|Texas Border Economy||Texas Border Economy||James P. Gaines, Luis B. Torres, Wesley Miller, and Paige Silva||2019-10-15T05:00:00Z||technical-report||Texas Economy|
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Weaker labor market conditions on both sides of the Texas-Mexico border weighed on local economic growth. Employment growth decelerated across the board while real wages stalled in El Paso and Laredo. Unemployment rates, however, remained at historically low levels. Housing sales increased after three straight declines but continued a downward trend. Second-quarter GDP data revealed the Mexican economy stagnated, weighing on retail activity on the U.S. side of the border. On the bright side, construction activity and total trade values accelerated. Threats to the border communities include the slowing global economy and political gridlock in Washington regarding immigration reform and trade.
Economic activity slowed to a halt along the border as indicated by the Dallas Fed's Business-Cycle Indices. Payroll contractions and retail struggles in Brownsville pulled the index down 1.4 percent on a seasonally adjusted annualized rate (SAAR). The El Paso and Laredo indices stagnated amid more moderate labor-market conditions domestically and on the southern side of the border. McAllen's metric improved slightly, but growth remained sluggish.
Continued investment in the nonresidential sector boosted year-to-date (YTD) total construction values 4.5 percent above January through August levels of last year. School-building and hospital construction, particularly in El Paso, contributed to the monthly increase. A slowdown in apartment construction weighed on residential activity, but the trend continued upward.
The border metros recovered 1,500 nonfarm employment jobs after data revisions revealed 1,000 layoffs in July. Amid slowing population growth in Brownsville and El Paso, payroll expansion decelerated. Brownsville shed 200 jobs, extending a three-month slide in retail employment while leisure/hospitality contracted after seven straight months of growth. In El Paso, government and professional/business services contributed to a monthly gain of 700 jobs, but employment failed to recuperate July's losses. The metro's retail sector suffered, falling 1.6 percent in conjunction with the mass shooting at a Walmart at the beginning of August. Laredo added 300 new jobs with stable hiring in the mining/logging/construction sector and gains in professional/business services and leisure/hospitality offsetting layoffs in trade and education/health employment. McAllen payrolls expanded by 700 positions, led by professional/business and education/health services. Nonetheless, employment growth slowed to 1.7 and 1.5 percent SAAR in McAllen and Laredo, respectively.
On the Mexican side of the border, manufacturing and maquiladora employment1 started off to a slow third quarter, shedding 600 jobs. Matamoros and Chihuahua registered monthly losses but maintained 9.2 and 7.2 percent YTD growth. Reynosa employment flattened but is expected to rise in the second half of the year as two new maquiladoras begin operations and a third company undergoes an expansion project. On the other hand, Juarez maquiladora employment contracted for the fourth time in five months, falling 0.4 percent YTD. Nuevo Laredo added 300 positions but remained 1.2 percent below year-end levels. Recent data, however, suggest maquiladora employment may fare better in August. U.S. industrial production increased 0.6 percent after dipping slightly in July. Manufacturing output rose 0.5 percent, recovering second-quarter declines.
Unemployment rates along the border hovered at historical lows. Joblessness in Laredo ticked down to 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.
Real private hourly earnings trended upward in the Rio Grande Valley as hiring moderated. Brownsville and McAllen continued to register strong year-over-year (YOY) improvement with wages rising 8.6 and 5.5 percent, respectively, after adjusting for inflation. Meanwhile, real earnings flattened YOY in El Paso and declined slightly in Laredo after increasing for increasing for three consecutive months.
In the currency market, the peso-per-dollar exchange rate rose to its highest level this year at 19.68, making domestic goods more expensive to Mexican buyers. The inflation-adjusted rate2 also reached a YTD high. Total trade values passing through the border, however, increased slightly, led by a rise in El Paso's machinery exports. Import values fell across the border metros, most severely in Brownsville, where electric machinery purchases continued to fall and mineral fuel/oil products normalized after a steep increase in July. Overall, Laredo remained the primary trading hub on the border and accounted for nearly 32 percent of Texas' total trade flows in August.
Border housing sales increased 5.5 percent after falling for the previous three months. Sales in Laredo and El Paso registered monthly improvements but extended downward trends. Sales activity in Laredo continued to normalize after a strong start to the year, particularly for homes priced above $200,000. In El Paso, sales for homes priced $100,000-$200,000 picked up after a five-month slide. Momentum slowed in McAllen as the metro registered its fourth consecutive decrease. Brownsville sales for homes priced $200,000-$300,000 increased, but the improvement was offset by falling transactions in other price cohorts.
On the supply side, the border metros issued a total of 682 single-family housing construction permits, increasing 7.6 percent from January through August 2019 compared with the first eight months last year. McAllen extended a steep upward climb, while El Paso permits picked up after decreasing through much of last year. Brownsville permit issuance sustained slow, but stable, growth. Laredo registered a slight monthly improvement, but activity remained subdued. Private single-family construction values trended up along the border with the exception of Laredo, where construction values mirrored permits.
Movement in the months of inventory (MOI) of homes for sale varied along the border. The MOI in the Rio Grande Valley ticked down to historical lows of 7.0 and 7.4 months in Brownsville and McAllen, respectively. On the other hand, El Paso inventories inched up to 3.6 months, steadying after a five-year decline. In Laredo, continued increases in the supply of active listings for homes priced above $300,000 pushed the MOI to its highest level since 2011 at 5.7 months.
Demand remained robust as indicated by the average number of days on market (DOM). Homes in El Paso and Brownsville sold five and three weeks faster than a year ago at 63 and 105 days, respectively. Laredo shed a week off its DOM, settling at 59 days to match the statewide average. McAllen's metric hovered just under its two-year average of 93 days.
Changes in the distribution of housing sales explained most of the fluctuation in median home prices. Amid a return to standard sales activity, El Paso and Laredo's median price fell $900 each to $162,300 and $170,600, respectively. Brownsville's metric rose $11,850 to $160,200 as the share of homes priced more than $200,000 increased from 26 to 35 percent. The McAllen median price fell more than $500 to $154,400.
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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