July 9, 2008

Texas economic growth continued to moderate in May. The Dallas Fed’s Texas Business-Cycle Index [1]—a gauge of the region’s current economic conditions—increased an annualized 2.3 percent, a deceleration from the 4.1 percent growth recorded in 2007 [2] (Chart 1).

Chart 1

State employers added 11,400 workers to payrolls in May—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 2.2 percent, a slowdown from last year’s 3.2 percent pace. The Texas unemployment rate edged up to 4.5 percent, although the increase was related to a rise the labor force.

Austin’s economy expanded at a temperate pace in May, with its business-cycle index edging up 0.8 percent. Still, job creation was broad-based and healthy during the month, posting a 2.8 percent increase (1,800 jobs). Brisk nonresidential building activity pushed up construction employment by 100 jobs, while manufacturing employment grew a robust 6.4 percent. Service-sector job gains were dominated by the health care and education sector (700 jobs), thanks to the current expansion under way at area medical facilities and educational institutes.

The Dallas economy moderated in May. The metro’s business-cycle index rose by 1.6 percent after increasing 3.3 percent in April. Employment growth came in at a moderate 2.1 percent in May, as employers added 3,700 jobs. Growth in the goods sector was driven by an 8.6 percent increase in construction employment. Looking to services, computer systems design employment rose strongly, at 11.3 percent. Educational and health services, wholesale trade, and professional and business services recorded job growth of 4.8 percent, 4.6 percent and 4.3 percent, respectively.

Fort Worth’s economy remained strong in May. The metro’s business-cycle index increased by 2.4 percent and employers added 1,700 jobs, with all the gains occurring in services. Continued hotel construction led to a 5.5 percent increase in leisure and hospitality employment. Educational and health services and professional and business services performed well, with job growth of 4.9 percent and 3.5 percent, respectively.

Houston’s economic expansion continued in May—its business-cycle index grew at an annualized rate of 2.4 percent, and employers added 1,500 new jobs, an increase of 0.7 percent. The service sector led Houston’s growth during the month with the professional and business services and educational and health services sectors posting the largest gains. The energy industry continues to boost the metro’s expansion as it positively impacts other sectors of the local economy. Houston’s housing market has weakened but to a much less degree than in other areas of the country. Existing home inventories recently declined by 1.5 percent from a year-ago after double-digit growth rates in previous months. Houston’s home inventory level is currently 6.5 months of supply, compared with 10.5 months of supply at the national level.

San Antonio’s economy moderated in May, with its business-cycle index increasing 2 percent—a deceleration from the 2.9 percent recorded year-to-date. Employment dipped by 200 jobs during the month as payroll levels in the goods-producing industries held steady while the service sector lost jobs on net. Not all service sectors suffered employment losses. The trade, transportation and utilities and government sectors increased by 200 jobs each, while the financial activities sector added 100 jobs. For the year, San Antonio has posted a net gain of 4,100 jobs—a 1.2 percent annualized increase.

Border Metros

Brownsville posted solid growth in May (Chart 2). The metro’s business-cycle index rose 3.5 percent and employment increased at an annualized 6 percent. Strong job growth of 32.6 percent was recorded in the construction sector. Professional and business services, health care and government also added to payroll increases. Doctors Hospital recently launched a $20 million expansion project, one example of the Valley’s health care boom.

Chart 2

El Paso's economy expanded at a slower rate in May. The business-cycle index increased just 1.8 percent during the month as employment gains stalled. The local economy appears to have finally been impacted by sluggish U.S. economic growth and weakening manufacturing activity in Juárez—the Mexican city bordering El Paso—where more than 10,000 manufacturing jobs have been lost this year.

The Laredo economy softened in May—its business-cycle index decreased 2.4 percent and employment fell an annualized 17.2 percent. For the first time in 10 years, Laredo’s sales tax receipts were down for two consecutive months (April and May), indicating some recent weakness of historically strong retail sales. Trade, transportation and utilities, a sector usually fueled by Laredo’s warehousing activities, suffered the most in May. Weak retail and trade activities are likely the result of the lower value of the dollar relative to other currencies along with the general slowdown in U.S. economic activity.

McAllen's economy posted strong growth in May as its business-cycle index rose 4.8 percent, and employment increased 7.5 percent. McAllen’s growth is broad based among sectors. Construction, manufacturing and professional and business services are among the sectors that contributed the most to McAllen’s growth in May.

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 fourth quarter 2007 Covered Employment and Wages 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 on the importance of seasonal adjustment of economic data, see Data Basics, "Seasonally Adjusting Data." For more information on 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.