Texas Border EconomyTexas Border EconomyJames P. Gaines, Luis B. Torres, Wesley Miller, and Paige Woodson2018-07-13T05:00:00Ztechnical-report
Texas Economy

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May​​​ 2018 Border Summary

The recovering retail sector and historically low unemployment supported growth along the Texas-Mexico border. The overall business-cycle expansion spilled into the housing market, where sales jumped 3.3 percent on the year. Despite the tightening labor market, hourly earnings remained stagnant, a common trend across the nation. Total trade values remained elevated despite a sudden drop in the peso. Uncertainty regarding the North American Free Trade Agreement (NAFTA), international trade, and immigration reform present the largest headwinds to the Texas border metros throughout this year and could reverse the positive business momentum into negative territory depending on the outcomes.


Economic activity along the border maintained positive momentum as indicated by gains in the Dallas Fed's Business-Cycle Indices. Despite struggling retail and wholesale trade in Laredo, economic activity inched forward 0.6 percent on a seasonally adjusted annualized rate (SAAR) for the first time this year, as local wages stabilized. A solid stretch of manufacturing and retail expansions in Brownsville pushed the economy forward 3.7 percent, the largest growth since 2015. McAllen's business cycle index rose 2.3 percent, but data revisions revealed a slight contraction in April. The rebounding retail environment, however, continued to attract activity from the surrounding region, including the Mexican cities of Reynosa and Monterrey. The El Paso economy maintained moderate, yet steady growth at 1.5 percent, despite stagnant wages.

Total border construction values extended their yearlong slide amid depressed nonresidential construction activity. Nonresidential construction values fell 43.3 percent year to date (YTD) after a flood of investment last year. Store and restaurant construction suffered in El Paso and McAllen, while Brownsville had minimal nonresidential activity this year aside from school projects. Flat single-family housing construction values hindered the residential sector for the second straight month. Multifamily investment, however, offset most of the decline. In Laredo and McAllen, the market shifted towards two-family housing units to combat affordability constraints. On the other hand, the apartment market remained healthy in El Paso as large projects entered the construction pipeline earlier this year.

Border nonfarm employment added 1,600 jobs1, but SAAR growth fell to 2.5 percent following the meager 600-job increase in April (revised down from 1,500). Job growth in the individual metros hovered around the border average. McAllen led the growth at 2.7 percent, adding 3,600 jobs YTD, with gains in retail trade and education/health services. These industries advanced similarly in El Paso but were offset by a yearlong decline in manufacturing. In Brownsville, manufacturing continued to expand and pushed SAAR growth to an 18-month high at 2.3 percent. Growth in Laredo slowed from 3.0 to 2.3 percent as wholesale trade suffered from increased business and trade uncertainty.

Manufacturing and maquiladora employment2 ticked up on the Mexican side of the border, adding 322 jobs due to growth in Matamoros and Chihuahua City. Reynosa shed more than 1,100 jobs, erasing most of this year's gains. Juarez maquiladora employment contracted for the third consecutive month, resulting in 2,300 fewer jobs since January. Nuevo Laredo lost 344 jobs but maintained steady growth on the year.

After rising in the first-quarter due to the expanding labor force, unemployment rates3 along the border returned to historically low levels. Laredo's unemployment rate sank to 3.7 percent, below the state and national rates of 4.1 and 3.8 percent, respectively. In El Paso, the unemployment rate fell from 4.5 to 4.3 percent. Unemployment remained elevated in the Rio Grande Valley at 6.5 and 6.7 percent in Brownsville and McAllen, respectively, but remained well below year-ago levels.

Real private hourly earnings, however, continued to suffer along the border. El Paso and McAllen paid the highest wages at over $18 per hour but remained $7 below the statewide average and contracted over the past year after accounting for inflation. On a positive note, real wages stabilized in Laredo following two years of steady decline. Brownsville wages rose 5.8 percent YTD—a much needed, yet minor improvement relative to the 20.5 percent decline between 2012 and 2017.

After a four-month decline, the peso per dollar exchange rate3 jumped above 19.5. The fluctuation, however, did not derail export activity in the Texas border metros, which increased $232 million in May. Exports increased 1.5 percent in all of the border metros except Brownsville, where they rose 1.1 percent. Imports expanded as well, pushing total trade values up 1.5 percent to more than $30.8 billion.


Border housing sales rose 3.3 percent after staggering to start the year. Improved economic conditions in Brownsville pushed housing sales up 8.6 percent, leading the border metros in percentage growth. Monthly sales in El Paso, which account for more than half of the border's housing activity, reached a record high 719 through the local Multiple Listing Service (MLS) as existing-home transactions boomed. McAllen's uptick in existing-home transactions lifted total sales 1.8 percent after a three-month decline. In Laredo, total sales fell 0.2 percent and trended below 100 closed listings per month.

The number of single-family housing construction permits issued in the border metros remained well below pre-recessionary levels, decreasing 4.5 percent in May. El Paso permits crashed 33 percent YTD, falling to their lowest level since 2004 as new-home demand weakened. Single-family building permits in Brownsville and Laredo remained elevated, issuing 79 and 93, respectively. McAllen led the border metros with 244 permits issued in May, up 6.7 percent YTD.

Private single-family construction values followed permits down 5.8 percent but were flat for the year. Builders targeted lower price cohorts in McAllen as construction values dropped 4.5 percent and trended downward, despite steady permit growth. In El Paso, values dropped 9 percent as new development stalled. Construction values continued to stabilize in Laredo, while trending upward in Brownsville.

Sluggish single-family construction pulled down the supply of homes for sale along the border. The total months of inventory (MOI) dropped below 4.7 months in El Paso amid plummeting active listings and robust sales. The gap between Brownsville and McAllen MOI closed, ticking below 8.9 and 8.5 months, respectively. While still elevated, the Rio Grande Valley averaged double-digit MOI as recently as 2016. Laredo was the only border metro where the MOI trended upward, rising above 5.1 months.

On the demand side, Laredo maintained the lowest average number of days on market (DOM) at 66 days but exhibited upward pressure. Soft new-home demand in El Paso held the DOM at 95 days. Total demand for housing was even weaker in the Rio Grande Valley, pushing the DOM above 127 and 106 days in Brownsville and McAllen, respectively.

In the Texas border economies, lower-priced housing generally balances with below-average incomes, thereby alleviating affordability pressures. The extended earnings stagnation, however, failed to counteract rising home prices. The median price for homes in Brownsville ($146,200) and McAllen ($149,100) increased 15.5 and 5.3 percent YTD, respectively, while El Paso hovered around $151,000. In contrast, rising inventory levels and softening demand in Laredo pulled the median price below $162,000, down 0.4 percent on the year.


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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