August 2, 2007

The Texas economy expanded moderately in June. The Dallas Fed's Texas Business-Cycle Index, an aggregate measure of the region's current economic activity, rose at an annualized rate of 3.4 percent. Year-to-date, the index has increased an annualized 3.5 percent, suggesting a deceleration in growth from last year's 4.2 percent pace (Chart 1).

Chart 1

State payroll employment rose by 15,100 workers in June—for annualized growth of 1.8 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 remained tight during the month—the Texas unemployment rate stayed at a record low of 4.1 percent.

Major Metros
The Austin economy continues to grow the fastest of the major metros, with its business-cycle index rising a robust 6.4 percent in June. Employment gains totaled 2,000 last month, with 75 percent of these new jobs coming from the service sector. The trade, transportation and utilities and the education and health services sectors led the way, each adding 500 jobs in June. Construction jobs continued to rise during the month as home demand remained relatively strong compared with other areas and commercial construction picked up. Home prices have continued to appreciate, making Austin stand out from many other U.S. metros.

Dallas's economic growth moderated somewhat in June, as its business-cycle index rose 2.4 percent after 3 percent growth in May. Most sectors experienced moderate gains in payroll employment, adding a total of 2,600 jobs. The bulk of these gains came in the services sector. Consistent with previous months, the trade, transportation and utilities sector led the way, with robust gains in retail trade. The education and health sector, boosted by hospital construction and expansion, added 1,400 jobs. Construction employment ticked up despite increases in home inventories and declines in single-family permits. Commercial construction activity was boosted, in part, by road construction and a $66 million project at D/FW airport. The information sector continues to record job losses as high-tech service firms continue to restructure.

Fort Worth's economy expanded solidly in June, its business-cycle index rising by 4.2 percent. Employers added 2,300 jobs, an annualized pickup of 3.3 percent. The bulk of the job growth occurred in service-providing industries. Educational and health services jobs rose a robust 13.5 percent in June, while professional and business services and financial services employment expanded moderately. While residential construction continues to ebb, construction employment increased by 10.5 percent during the month, supported by an active commercial real estate market downtown and the construction of the Omni Fort Worth convention hotel.

The Houston economy maintained its upward momentum in June, as the metro's business-cycle index grew at an annualized rate of 5.3 percent. Crude oil prices rose in June, and the energy sector continued to be a very strong contributor to the metro's growth—with the construction, mining and natural resources sector adding 2,300 jobs. Houston's service economy remains vibrant as strong demand for engineers and other professionals boosted jobs by 9.2 percent in the professional and business services sector. Houston's housing market has weakened somewhat in recent months, but so far it has not become a drag on the overall economy.

The San Antonio economy posted another strong month in June, with its business-cycle index growing 5.6 percent—a mild deceleration from May's ultra-hot 6.7 percent pace but in line with first-quarter growth. The metro's strong job gains of 3,100 came as increases in service sector employment more than offset weakness in the goods sector. In particular, the professional and business services and educational and health services sectors recorded large job gains of 1,800 and 900, respectively. The housing market has weakened recently, with existing home inventories swelling to 5.8 months of supply, up from 4.2 as recently as December.

Border Metros
Brownsville's economy posted a modest gain in June, with its business-cycle index rising 1.3 percent (Chart 2). The gain came despite a small dip in employment during the month. The metro's economic growth remains attributable to the expansion of the health care and retail sectors. In fact, two health care facilities opened recently with total investment of $13.5 million.

Chart 2

El Paso's economy continued to grow robustly in June, with the metro's business-cycle index increasing 4.8 percent. Gains in both service-providing and goods-producing sectors contributed to an employment increase of 1,400. Construction employment rose strongly in June despite weaker housing demand. Industrial activity is expected to pick up in Ciudad Juárez.

Laredo's economic activity continued to grow at a solid pace in June, with its business-cycle index posting a 4.1 percent annualized increase. Total metro employment rose by 2.9 percent, driven by retail sector hiring. While single-family building activity has declined, the outlook for nonresidential construction looks bright, with ongoing hotel construction and renovation and a recently announced customs brokerage facility.

McAllen's economy expanded at a vibrant pace in June. The metro's business-cycle index rose an annualized 7.1 percent. Single-family home construction continues to shrink; however, moderate increases in apartment construction and strong growth in commercial building activity have more than offset the declines. Much of the new commercial construction is for retail space thanks to strong retail sales activity in the metro area.

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 by the Dallas Fed to 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.