September 2006

The Texas economy expanded at a moderate pace in August. The Dallas Fed’s Texas Business-Cycle Index—an aggregate measure of current economic activity—rose an annualized 2.6 percent during the month. Year-to-date, the index has increased at a solid annualized rate of 3.5 percent.

Recent estimates for total nonfarm job growth have been significantly impacted by large swings in employment at public schools. Some schools added to their payrolls a bit earlier than normal, causing a 31 percent annualized increase in July, followed by a decrease of 3 percent in August. Because these large fluctuations greatly impact the local government sector, we will focus on private employment (excluding government), which currently gives a better picture of the overall economy.

Texas private-sector employment grew moderately in August, rising by a 2.3 percent annualized pace. The state unemployment rate edged down from 5.2 percent in July to 5.1 percent in August. Anecdotal reports, including the Dallas Fed’s Beige Book, continue to report a tight labor market and broad-based strength in the state’s economy.

Major Metros
Austin’s economy moved ahead at a good clip in August, with its business-cycle index rising 3.2 percent (Chart 1). Private employment increased at a 2.1 percent annualized rate in August. Anecdotal reports suggest Austin’s labor market remains robust—boosted by business relocations and out-of-state investors. In fact, Expansion Management magazine recently ranked Austin as the most attractive city for future business relocations among major U.S. cities. Moreover, business contacts expect economic activity related to the University of Texas’ football season to come in at roughly $161 million. Year-to-date, Austin has registered a total gain of 14,600 jobs (see Table).

Chart 1

The Dallas economy continued expanding at a solid pace in August. The metro’s business-cycle index rose 3 percent during the month, down slightly from the year-to-date pace of 3.7 percent. The metro added 2,000 private-sector jobs during August, and the unemployment rate fell to 4.9 percent, down from July’s 5.1 percent. While employment gains were relatively broad-based across sectors, especially strong growth was recorded in the construction sector and service industries. Anecdotal reports confirm that nonresidential construction jobs are being spurred by business expansions, especially in professional and business industries such as accounting, legal and architecture. In addition, builders say relocations are buoying Dallas housing demand, which is holding up residential construction jobs. Even the high-tech services sector is recording job gains. Computer systems design and related employment has risen at an annualized pace of 14.1 percent year-to-date, and telecommunications employment has edged up 1.4 percent this year.

Fort Worth’s economy rose modestly in August, its business-cycle index increasing just 0.4 percent. 2006 employment gains in the metro have lagged those of other major metros, with total jobs rising a tepid 1.2 percent annualized pace year-to-date. Nevertheless, certain industries recorded strong job growth in August. The combined sector of construction and mining/natural resources saw annualized employment growth of 5.5 percent, due in part to natural gas drilling in the Barnett Shale and continued increases in construction activity—much of which is industrial construction, according to anecdotal reports. Several service industries are also adding to payrolls. The financial services industry recorded annualized job growth of 3.4 percent in August. Recent announcements of additional hiring by the nation’s largest home lender bode well for continued expansion of this sector. In addition, the leisure and hospitality sector added jobs at a 5.6 percent pace.

The Houston business-cycle index increased at a rapid monthly annualized rate of 5.3 percent in August, following July’s upward revision from 5.4 percent to 8.8 percent. The leading economic driver is the combined construction, mining and natural resources sector, which accounted for 2,200 of the 6,200 private-sector jobs added in August. While still strong compared with the rest of the nation, anecdotal evidence indicates the construction industry is starting to show small signs of slowing due to rising labor and material cost pressures and higher interest rates. The oil industry remains healthy, and capital expenditure projects are above last year’s levels, suggesting oil price expectations remain high. Another important growth sector is trade, transportation and utilities, which added 1,700 jobs in August, in part reflecting increased trade activity in the Port of Houston.

San Antonio’s business-cycle index rose at a brisk pace in August. The metro’s index increased 4 percent thanks to strong growth in retail sales. Private-sector employment edged up during the month. Anecdotal reports suggest growth in service and construction employment in coming months, with several large retailers slated to open stores at The Rim mall in October and November and the expansion of facilities at the Hispanic Baptist University. Year-to-date, San Antonio has posted healthy overall job growth of 2.1 percent—11,100 jobs.

Border Metros
Brownsville’s economy continues to expand at a solid pace (Chart 2). The metro’s business-cycle index rose at an annualized rate of 4.3 percent in August, while private employment increased at a 5.2 percent annualized rate. The metro’s housing market has recorded robust growth in recent months. In addition, demand for retail space continues to rise, according to anecdotal reports. Year-to-date, the metro has added a total of 2,800 jobs.

Chart 2

El Paso's economy cooled in August, due in part to recent flooding. The metro's business-cycle index edged down slightly (0.2 percent annualized) after remaining flat the previous month. Although total employment fell in August, the losses were concentrated in the government sector. Private employment rose at a moderate 2.3 percent. Professional and business services continued adding jobs during August. The service sector gains were boosted by strong manufacturing activity in the sister city of Ciudad Juárez, Mexico, where maquiladora employment has grown on average 12 percent over the past six months. El Paso construction employment has remained flat over the past two months as building activity stalled because of the floods. For the year, El Paso’s economy has added 2,600 jobs overall.

The Laredo business-cycle index rose at a vigorous pace of 8.5 percent in August. Year-to-date, the index has posted growth of 6.9 percent. Private-sector employment increased 5.8 percent during the month. Despite a slightly weaker peso, the metro’s economy has not felt any impact yet—according to anecdotal reports—with retail sales still robust. In addition, demand for single-family and multifamily housing is strong, in part due to relocations from Nuevo Laredo, where crime rates are rising.

McAllen’s economy continued to expand strongly in August, with 5.6 percent annualized growth in its business-cycle index. Private employment rose at an annualized rate of 2.4 percent. According to business contacts, residential construction and retail sales remain robust, fueled by population growth on both sides of the Texas–Mexico border.

Notes All growth rates are annualized unless otherwise noted. 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. The employment data used in this analysis have been benchmarked to TWC's first quarter 2006 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.