April 22, 2008

The Texas economy expanded moderately in February. The Dallas Fed’s Texas Business-Cycle Index [1]—a gauge of the region’s current economic conditions—increased at a 3.1 percent annualized rate during the month [2]. The current rate is somewhat slower than the 3.7 percent pace recorded in 2007 (Chart 1).

Chart 1

State employers added 18,300 workers to payrolls in February—a 2.1 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 Texas labor market remains tight, with an unemployment rate of 4.1

Austin’s economic expansion moderated in February. The metro’s business-cycle index posted a 4 percent increase—a deceleration from the strong 5.8 percent growth recorded in 2007. Employment dipped by 200 during the month as job creation in the construction and mining, trade, transportation and utilities, and financial services sectors was more than offset by losses in professional and business services, education and health services and manufacturing. Layoffs at computer makers, chip manufacturers and information technology service providers led to the job losses in manufacturing and professional and business services. While homebuilders continued to curb housing starts, construction and mining employment edged up by 200 jobs during the month, supported by an active commercial real estate market.

The Dallas economy picked up slightly in February. The metro’s business-cycle index rose 1.9 percent after a 1.5 percent increase in January. Employment increased by 3,000, with most of the gains in the service sector. Boosted by ongoing hospital expansion, the educational and health sector saw the greatest increase—1,500 jobs. Commercial building activity remains elevated in the metro, keeping the pace of construction employment growth strong (16 percent), despite continued declines in homebuilding. Architecture employment rose 10.1 percent during the month.

Fort Worth’s economic expansion accelerated in February. The metro’s business-cycle index rose 3.6 percent following a 1.9 percent gain the month before. Employment grew 3.2 percent during the month. The bulk of the 2,300 jobs created were in the service sector, which grew by 3.4 percent. The continued expansion of health care facilities spurred a job gain of 700 in the education and health sector. Construction employment rose by 400 as commercial building activity remained elevated. The professional and business services sector also added 400 positions.

The Houston economy slowed in February—its business-cycle index grew at an annualized rate of 2.8 percent, and job-gains were modest at 1,400. The strong energy industry continues to impact other sectors of the economy. Service industries added 2,000 jobs in February, more than offsetting a loss of 900 in manufacturing. Although the mix of imports and exports has changed with a weaker dollar, the Port of Houston continues to contribute to growth, as the trade, transportation and utilities sector added 500 new jobs during the month. The housing sector has weakened but remains much stronger than in other cities. Inventories, for example, have risen 13 percent from a year ago, but are well-contained overall at 6.1 months of supply.

San Antonio’s economy gained momentum in February as the metro’s business-cycle index rose 4.9 percent after growth of 3.9 percent in January. The index was boosted by growth of 1.2 percent (700 jobs) in private employment during the month. Solid building activity spurred by the ongoing expansion of military base facilities boosted construction employment by 800 jobs in February. When complete, the expansion is estimated to have an economic impact of $5.7 billion, according to a study released by the city of San Antonio. Service-sector employment also rose during the month, with strong hiring in education and health services (500 jobs) and professional and business services (200 jobs).

Border Metros

Brownsville's economy posted solid growth in February, with its business-cycle index growing 2 percent and employment rising almost 4 percent (Chart 2). Government employment, especially local, contributed to a fall in jobless claims during the month. Commercial construction activity is rising, exemplified by the announcement that Lowe’s will be the anchor tenant for the Towne North Plaza shopping center, which will include several other retailers and restaurants.

Chart 2

El Paso's economic activity continued to expand in February, with its business-cycle index increasing 3.9 percent. However, metro employment dipped 3.8 percent during the month as losses in manufacturing, trade and transportation, and financial activities outpaced gains in business services employment. Sluggish U.S. economic growth and weakening manufacturing activity in Juárez are curbing economic activity in the metro. Manufacturing employment in Juárez—the Mexican city bordering El Paso—fell for the sixth consecutive month in March.

The Laredo business-cycle index increased 3.8 percent in February. Total employment growth was flat, while private jobs rose a moderate 1.8 percent during the month. The primary source of job growth was educational and health services, which grew 10 percent. International trade continues to be a staple of Laredo’s economy and has helped boost warehouse construction over the past year.

McAllen's economy expanded in February as its business-cycle index rose 7.8 percent and employment increased 1.7 percent. Private employment gains were more modest. Despite a slight increase in residential building permits, new home construction posted its weakest February on record since 1997.

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.