Texas Border EconomyTexas Border EconomyJames P. Gaines, Luis B. Torres, Wesley Miller, and Paige Woodson2018-06-18T05:00:00Zresearch-article
Texas Economy

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April 2018 ​​​Border Summary

Led by gains in the retail sector, improved labor conditions supported growth on the Texas-Mexico border. Continued strength in the value of the peso supported international exports and trade values. Economic activity spilled into the housing market, but the combination of stagnant wages and rising home prices challenged the region's affordability. 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 showed signs of improvement along the border metros as indicated by gains in the Dallas Fed's Business-Cycle Indices. Momentum in the retail sector lifted Brownsville's economy from its year-long downturn, reaching 2.6 percent quarterly growth on a seasonally adjusted annualized rate (SAAR). The McAllen index rose 1.6 percent as the newly renovated La Plaza Mall attracted activity from the surrounding region, including the Mexican cities of Reynosa and Monterrey. The El Paso economy maintained steady growth above 2 percent. Despite historically low unemployment, the Laredo index stagnated for the fifth consecutive month as the heavily weighted transportation industry struggled locally.

Total border construction values fell 12.2 percent amid a sudden drop in residential construction activity and a continued slide in commercial building after a wave of investment in 2016. El Paso's positive impact from hotel construction faded, but school construction is expected to pick up during the summer. Commercial construction held steady in Brownsville despite completions of office, bank, and hospital building projects last year. In Laredo and McAllen, the construction of warehouses (often tied to the transportation industry) remained spotty as trade uncertainty dampened investors' confidence in the local business environment.

Border nonfarm employment increased 2.7 percent SAAR, adding 1,500 jobs1 on the heels of a strong 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 3.2 percent, adding 1,100 jobs year to date (YTD). Local employment shifted from the goods-producing sector into professional/business services and leisure/hospitality. Large gains in retail trade as well as education and health services pushed McAllen's employment growth to 2.9 percent. Brownsville's retail rebound lifted job growth 2.0 percent after contracting throughout last year. Texas' southern-most metro also netted more than 300 manufacturing jobs this year, led by Greyhound Lines investment in a refurbishing and final assembly facility. El Paso's employment growth jumped to 2.8 percent after its strongest first-quarter since 2010. The retail trade, education and health services, and government sectors accounted for most of the regional growth.

Manufacturing and maquiladora employment2 continued to contract on the Mexican side of the border, shedding nearly 15,000 jobs over the past six months. Most of this decline occurred in Chihuahua City, but Juarez and Matamoros lost 3,300 and 1,200 jobs, respectively, over the same period. The Reynosa expansion proceeded in spite of continued violence, adding 1,900 jobs YTD and spilling economic benefits across the border into McAllen. In contrast, Nuevo Laredo's addition of 1,700 has yet to stimulate activity on the American side of the border.

Unemployment rates3 along the border remained historically low but exhibited some upward pressure as improved economic conditions lured more people into the workforce. Unemployment levels remained elevated in the Rio Grande Valley at 6.5 and 6.9 percent in Brownsville and McAllen, respectively, but remained well below year-ago levels. The El Paso unemployment rate balanced at 4.5 percent for the second straight month. Laredo maintained under 4 percent unemployment over the past nine months but was unable to reel in discouraged workers. Recent employment gains, however, hint towards a trend reversal after the prolonged slump.

Real private hourly earnings continued suppressed in the border metros. Hourly earnings crashed 8.4 percent YOY in Laredo, extending a two-year downturn. El Paso and McAllen paid the highest hourly earnings but stagnated over the past year. Brownsville wages rose 3.7 YTD—a minor blip relative to the 20.5 percent decline between 2012 and 2017.

The peso per dollar exchange rate3 dipped for the fourth consecutive month to 18.39, down 2 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 remained elevated above $12 billion for the tenth consecutive month. Texas import values also held steady above $17.6 billion. Laredo generated 64 percent of total trade values, followed by El Paso at 22 percent.


Border housing sales rose 2.7 percent after a rough start to the year. El Paso led the way with a 3.9 percent increase as a record 535 existing-homes sold through the local Multiple Listing Service (MLS). Total sales picked up 2.0 and 3.4 percent in the smaller markets of Brownsville and Laredo, respectively. On the other hand, sales for new and existing homes struggled in McAllen, pulling total sales down 1 percent YTD.

The number of single-family housing construction permits issued in the border metros remained well below pre-recessionary levels, decreasing 4 percent this month. Permits in El Paso and McAllen, accounted for 73 percent of the border total, fell 5.8 and 0.6 percent, respectively. Monthly permits issued in Laredo held an upward trend at 3.9 percent growth YTD. Despite soft demand and ample inventory, Brownsville permits jumped 20.5 percent YTD as builders reacted to the lack of homes priced under $200,000 (approximately 80 percent of the current market).

Private single-family construction values followed permits down 5.6 percent, falling in every border metro after a strong first quarter. Brownsville and El Paso recorded minor declines but maintained 15.0 and 25.7 percent YTD growth, respectively. Laredo returned to its downward trend after a two-month stabilization, while values dropped 4.1 percent YTD in McAllen.

Sluggish single-family construction hindered housing markets as the supply of homes for sale declined along the border (except in Laredo). The total months of inventory (MOI) dropped below five months in El Paso amid robust sales over the past two years. Laredo's MOI hovered around its two-year average of 5.1 months. The gap between Brownsville and McAllen MOI closed, ticking down to 8.9 and 8.6 months, respectively. While still elevated, the Rio Grande Valley averaged double-digit MOI as recently as 2016.

On the demand side, Laredo maintained the lowest average number of days on market (DOM) at 60 days. The El Paso DOM settled at 96 days, slightly below last year's level. Preferences shifted from the new-home to the resale market as homebuyers searched for lower-priced options. Similarly, housing demand remained weak in the Rio Grande Valley, primarily for new homes, keeping the total DOM at 127 and 104 days in Brownsville and McAllen, respectively.

In the Texas border economies, lower-priced housing generally offsets below-average incomes, thereby balancing affordability pressures. The extended earnings stagnation, however, failed to counteract rising home prices. The median price for homes in El Paso ($151,430) and Laredo ($165,640) increased 2.1 and 2.0 percent YTD, respectively, while McAllen reached a record high at $146,540. The largest growth occurred in Brownsville ($142,380) at 12.1 percent YTD, an increase of $15,300. 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. Monthly numbers are reported instead of a three-month moving average for consistency.

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


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