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Texas Border EconomyTexas Border EconomyJames P. Gaines, Luis B. Torres, Wesley Miller, and Paige Woodson2019-03-20T05:00:00Ztechnical-report
Texas Economy

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​Janua​​​ry 2019 Border Summary

In an environment of modest economic growth, housing sales improved. Retail activity benefited from the appreciation of the peso, which encouraged consumers to buy the relatively cheaper American goods.  Construction activity shifted to the multifamily sector as single-family construction remained stagnant and permits continued to register lackluster growth. The greatest headwinds to the border economies include future economic uncertainty caused by the political atmosphere on issues such as immigration reform, trade, and the future performance of the Mexican economy.

Economy

Economic activity decelerated across the Texas border metros as indicated by the Dallas Fed's Business-Cycle Indices. The Brownsville and El Paso indices reported 0.4 percent growth on a seasonally adjusted annualized rate (SAAR) amid moderate hiring and an uptick in unemployment. The Laredo index extended a five-month decline as inflation-adjusted earnings and a rise in joblessness outweighed payroll expansions. McAllen was the bright spot as the metro's index reported 2.1 percent growth, supported by improved wages.  

A slowdown in nonresidential activity dropped total border construction values for the second straight month. The office/bank building investment extended last year's fourth quarter decline while school and hospital construction moderated after several big projects in 2018. On the other hand, residential activity picked up as builders in Brownsville broke a seven-month streak of falling single-family values. In Laredo and McAllen, multifamily construction supported the residential sector.

Nonfarm employment accelerated as the border metros added 2,000 jobs. Laredo led the charge with 800 new hires, most of whom fell under the leisure/hospitality or retail trade sectors, which struggled through most of the past year. The other metros split the remaining gains evenly, with El Paso and Brownsville correcting for year-end losses in retail trade. In El Paso, retail hiring helped offset losses in the professional/business services industry. The education/health services sector in McAllen supported growth after faltering last quarter.

On the Mexican side of the border, manufacturing and maquiladora employment1 ended 2018 with the addition of 5,000 jobs, reaching an all-time high of 568,200. Employment in Juarez recovered despite the resurgence of violence in the city, adding 3,000 jobs in December alone. Growth in Reynosa and Matamoros slowed after substantial increases during the summer but ended the year at all-time highs of 130,500 and 59,500 jobs, respectively. Nuevo Laredo and Chihuahua employment stabilized but remained below record levels.

After a fourth-quarter slowdown in hiring, unemployment rates along the border ticked up after months of hovering around historical lows. Laredo joblessness rose above 4 percent for the first time in over a year; El Paso registered 4.4 percent, the two-year average for the metro. In Brownsville and McAllen, unemployment balanced around year-long averages at 6.2 and 6.8 percent, respectively.

Accelerated employment growth coincided with improvements in real private hourly earnings. McAllen overtook El Paso as the highest-paying metro with nominal wages of $19.43 per hour, a 5.7 percent YOY increase after adjusting for inflation. Brownsville followed close behind at 5.5 percent YOY growth. In El Paso, real earnings improved YOY for the third consecutive month. The exception was Laredo, where real wages extended a 25-month decline.

In the currency market, the real peso per dollar exchange rate2 slid to 18.77. Despite increased Mexican purchasing power, export values fell 7.3 percent in December. Imports also declined, pulling the total value of border trade activity to less than $3 billion, the lowest level in over a year. The decline coincides with slowing economies on both sides of the border.

Housing

Border housing sales increased 4.6 percent after slowing in the last half of 2018. Healthy economic conditions in McAllen elevated sales activity 10.8 percent, correcting for year-end declines. In Laredo, transactions reached an all-time high of 150 on top of a 23.3 percent increase last quarter. Sales in El Paso balanced as new home transactions grew at a faster pace than in the existing-home market. Brownsville was the exception with sales activity falling 7.2 percent amid slowing momentum for homes priced less than $100,000.

On the supply side, the border metros issued a total of 560 single-family housing construction permits in December, down 1.6 percent YOY. The overall trend remained flat in the Rio Grande Valley with minor fluctuations over the past five years. Permit issuance in Laredo similarly plateaued for the last three years. El Paso activity was the driving force behind the border's decline, extending an 18-month downturn, contrary to rising sales volumes. Private single-family construction values trended downward along the border.

The months of inventory (MOI) of homes for sale varied across the border metros. The El Paso metric ticked up to 3.9 months after dipping to a record low of 3.8 months in November as existing home inventories halted a year-long decline. The McAllen MOI extended a four-month climb, reaching 8.7 months while Brownsville inventories recorded an all-time low of 8.1 months. Laredo's MOI sank to the lowest level in nearly two years at 4.5 months.

On the demand side, the average number of days on market (DOM) for the two larger metros remained unchanged compared with year-ago levels at 93 and 96 days in El Paso and McAllen, respectively. Brownsville's DOM, however, increased two weeks compared with last year, reaching 140 days. On the other hand, homes in Laredo averaged nearly three weeks less on the market than they did a year ago with a DOM of 56 days.

Despite increased demand, Laredo's median price decreased YOY for the second straight month as resale prices cooled through much of the past year. The metric in Laredo and El Paso balanced around year-long averages at $164,900 and $153,200, respectively. Brownsville's median price increased to $145,300 following a $19,400 decrease at year end after peaking in November. In McAllen, the median price ticked up to $148,700 after flattening midway through 2018.

Newly released fourth-quarter data for the Federal Housing Finance Agency's House Price Indices, which measure the average price changes in repeat sales or refinancings, corroborated the changes in the median sales price. In the Rio Grande Valley, Brownsville and McAllen's indices increased 2.4 and 3.1 percent, respectively, after stabilizing in the third quarter. The Laredo index balanced after falling in the third quarter, hovering around its two-year average. Similarly, El Paso's index remained steady throughout the year with minimal fluctuations.

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1 Mexican manufacturing and maquiladora employment is 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. Its release typically lags the Texas Border Economy by one month.

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Digital and Print2165https://www.recenter.tamu.edu/articles/technical-report/Texas-Border-Economy https://assets.recenter.tamu.edu/Documents/Articles/2165.pdf

 

 

Texas Border EconomyTexas Border EconomyTexas Economy
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