February 2007

The Texas economy remained on a path of healthy expansion in the final month of 2006. The Dallas Fed’s Texas Business-Cycle Index—an aggregate measure of current regional economic activity—rose at an annualized pace of 4.3 percent in December, matching the pace set for the year as a whole and just above the 4.2 percent pace set in 2005 (Chart 1).

Chart 1

Building on previous gains made during the year, state employers added 23,000 workers to payrolls in December—a 2.7 percent annualized pace, according to data released by the Texas Workforce Commission with seasonal and other adjustments by the Dallas Fed [3] (see table). While still subject to slight revision, Texas recorded strong job growth of 3.2 percent in 2006, more than double the 1.4 percent pace of the nation as a whole.

Major Metros
Austin’s economy sustained its solid expansion in December, posting a 7 percent increase in its business-cycle index and a sizeable gain of 4,100 jobs. Employment growth was relatively widespread, and the unemployment rate dipped to a five-year low in December, reflecting continued overall strength in the metro’s economy. Anecdotal reports suggest that housing demand remains relatively healthy, retail spending is buoyant and businesses are expanding. For the year, Austin saw its business-cycle index rise a healthy 6 percent, and recorded a net gain of 29,300 jobs.

The Dallas economy continued to grow in December with its business-cycle index registering a 4 percent increase. Employers added 3,800 positions in December, bringing the total job gain for the year to 60,400—a 3 percent pace. While employment increases were broadly based in December, goods-sector employment edged down as homebuilders scaled back on construction. Service-sector employment increased, however, with strong hiring in industries that boost demand for office space—professional and business services and financial activities. High-tech employment was mixed in December. Layoffs continued at telecommunications firms, but job gains were very strong in the computer systems design sector, which includes software and IT consulting.

Fort Worth’s economy moved forward in December. The metro’s business-cycle index rose at an annualized rate of 3.3 percent, and employment expanded by 1.9 percent. Construction and natural resources jobs rose during the month, boosted by continued demand for nonresidential space and natural gas drilling in the Barnett Shale. In the service sector, the expanding hotel industry added to robust job gains in the leisure and hospitality industry. The quick-growing educational and health services also added jobs at a brisk pace. Anecdotal reports suggest further growth in this industry, with several medical facility expansions under way. For the year, Fort Worth added 24,500 net jobs, an increase of 3 percent.

Houston’s economy maintained its robust expansion in December, but at a more measured pace. The metro’s business-cycle index rose 4.1 percent, following strong growth of 6.7 percent in November. During the month, 4,000 jobs were added, with most of the gains coming from the wholesale trade, leisure and hospitality services, and educational and health services sectors. The mining and construction industries, which bolstered job growth in the Houston economy through much of 2006, saw no gains in December, as both homebuilding and energy sector activity softened. In 2006, the metro added over 91,600 jobs, thanks in part to favorable energy prices, strong housing demand and continued expansion at the Port of Houston.

San Antonio’s economy gained momentum in December, with the metro’s business-cycle index rising 7 percent during the month, following growth of 6 percent in November. The index was boosted by job growth of 3 percent (2,000 jobs) during the month, with many of the gains coming from the private-services sector. Manufacturing employment also posted healthy gains, likely due to continued hiring by Toyota Motor Manufacturing and its suppliers. In 2006, all major sectors of the San Antonio economy, with the exception of information services, recorded positive employment growth, and the metro’s payrolls grew by 29,000 jobs at a 3.6 percent pace.

Border Metros
The Brownsville economy stayed on an upward path in December, its business-cycle index growing at an annualized rate of 4.5 percent (Chart 2). Although employment gains stalled during the month, overall the metro added 4,200 jobs in 2006, a robust 3.5 percent pace. During the year, employment growth was broadly based across sectors. The construction sector and leisure and hospitality sector recorded especially strong employment growth resulting from rising home and apartment demand and a pickup in travel. Boardings at the Brownsville–South Padre Island International Airport rose 20.8 percent in 2006.

Chart 2

El Paso's economy continued expanding in December, with its business-cycle index rising 4.9 percent and employment growing at a 3.2 percent pace. The professional and business services and construction sectors were the top performing industries during the month thanks to strong manufacturing activity in sister city Ciudad Juárez and the Fort Bliss expansion. For the year, El Paso’s business-cycle index rose at a rate of 1.3 percent, and the metro recorded a net job gain of 2,800.

Laredo’s economy surged forward in December. The metro’s business-cycle index rose 16.6 percent during the month—the strongest pace since 1999—and employment increased at a healthy 4.3 percent. For the year, the metro added 5,100 jobs, an increase of 6.3 percent. Construction employment continued to rise, due to infrastructure improvements under way and strong demand for housing and nonresidential structures. In addition, the quickly growing population is boosting job growth in the professional and business services, leisure and hospitality services, and health and educational services sectors. The retail sector also remains strong—customers spent more per transaction during the 2006 holiday season, buoying retail sales despite slower customer traffic.

McAllen’s economy posted strong growth in December—the metro’s business-cycle index recorded annualized growth of 3.4 percent, and jobs rose by 1.8 percent. In 2006, the metro created 6,300 net jobs for growth of 3.2 percent. Financial activities, education and health services, and leisure and hospitality services were among the fastest-growing industries in 2006, fueled in part by the metro’s rapid population growth. The retail sector was a particular standout as well, with many national retailers opening stores and the addition of a Premium Outlet Mall, which drew large numbers of Mexican nationals from across the border. A healthy maquiladora sector in sister city Reynosa, along with a stable peso, is also contributing to McAllen’s continued expansion.

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 third quarter 2006 CEW data and seasonally adjusted by the Dallas Fed. For more information about early benchmarking data, 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.