June 2006

The Texas economy moved ahead at a moderate pace in May. The Dallas Fed’s Texas Business-Cycle Index (formerly Texas Coincident Index)—an index of current economic indicators—rose at a 2.6 percent annualized rate during the month, a slight deceleration from the 3.1 percent pace recorded year-to-date (Chart 1).

Chart 1

The recent moderation in the index’s rate of expansion reflects a slowdown in reported job growth in 2006. The employment data, provided by the Texas Workforce Commission with seasonal and other adjustments by the Dallas Fed [3], suggest an annualized increase of 1.7 percent in May and 1.8 percent since the beginning of the year (see table). This compares with a rate of 3.1 percent in 2005.

Although the 2006 employment data—which are still subject to revision—indicate job growth has moderated, anecdotal reports such as the Dallas Fed’s Beige Book continue to suggest mostly strong economic conditions. Given upward revisions to 2005 employment data, it appears likely that employment growth will be revised upward when the more comprehensive benchmark revision occurs later this year.

Texas’ Major Metros
Austin’s economy expanded at a solid pace in May, with its business-cycle-index increasing 3.3 percent. Employment rose by 1,000 jobs during the month, with many of the gains coming from the trade and other service-related sectors. Retail and residential construction activity remain strong and are being fueled by corporate relocations and expansions in the metro as well as by strong population growth. Year-to-date the metro has added 6,900 jobs, a 2.4 percent annualized pace.

The Dallas economy moved ahead on its upward path in May, as its business-cycle index rose at a 3.2 percent annualized pace. Employment increased by 4,300 (a 2.6 percent annualized rate), boosted by gains in the sectors of educational and health services, financial activities and manufacturing. Employment growth in the metro’s professional and business services sector remains very strong, growing at a 10.3 percent annualized rate in May and over 10 percent year-to-date. This sector makes up about 16 percent of total metro employment and includes specialized professions, such as accounting, engineering tech services and legal services. Of note, business contacts in the legal industry report strong demand for litigation activity, corporate transactions, oil and gas transactions, and real estate investment activity.

After moderating in April, Fort Worth’s business-cycle index picked up in May. The index rose at a 1.4 percent annualized rate during the month. Year-to-date, the index has risen at an annualized pace of 2 percent. The metro added 300 jobs in May, with gains in the goods sector outpacing declines in several service industries. Nevertheless, anecdotal reports suggest rising service employment in coming months, with recent reports of a financial services call center in the works and announced expansions at another financial services firm. Year-to-date Fort Worth has added 4,400 jobs.

The Houston business-cycle index rose strongly in May at an annualized pace of 4 percent. During the month, Houston added 3,600 new jobs. Most of the job gains were directly related to the energy sector, which is clearly driving the economy. In addition, construction remained strong for both residential and nonresidential properties, according to business contacts. Despite the strength overall, the trade, transportation and utilities sector recorded job losses in May, with job losses noted at motor vehicle and parts dealers, department stores, and pipeline transportation companies. For the year, Houston has added 17,800 jobs.

San Antonio’s economy expanded at a steady pace in May. The metro’s business-cycle index rose 2.8 percent during the month, and employment grew at a pace of 0.8 percent. Job gains came mostly from the manufacturing and the trade, transportation and utilities industries. Payrolls in the educational and health sector also increased as the North Side ISD began hiring schoolteachers to accommodate 4,000 new students for the 2006–07 school year. Additionally, anecdotal reports suggest that demand for low-priced residential real estate is being driven by investors from Mexico. For the year, the metro has posted a net gain of 4,100 jobs.

Texas’ Major Border Metros
Brownsville’s economy grew at a moderate pace in May. Its business-cycle index rose at an annualized rate of 2.4 percent, while employment increased at a 2 percent annualized rate (Chart 2). Job gains in the service sector outpaced declines in the goods-producing industries. Adding to service sector growth, Union Pacific Railroad has started a multimillion-dollar project to replace ties and fix crossings along the 50-mile stretch from Brownsville to Raymondville. In addition, population growth continues to spur retail sales and construction.

Chart 2

El Paso's business-cycle index picked up to a 1.6 percent pace in May, following a slowdown in April. Strong growth in professional and business service employment helped fuel the economy during the month and outpaced a decline in the manufacturing sector. Overall, El Paso recorded job growth of 1.8 percent in May, as it continued its transition from a manufacturing-based economy to a more service-oriented one. Construction activity has been relatively flat in recent months, while home prices continue to rise rapidly. Expanding manufacturing activity in the sister city of Ciudad Juárez, and the additional troops heading to Fort Bliss are expected to boost El Paso’s economy throughout the year.

Laredo posted positive growth in May, as its business-cycle index rose at an annualized rate of 2.1 percent and employment rose 4.5 percent. Laredo continues to benefit from its proximity to Mexico—it is the gateway for land-borne trade between the United States and Mexico. Southbound and northbound commercial traffic on Laredo’s four international bridges has risen in 2006, boosting total bridge revenues by $12.6 million, a 17.6 percent increase. In addition, homebuilding is rising at a record pace in the metro. Single-family residential permits in May were up almost 20 percent from a year ago and up 45 percent from the same period in 2004.

McAllen’s economy has moderated recently. After growing strongly in 2005 and the first two months of 2006, the metro’s business-cycle index has shown little growth since. In May, the index edged down at a 0.9 percent annualized rate. Employment rose at a 1.8 percent annualized pace during the month. Despite the slowdown, contacts say retail sales remain strong, especially in Edinburg. Homebuilding continues to increase in the Valley, although multifamily construction has declined in recent months.

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 fourth 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.