May 7, 2008

The Texas economy expanded at a modest pace in March. The Dallas Fed’s Texas Business-Cycle Index [1]—a gauge of the region’s current economic conditions—increased an annualized 2.5 percent, slower than the 3.7 percent growth recorded in 2007 [2] (Chart 1).

Chart 1

State employers added 11,300 workers to payrolls in March—a 1.3 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). Year-to-date, the state has posted annualized job growth of 1.8 percent, down from last year’s pace of 2.9 percent. The Texas unemployment rate remains near its historic low, but edged up slightly to 4.3 percent in March. Anecdotal reports continue to suggest labor shortages for skilled workers.

Austin’s economy sustained its expansion in March. Its business-cycle index rose 2.5 percent, and employers added 2,800 jobs (a 4.4 percent annualized pace). The bulk of the employment gains came in the private sector (2,000 jobs). The service sector grew at a strong pace, with the trade, transportation and utilities industry recording the strongest gain (6.2 percent—700 jobs). On the goods-producing side, construction and mining employment expanded 2.5 percent, supported by brisk building activity in the metro. Layoffs at computer makers and chip manufacturers resulted in a 2 percent decline in manufacturing employment.

The Dallas economy continued to expand modestly in March. The metro’s business-cycle index rose 1.2 percent during the month following a 1.3 percent gain in February. Employers grew payrolls by 2,600 jobs in March, a 1.5 percent rate of increase. Most of the gains occurred in service industries. Professional and business services added the most jobs with a monthly gain of 900. The leisure and hospitality sector and the trade, transportation and utilities sector also performed well, adding 500 jobs each. Boosted by elevated commercial building activity, construction employment increased at a fast pace of 6.6 percent.

Fort Worth’s economy decelerated slightly in March. Its business-cycle index rose 2 percent after 3.5 percent growth in February. The metro added 1,100 jobs in March, with all the gains occurring in the service sector. Trade, transportation and utilities experienced the largest gain, adding 600 jobs. Boosted by ongoing hotel construction, the leisure and hospitality sector added 300 jobs. Employment growth in financial services increased at a fast pace of 5.3 percent.

Houston’s economic expansion accelerated in March—its business-cycle index grew at an annualized rate of 5.4 percent up from 2.9 in February. In March, Houston added almost 7,000 new jobs, well above the ten-year average. The strong energy industry continues to boost the metro’s expansion as it positively impacts other sectors of the local economy. About two-thirds of the monthly job gains were concentrated in the service sector, with educational and health services adding the most positions. The Port of Houston continues to experience growth, which was reflected in a 1.8 percent employment increase in trade, transportation and utilities. Houston’s housing market has weakened but to a much less degree than in other areas of the country. While existing home inventories have risen 13 percent from a year-ago, they remain well contained at 6.6 months of supply, compared with 10.1 months of supply at the national level.

San Antonio’s economy expanded at a solid pace in March, with its business-cycle index rising 4 percent. Job growth was weak during the month edging up only 0.3 percent (or by 200 jobs). Service sector employment posted weak performance, a result of job declines in the metro’s leisure and hospitality sector. Job gains in construction and mining remained positive. The trade, transportation and utilities sector created 100 new positions likely because of spring break and Easter holiday shopping, according to anecdotal reports. In a boost to the metro’s energy sector, the Department of Defense awarded a $184.5 million contract to Refinery Associates of Texas Inc., located in New Braunfels, to supply naval distillate fuel.

Border Metros
Brownsville's economy experienced sluggish growth in March, with its business-cycle index rising 0.03 percent and employment ticking up just 1 percent (Chart 2). Private sector employment remained flat. According to the city of Brownsville, March brought some recovery in residential construction with 53 permits. However, this figure is well below the 99 permits issued in March 2007 and 113 in March 2006. On the positive side, total valuation for permits issued in March 2008 was $35.6 million, above the $20.2 million in March 2007.

Chart 2

El Paso's economic activity continued to expand in March, with its business-cycle index increasing 3.1 percent. Metro employment grew 2.2 percent during the month as gains in service employment outpaced losses in manufacturing. Economic activity continues to grow despite sluggish U.S. economic growth and weakening manufacturing activity in Juárez—the Mexican city bordering El Paso—where manufacturing employment fell for the sixth consecutive month in March.

The Laredo business-cycle index increased 3.4 percent in March. Total employment remained flat during the month, while private jobs increased a moderate 1.8 percent. The main source of job growth was the educational and health services sector, which expanded by 10 percent during the month. Year-to-date figures for north-bound commercial trucks, air cargo and retail sales look favorable, indicating strong trade activity.

McAllen's economy posted strong growth in March as its business-cycle index rose 3.3 percent, and employment increased 4.6 percent. Forty new retailers were added to the Rio Grande Valley Premium Outlets. A strong peso continues to fuel retail activity throughout the Rio Grande Valley.

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.