November 2006

The Texas economy continued to expand at a steady pace in October. The Dallas Fed’s Texas Business Cycle Index—an aggregate measure of current regional economic activity—increased at an annualized rate of 4.2 percent during the month (Chart 1) and has posted year-to-date gains of 4.4 percent.

The Texas labor market built on its 2006 gains during the month. The state posted annualized job growth of 3.4 percent, according to data released by the Texas Workforce Commission with seasonal and other adjustments by the Dallas Fed [3] (see table). So far in 2006, Texas employers have added 265,200 jobs, representing a healthy 3.2 percent pace. The tight labor market is reflected by an unemployment rate of 4.8 percent—the lowest since May 2001.

Chart 1

Austin’s economy continued to record steady growth in October, with its business-cycle index rising 3.6 percent. The increase in the index was buoyed by strong gains in retail sales and healthy employment growth of 3.7 percent for the month. The service sector was the main source of growth, but continued robust residential and commercial building activity also contributed to the strong showing. At 3.2 percent, Austin’s year-to-date job growth has matched that of the state.

The Dallas economy pushed ahead at a solid pace in October. The metro’s business-cycle index rose at an annualized pace of 3.4 percent, and employment increased by 2.4 percent. So far this year the metro has added 51,600 jobs, second only to Houston. Several sectors were tied to October’s strength. Thanks in part to rising demand for office space, construction employment continued to increase. Growth in nonresidential building is helping to offset a slowdown on the residential side—homebuyers’ uncertainty has risen with reports of weakness in other parts of the country. Helping drive the demand for office space was strength in the professional and business services sector, which rose strongly last month and has added jobs at an 8.2 percent annualized rate year-to-date.

Fort Worth’s economy expanded in October but moderated from its brisk year-to-date pace of 4 percent. The metro’s business-cycle index rose at an annualized 1.5 percent rate and employment edged up by 0.4 percent. Private employment increased at a somewhat stronger 1.7 percent. Demand for nonresidential space and continued drilling in the Barnett Shale kept jobs rising in the construction and mining and natural resources industries. In addition, the expanding hotel industry boosted employment in the leisure and hospitality sector. Educational and health services and financial services also contributed to the monthly increase, helping outpace job losses in the manufacturing, trade, transportation and utilities, and information sectors. Year-to-date, the metro has added 20,800 jobs.

The Houston economy showed continued vigor in October with its business-cycle index climbing at an annualized rate of 9.4 percent. During the month 12,200 net jobs were added across a broad range of industries. Ongoing nonresidential projects such as the renovations and additions to the Texas Medical Center and the Bayport Expansion Project continued to add to construction employment. Thanks to long-term capital expenditure projects, the oil industry continued to create jobs despite recent declines in energy prices. The trade, transportation and utilities sector also added 2,800 new jobs in October, with the Port of Houston and the Houston Airport System both reporting significant increases in cargo volumes. Additionally, the leisure and hospitality sector added 1,200 new jobs during the month. Houston leads the state with year-to-date job gains of 78,500.

San Antonio’s economy grew briskly in October; its business-cycle index increased 5.2 percent. Employment rose at a strong 3.9 percent annualized rate during the month with payroll gains in the private sector accounting for the increase. On the goods-producing side, growth was weak, with only manufacturing adding jobs as Toyota prepped to start production at its Tundra plant. Thanks to expanding hotel inventory and strong future bookings, service-sector job gains were concentrated in the leisure and hospitality industry. For the year, San Antonio has posted a net gain of 20,100 jobs—a 3 percent annualized increase.

Border Metros
Brownsville’s economy grew steadily in October. The metro’s business-cycle index rose at an annualized rate of 4.1 percent during the month, while employment increased at a 2 percent annualized pace (Chart 2). Year-to-date employment growth stands at 4 percent. The metro’s strength is partly tied to strong retail demand—commercial construction is being driven by increased building of retail space, and hiring has also been rising at retailers. So far this year, the metro has added 3,900 jobs.

Chart 2

El Paso's economy expanded for the second consecutive month in October after edging down in July and August. The metro's business-cycle index increased 2.9 percent during the month, following 1.9 percent growth in September. Employment rose at a strong 6 percent annualized rate, with trade and transportation services, financial activities, construction and government adding jobs. On a less positive note, professional business services employment edged down after continued growth throughout the year. The decline is likely related to a recent drop in maquiladora employment in Ciudad Juárez, the first decline this year.

Laredo’s economy continued to surge in October—its business-cycle index climbed 12.5 percent and employment rose at a robust 5.8 percent annualized rate. Job gains in the goods-producing sector were concentrated in the construction industry, which is still being boosted by rising homebuilding activity in the metro. On the service-providing side, payroll gains were concentrated in the trade, transportation and utilities sector, which continued to benefit from strong border crossings. At 5.9 percent, the metro has posted the strongest employment growth rate among all Texas metros year-to-date.

McAllen’s business-cycle index edged up in October after falling by 1.2 percent in September. Year-to-date the index has risen at a more robust 6.2 percent annualized pace. Although total employment remained flat in October, private employment increased 0.8 percent, with job gains coming primarily in the service sector. The specific drivers were trade and transportation services, professional and business services, education and health services, and financial services. Retail employment also posted gains as two big box retailers opened stores in the metro. For the year, McAllen’s 4.4 percent pace of job growth has exceeded that at the state level.

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 second quarter 2006 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.