Dallas Fed’s Business-Cyle Indexes show economic recovery resumed along the border in June. The metric in El Paso and McAllen accelerated 6.1 and 9.7 percent, respectively, on a seasonally adjusted annualized rate (SAAR) amid solid payroll expansions. Meanwhile, Laredo’s index increased 5.5 percent as it led all major Texas metros in vaccination rates, which correlate with consumer confidence and business activity. Brownsville’s index was the exception, decelerating 2 percent amid a drop in real wages and inflation-adjusted retail sales. The U.S.’ ban on nonessential travel, which prohibits Mexican tourists from entering the U.S., weighed on leisure/hospitality employment and retail sales. These measures have been extended through Sept. 21, 2021.
Pedestrian and personal vehicle crossings from Mexico decelerated in June but continued to trend upward as border travel remained nearly 30 percent above year-ago levels (Figures 1 and 2).
Border nonfarm employment added 3,600 jobs in the last quarter, resulting in SAAR growth of 1.7 percent. McAllen led the border with employment increasing by 2,100 workers amid broad hiring across the service-providing sector. Brownsville and El Paso recovered a net 800 and 1,100 positions, respectively, but Laredo laid off 100 employees during the second quarter.
On the southern side of the border,
Mexican manufacturing and maquiladora employment1 decreased in May for the first time in ten months, laying off 2,737 workers. Reynosa and Juarez employment decelerated 7 and 0.6 percent year to date (YTD), respectively, after shedding 1,247 workers in the former and 1,275 in the latter. On the other hand, maquiladora employment flattened around year-end levels in Matamoros and Chihuahua while declining 3.1 percent in Nuevo Laredo. U.S. manufacturing production of motor vehicles picked up in May even as the labor and materials shortages challenged the supply chain. The IHS Markit Mexico Manufacturing Purchasing Managers' Index turned positive despite declining output as the recent hiring spree in the manufacturing sector strengthened business confidence. The pandemic and the Mexican government's response to the virus remain significant factors concerning the country's future growth and trade with Texas' border economies.
Hiring in the Rio Grande Valley pulled
unemployment rates down to 9.6 and 10.5 percent in Brownsville and McAllen, respectively, amid an expansion in the latter's local labor force. Joblessness declined by 0.2 percentage points in both El Paso and Laredo, falling to 7.2 and 7.4 percent, respectively, while labor forces remained roughly unchanged in both metros. Weekly initial unemployment claims rose sharply in the last week of June amid an influx of new COVID-19 cases, resembling the statewide trend after a three-month decline (Figure 3).
average private hourly earnings revealed lackluster wage growth along the border. Some of the downward pressure may be due to the recovery of lower-paying jobs that bore the brunt of the layoffs last spring, pulling the average wage down, and the inflationary environment prevented meaningful gains in purchasing power. Earnings in McAllen fell 5.4 percent year over year (YOY) in real terms to a nominal wage of $19.67 during June, marking the tenth straight annual decline. Hourly wages in Laredo ($18.17) and El Paso ($20.15) also trended downward, decreasing 6.1 and 5.9 percent on average, respectively, while Brownsville's metric reduced slightly on an annual basis to $16.64. While baseline effects mechanically weighed on YOY numbers, annual wage growth trended below pre-pandemic levels across the border except in Brownsville.
Building activity slowed across the border metros, falling below year-long averages as
total construction values dropped 28 percent quarter over quarter (QOQ). El Paso, Brownsville, and Laredo had quarterly reductions in various nonresidential sectors, offsetting increased investment in McAllen. On the residential side, values remained flat in El Paso and McAllen while expanding in Laredo and Brownsville amid significant increases in apartment and multifamily activity.
