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Texas Border EconomyTexas Border EconomyJoshua Roberson and Rajendra Patidar2023-01-19T06:00:00Ztechnical-report
Texas Economy

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Economic indicators along the border showed mixed responses for November. Payrolls expanded in all border Metropolitan Statistical Areas (MSAs), corroborated by decreases in unemployment rates and claims. Commercial real estate activity has been growing, but residential construction remains sluggish. Total trade values were down, and the gap between imports and exports leading to the trade deficit reduced.

The downward trend in seasonally adjusted housing sales continued in November. The domino effect of plunging home sales in past months has led to a rise in days on market (DOM) and inventory and a reduction in median home prices. The global impact of the war in Ukraine is disrupting energy markets and impacting cost of living and purchasing power. Inflation was lower than expected after a slight decline from October, which indicates the Fed's policies are moderating inflation. War in Eastern Europe and supply issues have led to higher energy costs, which has ripple effects on other goods and household demand.

Economy

The Dallas Fed's Business-Cycle Indexes indicated moderate growth, though it was slower than last year when the border was recovering from COVID-19-related shutdowns. At the metro level, McAllen-Edinburg-Mission reported a seasonally adjusted annualized growth rate of 10.3 percent, and El Paso reported 5 percent growth. Meanwhile, the metric grew by less than 2 percent in Brownsville-Harlingen and Laredo. Pedestrian crossings were down 12.5 percent year over year (YoY) after restrictions were lifted in 4Q2021, while vehicle crossings increased by 15 percent YoY.

Overall, border nonfarm employment added 2,600 positions due to a hiring expansion in McAllen (2,300 jobs) and El Paso (700). Sectors like trade, transportation, manufacturing, and hospitality were major contributors to employment growth in the border region. Meanwhile, hiring patterns in Brownsville and Laredo have not changed significantly.

The spike in jobs led to the lowest unemployment numbers since the onset of COVID-19. The border region's unemployment rate fell to 5.6 percent in November. Joblessness in Laredo and El Paso were both less than 5 percent, while McAllen and Brownsville fell to 7.1 and 6.1 percent, respectively. The labor force participation rate ticked down statewide, while weekly unemployment claims declined across border areas. 

Fluctuations in the average private hourly earnings revealed negative growth along the border as wages fell in all metros. Consequently, inflationary pressures prevented meaningful gains in purchasing power. Nominal wages across the border stabilized at $20.25, while they fell to $17 in Brownsville. Hourly wages in El Paso inched down to $22.33, while the metric reached an all-time high at $20.22 in Laredo. Nominal wages across the border grew significantly in the first half of 2022 and surpassed pre-pandemic levels.

On the southern side of the ​border, Mexican manufacturing and maquiladora employment1 numbers were down due to the loss of 200 jobs in October. The decrease in Mexican manufacturing employment was driven by contraction in Matamoros and Juarez. Here is the summary of maquiladora employment in October.


Global supply chain pressures increased moderately in November as indicated by the Global Supply Chain Pressure Index (GSCPI). Supply chain pressures were significantly below year-ago levels and are expected to decline further.

The S&P Global Mexico Manufacturing PMI for November indicated a sign of recovery in the Mexican manufacturing sector as demand for goods stabilized. Still, input buying was hampered by higher inflation and difficulties in obtaining essential raw materials.

In the currency market, the peso per dollar exchange rate averaged $19.45[2]. After adjusting for inflation, the metric decreased over the month, revealing gains for Mexican importers. The total trade value decreased, while there was a reduction in the persistent trade deficit in November. At the metropolitan level, El Paso's and Brownsville's exports expanded resulting in positive net trade. Meanwhile Laredo's and McAllen's relatively higher imports contributed to the region's trade deficit. Also, the decline in real effective exchange rate (REER) for the first time last two years indicated a strong trade competitiveness for United States exporters.

Real Estate

Construction activity went up in October due to a rise in construction of retail space, offices, and houses. Changes in residential and nonresidential construction values varied across border areas. The construction of retail, offices, and schools boosted nonresidential construction values in El Paso by 27 percent YoY while values declined in Laredo by 39 percent YoY. Meanwhile in the Rio Grande Valley, commercial construction activity in Brownsville and McAllen improved by 34 and 51 percent, respectively, YoY. Residential construction activity has been stagnant over the last two quarters as indicated by the 26 percent month-over-month (MoM) drop in total residential construction values and the fact that total annual permits issued were down from last year.

Overall housing sales showed signs of improvement as seasonally adjusted demand grew by 2.4 percent in November. The metric was up by 21 percent in Brownsville and by 3.2 percent in El Paso. Sales dropped by 7 percent in both McAllen and Laredo. Housing sales in 2022 have relied heavily on mortgage rates, and Freddie Mac's 30-year fixed rate was 7 percent in November, the highest in the last decade and up from a record-low 2.7 percent in January 2021. Consumer buying behavior has changed in the last few months with concerns about rising mortgage rates and inflation.

Border metros issued 575 single-family housing construction permits, down by 5.6 percent from October. The continued reduction in new projects in border metros will affect the region's housing markets. Fewer permits were issued in 2022 than in the previous year as all major metros except Brownsville reported a decline. Despite declines in permit counts and values, the average value per permit remains elevated compared with pre-pandemic conditions.

Declining sales in previous months led to a rise in months of inventory (MOI) along the border, though the metric remained much lower than the typical six-month MOI benchmark. Laredo's declining sales activity and an uptick in new listings pushed the average MOI for November to 3.2 months. El Paso's metric was more than two months, while McAllen's and Brownsville's metric is inching toward four months of inventory. These increases indicate inventory is growing primarily due to a decrease in home sales and an increase in listings.

The average DOM in November increased across the border as reduced demand in the last few months led to a rise in inventory and a change in consumer buying behavior. The change in housing demand dynamics this year placed the metric higher compared with year-ago levels. El Paso's DOM remained around 50 days, while Laredo's DOM moved up to 46 days. New listings in Brownsville and McAllen pushed the metric toward two months to complete the sale. 

Reduced demand dented seasonally adjusted median home prices across border regions in the last couple of months, but the metric increased in November. In the Rio Grande Valley, Brownsville's metric rose to $252,200 while median prices dropped to $218,070 in McAllen. El Paso's median home price was around $247,200, reporting a significant rise. Similarly, Laredo's median price increased from $219,800 in October to $234,500 in November. The border region's housing market is known for its affordability, a factor that has attracted many buyers from other areas.

Mortgage rates play a pivotal role in determining housing prices and sales, and they will influence the border region's future home price stability.

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1 Mexican manufacturing and maquiladora employment are 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.






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