|Texas Border Economy||Texas Border Economy||James P. Gaines, Luis B. Torres, Wesley Miller, and Paige Silva||2019-11-15T06:00:00Z||technical-report||Texas Economy|
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Weakening labor market conditions and meager GDP growth in Mexico slowed economic growth along the U.S. side of the Texas border. Unemployment rates remained at historically low levels, but hiring waned, decreasing upward pressure on wages. Falling mortgage rates failed to stimulate housing sales amid labor-market struggles; construction activity, however, remained strong, contributing to the boost in single-family inventories. Housing demand remained healthy, as indicated by the downward trend in average days on market. Total trade values increased during the third quarter but flattened through 2019, highlighting the need for ratification of the United States-Mexico-Canada Trade Agreement to calm concerns of uncertainty. Much of the trade between the border communities and Mexico are manufacturing products; therefore, the decline in U.S. manufacturing weighs heavily on the local economies. The slowing global economy and political gridlock in Washington regarding immigration reform and trade remain the most prominent challenges along the Texas-Mexico border.
Economic activity was modest in the border metros, according to the Dallas Fed's Business-Cycle Indices. In Brownsville and El Paso, end-of-quarter payroll expansions pushed growth into positive territory, but the indices increased only 0.7 and 0.6 percent on a seasonally adjusted annualized rate (SAAR). McAllen's metric rose 0.3 percent after stumbling to start the second half of the year as the retail sector improved, while Laredo's index steadied at 0.7 percent growth.
After two consecutive quarters of above-average payroll expansion, border nonfarm employment decelerated to 0.8 percent SAAR growth, adding just 3,000 jobs during the third quarter. In Brownsville and El Paso, employment increased by only 100 and 200 new employees, respectively. Professional/business services and trade/transportation/utilities contractions weighed on gains in the leisure/hospitality and goods-producing sectors. Laredo added 300 positions in the three months ending in September as leisure/hospitality services contributed to most of the payroll expansion, correcting for a slow second quarter. Steady hiring in mining/logging/construction led to improvement every quarter this year. McAllen employment rose by 2,400 jobs, with growth concentrated in the education/health, retail, and professional/business sectors.
On the southern side of the border, the slowing global manufacturing environment weighed on Mexican manufacturing and maquiladora employment1, which contracted by 2,400 jobs in August. Juarez and Nuevo Laredo employment fell 0.6 and 2.7 percent year to date (YTD) after registering net layoffs for the fifth and sixth month this year, respectively. Reynosa and Chihuahua shed more than 300 jobs each but maintained 1.3 and 6.9 percent YTD growth. On the other hand, Matamoros added 400 jobs, increasing 9.8 percent YTD. Maquiladora employment may continue to fall due to decreased U.S. manufacturing production in September. The decline was largely a result of the General Motors strike. Nevertheless, output remained above the YTD low reached in April.
Unemployment rates along the border hovered at historical lows. Joblessness in Laredo matched the national average of 3.5 percent while El Paso's unemployment rate stabilized at 3.7 percent. In the Rio Grande Valley, the metric posted 5.3 and 5.9 percent in Brownsville and McAllen, respectively.
Average real private hourly earnings, however, decelerated in the Rio Grande Valley. Although Brownsville's inflation-adjusted wages jumped 6.6 percent year over year (YOY), the improvement was down from double-digit increases seen earlier in 2019. Average real wage growth slowed to 1.6 percent in McAllen while El Paso earnings fell slightly after adjusting for inflation. Laredo was the exception, increasing 2 percent YOY following a two-month stagnation.
Continued investment in the nonresidential sector boosted YTD total construction values 7.2 percent above January through September levels of last year. El Paso's school and hospital investment increased during the third quarter, although warehouse construction took a step back. Office construction strengthened in Brownsville but fell in McAllen, along with hospital, warehouse, and school-building investment. Residential construction decelerated compared to second-quarter growth but remained positive. Single-family activity accelerated in El Paso and Laredo, while apartment investment in McAllen picked up after a slow start to the year.
In the currency market, the peso per dollar exchange rate ticked down to 19.55, making domestic goods slightly less expensive to Mexican buyers. The inflation-adjusted rate, however, increased for the third straight month to a YTD high. Monthly total trade values passing through the border decreased, but overall trade values increased 0.4 percent quarter over quarter (QOQ). Laredo exports sank for the fifth consecutive quarter, but the decrease was offset by the other border metros. McAllen was the only trade hub along the Texas-Mexico border where import values increased in the three months ending September.
Border housing sales fell 2.3 percent in September for the fourth decrease in five months amid moderate economic conditions. Although El Paso's monthly sales stumbled due to weakness in the $100,000-$300,000 price range, the West Texas metro was the only border locale to register a quarterly increase in sales, rising 0.6 percent. Sales continued to trend upward in the Rio Grande Valley; McAllen transactions, however, fell 5.6 percent in September amid recent softness in the labor market. Activity in Brownsville corrected upward for homes priced less than $200,000 following subdued sales the previous four months. In Laredo, positive momentum showed signs of slowing across the price spectrum after elevated sales volumes to start the year.
On the supply side, the border metros issued a total of 666 single-family housing construction permits, increasing 8.1 percent from January through September 2019 compared with the same period last year. El Paso and Laredo permits climbed for the third consecutive month to 234 and 97, respectively. Brownsville matched its year-long average, issuing 77 monthly permits, while McAllen activity normalized at 257 permits after reaching a post-recessionary high of 432 permits in June.
Private single-family construction values rose 6.2 percent QOQ after adjusting for inflation. McAllen values tracked permits, returning to more normal levels after considerable growth during the second quarter. Brownsville and Laredo hovered around long-term averages, while El Paso values flattened.
Months of inventory (MOI) of homes for sale increased amid accelerated activity at the early stages of construction. Laredo's MOI extended a four-month increase to 5.9 months, mostly attributable to a sharply increasing supply of active listings. El Paso and McAllen inventories ticked up to 3.5 and 7.4 months, respectively. The exception was Brownsville, where dwindling listings pushed the metric ticked down to an all-time low of 6.8 months.
Movement in the average number of days on market (DOM) varied along the border. Laredo's and McAllen's DOM extended steady downward trends, decreasing to 53 and 86 days, respectively. The metric in Brownsville increased to 115 days but was relatively unchanged from year-ago levels. On the other hand, the average home in El Paso sold nearly four weeks faster than in September 2018, remaining 74 days on the market.
The El Paso median home price rose $1,800 to $165,000 as the share of homes sold for less than $200,000 continued to fall. The metric in Brownsville and McAllen flattened at $159,700 and $155,600, respectively. Ongoing inventory expansions in Laredo pulled the median price down to $170,600. Despite a pause in home-price appreciation, median home prices are rising at a faster pace than earnings. This environment decreases home affordability, which is increasingly becoming a challenge to the border metros' housing markets.
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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