March 2007

The Texas economy expanded at a measured pace in January, after solid growth in 2006. The Dallas Fed’s Texas Business-Cycle Index—a gauge of the region’s current economic conditions—increased at a 2.8 percent annualized rate during the month, somewhat less than the 3.5 percent pace recorded in 2006 (Chart 1).

Chart 1

Texas employment growth remained subdued in January. According to the data released by the Texas Workforce Commission with seasonal and other adjustments by the Dallas Fed [3], Texas payroll employment registered a slight decline of 600 jobs (down 0.1 percent) during the month (see table).

The benchmarked employment data indicate that payroll employment grew at a slightly slower pace of 2.7 percent in 2006 than the 3.2 percent rate estimated earlier. Nonetheless, the unemployment rate is the lowest it has been since March 2001, and anecdotal evidence continues to suggest sound activity in the energy and service sectors.

Following strong growth in 2006, the Dallas economy expanded at a more moderate pace in January 2007. The metro’s business-cycle index rose at a 3.2 percent annualized rate, and 2,100 jobs were added—a 1.2 percent pace. Goods-sector employment declined during the month, with a substantial dip in construction jobs as homebuilders continued to scale back. Gains in service-sector employment more than offset the decline in the goods sector, however, with strong hiring in professional and business services, transportation and warehousing, leisure and hospitality, and financial activities. Comerica Inc.’s recent announcement that it will move its corporate headquarters from Detroit to Dallas bodes well for continued employment gains in the financial sector. Layoffs continued at telecommunications firms during the month, but job gains in the computer systems design sector helped keep overall high-tech services gains positive.

Fort Worth’s economy slowed in January. The metro’s business-cycle index edged down at a 0.4 percent annualized rate, as employment dipped by 1,100 jobs (a 1.6 percent annualized decline). Many of the job losses came in the goods-producing sector, where slower home sales led to layoffs at some homebuilding firms. In the service sector, hotel expansion along with a recent increase in the number of medical facilities added to job gains in the leisure and hospitality and health sectors. The financial services industry, which grew strongly in 2006, added 500 additional jobs (a 13.2 percent annualized increase) in January.

Houston’s economy accelerated in January, following unusually slow growth in December. The metro’s business-cycle index grew at an annualized rate of 6 percent during the month, and employment increased by 7,400 jobs (at a 3.6 percent annualized pace), with most of the gains coming from the construction, mining and natural resources; transportation, warehousing and utilities; and leisure and hospitality industries. Growth in transportation employment continued to be buoyed by record-level activity at the Port of Houston. Residential construction activity slowed further in January, while nonresidential construction continued to be a positive factor in the metro’s growth.

San Antonio’s economy expanded at a brisk 6.2 percent annualized pace in January, with the metro area adding 3,200 jobs during the month—a 4.8 percent annualized rate of growth (see the metro’s business-cycle index). Employment gains were relatively broad based across sectors. The construction and mining, professional and business services and information services industries saw particularly strong gains during the month. The financial services sector, which saw healthy growth in 2006, continued to add jobs in January, while activity in the retail sector softened because of a decline in border crossings and a weakening Mexican peso.

Border Metros
Brownsville’s economic growth slowed to zero in January (Chart 2). The metro’s business-cycle index held steady, and the metro saw no job growth during the month, as employment gains in the service sector were offset by job losses in the goods-producing industries. Anecdotal reports suggest that a decline in maquiladora activity, primarily in the transportation and textile sectors, may be dampening growth in the metro. Despite the softness in overall economic activity, the housing sector remained strong, with building permits on the rise and home sales increasing in January.

Chart 2

El Paso's economic growth decelerated in January, with its business-cycle index rising at a mere 0.7 percent annualized rate, following solid growth in 2006 of 1.8 percent. The metro’s payroll employment fell by 1,100 jobs—a 4.8 percent annualized decline—during the month as job gains in the professional and business services and trade and transportation services sectors were outpaced by employment losses in the construction and manufacturing sectors. Housing market and maquiladora industry activity, which together had boosted growth in the metro through much of 2006, slowed in January. Contacts say that a sustained slowdown in the maquiladora industry, especially in the automotive sector, may contain employment growth in the metro in coming months.

Laredo’s economy maintained its positive momentum in January, with its business-cycle index increasing 5.6 percent (annualized rate). Total metro employment fell 4.1 percent during the month but remains 4.4 percent higher than in January 2006. Construction and housing sector activity remains strong in the metro, while commercial border crossings have declined recently. Retail sector growth in the metro has softened as the recent opening of the outlet mall in the Valley has taken away many of Laredo’s Mexican shoppers.

McAllen’s economy surged ahead in January as its business-cycle index grew 3.1 percent and employment increased 3.6 percent (600 jobs). Activity in the service sector remained strong, and job growth in professional and business services led the way, posting a 31.5 percent annualized increase. Commercial construction activity is still vigorous, with a few projects—including the $40 million expansion of Doctors Hospital at Renaissance—under way. The manufacturing sector shed 100 jobs in January, which may be related to the recent slowdown of the maquiladora industry in its border city of Reynosa.

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.