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
U.S.-Mexico total trade a
- 450
m -
400
350 Mexico joined GATT, NAFTA now WTO
300 Billions Billions Dollars, of Real, SA, 3m
250
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
Source: U.S. Census Bureau/Haver Analytics a U.S.-Mexico total trade
- 450
m - 4.6% above trend 400 Mexico joined GATT, 350 NAFTA now WTO
300 Billions Billions Dollars, of Real, SA, 3m
250
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 Source: U.S. Census Bureau/Haver Analytics 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. Border City Employment Maquiladora Value Added U.S. Border City Employment
Notes: Charts show nonfarm employment annual growth rates (left-axis) for U.S. border cities and maquiladora value-added annual growth rates (right-axis) for Mexican border cities, for the period 2000-2006. Sources: U.S. Bureau of Labor Statistics and Instituto Nacional de Estadistica Geografia e Informatica.
Maquiladoras impact by border city
• 10 percent increase in maquiladora output leads to an increase in the adjacent U.S. city as follows: − 2.2 percent increase in total employment in Brownsville − 6.6 percent increase in total employment in McAllen
Maquiladoras are quite important for Texas border cities Title in here McAllen Brownsville City Level 6.58* 2.21
Construction 4.04* 1.29* Manufacturing 1.64 0.66 Transportation 6.63* 4.6* Wholesale 4.01* 0.84 Retail 3.21* 1.34* Finance, Insurance and Real Estate 4.63* 0.64 Business, Professional and Personal Services 7.38* 3.89* Notes: This table shows elasticity estimates. That is the table shows the percentage increase in local employment from a 10 percent increase in maquiladora production for each Texas Border Cities. * indicates significant at the 10% level. Source: J. Cañas, R. Coronado, R. Gilmer, E. Saucedo (2013) “The Impact of Maquiladoras on U.S. Border Cities”, Growth and Change, 44(3) 415–42.
Cross-border retail activity
• Mexican citizens logged 72 million border crossings into Texas in 2012. • On average, Mexican nationals spend around $4.5 billion per year in Texas border retail
McAllen 35-40 percent
Brownsville 30-35 percent • Peso-dollar exchange rate fluctuations significantly influence cross-border shopping activity Real retail sales are responsive to the Peso-Dollar exchange rate
Retail Sales Index, 2000:Q1=100 Nominal Exchange Rate, Pesos per Dollar 170 16
McAllen 160 15
150 Brownsville 14
140 13 X-rate 130 12 120
11 110
10 100
90 9
80 8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Sources: Texas Comptroller of Public Accounts; seasonal and other adjustments by the Federal Reserve Bank of Dallas 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? RGV economy in transition • Employment migrating from manufacturing to services
1990 2011 1990 2011 Mfg. Mfg. Services Services McAllen 14% 3% 74% 87% Brownsville 16% 4% 76% 88% • Per capitaSource: Bureau income of Economic closing Analysis gap with national levels Per capita income in RGV, 1969-2011 (As a share of the US level)
% 65 65
$24,985 60 60 $15,579
$12,960 55 $20,079 55 $16,900 $23,236
50 $12,468 $14,785 50 $19,734
45 $16,138 45
40 40
1970 1974 1978 1979 1982 1983 1986 1987 1990 1991 1994 1995 1998 1999 2002 2003 2007 2011 1969 1971 1972 1973 1975 1976 1977 1980 1981 1984 1985 1988 1989 1992 1993 1996 1997 2000 2001 2004 2005 2006 2008 2009 2010 McAllen-Edinburg-Mission, Texas Brownsville-Harlingen, TX
Source: Bureau of Economic Analysis Percentage-point contribution to border-city earnings growth by selected industries, 2001-2010
Brownsville McAllen US Manufacturing -6.9 -4.4 -7.3 Health Care 8.8 11.2 4.6 Retail -0.3 0.2 -1.6 Cross-Border Trade 6.5 5.6 5.2 Transportation 0.1 0.7 -0.2 Services 6.0 4.8 5.1 Federal Civilian 0.4 0.1 0.3 Total Earnings 5.0 6.8 2.7
Source: Crossroads Issue 2: July 2012; Federal Reserve Bank of Dallas, El Paso Branch 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? Clouds ahead…. • U.S. recovery continues to be modest • Mexico’s economy is experiencing a slowdown • Government budget issues have strong implications to the RGV economy
…brighter future! • RGV continues to grow • Private sector is doing well • RGV has been attracting higher paying jobs • RGV is closing the gap on per capita income • RGV needs to capitalize on its unique and strategic location • Education is critical for the RGV future!
The Economy of the Rio Grande Valley Roberto Coronado [email protected] 915.521.5235
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.