November 1, 2007

The Texas economy's pace of expansion continued to moderate in September. The Dallas Fed's Texas Business-Cycle Index,[1] an aggregate measure of the region's current economic activity, rose at an annualized rate of 2.5 percent,[2] following revised growth of 2.7 percent in August. Year-to-date, the index has increased an annualized 3.5 percent, a deceleration from last year's 4.4 percent pace (Chart 1).

Chart 1

State payroll employment rose 2.7 percent in September, slightly faster than August's upwardly revised 2.4 percent pace, according to data released by the Texas Workforce Commission, with seasonal and other adjustments made by the Dallas Fed (see table)[3][4]. Year-to-date, Texas has added 179,900 net jobs—an annualized 2.4 percent rate of growth. The state unemployment edged up to 4.3 percent in September.

Major Metros
Austin's economy expanded solidly in September, its business-cycle index rising 4.6 percent. Employers added 3,400 jobs, an annualized pickup of 5.5 percent. Employment in professional and business services; trade, transportation and utilities; and leisure and hospitality services rose strongly. Together these fast-growing sectors added 1,900 jobs. While residential construction continues to ebb, construction employment increased 5 percent during the month, supported by hospital expansions and an active commercial real estate market.

The Dallas economy slowed in September—its business-cycle index expanded a modest 0.8 percent, following growth of 1.7 percent in August. Despite the recent deceleration, the index has risen 3.4 percent year-to-date. Employment edged up 0.2 percent in September, with a gain of 300 net jobs. Service-sector employment rose by 1,500, led by job gains in education and health services associated with an ongoing expansion of hospitals and other medical facilities. New- and existing-home sales continued to slow, yet construction employment rose due to a pickup in apartment construction and ongoing construction of office and industrial projects. Manufacturing jobs fell as housing woes across the country reduced demand for products used in homebuilding. In a similar vein, financial services jobs declined as layoffs continued at mortgage firms.  

Fort Worth's economic growth moderated in September. The metro's business-cycle index edged up just 0.5 percent, and employment fell by 300, a 0.4 percent contraction. The service sector experienced moderate gains, with education and health services adding 400 jobs. The service sector increase was offset by a 7.2 percent decline in goods-producing jobs, as tighter lending standards further reduced home sales and homebuilding materials. Employment in both the construction and manufacturing sectors fell by 500 jobs.

The Houston economy picked up steam in September as its business-cycle index grew at an annualized rate of 6.5 percent, the fastest pace so far this year. The renewed strength is not surprising given the 24 percent surge in crude oil prices over the past eight weeks. Hiring was strong at energy firms, leading to a gain of 2,200 new jobs in the mining, natural resources and construction sector. The rest of the metro's economy followed suit, with the service sector contributing broad-based job gains of 4,400 and manufacturing adding another 800. Home sales remain weak for houses priced at $150,000 or less, where tightened credit has dampened demand. However, robust job creation, especially for high-skilled and high-paying positions, has strengthened demand for middle- and higher-priced homes. As a result, multiple-listing-service closings for homes priced $500,000 or more were up 26 percent year-over-year in August, according to Houston's Board of Realtors.

San Antonio's economic expansion moderated slightly in September—its business-cycle index rose 3.7 percent, which followed a 5.7 percent increase in August. Most sectors contributed to employment growth, with an overall gain of 2,400 jobs. Consistent with the previous month, the leisure and hospitality sector led the way, posting a robust increase of 1,200 jobs. The education and health sector, boosted by the expansion and construction of several medical facilities, added 500 jobs. Construction employment ticked up, as commercial and industrial construction activity remained vibrant, supported, in part, by the building of a $90 million intermodal facility. Additionally, business contacts say that the labor market in San Antonio is tight, and a large manufacturer has started hiring temps to fill open positions.

Border Metros
Brownsville's economy remained on track in September, with its business-cycle index rising 2 percent (Chart 2) and employment increasing 3.9 percent. Much of the job growth in the metro came in the sectors of leisure and hospitality, education and health services, and construction, mining and natural resources. The maquiladora industry in sister city Matamoros has turned around, and there are plans to open a 1,200-employee manufacturing firm that will make piping for the petrochemical and power industries. Retail growth remains solid, with several shopping centers under construction near the Valley and a significant expansion under way at the Valley Vista Mall in Harlingen.

Chart 2

El Paso's economic activity fell in September, with the metro's business-cycle index decreasing 3 percent. Employment losses in manufacturing, government, and leisure and hospitality contributed to a net job loss of 2,300 during the month. On a brighter note, manufacturing employment in Juárez, the Mexican city bordering El Paso, registered year-over-year growth of 1.5 percent. Nevertheless, maquiladora owners are concerned that recent Mexican fiscal reforms may impact future business.

The Laredo business-cycle index slipped 1.4 percent in September. Despite the decline, year-to-date growth in the index stands at a robust 5.8 percent. Employment increased 2.8 percent during the month, thanks to strong gains in the construction, mining and natural resources and trade, transportation and utilities sectors. Leisure and hospitality employment increased by 100 as two new hotels opened in September.

McAllen's economy slowed in September as its business-cycle index rose a modest 1.3 percent, and employment remained flat. Nevertheless, private employment—which excludes government—rose 4.5 percent. The increase came mainly from service industries—professional and business, education and health, leisure and hospitality—and financial activities. The goods-producing sectors of construction and manufacturing posted job losses as a weaker housing industry reduced demand. Still, commercial construction remains active, with about a half million square feet of development between McAllen and Edinburgh under way. In addition, winter Texans are starting to fill RV parks, which generally represents a positive economic spillover for the Valley economy.

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 first 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.