January 2006

The Texas economy ended the year on a positive note, posting its best performance since 2000. The Dallas Fed’s Texas Coincident Index, a business-cycle index of current economic indicators, rose 3.2 percent in 2005, signaling a healthy expansion (Chart 1). While the rate of growth in the index has slowed since August—mostly due to higher unemployment rates associated with the recent hurricanes—it began to pick up again in December, at a 2.7 percent pace.

Chart 1

Texas labor market activity continued to expand in December, with job gains of 14,800 (annualized growth of 1.8 percent) (see table). For 2005 as a whole, Texas employment increased at a rate of 2.1 percent. Every major sector contributed to the job gains, a change from the previous year. Additionally, in December the Texas unemployment rate edged down to 5.1 percent, where it stood before the hurricanes.

Major Texas Metros
Austin’s economy resumed its vigorous pace in December, with the metro’s business-cycle index rising 5.1 percent. The robust growth in the metro’s index was supported by strong employment gains (2.6 percent annual pace) during the month, especially in the construction, professional and business services, and leisure and hospitality services sectors. Job gains in the construction sector reflect strong housing demand—especially for higher-end homes—and a tightening office market. Contacts say demand is being driven, in part, by inmigration from other Texas cities and California. Strong hiring in the professional and business services sector may reflect increased demand for high-tech services. For the year as a whole, Austin’s economy outperformed all other major Texas major metros. The metro’s business-cycle index climbed 5.6 percent, while job growth registered a healthy 4.5 percent (30,300 jobs).

Dallas’ economy continued to expand moderately in December, with its business-cycle index rising 2.7 percent. Although restructuring in the telecommunications services industry continues to restrain job growth, in December the metro added 3,100 jobs, an annualized increase of 1.9 percent. Construction employment increased strongly during the month. Business contacts report housing demand remains quite strong, partly due to inmigration. Moreover, businesses are expanding, which is helping bring down office vacancy rates and spur some new development. The metro’s growing population is also accelerating the expansion of medical facilities and hospitals. Other industries recording large job gains during the month included professional and business services and manufacturing. For the year 2005, Dallas added 44,400 jobs—a 2.3 percent pace.

Fort Worth–Arlington’s economy continues to track that of the state’s relatively closely. In December, the metro’s business-cycle index rose 2.2 percent, and employment increased 1 percent. Although overall job growth was modest, gains were made in the educational and health services, manufacturing, and construction and mining sectors. Mining employment is being boosted by recent natural gas drilling in the Barnett shale. In 2005, the Fort Worth economy’s performance virtually matched the state’s, with its business-cycle index rising 2.8 percent and employment up 2 percent (16,300 jobs).

Houston’s economy remains strong, with its business cycle index rising 3.4 percent in December. The index was boosted by job growth of 1.6 percent, with most of the monthly gains coming from the service sector. In 2005, Houston added 57,500 jobs, a rate of 2.5 percent, as high energy prices increased demand for oil-related products and services. Moreover, business contacts reported plastics and petrochemical by-products are in short supply because of the recent hurricanes, with prices and profits rising. The construction sector added jobs at a rapid pace last year, as demand for both residential and nonresidential space increased.

San Antonio’s economy continued to expand steadily in December, with its business cycle index increasing 3 percent. The metro’s economy benefited from moderate job growth (1.2 percent annual rate) during the month, with the strongest increases coming from the sectors of professional and business services, leisure and hospitality services, and educational and health services. Construction employment posted strong gains as well, a result of building activity associated with the upcoming Toyota plant and its suppliers’ facilities. For the year, San Antonio’s economy grew at a robust pace (3 percent) as well, adding 18,100 jobs.

Texas Border Metros
Brownsville’s economic growth remains on track. The metro’s business-cycle index rose 6.8 percent in December, reflecting strong job growth during the month (4.1 percent) (Chart 2). Driving the growth were increases in the trade, transportation and utilities, and education and health services industries. Additionally, business contacts report increased drilling activity in the metro as well as a pickup in maquiladora job growth in the sister city of Matamoros. In 2005, Brownsville added 2,000 jobs.

Chart 2

El Paso's economy slowed some in December, as the metro's business-cycle-index rose 3.4 percent following stronger growth in the previous three months. The slowdown reflected the lack of job growth during the month. Even withouth any gains in December, 2005 job growth registered 2.7 percent (6,900 jobs). The service-providing sector continues to drive much of the growth, with professional and business services making a large contribution. Helping drive the service sector growth is strong manufacturing activity in the sister city of Ciudad Juárez, Mexico. El Paso construction employment also continues to rise as the metro prepares for additional troops at Fort Bliss.

Laredo’s economy continued to grow rapidly in December, with its business-cycle index increasing 9.7 percent—a result of strong holiday retail sales and robust employment growth (3 percent) during the month. The service-providing sector drove most of the job growth. According to business contacts, the continuing violence in Nuevo Laredo has spurred retail trade in Laredo, with many Mexicans preferring its safety for shopping and dining. Last year, the metro added 3,200 jobs, partly because of large employment gains in the mining sector, boosted by increased natural gas drilling, and the construction sector, mainly in the commercial areas of hotel, restaurant and retail.

McAllen’s economy gained steam in December, with metro’s business-cycle index rising 7.1 percent. Employment increased at a robust 3.7 percent during the month, thanks in large part to gains in the educational and health services and leisure and hospitality services sectors. Additionally, the metro’s economy continues to benefit from strong job growth in the maquiladora industry in nearby Reynosa and a strong peso, both of which have boosted activity in the metro’s retail trade and transportation industries. In 2005, the metro added 8,600 jobs—a 4.5 percent gain.

Notes All growth rates are annualized unless otherwise noted. For a definition of the Texas Coincident 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. The employment data used in this analysis have been benchmarked to TWC's third quarter 2005 CEW data and seasonally adjusted by the Dallas Fed. For more information about early benchmarking data please 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.