March 2006

The Texas economy gathered speed in 2005 and continued to expand at a solid pace in January 2006. The Dallas Fed’s Texas Coincident Index—a business cycle index of current economic indicators—increased at a rate of 3.4 percent during the month (Chart 1). In 2005, the index registered growth of 3.6 percent, up from 2004’s pace of 2.9 percent.

Chart 1

Texas employment activity continued to rise in January, with job gains of 11,700, a 1.4 percent pace, according to data released by the TWC with seasonal and other adjustments by the Dallas Fed [3] (see table). While January’s growth rate is more modest than the upwardly revised 2.7 percent pace recorded in 2005, anecdotal information, such as the Eleventh District Beige Book, suggests Texas labor market activity remains strong.

Major Texas Metros
Austin’s economy remained vigorous in January. The metro’s business-cycle index rose at a strong pace during the month (4.5 percent), boosted by an uptick in sales tax receipts—thanks to Longhorn victory at the Rose Bowl—and strong employment gains (1,600 jobs) especially in the construction, professional and business services, and leisure and hospitality services industries. Despite reports of increased demand for high-tech services, venture capital funding in Austin slowed in the fourth quarter.

Dallas’ economy grew at a good clip in January, with its business-cycle index increasing at a 3.2 percent pace. The Dallas economy was hit the hardest of the major metros during the state’s most recent downturn and was slow to recover. However, the Dallas economy posted a sound performance in 2005—revised job numbers suggest growth of 3 percent (57,800 jobs) for the year. Anecdotal information suggests in-migration and relocation activity played an increasing role in the economy’s pickup during the year. January job growth continued at a relatively strong pace (2.6 percent), with the service sector registering robust gains.

Fort Worth’s business-cycle index slowed in January, rising at an annualized pace of just 0.7 percent, following growth of 2.5 percent in 2005. A monthly dip in overall employment (down 800 jobs, or 1.2 percent) contributed to the January slowdown. Still, private employment was positive during the month, with most of the job gains coming in service-related industries.

Houston’s economy remains very strong, with its business-cycle index rising at an annualized growth rate of 5.9 percent in January. Growth in the index was boosted by a job increase of 7,200 (3.7 percent annualized rate) in January, with many of the gains coming from the service sector, especially the trade, transportation and utilities and professional and business services sectors. Employment also continued to increase in the construction and oil and gas industries. Anecdotal information suggests a large part of the recent job gains are related to hurricane reconstruction efforts in Louisiana and servicing evacuees from New Orleans which, according to rough estimates, reach approximately 25,300 in Harris County alone.

The San Antonio economy continued to expand at a moderate pace in January, with its business-cycle index increasing by 2.7 percent. The metro recorded modest job growth (0.6 percent) during the month, with the strongest increases coming from trade, transportation and utilities and education and health services. The manufacturing sector also saw job gains in January as Toyota suppliers moved their operations to the metro to support the upcoming plant. In addition, business contacts said increased hiring by the Department of Defense led to a slight uptick in government employment. In 2005, overall employment gains totaled 23,600.

Texas Border Metros
The Brownsville economy continued to expand at a relatively strong pace in January as its business-cycle index increased 3.7 percent, thanks in large part to rising sales tax receipts boosted by a strong peso (Chart 2). Employment grew at a 1 percent annualized pace during the month, following growth of 2.2 percent in 2005. The metro’s economy continues to benefit from retail expansion and growth in the health care industry.

Chart 2

El Paso's business-cycle index rose only 0.7 percent in January as the metro recorded a job decline of 3.1 percent during the month. Employment growth in the service and construction sectors was offset by declines in manufacturing and government. The January decline comes on the heels of moderate growth in 2005—the El Paso economy closed the year with job growth of 2.4 percent. Strong manufacturing activity in the sister city of Ciudad Juárez, as well as additional troops heading to Fort Bliss, should fuel El Paso’s economy in coming months.

Following brisk growth in 2005, Laredo’s business-cycle index continued to increase vigorously in January (8.4 percent annualized pace). Metro employment rose 6 percent during the month. Retail trade in Laredo remains strong, despite the continuing violence in Nuevo Laredo. Additionally, the economy continues to benefit from elevated construction activity related to increased demand for hotels and retail space.

McAllen’s economy continued to expand strongly in January, with its business-cycle index rising at a 4.6 percent annualized rate, thanks to rising sales tax receipts and annualized monthly employment growth of 3.1 percent. The metro’s economy continues to benefit from solid job growth in nearby Reynosa’s maquiladora industry and a strong peso that is fueling the retail sector. Demand for educational services is rising, as evidenced by the University of Texas–Pan American campus in Edinburgh’s first new dormitory in three decades—a $12.5 million residence hall that will house 400 students by fall 2006.

Notes All growth rates are annualized unless otherwise noted. For a definition of the Texas Coincident Index, see Data Basics, Data Definitions. For more detail about the Texas metro business-cycle indexes see, "Dallas Fed Introduces Business-Cycle Indexes for Texas Metros," Southwest Economy, May/June 2005. The employment data used in this analysis have been benchmarked to TWC's third quarter 2005 CEW data and seasonally adjusted by the Dallas Fed. For more information about early benchmarking data please see, “Getting a Jump on Texas Employment Revisions,” Southwest Economy, November/December 2005. For more information regarding the importance of seasonal adjustment of economic data, see Data Basics, "Seasonally Adjusting Data." For more information about the procedure used to seasonally adjust metro-level data, see "Reassessing Texas Employment Growth," Southwest Economy, July/August 1993. For additional information or questions, please contact D'Ann Petersen at (214) 922-5190.