In the currency market, the
peso per dollar exchange rate ticked up to 20.03 after the inflation-adjusted rate2 decreased 4.9 percent YOY, revealing that domestic goods were relatively cheap to Mexican buyers in real terms. Despite currency fluctuations, both imports and exports rose in the second quarter due to an easing of supply-chain bottlenecks, pushing
total trade values in the border hubs up 5.8 percent QOQ after a slow start to the year. At the metropolitan level, exports increased significantly over the previous three months. Quarterly imports accelerated 7.8 percent in McAllen and flattened in Laredo, while values declined in both Brownsville and El Paso. Total trade values recovered to pre-pandemic levels except in El Paso, where activity remained down 40 percent amid ongoing disruptions to global supply chains. The border's trade sector remains an integral component of the local economies.
border housing sales turned positive in June, the previous four-month decline resulted in an 8.5 percent QOQ drop amid ongoing inventory constraints and reduced housing affordability. Activity in the Rio Grande Valley varied as sales fell 7.3 percent QOQ in Brownsville but accelerated 3.5 percent in McAllen mostly due to greater transactions for homes priced more than $300,000. In El Paso, quarterly sales shrunk 9.1 percent, trending downward due to declines for homes priced less than $300,000. Meanwhile, Laredo sales decreased for the second straight quarter, dropping 8.9 percent.
The border metros issued 2,670
single-family housing construction permits in 2Q2021, increasing 4.2 percent after negative growth during the previous quarter. Brownsville's issuance, however, remained steady for three consecutive quarters, posting 6.7 percent growth, while construction in McAllen trended upward as the metric rose 3.1 percent QOQ. Permits in El Paso and Laredo increased 1.7 and 2.4 percent, respectively, normalizing after significant declines to start the year. On the other hand, quarterly
private single-family construction values decreased along the border except in Laredo, where values increased 7.2 percent. Despite second-quarter slowdowns, three of the four border metros maintained an upward trend in values, except for Brownsville where the metric flattened, suggesting steady building in the upcoming months.
Rebounding sales activity offset additional listings during June, pulling
months of inventory (MOI) down to unprecedented lows of 2.2 and 1.1 months in McAllen and El Paso, respectively. Laredo's metric fell for the third straight month to 1.9 months while Brownsville's inventory expanded to 1.3 months, slightly above the statewide average (1.2 months). A balanced housing market typically has an MOI closer to six months.
average number of days on market (DOM) along the border continued to decline, corroborating robust demand despite the YTD dip in sales. The DOM in El Paso decreased to 34 days, while McAllen's rose to 67 days. Laredo and Brownsville shed additional time off their DOM, dropping to 31 days and 73 days, respectively.
While the shift in sales toward higher-priced homes due to limited inventories at the lower end of the market slowed in June, compositional changes contributed to quarterly increases in the
median home price along the border. The median price accelerated 9.7 percent in Brownsville during the previous three months compared with the first quarter, pushing the median price to $218,000. Median home prices in Laredo ($197,600) and McAllen ($193,900) accelerated as well, elevating 2 and 3.0 percent, respectively. El Paso ($197,500) was the exception as median price growth, while still healthy, decelerated 2.8 percent QOQ. True changes in home values were likely more modest as demonstrated by the lower growth of 1.4 percent in the El Paso Repeat Sales Home Price Index.
Lower-priced housing in the border metros generally reflects below-average earnings statewide, thereby managing affordability pressures as measured by the
Texas Real Estate Research Center's Affordability Indexes. Home-price appreciation, however, dampened affordability, particularly in Brownsville, where the affordability metric decreased for the fourth consecutive quarter to 1.24; this indicated a family earning the metro median income could afford a home priced 24 percent more than the median sale price. The McAllen and El Paso indexes also fell substantially to 1.43 and 1.58, respectively, relative to year-ago levels. Laredo's metric, however, climbed to 1.61, but the trend extended its decline from last quarter. Housing affordability is an important borderland advantage that has supported the region's attractiveness compared with other parts of the state.
1 Mexican manufacturing and maquiladora employment data 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. Its release typically lags the Texas Border Economy by one month.
To see the previous month's report, click here. For the report from a year ago, click here.
Previous reports available: