The Economy of the Rio Grande Valley
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The Economy of the Rio Grande Valley Roberto Coronado, Assistant Vice President in Charge and Sr. Economist Federal Reserve Bank of Dallas, El Paso Branch November 22, 2013 The views expressed in this presentation are strictly those of the author and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or of the Federal Reserve System. Any secondary distribution of this material is strictly prohibited. May be quoted with appropriate attribution to the author. Roadmap . Recent economic trends in the Rio Grande Valley . Main drivers behind Texas border region economy • How relevant is Mexico for the U.S. and Texas? • Recent trade trends in the RGV . Economic landscape in RGV is changing . Going forward: what is ahead? Roadmap . Recent economic trends in the Rio Grande Valley . Main drivers behind Texas border region economy • How relevant is Mexico for the U.S. and Texas? • Recent trade trends in the RGV . Economic landscape in RGV is changing . Going forward: what is ahead? Rio Grande Valley growing again Index, Jan 2006=100 120 115 Brownsville McAllen 110 105 100 95 90 85 2006 2007 2008 2009 2010 2011 2012 2013 Source: The Federal Reserve Bank of Dallas. Note: Business Cycle is a composite index that includes employment, unemployment rate, retail sales and wages. Employment growth in the Rio Grande Valley Percent, Dec/Dec, SA 5.00 McAllen Brownsville 4.00 3.00 2.00 1.00 0.00 -1.00 -2.00 Avg. 1991-2006 2007 2008 2009 2010 2011 2012 2013* Source: Federal Reserve Bank of Dallas *2013 Data are August/August RGV well beyond pre-recession peak Index, Jan 2006=100, SA employment levels 120 McAllen -231K 115 110 Brownsville - 133K 105 100 95 90 2006 2007 2008 2009 2010 2011 2012 2013 Source: Federal Reserve Bank of Dallas, Bureau of Labor Statistics RGV well beyond pre-recession peak Index, Jan 2006=100, SA employment levels 120 McAllen -235K 115 Texas - 11,207K 110 Brownsville - 134K 105 100 95 90 2006 2007 2008 2009 2010 2011 2012 2013 Source: Federal Reserve Bank of Dallas, Bureau of Labor Statistics RGV well beyond pre-recession peak Index, Jan 2006=100, SA employment levels 120 McAllen - 235K 115 Texas - 11,207K 110 Brownsville - 134K 105 U.S. - 136,187K 100 95 90 2006 2007 2008 2009 2010 2011 2012 2013 Source: Federal Reserve Bank of Dallas, Bureau of Labor Statistics Brownsville Employment Breakdown Thousands, SA, Change Total Private Government Yr/Yr 4.0 3.0 3.0 2.8 2.6 2.6 2.4 2.5 2.2 2.1 1.9 2.0 1.4 1.0 1.0 1.0 0.6 0.0 -0.2 -0.1 -1.0 -0.6 -2.0 -1.7 -2.6 -3.0 1991-2008 Average 2009 2010 2011 2012 2013* Total 2.8 -1.7 2.4 1.9 2.5 2.6 Private 2.2 -2.6 1.4 2.1 2.6 3.0 Government 0.6 1.0 1.0 -0.2 -0.1 -0.6 2013* represents year to date annualized rate. Source: Federal Reserve Bank of Dallas Government employment excludes military employment McAllen Employment Breakdown Thousands, SA, Change Total Private Government Yr/Yr 8.0 6.5 5.8 6.0 5.5 5.1 4.4 4.1 4.3 3.8 4.0 2.0 1.7 1.4 1.4 1.2 0.5 0.6 0.0 -0.3 -0.2 -2.0 -1.7 -3.0 -4.0 1991-2008 Average 2009 2010 2011 2012 2013* Total 6.5 -1.7 1.7 5.5 4.1 4.4 Private 5.1 -3.0 1.2 5.8 4.3 3.8 Government 1.4 1.4 0.5 -0.3 -0.2 0.6 2013* represents year to date annualized rate. Source: Federal Reserve Bank of Dallas Government employment excludes military employment RGV unemployment rates trending down Percent but still too high 14 12 McAllen (10.4%) 10 Brownsville (9.8%) 8 U.S. (7.3%) 6 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 Source: Federal Reserve Bank of Dallas, Bureau of Labor Statistics. RGV weathers the recent recession in different ways Decline Bottom to Metro Area Peak Trough (%) Today (%) July November Texas 5.3% 12.6% 2008 2009 February Brownsville August 2009 4.8% 10% 2008 McAllen February 2008 March 2010 16.4% 6.2% Roadmap . Recent economic trends in the Rio Grande Valley . Main drivers behind Texas border region economy • How relevant is Mexico for the U.S. and Texas? • Recent trade trends in the RGV . Economic landscape in RGV is changing . Going forward: what is ahead? World trade now exceeds pre-crisis peak… Index, 2005=100 3MMA 155 Title in here Last observation 135 August 2013 Pre-crisis peak 115 95 75 55 35 1992 1996 2000 2004 2008 2012 Source: CBP Netherlands Bureau for Economic Policy Analysis …but still below 1992-2007 trend Log Index, 2000=100 Last observation 5.3 Jan. 2013 Pre-crisis peak Title in here April 2008 5.1 26% Below 1992 - 2007 4.9 trend 4.7 4.5 4.3 4.1 3.9 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: CBP Netherlands Bureau for Economic Policy Analysis Mexico joined GATT, GATT, Mexicojoined Source: Bureau/ Census Source: U.S. now WTO now U.S. a Haver - 450 m - - Mexico total trade Analytics 400 350 300 Billions Billions Dollars, of Real, SA, 3m 250 NAFTA 200 150 100 50 0 1974 1976 1978 1980 1982 1985 1987 1989 1991 1993 1995 1997 2002 2004 2006 2008 2010 2012 1975 1977 1979 1981 1983 1984 1986 1988 1990 1992 1994 1996 1998 1999 2000 2001 2003 2005 2007 2009 2011 2013 Mexico joined GATT, GATT, joined Mexico Source: Bureau/ Census Source: U.S. now WTO now U.S. a - 450 m - - Haver Mexico total trade 4.6% above trend 400 Analytics 350 300 Billions Billions Dollars, of Real, SA, 3m 250 NAFTA 200 150 100 50 0 1974 1976 1978 1980 1982 1985 1987 1989 1991 1993 1995 1997 2002 2004 2006 2008 2010 2012 1975 1977 1979 1981 1983 1984 1986 1988 1990 1992 1994 1996 1998 1999 2000 2001 2003 2005 2007 2009 2011 2013 Autos leading in U.S.-Mexico trade 2012 Sector (Billions) Road Vehicles 73.4 Petroleum 60.6 Electrical Machinery 50.0 Telecommunications 38.8 Office /Automatic Data 30.4 Processing General Industrial Machinery 24.2 Power-Generated Machinery 18.2 Total Trade U.S.-Mexico 494.0 Source: U.S. Census Bureau Mexico auto exports Millions of units, SAAR, 3-mo moving avg. 3.0 1.1% 6.3% 6.4% North America 0.8% 2.5 Central America and Carribean 16.5% South America Asia 68.1% 2.0 0.9% Europe 1.5 1.0 0.5 0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Asociación Mexicana de la Industria Automotriz, A.C. How relevant is Mexico in the North America auto production? • Today, roughly 1-in-5 light vehicles produced in North America come from Mexico. • Mexico surpassed Canada as the second largest vehicle producer in North America in 2008. • Mexico also plays a crucial role in auto parts. • One-third of the auto parts imported into the U.S. come from Mexico. Source: Thomas H. Klier and James Rubenstein, “The Growing Importance of Mexico in North America’s Auto Production,” Chicago Fed Letter, May 2013, No.310. Texas Exports by Region Index, 97Q1=100, Real $, SA 800 China Other 4% 8% 700 Latin America Mexico 600 16% 37% 500 Asia 16% EU 400 9% Canada 10% 300 200 100 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Texas Total Mexico Canada European Union (27) Asia** Latin America* China Notes: *Latin America excluding Mexico; **Asia excluding China Source: World Institute for Strategic Economic Research, FRB Dallas Texas’ top five ports of entry Total land trade, % of total U.S.-Mexico 2012 $ billions land trade Laredo 168.8 40.9% El Paso 66.9 16.2% Hidalgo/Pharr 26.8 6.5% Eagle Pass 21.7 5.3% Brownsville-Cameron 15.4 3.7% Texas 304.9 73.9% Source: U.S. Department of Commerce Bureau of the Census, Foreign Trade Division Top exporting Texas MSAs, 2012 $120.00 $110.3 Billions $100.00 $80.00 $60.00 $40.00 $27.8 $20.00 $14.0 $12.8 $9.0 $5.8 $5.4 $5.2 $5.2 $4.6 $0.00 Houston Dallas San Antonio El Paso Austin Corpus Beaumont Laredo McAllen Brownsville Christi Source: International Trade Administration McAllen top five exports by sector, 2012 $2.5 $2.4 Billions $2.0 $1.5 $1.0 $0.5 $0.4 $0.5 $0.4 $0.3 $0.0 Computer and Electrical Transportation Machinery Crop Production Electronic Product Equipment; Equipment Manufacturing Manufacturing Appliance; and Manufacturing Component Manufacturing Source: International Trade Administration $3.5 Brownsville top five exports by sector, 2012 $3.0 $3.0 $2.5 $2.0 $1.5 $1.0 $0.9 $0.5 $0.3 $0.3 $0.2 $0.0 Computer and Chemical Transportation Electrical All Others Electronic Product Manufacturing Equipment Equipment; Manufacturing Manufacturing Appliance; and Component Manufacturing Source: International Trade Administration RGV–Mexico border synchronization Mc Allen-Reynosa Brownsville-Matamoros 0.4 Mc Allen-Reynosa 0.08 0.4 Brownsville-Matamoros 0.07 0.3 0.07 0.3 0.06 0.06 0.2 0.05 0.2 0.1 0.05 0.04 0.1 0 0.04 0.03 0 -0.1 0.03 0.02 -0.2 -0.1 0.02 -0.3 0.01 Maquiladora Maquiladora Value Added -0.2 0.01 Maquiladora Value Added 0 U.S.borderCity Employment U.S.borderCity Employment -0.4 -0.3 0 -0.5 -0.01 1991 1992 1993 1994 1995 1996 1997 1998 1999 2003 2004 2005 2006 1991 1992 1993 1994 1995 1996 1997 1998 1999 2003 2004 2005 2006 2000 2001 2002 2000 2001 2002 Maquiladora Value Added U.S.