2007 News Releases

For immediate release: February 22, 2007

Texas Economy, Manufacturing Industry, Mexico’s Economy and Venture Capital Spending Featured in Dallas Fed Report

DALLAS—Texas’ economy, the state’s manufacturing industry, Mexico’s economic outlook and venture capital spending in Texas are examined in the latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy.

Expect 2007 to be a good—but not a banner—year for the Lone Star State, according to economist Fiona Sigalla in “The Texas Economy: Almost a Boom.”

A recent rise in exports and strong activity in energy and construction will help drive the Texas economy but shortages of skilled workers in the state and a weaker national economy could weigh it down, she says.

“Somewhat slower growth in the U.S. economy in 2007 will soften demand for Texas products and services,” Sigalla writes. “Still, strong global ties should boost Texas sales.”

Sigalla points out that changes in world trade will have a greater impact on Texas than the rest of the country.

The Dallas Fed’s Texas Manufacturing Outlook Survey is proving itself an effective tool for signaling shifts in the economy.
Preliminary statistical analysis over the past 30 months suggest the survey may have some “predictive power” for understanding the U.S. and Texas economies, according to “The Texas Manufacturing Outlook Survey: A Tool for Understanding the Economy.”

“The employment diffusion index appears to help explain changes in U.S. and Texas employment,” the authors write. “The general business activity index seems useful in understanding movements in U.S. and Texas industrial production. The future business activity index also appears to have some predictive power for understanding movements in U.S. industrial production over the next two months.”

Texas manufacturing is outperforming the nation in most sectors, including chemicals, machinery, computers and electronics, write economist Fiona Sigalla and economic writer Danielle DiMartino in “Made in Texas: The Natural Selection of Manufacturing.”

“Between 1990 and 2005, a time frame long enough to encompass an entire business cycle, the state’s factory output grew an average of 5.8 percent a year, eclipsing all other major manufacturing states,” they write.

The state is positioned to be a manufacturing leader due to its central location, good distribution facilities, flexible labor force, low living costs, and low land and construction costs, according to the authors. The presence of Mexico also drives Texas’ manufacturing growth, as maquiladoras across the border allow manufacturers to effectively globalize their supply chains.

The Mexican economy should grow at a decent pace over the next few quarters, according to “The Mexican Economy at a Crossroads,” in which vice president William C. Gruben and senior economist and policy advisor Erwan Quintin, both Latin America specialists, discuss the nation’s economic progress.

“The main risk to this outlook remains the possibility of a marked slowdown in U.S. manufacturing,” Quintin says.

Gruben points out that Mexican President Felipe Calderón is inheriting a stable economic system but reforms are needed.

“He faces the challenges of an ineffective educational system, a legal structure in need of repair and excessive government interference in the private sector,” he writes.

“The good news is there are signs of progress, especially the apparent formation of bipartisan coalitions in Mexico.”

In “Texas Venture Capital: Revived Spending Ends Prolonged Lull,” assistant economist Laila Assanie and economic analyst Raghav Virmani find that venture capital spending in Texas may break out of its slump.

Austin leads all Texas metropolitan areas in venture capital spending with 43 percent of Texas’ share since 2000, the authors write. Austin’s share is greater than venture capital spending in Dallas–Fort Worth, Houston and San Antonio combined.

Find the January/February issue of Southwest Economy at www.dallasfed.org.

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Media contact:
James Hoard
Phone: (214) 922-5307
e-mail: james.hoard@dal.frb.org

 

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