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Outlook for El Paso Economy
Roberto Coronado Marycruz De LeónAVP in Charge and Sr. Economist Senior Research Analyst
February 19, 2015The views expressed in this presentation are strictly those of the authors and do not necessarily reflect the positions
of the Federal Reserve Bank of Dallas or of the Federal Reserve System.
Outline
1. Federal Reserve2. El Paso economic update3. Outlook for 2015 and final remarks
Outline1. Federal Reserve2. El Paso economic update3. Outlook for 2015 and final remarks
Federal Reserve• We are the central bank of the United States• Established on December 23, 1913• Federal Reserve responsibilities:
1. Monetary policy2. Supervision and regulation of banks3. Payment systems
• Main objective is to conduct monetary policy with a dual mandate:1. Stable prices2. Maximum employment
Federal Reserve Regional Presence
Federal Reserve Bank of Dallas
El Paso Branch• First Branch established in the 11th District, opened June 17, 1918
• We provide currency and coin to financial institutions in West Texas, El Paso, New Mexico and Southern Colorado
• Regional economic analysis with a special emphasis on Mexico and the border economy
• Offer outreach programs to our constituents both in English and Spanish
Dallas Fed gathers real‐time economic intelligence
• Board of Directors• Business and Community Advisory Council• Community Depositary Institutions Advisory Council
• Emerging Leaders Council• Beige book• Roundtables with business and industry leaders
El Paso Branch Board of Directors
Richard D. FolgerPresident and CEOWarren Equipment CompanyMidland, TX
Renard U. JohnsonChairPresident and CEOMETI Inc.El Paso, TX
Teresa MolinaPresidentFirst New Mexico BankDeming, NM
J. Eric EvansChair Pro TemCEOProvidence Memorial HospitalSierra Medical CenterEl Paso, TX
Paul L. FosterExecutive Chairman and DirectorWestern Refining Inc.El Paso, TX
Robert NachtmannDean, College of BusinessAdministrationProfessor, University of Texas at El PasoEl Paso, TX
Jerry PachecoPresidentGlobal Perspectives Integrated Inc.Santa Teresa, NM
Outline1. Federal Reserve2. El Paso Economic update3. Outlook for 2015 and final remarks
El Paso’s economy continues to expand
95
100
105
110
115
120
125
130
135
14020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Index, Jan 2000 = 100
Note: El Paso Business Cycle is a composite index that includes employment, unemployment rate, retail sales and wages.Source: Federal Reserve Bank of Dallas
El Paso non‐farm employment
230
240
250
260
270
280
290
30020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Federal Reserve Bank of Dallas
Thousands, S.A.
December ‐ 292.7 K Jobs
Thousands, S.A.
El Paso employment growth
2.3
3.6
2.2
3.9
0.0
2.0
2.7
1.1
2.0
1.5
-2.3
2.5
-1.1
0.8
2.1 1.9
3.6
-0.3
-1.1
1.8
0.5
2.3
0.8
1.5
-3
-2
-1
0
1
2
3
4
519
91
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Average 1.4
Source: Federal Reserve Bank of Dallas.
Percent, Dec/Dec, S.A.
El Paso employment gains
3.8
‐3.1
4.8
1.3
6.3
2.2
4.4
2.6
‐5.9
4.4
2.1
5.6
3.0
4.7
1.2
2.7
0.3
‐0.7
0.7
‐0.8‐0.3
‐8
‐6
‐4
‐2
0
2
4
6
8
1991‐2008Average
2009 2010 2011 2012 2013 2014
Total Private GovernmentThousands, S.A., ChangeYr/Yr
Source: Federal Reserve Bank of DallasNote: Employment excludes federal military employment
‐0.3
1.7
1.51.6
0.8
‐0.7
0.2
‐0.5
0.0 0.0
‐1.0
‐0.5
0.0
0.5
1.0
1.5
2.0
Government(23%)
Trade, Transp& Utilities(22%)
Educational &Health
Services (14%)
Leisure &Hospitality(11%)
Professional &Business(11%)
Manufacturing(6%)
Construction& Mining (4%)
FinancialActivities (4%)
Other Services(3%)
Information(2%)
Thou
sand
s
2014
Source: Federal Reserve Bank of Dallas
El Paso employment growth by sector(NAICS Super Sectors, SA by FRB Dallas)
Comparing the recovery in the El Paso and U.S. labor markets
92
94
96
98
100
102
104
106
108
2008 2009 2010 2011 2012 2013 2014 2015
5.5%
U.S.
