March 28, 2008

The Texas economy expanded at a measured pace in January, following solid growth in 2007. The Dallas Fed’s Texas Business-Cycle Index [1]—a gauge of the region’s current economic conditions—increased at a 3.2 percent annualized rate during the month [2], somewhat less than the 3.9 percent pace recorded in 2007 (Chart 1).

Chart 1

State employers added 27,300 workers to payrolls in January—a 3.2 percent annualized increase, according to data released by the Texas Workforce Commission with seasonal and other adjustments made by the Dallas Fed [3] [4] (see table).

The benchmarked employment data indicate that payroll employment grew at a pace of 2.9 percent in 2007, slightly slower than the 3.1 percent rate estimated earlier. Nonetheless, the Texas labor market remains tight with an unemployment rate of 4.3 percent, and anecdotal evidence continues to suggest sound activity in the energy and service sectors.

Major Metros
Austin’s economy remained strong in January, with its business-cycle index rising 4.3 percent and employment increasing at a rapid clip of 3.8 percent (2,400 jobs). Goods-sector employment edged down in January as homebuilders curbed construction and manufacturers cut back production in response to declining demand.  A large chip manufacturer announced layoffs contributed partly to a net decline in manufacturing jobs. Service-sector employment increased, however, with strong hiring in the leisure and hospitality and trade, transportation and utilities industries. Payrolls in the education and healthcare sector continued to increase, boosted by the opening of a new medical facility and the expansion of several more underway.

Dallas’s economic performance in January mirrored that of previous months. Its business-cycle index grew by 1.4 percent after increasing 1 percent in December. Employers added 2,400 jobs in total, a 1.4 percent rise over last month. Strong gains in the service sector more than offset losses in the manufacturing sector, which contracted by 600 jobs. Administrative services grew the fastest of all sectors, adding 3,100 jobs, a 26.2 percent gain over last month. Trade, transportation and utilities also fared well, adding 2,200 jobs. Employment in real estate services expanded by 700 jobs, despite a continued slowdown in housing.

Fort Worth’s economy remained strong. The metro’s business-cycle index grew 3.1 percent in January after a 2.6 percent increase in December. Overall, employers in Fort Worth added 1,900 jobs. The trade, transportation and utilities sector fared best, adding 500 jobs. The education and health industry followed closely behind, gaining 400 jobs as medical facilities expansion continued. Strong building activity in downtown Fort Worth boosted construction employment, which expanded by 12.3 percent in January. As was the case in Dallas, payrolls in manufacturing and financial services contracted, and employment in these sectors fell by 3.5 percent and 5.1 percent, respectively.

The Houston economy decelerated slightly in January, and its business-cycle index grew at an annualized rate of 5.3 percent. As the rest of the country borders on recession, the energy sector continued to keep Houston strong, with the construction, mining and natural resources sector responsible for 5,000 of the metro’s 6,300 new jobs in January. The service sector decelerated more sharply, contributing just 1,500 new jobs after averaging 4,700 jobs in the last quarter of 2007. The housing sector remained a source of weakness, with closings down about 13 percent compared with the same time last year and residential construction down 31 percent, albeit from historically high levels.

San Antonio’s economy sustained its expansion in January, posting a 4.5 percent increase in its business-cycle index and a sizeable gain of 5,200 jobs. Strong building activity in the commercial and industrial markets boosted construction employment, which increased by 2,200 jobs in January. Office vacancies fell to historically low levels, thanks to four consecutive years of positive absorption. Service-sector employment rose as well, with strong hiring in the leisure and hospitality (900 positions) and education and health services (700 jobs) industries. The ongoing expansion of air force and military base facilities in the area, thanks to the 2005 Defense Base Closure and Realignment Commission act, bodes well for future economic activity in the metro.

Border Metros
Brownsville's economy slowed slightly in January, with its business-cycle index decreasing 0.9 percent (Chart 2) and decline of 1.9 percent in employment. Home sales remained weak and were down 15 percent in December 2007, compared with year-ago levels. Additionally, there were widespread anecdotal reports of housing-related layoffs. Still construction employment rose in January, and business contacts in the industry say that commercial construction activity is holding up the local building industry.

Chart 2

El Paso's economic activity continued to expand in January, with its business-cycle index increasing 5.5 percent. The metro added a total of 1,300 jobs during the month, and employment growth in the construction and professional and business services industries led the way.  Manufacturing activity in Juárez—the Mexican city bordering El Paso—slowed further; manufacturing employment there fell 12.6 percent in January.  Sluggish U.S. economic growth and weakening manufacturing activity in Juárez is curbing economic activity in the metro.

The Laredo business-cycle index increased 1.6 percent in January, and employment grew at an annualized rate of 2.7 percent. The main sources of job growth were the government and service sectors, especially the trade, transportation and utilities sector. Laredo’s housing market continued to weaken, and home foreclosures tripled in the first quarter of 2008 compared with year-earlier levels, according to the data released by the Webb County clerk's office. Mexican national shoppers continued to help retail sales in Laredo, but local consumers cut back on spending and retailers of luxury or discretionary products reported softer sales.

McAllen's economy posted strong growth in January, as its business-cycle index rose 5.7 percent and employment increased 5.3 percent. Manufacturing, government and services in leisure and hospitality, and education and health contributed significantly to McAllen’s rebound in January. In sharp contrast with the national trend, buyers purchased 184 homes in January, slightly down from December’s level—best January on record for the area.

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 third 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.