August 2006

The Texas economy moved ahead at a modest pace in July. The Dallas Fed’s Texas Business-Cycle Index—an aggregate measure of the state’s economic health—grew at 2.8 percent annualized during the month (Chart 1). Year-to-date, the index has increased an annualized rate of 3.7 percent.

Chart 1

The Texas labor market continued to improve in July, adding 22,100 jobs at an annualized rate of 2.7 percent. This is a slight deceleration from the 2.9 percent recorded year-to-date (see table). Despite the moderation in pace, anecdotal reports such as the Dallas Fed’s Beige Book continue to suggest a tight labor market and mostly strong economic conditions.

Texas Major Metros
Austin’s economy maintained its upward path of expansion in July, with its business-cycle index increasing a solid 3.2 percent. The metro posted modest job gains (500) during the month, which were concentrated in the government and construction sectors. Anecdotal reports suggest that housing demand remains quite strong, partly due to in-migration. Moreover, businesses, especially those in the financial activities and high-tech sectors, are relocating and expanding their operations in the metro, which is helping bring down office vacancy rates and spur new development. So far this year, the metro has posted large employment gains of 13,300 jobs—a 3.3 percent annualized increase.

The Dallas economy maintained its expansion in July, with its business-cycle index growing at a 2.7 percent pace. Job gains slowed during the month—just 800 jobs were added—but the year-to-date total remains robust at 36,500 (3.2 percent annualized growth). Much of the growth this year has come from the professional and business services sector, which expanded at a robust 10.7 percent (annualized) through July. This sector includes technical and scientific professions, accounting, legal occupations, architecture and engineering. In addition, computer system and design jobs have risen 11.6 percent year-to-date. Business contacts suggest the rapid growth is due to increased outsourcing related to a pickup in high-tech demand. Construction employment continues to grow briskly, thanks in large part to increasing demand for office space. There are more reports of firms looking for large blocks of space as local firms expand and relocations become more prevalent.

Fort Worth’s business-cycle index edged down 2.2 percent in July after strong growth in the previous month. Despite the decline, year-to-date the index is up a moderate 2.2 percent. The monthly slowdown was largely due to job declines of 3.5 percent, which came mainly from the service-producing side. Nonetheless, employment growth remained positive in some service industries, including financial activities and leisure and hospitality, which have seen strong job gains in 2006. On the goods-producing side, construction and drilling activity are well above last year’s levels. Year-to-date, the metro has registered job gains of 6,500—a 1.4 percent annualized pace.

Houston’s business-cycle index grew strongly in July at a monthly annualized rate of 5.4 percent. The metro added 5,800 jobs for the month with the goods-producing sector—energy and construction industries—still driving most of the employment growth (3,300 jobs). In addition, the trade, transportation and utilities and educational and health services sectors, added over 1,000 new jobs each. Job growth in transportation services is being boosted by ongoing expansion at the Port of Houston, which will increase the port’s container capacity by 200 percent. For the year, employment in Houston is up 2.2 percent (annualized)—an increase of 30,300 jobs.

San Antonio’s economy expanded at a good pace in July, with its business-cycle index rising 3.3 percent. Employment levels in the metro held steady as gains in the construction and several service industries were offset by declines in the manufacturing and professional and business services sectors. Nevertheless, anecdotal reports suggest rising employment in coming months, with the Toyota plant scheduled to be opened in the fall and announced expansions at UT San Antonio and the UT Health Sciences Center. Year-to-date, San Antonio has added 9,500 jobs at an annualized rate of 2.1 percent.

Texas Border Metros
Brownsville’s economy grew at a modest clip in July as its business-cycle index rose 3.6 percent (annualized) (Chart 2). Employment increased by 300 jobs during the month, with gains coming mostly in the service sector. Anecdotal reports suggest two major retailers have added jobs in July. Year-to-date, the metro has recorded solid employment gains of 2,900 (4.2 percent annualized growth).

Chart 2

El Paso's economy slowed slightly in July, as the metro's business-cycle index rose 3.8 percent (annualized), following stronger growth in the previous month (4.2 percent). The slowdown, however, was not reflected in job growth (5 percent annualized increase) during the month. Most of the employment gains were concentrated in the service-providing sector, with professional and business services making a large contribution. Helping drive service-sector growth was strong manufacturing activity in the sister city of Ciudad Juárez, Mexico. Construction remains solid in the area, but business contacts indicate that the recent floods will slow building activity in the metro in coming months. For the year, El Paso’s employment has increased by 4,700 jobs.

Laredo’s economy posted healthy growth in July, as its business-cycle index increased at an annualized rate of 10.4 percent. The metro added 1,500 jobs during the month, with all of the gains resulting from strong growth in the service-providing sector. Moreover, construction activity remained strong in the metro. So far this year, the metro’s employment has grown at the strongest pace among Texas border metros (7.2 percent—3,400 jobs).

McAllen’s economy continued to expand at a strong pace in July. The metro’s business-cycle index increased 19 percent, a result of robust employment growth (23 percent—3,500 jobs). Anecdotal reports suggest that the healthy gain in employment is partly due to the slated November opening of the Premium Outlet Mall, which has attracted additional real estate developers and businesses to the area. So far this year, Mc Allen’s employment growth has registered a 6 percent increase—a gain of 6,900 jobs.

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 first quarter 2006 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 Laila Assanie at (214) 922-5191.