2006 Texas Border Economic Outlook

1
2006 Texas Border Economic Outlook

• Beyond Our Backyard Conference
• June 1-2, 2006

2
Presentation Outline

• First look at the long-term movements in income
  and jobs on the Border
• Then look at the principle drivers of Border
  business cycles
• Then take a closer look at structural shifts in
  border jobs
• Finish with a look at what the drivers are
  suggesting about the outlook for the border in
  2006

3
Border Economy on the Frontier

• Different from most areas
• Strong job growth and persistently weak
  per-capita income
• From 1969 to 1997 annual job growth in low-income
  border counties averaged 3.4 versus 2.0, 0.4
  and 0.3 in low-income counties in Kentucky, West
  Virginia, and Mississippi.
• Economies impacted by changes in national
  policies such as minimum wage, trade, national
  security, military spending and environment.
• Border adapts quickly to policy changes
• Border post-9/11

4
Border Job Growth Historically Strong
5
But Per-Capita Income Isnt Catching Up to the
Nation
Source Bureau of Economic Analysis, Regional
Economic Information System, 1969-2003
6
Border Driven by Many Factors

• Mexico
• Retail sales to Mexican Nationals important
  source of jobs
• Important links to the maquiladora industry,
  particularly El Paso-Juarez and McAllen-Reynosa
• Customs and border patrol important source of
  income
• Transportation and warehousing services
  particularly important to border
• Tourism and Leisure services, particularly in the
  Valley
• Health care and education important sources of
  growth
• Military important to Del Rio and El Paso
• Agriculture has important historical significance
  in the Valley but its share has declined

7
Importance of Mexico Highlighted in Much Larger
Job Shares than National Average in
Transportation, Retail and Govt.
8
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Dallas Fed Border Business Cycle Indexes

• Different economic indicators can cause confusion
  about the underlying direction of the economy. We
  combine the movements in employment, wages,
  retail sales, and the unemployment rate in a
  statistically optimal way to define the
  underlying direction of the economy.
• The long-term trends in the indexes are set to
  equal growth in the metros real personal income.
  

10
Laredo Economy Stronger and More Volatile than
Texas
11
How Regions Cluster Together Based on
Co-movements Over Time in Coincident Indices
12
Exchange Rate Impacts South Texas More than El
Paso
13
Laredo Impacted Most By Net Exported Retail Sales
14
Share of Maquiladora Employment Along the
Texas-Mexico Border
(2005 average)
Source INEGI seasonal adjustments by FRB Dallas
http//www.dallasfed.org
15
El Paso Follows Maquiladora Industry
16
Maquiladora Jobs Strong in Cd. Reynosa
Index, Jan 2000 100
Seasonally adjusted
Source INEGI seasonal adjustments by FRB Dallas
http//www.dallasfed.org
17
Health Care Share of Jobs has Increased
Significantly in the Last 10 YearsMcAllen
18
Border Outlook
19
South Texas Border Economies Currently Growing
Strongly(Business Cycle Indexes)
20
Brownsville Likely to Accelerate in 2006

• Strong Peso driving retail sector
• Property values and building activity strong on
  Padre Island
• Manufacturing recovering
• Health care growing strongly
• Gasoline prices slowed visits by Winter Texan
• Job growth likely to increase from 1.7 to 3.0

21
McAllen Likely to Continue Strong

• Strong peso and strong maquiladora growth in
  Reynosa driving retail and housing
• Health sector booming
• Government sector strong
• Job growth likely to increase from 4.2 to 4.5
  percent

22
Laredo Accelerating

• Strong peso boosting retail
• Health services up strongly
• Transportation sector continues to grow
• Job growth likely to increase from 3.6 to 4.2
  percent

23
El Paso Picking up

• Maquiladoras bouncing back in Juarez
• Military adding 30,000 troops over next 5 years
  boosting construction
• Health care strong
• Manufacturing still declining but by smaller
  amounts
• Job growth likely to pickup from 3.1 to 3.5
  percent

24
Summary of Overall Border Outlook

• Peso remains above long-term average
• Maquiladoras continue to expand
• US and Mexico outlooks are for continued growth
• Federal government and health care likely will
  continue to expand
• More stable peso means more stable Border
  economy 2006 election important
• Overall outlook continues strong

25
Forecasts Risks

• Instability in Mexico following presidential
  elections not a big chance but never know
• If peso declines sharply than all bets are off
  particularly for Laredo and Valley
• Spread of border violence from Nuevo Laredo
• School finance reform
• Impact of US VISIT uncertain

26
Why Havent Border Per Capita Incomes Been
Catching Up to the National Average?
27
Education is a Big Factor(Percentage of
Population 25 and over Completing Less than
High-School)
28
Implied Income Losses Due to High School
Incompletion
29
Good News

• More money going to border schools and
  universities since the mid-1990s
• More money does not guaranty better performance
  but studies have shown that more money can make a
  difference for low income schools