|Texas Border Economy||Texas Border Economy||James P. Gaines, Luis Torres, and Wesley Miller||2017-05-18T05:00:00Z||research-article||Economy|
March 2017 Border Summary
Economic activity along the Texas-Mexico border slowed late last year, particularly in McAllen and Laredo, but has since varied throughout the metros. Poor economic performance in the first quarter dragged down housing demand in both Brownsville and Laredo. In November, McAllen went through the sharpest contraction but rallied recently behind strong employment figures. El Paso remained the most stable border economy, but stagnant wages persisted.
Economic activity varied along the Texas-Mexico border. The Business Cycle Indexes for Brownsville and Laredo continued to slide but trended upward in McAllen. The El Paso index slowed but maintained its two-and-half-year positive trend.
In El Paso, economic conditions were stable; as annualized quarter-over-quarter, employment growth surpassed 3 percent for the third straight month. Employment growth was solid in McAllen, rising 2.5 percent and contributing to its business cycle index acceleration. In contrast, Brownsville and Laredo had abrupt decelerations in employment growth during the first quarter: employment growth fell from 2.0 to 0.2 percent in Brownsville and from 3.8 to 0.8 percent in Laredo. Despite slowdowns, the unemployment rate, which typically is above the state average, was unchanged in McAllen (8.6 percent), Brownsville (8.0 percent), and Laredo (5.0 percent). Labor force expansion pushed El Paso's unemployment rate to 5.4 percent—the highest level since 2015.
Depressed wages plagued economic conditions in Brownsville and Laredo. Inflation- adjusted private hourly earnings collapsed by 26.6 percent in Brownsville from 2012 and were down 8.8 percent year-over-year in Laredo. However, wage decline has not hit McAllen, where hourly earnings were up 8.4 percent year-over-year, and 29.5 percent from July 2015. El Paso continued to post stagnant wages, which are still below pre-recessionary levels.
The peso per dollar exchange rate, an important determinant of border economic performance, fell 2.7 percent to 18.77 pesos per dollar. Peso per dollar depreciation hinders border economies because it reduces 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 does benefit some sectors of the economy, however, particularly those that import large quantities of goods from Mexico. Therefore, fluctuations in the value of the peso do not necessarily reduce the aggregate trade volume crossing the border. In March, the total value of trade activity expanded across the border, and the activity in Laredo more than doubled the total amounts of the other three border metros. All of the metros (except Brownsville) recorded higher values of imports than exports.
The border housing markets varied according to their underlying economic trends. Laredo's economic slowdown disrupted its housing market, dragging first quarter home sales down 6.5 percent. Despite a similar economic environment, Brownsville avoided a quarterly sales decline because of higher home inventory levels. Following a strong January, sales in El Paso declined in February and March, resulting in a modest quarterly increase of 1.2 percent. McAllen's recent economic upswing increased sales by 8.3 percent quarterly and 14.3 percent year-over-year.
The glut of new houses in McAllen fueled the sales surge, as the months of inventory (MOI) for new homes remained above 12 months and continued to trend upward. The opposite occurred in Laredo, where the lack of new homes contributed to a sales contraction; the new home MOI remained below four months. Brownsville and El Paso posted more typical border inventory levels for new homes at 6.7 and 7.1 months, respectively.
The constricted inventory in Laredo may expand shortly as single-family residential construction permits accelerated, increasing in 11 of the last 12 months. However, poor economic conditions could prevent this influx of permits from materializing into new housing construction. As expected, the number of monthly permits fell substantially in McAllen (24.4 percent). On the other hand, residential construction permits spiked 47.7 percent in El Paso, in response to rising demand.
Changes in existing home inventories were more moderate. The existing home MOI in Brownsville and McAllen remained strong at 8.6 months and 9.0 months, respectively. Existing inventories expanded in Laredo, where the MOI rose to 5.9 months—the most since last May. Supply pressure heightened in El Paso, as the existing MOI dropped to 5.1 months, a series record low.
Border housing demand exhibited fewer intermarket differences between new and existing homes. For example, the average number of days on market (DOM) for new and existing homes was 68 and 67 days in Laredo and 95 and 97 days in McAllen, respectively. El Paso's recent increase in new housing demand continued as the new home DOM fell to 111 days—more than 30 days lower than its peak last July. Additionally, Brownsville had soft demand in both housing markets, where the new and existing DOM settled at 128 and 116 days, respectively.
Despite the varying housing market conditions, all border metros observed a quarterly increase in the median price per square foot (ppsf) for existing homes. The median price was highest in Laredo at $90.76 ppsf and jumped more than 3 percent in McAllen to $79.27 ppsf. Median prices for new homes also rose 3.2 percent in McAllen to $98.52 ppsf. The median price for new homes was highest in El Paso at $106.35 ppsf, increasing 1.5 percent in the first quarter. Furthermore, Brownsville's new home median prices dropped for the second straight quarter, falling to $92.87 ppsf.
|Digital and Print||2165||https://www.recenter.tamu.edu/articles/research-article/Texas-Border-Economy|| https://assets.recenter.tamu.edu/Documents/Articles/2165.pdf|