April 3, 2007

The Texas economy maintained its moderate pace of expansion in February. The Dallas Fed’s Texas Business-Cycle Index—a gauge of current regional economic activity—rose at an annualized rate of 2.6 percent during the month, similar to the pace set in January but more measured than the vigorous growth recorded in 2006 (Chart 1). Anecdotal reports suggest the Texas economy is likely to continue growing at this more temperate pace in the near term.

Chart 1

State employers added 12,600 workers to payrolls in February—a 1.5 percent annualized increase, according to data released by the Texas Workforce Commission with seasonal and other adjustments by the Dallas Fed [3] (see table). While job growth picked up from January’s tepid pace, it is still more modest than the 3 percent growth witnessed in 2006. The Texas labor market remains tight—with an unemployment rate of 4.5 percent.

Major Metros
Austin’s economy continued on its upward path in February. The metro’s business-cycle index rose a vigorous 6.4 percent, matching its growth year-to-date, and employment expanded at a 3.3 percent pace (up 2,000 jobs). Job gains were widespread across industries. Construction employment recorded a brisk 13.1 percent increase, bolstered by healthy population growth, strong retail sales and sound demand for midtier and high-end homes. Additionally, Time Warner and Home Depot expanded their payrolls during the month, boosting job gains in the administrative services sector and the trade and transportation industry, respectively.

The Dallas economy grew solidly in February, its business-cycle index registered a 3.6 percent increase. Employers added 7,100 positions during the month, more than any other Texas metro. Job gains were broadly based across both goods and service sectors, with the strongest growth in professional and business services—including increases in architectural and engineering services and computer system design services. The ongoing expansion of the medical industry kept jobs rising in the educational and health services sector. While the housing sector continues to retrench, construction employment was positive, thanks to sustained building activity on the commercial side.

Fort Worth’s economy expanded at a good clip in February—its business-cycle index rose at a 3.3 percent pace and employment grew by 3 percent. Goods sector jobs rose strongly, while service sector gains were mixed. Trade, transportation and utilities employment fell during the month, and layoff announcements by several large retailers suggest further weakness in coming months. On a more positive note, the expanding medical industry led to strong gains in educational and health services employment. Adding to high expectations for future growth in the metro’s health services industry, the Veterans Administration recently announced that Fort Worth will be home to the country’s largest outpatient clinic for military veterans. The facility is expected to open in 2010.

Houston’s business-cycle index rose at a modest 2.3 percent pace in February. Employers added 1,700 new jobs during the month, with gains concentrated in the construction, mining and natural resources sector. Employment growth was weak in other sectors that had been performing well previously. The trade, transportation and utilities industry saw no growth in February, likely because of a temporary slowdown in import shipments from China. The leisure and hospitality sector—which expanded by 11,600 jobs last year—posted job losses of 1,200. On the plus side, business contacts say the hotel industry is still quite strong, suggesting the recent dip is temporary and may partly reflect the leveling off of hotel occupancy.

San Antonio’s economy maintained its expansion in February, with its business-cycle index rising 4.5 percent. After posting healthy gains over the past few months, employment dipped in February, falling 2 percent as job declines in the construction and manufacturing industries—which had bolstered job growth in preceding months—weighed down overall employment growth. Despite the monthly decline, some sectors showed strength, and business contacts continued to report vitality in the metro’s economy. San Antonio’s financial services and professional and business services sectors, added 200 jobs and 400 jobs, respectively, and anecdotal reports suggest continued expansion in these industries.

Border Metros
Brownsville’s business-cycle index picked up to a 2.6 percent pace in February, following a slowdown in January (Chart 2). Employment increased a strong 6.1 percent (600 jobs), with all of the gains coming from the service sector. The trade and transportation sector added 200 jobs (10.4 percent increase) during the month, and announced expansions by retailers such as Lowe’s, Office Depot and Kohl’s bode well for continued job growth in this sector. Construction employment remained flat during the month; yet anecdotal reports suggest commercial construction activity is still strong, and population growth continues to spur expansion in this sector.

Chart 2

El Paso's economy grew at a tepid pace, with its business-cycle index rising a mere 0.3 percent in February. Payroll employment increased by 300 jobs at a 1.4 percent annualized rate during the month, with job gains in the professional and business services and trade and transportation sectors leading the way. Construction employment held steady, while manufacturing employment fell 5.5 percent. On the plus side, a recent announcement by Hoover Co. indicating consolidation of its Ohio manufacturing operations in the El Paso–Juárez region may help stabilize manufacturing activity and fuel service sector job growth in the metro.

The Laredo economy continued to expand in February, despite a 1.4 percent dip in employment. The metro’s business-cycle index rose a modest 2.8 percent during the month. Sales tax rebates have declined recently, and competition from Valley and San Antonio retailers appears to be affecting Laredo’s merchants. Commercial crossings were down 5 percent in February after averaging 11 percent growth in 2006. On a more positive note, some new large projects have been announced, including a $100 million state-of-the-art copper tubing manufacturing plant that is expected to add about 200 jobs.

McAllen’s business-cycle index rose a strong 9.4 percent in February, and employment increased by 3 percent. The metro’s economic growth is due in large part to the expansion of the construction, health, information and financial sectors. Anecdotal reports suggest bank deposits are at record highs. Additionally, optimal weather conditions and high product prices are benefiting the Valley’s agricultural 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 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.