June 26, 2007

The Texas Economy maintained its steady expansion in May. The Dallas Fed's Texas Business-Cycle Index, an aggregate measure of the region's current economic activity, rose at an annualized rate of 3.7 percent, matching the pace set in April as well as year-to-date (Chart 1).

Chart 1

State payroll employment rose by 17,300 workers in May, for annualized growth of 2 percent, according to data released by the Texas Workforce Commission with seasonal and other adjustments by the Dallas Fed [3] (see table). The labor market continued to tighten during the month—the Texas unemployment rate fell to a record low of 4.1 percent.

Major Metros
Austin's economy sustained its upward expansion in May, posting a 7.5 percent increase in its business-cycle index and a gain of 800 jobs. Employment growth was relatively widespread, and the unemployment rate dipped further to 3.2 percent, reflecting continued overall strength in the metro's economy. Ongoing hiring by Samsung for its new wafer plant—slated to open in the second half of 2007—more than offset layoffs by Newisys Inc., keeping overall growth in manufacturing employment positive. Payrolls in construction, professional and business services, leisure and hospitality, financial services and education and health services expanded by 100 jobs each. Additionally, sales of single-family homes and condos remained healthy, and building activity in the metro's office and industrial markets continued to be strong.

The Dallas economy posted solid growth in May, with its business-cycle index increasing 3.5 percent. Employers added 4,500 positions during the month, and the gains were broadly based in both goods and services industries. Only the professional and business services and financial activities industries recorded job declines—but both witnessed strong job growth in prior months this year. Construction employment ticked up despite a continued decline in new home building. Single-family permits are down over 30 percent from last year, but home sales are at relatively good levels historically, according to business contacts. Commercial building activity remains strong. Year-to-date, Dallas has added 25,400 jobs, the most among Texas metros.

Fort Worth's economic growth moderated somewhat in May. Its business-cycle index rose at a rate of 2.3 percent following 6.1 percent growth in April. Employers added 1,100 jobs during the month, and the gains were broadly based, with the goods sector leading the way. The construction and mining/natural resources sector posted job growth of 6.2 percent, boosted by continued drilling in the Barnett shale and new office construction. Manufacturing payrolls rose by 4.9 percent. The leisure and hospitality industry had the quickest job growth in the service sector—in part because of the ongoing hotel expansion. So far this year, Fort Worth has added 7,900 jobs, matching Austin's gain.

The Houston economy grew at a strong pace in May, as the metro's business-cycle index registered a 5.3 percent increase. The metro added 6,000 new jobs during the month. Job growth was broad-based, with the service economy adding 2,800 and the production side contributing 3,200. Nonresidential construction is especially vigorous in Houston, and according to Beige Book contacts, the market could be even stronger if rising costs of labor and materials were not as pronounced. The energy industry has benefited from high energy prices and is still the main driver of the local economy. With growing capital investment in many areas (especially downstream), companies are reporting a serious shortage of skilled labor. Spillover effects from Houston's economic dynamism and population growth were seen in educational and health services which added 1,200 jobs in May, and the government sector, with 1,100 new jobs.

San Antonio's economy maintained its expansion in May, its business-cycle index rising 6.8 percent and payroll employment increasing by 1,200 jobs. On the goods-producing side, job gains of 100 in manufacturing were offset by declines of 100 in construction, as rising inventories pushed homebuilders to cut back on starts. Professional and business service employment grew a strong 3 percent (300 jobs), thanks to an expanding high-tech service industry in the metro. The financial services and education and health services sectors also posted job gains of 300 and 400, respectively.

Border Metros
Brownsville's economy grew at a rapid clip in May, with its business-cycle index rising 4.2 percent, while employment increased by 4 percent (400 jobs) (Chart2). The metro's economic growth continues in large part due to the expansion of the retail, housing and health care sectors. Moreover, a long-term care hospital that opened recently is expected to create 120 new jobs in the metro.

Chart 2

El Paso's economy grew strongly in May, with the metro's business-cycle index increasing 4.9 percent. Gains in both service-producing and goods-producing employment contributed to total employment growth of 6 percent, representing 1,300 new jobs. Apparently, industrial activity is picking up in Ciudad Juárez. However, some contacts are still reporting mixed signals. According to business contacts, the promised increase in troop levels has not yet materialized, resulting in a housing cooldown.

Laredo's economic activity continued to show some signs of strength in May, with its business-cycle index posting an 8.5 percent annualized increase. Total metro employment fell by 100 jobs during the month—a .9 percent decline—but is up 1 percent year-to-date. Business contacts say that slow growth in the Mexican economy is dampening economic growth in Laredo, and as a result, tax receipts, border payments and retail sales have declined. Single-family building activity, both in volume and value, continues to falter as well. On the plus side, a $2 million Ashley Furniture store that opened in May created about 30–45 jobs in the metro.

McAllen's economy expanded in May, despite a 0.6 percent dip (100 jobs) in employment. The metro's business-cycle index rose 4.8 percent. Although single-family home construction activity continues to decline, it is being more than offset by strong growth in commercial work, which has pushed up the overall value of construction in the first four months of 2007 to $90 million—an 18 percent increase compared with the same period last year. Anecdotal reports suggest that new retailers and expansion of existing shopping centers (including the newly opened Premium Outlets mall) are contributing to the strength of this 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 fourth quarter 2006, with seasonal and other adjustments by the Federal Reserve Bank of Dallas. 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.