October 2006

The Texas economy continued to move forward in September. The Dallas Fed’s Texas Business Cycle Index—an aggregate measure of current regional economic activity—rose at an annualized rate of 4.2 percent during the month (Chart 1). Year-to-date, the index has risen 4.4 percent.

Chart 1

The Texas labor market maintained its solid expansion in September. According to data provided by the Texas Workforce Commission with seasonal and other adjustments by the Dallas Fed [3], Texas firms added 18,900 positions during the month at a 2.3 percent annualized rate (see table). So far this year, Texas employers have added 237,300 jobs—a robust 3.2 percent pace.

Major Metros
Austin’s economy continued on its upward path in September. Thanks to relatively strong job growth of 2.5 percent, the metro’s business-cycle index rose at an annualized pace of 3.9 percent. Job gains were relatively broad-based among sectors, but there were signs that tech-sector growth had slowed. Demand for some high-tech services—which was strong earlier in the year—appears to have leveled off, as employment gains moderated in the professional and business services sector. Notably, according to business contacts, venture capital funding in Austin has softened recently as two venture funds returned money to investors because of lack of investment opportunities. On a more positive note, construction jobs continue to be boosted by healthy growth in the metro’s housing and office markets, with inventories for both types of space edging down. For the year, Austin has registered a gain of 16,200 jobs—a 3.1 percent annualized increase.

The Dallas economy expanded moderately in September, with its business-cycle index increasing by an annualized pace of 3 percent. For the year, the index has risen 3.7 percent. After strong growth in August, Dallas employment dipped in September. Nevertheless, year-to-date the metro has increased payrolls by 42,200, second only to Houston. Despite the monthly employment decline, several sectors showed strength, and anecdotal reports suggest business activity remains vibrant. Dallas’ high-tech service sector is adding jobs—telecommunications employment increased slightly in September, while computer design and related employment rose a strong 8.5 percent. It also appears that business expansion is driving demand for commercial real estate, leading to increases in architecture and construction jobs.

Fort Worth’s economy posted strong growth in September. The metro’s business-cycle index rose an annualized 4.9 percent during the month, and employment increased by a solid 4.2 percent. The construction industry accounted for a large part of the job growth—homebuilding in Fort Worth remains robust, and retail construction is following the residential expansion. In addition, a very low office vacancy rate downtown—thanks partly to strong demand for office space from natural gas companies—is spurring new office construction. The financial industry continues to be another source of job growth in Fort Worth, as does the leisure and hospitality sector. Year-to-date, the metro has added 18,800 jobs.

The Houston economy remains vigorous—the metro’s business-cycle index grew at an annualized rate of 8.5 percent in September. Growth in the index was due in part to a strong September job gain of 11,200. The construction and energy sectors continue to drive the Houston economy. Still, anecdotal evidence suggests rising labor and material costs, along with difficulty finding workers, may be starting to restrain job growth in the construction industry. Energy activity remains strong, and capital expenditure projects are above last year’s levels, suggesting oil price expectations remain high despite the recent easing of prices. Another sector driving recent growth is leisure and hospitality, which added 2,000 jobs during the month. Houston’s hotel industry is booming, with hardly a trace left of the effects from Katrina evacuees exiting their temporary hotel lodgings. Industry occupancy rates stand at 71 percent, up from 65 percent a year earlier and above the U.S. average.

San Antonio’s economy expanded at a quick 5.1 percent pace in September, with the metro area adding 1,700 jobs during the month—a 2.5 percent annualized rate of growth (see the metro's business-cycle index). Employment gains were relatively widespread across sectors. While the trade, transportation and utilities sector recorded a job decline during the month, Port San Antonio’s (formerly KellyUSA) plan to export goods to China through a new Mexican trade corridor starting next month bodes well for this sector’s future. The metro’s unemployment rate dropped three-tenths of a percentage point to 4.5 percent in September, and there were anecdotal reports of labor shortages, especially for computer science engineers. Year-to-date, job growth in the metro has posted a healthy 2.9 percent—a gain of 17,000 jobs.

Border Metros
Brownsville’s economy continued to surge ahead in September. The metro’s business-cycle index grew at an annualized rate of 6.7 percent during the month, while employment increased at a healthy 6.1 percent pace (Chart 2). The leisure and hospitality and construction sectors are adding to the metro’s expansion. For instance, a 212-room extended-stay hotel is under construction, and a new 400,000-square-foot shopping center recently opened in Harlingen. In addition, retail sales remain strong throughout the Rio Grande Valley. Year-to-date the metro has added 3,700 jobs.

Chart 2

El Paso's economy slowed in September. The metro's business-cycle index edged down slightly during the month after falling 1.9 percent in August. Although total employment fell in September, private employment increased 3.5 percent, with the trade and transportation services, education and health services, leisure and hospitality, and manufacturing sectors adding jobs. Employment gains in the metro have been boosted by strong manufacturing activity in the sister city of Ciudad Juárez, Mexico, where maquiladora jobs have grown on average 13 percent over the past seven months. On a less positive note, construction employment remained flat in September, due in part to heavy rains that have stalled building activity.

The Laredo economy posted the state’s strongest growth rate in September. The metro’s business-cycle index increased at an annualized rate of 14.2 percent during the month, with job growth of 8.9 percent. Construction activity in the metro remains robust. Demand for housing is strong, and new hotels, such as Holiday Inn Express and Hawthorn Suites, are going up. Spending from Mexican nationals is vigorous, while U.S. consumer activity, including shopping and tourism, appears to be cooling, according to reports from business contacts.

McAllen’s business-cycle index edged down slightly in September following robust growth earlier in the year. Year-to-date the metro’s index has risen at a 7.2 percent annualized rate. Total metro employment fell during the month, but private employment rose by a moderate 3.2 percent. The construction industry added to the job gains, thanks to demand for residential and retail building. In addition, robust job growth in sister city Reynosa’s maquiladora industry is boosting service-sector gains in McAllen. Professional and business services employment has grown at a 13.3 percent pace year-to-date, faster than any other major sector.

Notes All growth rates are annualized unless otherwise noted. For a definition of the Texas Business-Cycle 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 second 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 D'Ann Petersen at (214) 922-5190.