El Paso
Index Dec 2007=100
Source: Bureau of Labor Statistics
El Paso‐U.S. unemployment
0
2
4
6
8
10
12
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Bureau of Labor Statistics
Percent
U.S. January = 5.7%
El Paso December = 6.1%
Main economic drivers
• U.S. economy
• Mexico’s economy
• Ciudad Juarez and the maquiladora industry
• Cross‐border retail activity
• Government sector
1.8
‐0.3
‐2.8
2.5
1.6
2.3 2.2
‐2.1
4.65.0
2.6
‐4
‐3
‐2
‐1
0
1
2
3
4
5
2007 2008 2009 2010 2011 2012 2013 2014:Q1 2014:Q2 2014:Q3 2014:Q4
Percent
U.S. GDP growth moderates
Source: Bureau of Economic Analysis
4th‐quarter growth near 2.5 percent
2.5
1.9
0.1
0.7
0.3 0.1
‐0.6
2.62.9
0.1 0.2
0.8
‐0.4
‐1
0
1
2
3
4
Total GDPgrowth
Personalconsumption
Residentialinvestment
Business fixedinvestment
Inventoryinvestment
Government Net exports
2014
2014:Q4
Contribution to real GDP growth,percentage points
0.6
2.3
2010 – 2013 average
4th‐quarter growth was driven by consumption & inventory investment
2.5
1.9
0.1
0.7
0.30.1
‐0.6
2.62.9
0.1 0.2
0.8
‐0.4
‐1.0
‐2
‐1
0
1
2
3
4
Total GDPgrowth
Personalconsumption
Residentialinvestment
Business fixedinvestment
Inventoryinvestment
Government Net exports
2014
2014:Q4
Contribution to real GDP growth,percentage points
0.6
2010 – 2013 average
2.3
The ISM Manufacturing and Non‐Manufacturing Indexes have diverged
30
35
40
45
50
55
60
2007 2008 2009 2010 2011 2012 2013 2014 '15
ISM Manufacturing
Index, 50+ = expansion
Expansion average = 54.854.7
ISM Non‐ManufacturingJan.56.7
53.5
Payroll employment continues to improve
‐1000
‐800
‐600
‐400
‐200
0
200
400
60020
03
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
January
257K336K
Thousands, SA
3‐month MA
∆ in Payrolls
Source: Bureau of Labor Statistics
Unemployment rate trending down
0
2
4
6
8
10
1220
01
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Bureau of Labor Statistics
Percent
January 2015: 5.7
U.S. manufacturing above pre‐recession peak level…
80
85
90
95
100
105
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Board of Governors, Federal Reserve System
Index: Jan 2007=100, S.A.
20%
1.3%
20
30
40
50
60
70
8020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
ISM Manufacturing Index
ISM Manufacturing: New Orders Index
SA, 50+ = Increasing
Source: Institute of Supply Management
Increasing
Decreasing
…ISM Manufacturing slows as new export orders decline
Vehicle sales near pre‐recession peak levels
El Paso follows the maquiladora industry
130
150
170
190
210
230
250
110
130
150
170
190
210
230
250
270
290
1990 1993 1996 1999 2002 2005 2008 2011 2014
El Paso Business Cycle Index
Juarez Maquiladora Employment
Thousands, SA Index Oct‐1978=100
Source: INEGI and Dallas Fed
Note: El Paso Business Cycle is a composite index that includes employment, unemployment rate, retail sales and wages. Juarez maquiladora employment after January 2007 corresponds to Federal Reserve Bank of Dallas, El Paso Branch estimates.
Maquiladoras impact on El Paso• 10 percent increase in maquiladora output in Ciudad Juarez
leads to an increase in El Paso employment as follows:
− 2.8 percent increase in total employment
− 5.3 percent in transportation employment
− 1.3 percent in retail trade employment
− 2.1 percent in finance, insurance and real estate (FIRE) employment
− 1.8 percent in services employment
− (‐) 1.3 percent in manufacturing employment
El Paso retail sales likely to respond to peso weakness
8
9
10
11
12
13
14
15
16
80
90
100
110
120
130
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Nominal Exchange Rate, Pesos per DollarRetail Sales Index, 2000:Q1=100
El Paso
Nominal Exchange Rate
Sources: Texas Comptroller of Public Accounts; seasonal and other adjustments by the Dallas Fed
Outline1. Federal Reserve2. Economic update3. Outlook for 2015 and final remarks
El Paso Gross Metropolitan Product
Source: Bureau of Economic Analysis, UTEP Border Region Modeling Project
5.2
2.2 2.4
4.3
10.4
4.7
‐3.0
1.4
3.1 3.2
5.5
1.31.9
3.0 2.8
‐4
‐2
0
2
4
6
8
10
12
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
% change
Forecast
El Paso Employment Growth
Source: Historical data from Federal Reserve Bank of Dallas; Forecast data from UTEP BRMP based on BLS CES data
2.5
‐1.1
0.8
2.11.9
3.6
‐0.3
‐1.1
1.8
0.5
2.3
0.8
1.51.7
2.0
‐2
‐1
0
1
2
3
4
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
% change
Forecast
Final remarks• In 2014, job growth accelerated in the U.S. and El Paso• The drop in energy prices is boosting consumer spending and will likely result in even faster job growth in 2015
• The U.S. industrial sector posted solid growth in 2014. However, leading indicators suggest a slowdown in manufacturing activity in the next few months
• While the outlook for the global outlook continues to pose a downside risk for the U.S., the El Paso economy should benefit from a stronger U.S. economy
Final remarks• The local economy had a solid performance in 2014• Economic drivers are in place to continue to boost local economy
• Downside risks:– Global economy and its impact on U.S. manufacturing and exports
– Volatility in FX– Mexican economy may continue to be weak– Strong dependence in government sector– Workforce and education
Outlook for El Paso Economy
The views expressed in this presentation are strictly those of the author and do not necessarily reflect the positionsof 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.
Roberto [email protected]
915.521.5235