December 3, 2007

The Texas economy maintained its expansion in October. The Dallas Fed's Texas Business-Cycle Index,[1] an aggregate measure of the region's current economic activity, rose at an annualized rate of 3.2 percent,[2]. Year to date, the index has increased at a pace of 4.3 percent, just under last year's 4.5 percent (Chart 1).

Chart 1

State payroll employment rose 2 percent in October, according to data released by the Texas Workforce Commission, with seasonal and other adjustments made by the Dallas Fed (see table)[3][4]. Year to date, Texas has added 262,800 net jobs—a 3.1 percent rate of growth. The state unemployment rate moved down to 4.1 percent in October.

Major Metros
Austin’s economy sustained its solid expansion in October, posting a 4.8 percent increase in its business-cycle index and adding 1,200 jobs. Employment growth was relatively widespread. Job creation in professional and business services (700 jobs) led the way and was supported by continued expansion in the metro’s high-tech sector. The health care industry, buoyed by the building of several new medical facilities, added 100 jobs. Venture capital investment in the metro turned in its best quarter in six years, further boosting the metro’s economy. For the year, Austin has seen its business-cycle index rise a healthy 6.3 percent and has recorded a net gain of 24,600 jobs.

The Dallas economy picked up slightly in October. Its business-cycle index rose 1.7 percent after increasing 1.2 percent in September. Employers added 1,900 jobs, an annualized pace of 1.1 percent. A decline in manufacturing employment—mostly a result of reduced homebuilding nationwide—was offset by solid gains in the service sector. In total, the service sector increased by 3,000 jobs. Educational and health services, boosted by continued hospital expansions, added 1,200 jobs. The telecommunications industry experienced the fastest growth, and employment in the sector is 9.5 percent above year-ago levels.

Fort Worth’s economy performed consistently with previous months. Its business-cycle index grew a moderate 2.1 percent and employers added 500 jobs in October. Expansion in the service sector was offset by job losses in the goods sector. The manufacturing and construction industries posted combined job losses of 300 as the housing slowdown continued. However, the service sector added 800 jobs. The trade, transportation and utilities sector fared the best, expanding by 6.6 percent. Boosted by the recent hotel expansion, the leisure and hospitality sector also did well.

The Houston economy decelerated considerably in October, as its business-cycle index grew at an annualized rate of 1.9 percent and job gains were limited to 400 on net. While the manufacturing sector recorded a decline in employment, energy-related jobs continued to grow as high oil prices kept hiring strong at energy firms. Meanwhile, the moderate downturn in Houston’s housing market has spread to homes priced above $150,000, according to business contacts. As homeowners in the entry-level market have been unable to sell their homes due to tightened credit standards for first-time buyers, existing owners have been unable to purchase more expensive homes, dampening demand up the price chain. The impact of weaker housing demand has so far been mitigated in Houston, with robust year-to-date job growth of 4 percent.

San Antonio’s economy grew at a strong pace in October, as the metro’s business-cycle index registered a 5.8 percent increase and employment rose by 1,900. Job growth was broad-based, with the service economy adding 1,600 positions and the production side contributing 300. The trade, transportation and utilities sector added the most jobs (1,000), and the leisure and hospitality sector was a close second, creating 700 jobs. While homebuilders continued to curb housing starts, construction employment increased 4.8 percent during the month, supported by active commercial and retail real estate markets. Payrolls in education and health services and manufacturing expanded by 100 jobs each. The recent announcement by Boeing to expand operations to include the post-production of the Boeing 787 Dreamliner, along with a $1.3 million state government grant for the Port of San Antonio, bodes well for future economic growth in the metro.

Border Metros
Brownsville's economy remained on track in October, with its business-cycle index rising 3.7 percent (Chart 2) and employment increasing 1 percent. Much of the job growth in the metro came in the service-producing sectors of leisure and hospitality, and education and health services. The South Texas Veterans Health Care System opened a clinic in Harlingen that is expected to reduce local veterans’ travel to San Antonio by 95 percent. Despite a slowdown in housing, commercial construction remains strong.

Chart 2

El Paso's economic activity increased 0.7 percent in October after two consecutive months of decline. Employment gains in manufacturing, trade and transportation, and professional and business services contributed to a net job gain of 700 during the month. Manufacturing employment in Juárez, the Mexican city bordering El Paso, continues to expand, registering year-over-year growth of 2.1 percent. Nevertheless, maquiladora owners remain concerned that recent Mexican fiscal reforms may impact future business.

The Laredo business-cycle index slipped 2.7 percent in October. Despite the decline, year-to-date growth in the index stands at a robust 6.5 percent. Employment fell 4 percent during the month due to losses in the manufacturing, professional and business services, and government sectors. Anecdotal reports suggest small businesses are concerned about rising gas prices, which has slowed, or stopped, future retail developments. Many suppliers of retail and wholesale products are adding fuel and delivery surcharges.

McAllen's economy picked up in October as its business-cycle index rose 3.7 percent and employment increased 1.7 percent. Leisure and hospitality, and educational and health services remain the drivers of employment growth in McAllen. Residential construction has declined in the Valley, and reports suggest buyers are now requesting up to 20 percent discounts and additional concessions such as washers and dryers. Still, commercial construction continues to be robust.

Notes 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. All growth rates are annualized unless otherwise noted. The employment data used in this analysis have been benchmarked to TWC's second 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.