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July 2018 Border Summary
Low unemployment levels and ongoing hiring activity introduced upward pressure on real wages. The positive activity in the border economy fostered growth in the housing market. Trade values reached a record high amid an unofficial North American Free Trade Agreement renegotiation; however, the incoming administration in Mexico and uncertain future trade relationships are potential headwinds to growth.
Economic activity moved forward along the border as indicated by the Dallas Fed's Business-Cycle Indices. Brownsville and El Paso achieved 1.9 percent growth on a seasonally adjusted annualized rate (SAAR), extending a ten-month positive trend. The McAllen index jumped from negative territory to 3.3 percent growth as employment expanded. Conversely, the Laredo business cycle contracted for the 11th consecutive month amid a drastic slide in real wages.
A flood of investment in school buildings lifted total border construction values 5.9 percent. Store and restaurant construction waned in Brownsville and McAllen but remained healthy in El Paso and Laredo. Residential construction remained flat as the market for two-family units continued to expand throughout the region, and households searched for lower-priced alternatives to traditional single-family housing. In the Rio Grande Valley, multifamily construction was above 2017 levels as Brownsville broke ground on its first apartment project of the year, and McAllen maintained 1.3 percent year-over-year (YOY) growth in multifamily construction.
Border nonfarm employment decelerated to 1.5 percent SAAR growth, adding just 400 jobs1 in July. All metros experienced a slowdown except McAllen, which reached 2.7 percent growth with gains in the service-providing industry. Brownsville shed 700 jobs as retail contracting reversed more than half of the sector's first-quarter expansion. El Paso posted 0.8 percent growth as increases in trade/transportation/utilities and professional/ business services compensated for cutbacks in the goods-producing sectors. The West Texas metro, however, recorded a slowdown in professional/business services. Growth slowed to just 0.1 percent in Laredo amid job losses across multiple industries.
Manufacturing and maquiladora employment2 reversed most of May's gains, shedding more than 2,500 jobs, 2,200 of which were in Chihuahua. Monthly manufacturing employment contracted in Reynosa and Matamoros but maintained YTD growth at 1.0 and 10.2 percent, respectively. Nuevo Laredo added 800 jobs since May, pushing YTD growth to 8.4 percent. Juarez ended a four-month downturn but remained 3,000 jobs below 2018 levels.
Despite weaker hiring activity, unemployment rates3 fell along the border. Brownsville and McAllen decreased to 6.2 and 6.4 percent, respectively. Laredo continued below the state average for the 16th consecutive month while El Paso ended the month at just above the state average with a 4.2 percent unemployment rate. Both metros dropped to historical lows.
Real private hourly earnings showed much needed signs of improvement after a dismal two years. Brownsville wages rose 7.3 percent YTD, while McAllen earnings elevated after a sluggish second quarter. In El Paso, hourly earnings increased 0.5 percent YTD, doubling the state's growth rate. Laredo was the exception as real earnings remained 15.8 percent below levels two years ago.
In the currency market, the peso-per-dollar exchange rate3 dropped below 19 but rose 1.3 percent after accounting for inflation. The total value of trade passing through the Texas border metros reached a new high, surpassing $31 billion. All metros recorded positive export growth for the third consecutive month. McAllen's imports dipped for the second straight month but maintained positive growth on the year. Laredo and El Paso remained the major trade hubs, comprising more than 85 percent of total trade flows along the Texas border.
Border housing sales extended its positive trend, reaching a record high of 1,300 transactions through Multiple Listing Services (MLS). El Paso sales leveled at 0.9 percent growth but accounted for more than half of total border activity. Sales reached 12.2 percent YTD growth in Laredo despite falling earnings. Activity in Brownsville accelerated, particularly for homes priced below $200,000. McAllen's sales distribution was similar but YTD transactions fell 5.5 percent. Large contractions occurred for homes priced less than $100,000, which accounted for less than a fifth of local sales. Activity in this cohort constituted close to a third of all transactions just two years ago.
Single-family housing construction permits regained positive YTD growth after a negative second quarter, issuing 612 permits in July. McAllen led with 267 permits, nearly half of border activity. Laredo and Brownsville stabilized, bringing YTD growth up to 7.3 and 8.6 percent, respectively. El Paso rebounded from its slow second quarter but recorded a 13.3 percent YTD decline.
Border private single-family construction values rose 1 percent on top of upward June revisions from 0.5 to 4.9 percent growth. Brownsville and McAllen sustained 20.3 and 23.8 percent YTD growth, respectively. Laredo values rose for the third consecutive month, climbing to 16.2 percent YTD. With a dip in construction values, El Paso stabilized at 5.8 percent YTD growth.
The supply of active listings for homes sold through an MLS increased along the border. The Laredo total months of inventory (MOI) reached a six-year high at 5.4 months as single-family construction accelerated. New MLS listings pushed Brownsville's MOI up to 8.8 months. Decreased sales lifted McAllen inventories above eight months for the first time this year. El Paso was the exception where inventories dropped to a record low of 4.3 months amid decreased construction and steady demand. All price cohorts have decreased in inventory since the first quarter.
On the demand side, the average number of days on market (DOM) decreased 4.6 percent in the Rio Grande Valley, settling at 121 and 92 days in Brownsville and McAllen, respectively. In both metros, homes priced below $200,000, which typically sell quicker than the upper price range, dominated sales activity. Laredo maintained the lowest DOM at 66 days, while El Paso remained at 98 days for the second straight month.
Housing price pressures eased along the border. The median sale price in Laredo ticked up to $160,750 but remained $6,000 below its all-time peak in March. Inventory expansions pulled the median price in Rio Grande Valley down to $147,000 and $141,800 in McAllen and Brownsville, respectively. The Brownsville price, however, remained $13,000 above its 2017 average after massive growth in the first quarter. In El Paso, the median price maintained slow, yet steady, growth, reaching a record high of $154,700.
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.