weaker peso can benefit some sectors of the economy, particularly those that import large quantities of goods from Mexico. Therefore, currency fluctuations do not necessarily reduce the aggregate trade volume that crosses the border. The total value of trade activity decreased in April as the value of both imports and exports declined. Import values contracted in Brownsville and Laredo for the third consecutive month.
Border housing sales fell 3.1 percent as demand softened. The El Paso housing market, which is larger than the other three combined, contracted for the second time this year. Sales fell 3.6 percent in Brownsville and could fall further as economic conditions waver. Laredo housing sales declined 5.4 percent month-over-month and 8.9 percent year-over-year. McAllen, the second largest border housing market, experienced a 2.5 percent decrease in sales.
McAllen maintained a glut of new homes as the new home months of inventory (MOI) remained above 12 months. In contrast, the new home inventory fell to 3.3 months in Laredo, the third lowest in Texas behind Waco and Midland. In Brownsville, the new home MOI continued to fall toward six months after settling at 8.3 months last year. The El Paso new home MOI increased for the third straight month to a record 7.4 months (the new home MOI series began in January 2011).
El Paso's supply of new homes is likely to push even higher amid surging single-family residential construction permits. Permits bottomed out last summer but have recovered to 2012 levels and have increased 38.8 percent year-to-date. The number of construction permits issued in Laredo fell for the first time this year, a concern given its depleted supply of new homes. Furthermore, permits continued to trend downward in Brownsville and McAllen, falling 11.6 and 3.4 percent, respectively. Lagging residential construction pulled single-family private construction values down 11.2 percent on the border. Declines were widespread, but Brownsville and El Paso observed the sharpest decreases at 17.4 and 16.2 percent, respectively.
The existing home MOI remained saturated in Brownsville and McAllen at 8.6 and 8.9 months, respectively, and balanced in Laredo at 5.5 months. For the 30th straight month, the El Paso existing home MOI declined, falling to five months.
Existing home demand was softest in Brownsville, where the average number of days on market (DOM) for an existing home was 137 days. In McAllen, existing homes averaged 102 days on the market. In the past year, the El Paso existing home DOM averaged 90 days and showed little signs of deviation. While demand was strongest in Laredo, the DOM held at its 12-month average of 64 days.
Demand for new Laredo homes continued to relax after reaching unprecedented strength in 2014 when the new home DOM fell to 21 days. In April, the DOM rose above 62 days, a 50.0 percent increase from last year. Conversely, McAllen's new home DOM fell to 81 days from its 133-day peak in 2015—a 39.2 percent decrease. New homes were on the market longest in El Paso at 128 days, followed by Brownsville at 99 days.
The median price and median price per square foot (ppsf) for both new and existing homes was highest in Laredo. However, slowing demand has pulled the median price for new homes down 12.9 percent this year to $185,381. Median prices for new ($164,688) and existing ($144,904) homes in McAllen have increased more than 8.1 percent year-to-date. In median ppsf, El Paso ranks second on the border at $105.56 and $82.45 for new and existing homes, respectively. Home prices dropped recently in Brownsville, particularly in the new home market, where the median price fell to $158,529—a 14.4 percent decrease from August.
The Federal Housing Finance Agency's House Price Index, which includes purchases and refinancing, provides a deeper look into the compositional changes, or lack thereof, in individual housing markets. The El Paso index lagged the rest of the border as home prices barely held above prerecession levels. Homes in McAllen have appreciated the most since 2007, rising over 12.4 percent. Price increases were similar in Brownsville (10.7 percent) and Laredo (8.7 percent) but slowed recently.
Lagging wages and rising home prices have become a concern across the country. Brownsville and McAllen actually faced below-average affordability pressure, according to the National Association of Home Builders Housing Opportunity Index (a measure of the share of homes affordable to those earning the median income). Falling wages strained affordability in Laredo, where less than 44.0 percent of homes were available to median-income earners. The affordability index ticked up to 57.2 percent in El Paso but remained below the national average of 58.4 percent.
1 Official numbers are reported instead of a 3-month moving-average for consistency.
|Digital and Print||2165||https://www.recenter.tamu.edu/articles/research-article/Texas-Border-Economy|| https://assets.recenter.tamu.edu/Documents/Articles/2165.pdf|