September 2007

The Texas economy maintained its expansion in July. The Dallas Fed's Texas Business-Cycle Index, an aggregate measure of the region's current economic activity, rose at an annualized rate of 3.2 percent. Year-to-date, the index has increased an annualized 3.9 percent, a slight deceleration from last year’s growth of 4.4 percent. (Chart 1).

Chart 1

State payroll employment rose by 30,300 workers in July—a robust annualized rate of 3.6 percent, according to data released by the Texas Workforce Commission with seasonal and other adjustments by the Dallas Fed [3](see table). So far this year, Texas employment has increased at a pace of 2.7 percent. The state unemployment rate inched up to 4.4 percent in July.

Major Metros
Austin’s economy continues to grow at a brisk pace, its business-cycle index rising 4.9 percent in July. Employment increased by 1,800 during the month, with all of the gains coming from the service sector. Continued business expansions kept overall job growth positive in the trade and transportation, professional and business services, and financial services sectors, buoying demand for office and industrial space. Construction and mining employment declined by 600 jobs in July as builders cut back on home starts, but home prices continued to appreciate in the metro.

Dallas’ economic growth remained solid in July, with the metro’s business-cycle index rising 3.5 percent. Employers added 6,400 jobs on net, a robust annualized growth rate of 3.7 percent. The net employment gains came from the service-providing sector, with educational and health service jobs rising 14 percent. Growth in the health sector should remain strong, as witnessed by the ongoing expansion and pending construction of several medical facilities. The professional and business services sector added 1,900 jobs in July, and business contacts say demand for lawyers, accountants and engineers remains strong. On a less positive note, the goods-producing sector experienced a net job loss in July. Construction employment fell 3.8 percent as homebuilders continued to reduce staff.
 
Fort Worth’s expansion moderated in July. The metro’s business-cycle index increased a modest 1.5 percent, following a 2.3 percent rise in June. Employment remained essentially flat as goods sector gains offset service sector losses. The construction and energy sectors recorded strong growth during the month, with continued drilling in the Barnett Shale and strong commercial building activity contributing to the gain. On the services side, leisure and hospitality employment fell, likely due to wet weather that reduced recreational demand. The financial services sector also recorded job losses as some mortgage companies reduced payrolls.

The Houston economy accelerated rapidly in July, as the metro’s business-cycle index grew at an annualized rate of 8.1 percent, the highest pace since November 2006. The energy sector remained the main force behind the growth, as crude oil prices rose more than $6 in July, to $75.24 the last week of the month. Houston’s job gains of 11,600 were broadly based, with the trade and transportation, professional and business services, and government sectors each contributing more than 2,000 new jobs. The recent tightening of credit to subprime borrowers has dampened demand for homes costing less than $150,000, but Houston’s mid- and high-priced housing markets remain some of the strongest in the nation.

San Antonio’s economy remained on track in July but moderated some from the more vigorous pace recorded the previous month. The metro’s business-cycle index rose at a rate of 4.4 percent after rising 5.3 percent in June. Employers added just 100 net jobs during the month, as losses in the goods-producing sector offset gains in the service sector. The education and health services sector added the most jobs (700)—in part due to the ongoing expansion in the health care sector. On a less positive note, the professional and business services sector, which grew at a strong 5.7 percent pace through June, saw a sharp decline of 11.5 percent in July. Construction employment continued to contract as homebuilding softened in the metro. In addition, business contacts say that high labor and material costs are deterring investments in construction ventures and have resulted in the cancellation of at least one project.

Border Metros
Brownsville’s economy grew at a fast pace in July, with its business-cycle index rising 9.2 percent and employment increasing 13.2 percent (Chart 2). The health care sector continues to be an important nongovernment driver of the metro’s economy. Health care facilities of different sizes and specialties continue to dot the landscape. Housing starts have slowed down, but commercial construction remains strong. A string of major retail stores is coming to the metro, including Home Depot, Target, Mervyn’s and a third Wal-Mart Supercenter. Ground has been broken on a 15-acre shopping center in Harlingen.

Chart 2

El Paso's economy continued to expand in July, with the metro's business-cycle index increasing 3.5 percent. Gains in service-providing employment contributed to the total employment increase of 3,700 year-to-date. Manufacturing employment fell in July, while construction employment held steady. Industrial activity in Ciudad Juárez is improving, with manufacturing employment growing at an annualized pace of 4.9 percent in June and 17 percent in July.

Laredo’s economy posted strong growth in July. The metro’s business-cycle index rose 4.2 percent, and employment increased at a 10.1 percent pace. The trade and transportation and leisure and hospitality sectors contributed to the job gains, and anecdotal evidence suggests a tight market for trained labor across industries. On the goods side of the economy, construction employment fell as single-family home building declined more than 30 percent in the first two quarters of 2007 compared with year-earlier figures.

McAllen’s economy remained vibrant in July, with its business-cycle index rising 10.1 percent and job growth registering 13.7 percent. The retail and health care sectors continue to expand, fueled by strong population growth. Construction has started on the three-mile Anzaldus International Bridge, which will connect Mission to Reynosa and the Monterrey expressway.

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 first quarter 2007 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.