Transcript presentation

Border Economy:
Not Immune to U.S. Pain
Jesus Canas
Federal Reserve Bank of Dallas
El Paso Branch
NALCAB Border Community & Econ Dev Summit
July 17, 2009
El Paso, Texas
Disclaimer: 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.
Outline
− The current state of the U.S. and Mexican economies
− General characteristics of the U.S.–Mexico border
− Drivers behind the U.S.–Mexico border region
1. Trade between the U.S. and Mexico
2. Maquiladora industry
3. Exchange rate
− Potential impacts of recent economic downturn
− Outlook for the U.S., Mexico and Border economies
U.S. economy
• The U.S. economy has been in recession over 18
months (according to NBER).
• Output declined 5.7 percent in the first quarter of
2009 (advance figure) and declined 6.3 percent in
the last quarter of 2008.
• The labor market has been in the negative
territory since January 2008. Since then, 6
million jobs lost, with almost 70% in the last
seven months.
U.S. economy
• The unemployment rate now stands at 9.4 percent
(May), up from 7.2 percent six months ago
(December), and from 4.9 percent in early 2008
(January).
• Industrial sector has contracted on a continuous
basis since early 2008, declining to 1998 levels.
• The automotive sector production index reached
mid-1990s levels.
Mexican economy
• The current global economic downturn took
some time to hit Mexico.
• The Mexican economy started to contract in the
second half of last year. GDP declined by:
2008:Q1
2008:Q2
2008:Q3
2008:Q4
2009:Q1
Y/Y
3.3%
2.5%
1.5%
-1.7%
-8.6%
Q/Q annual rates
4.7%
1.0%
-2.3%
-9.8%
-21.5%
• Both the set of coincident and leading economic
indicators continue in the negative territory.
Mexican economy
• The industrial sector not doing well, specially
auto-sector.
• Consumption (retail sales) is down since last
summer.
• The peso has lost around 25 percent in value
since August 2008.
• Swine flu collapsed economic activity for a
couple of weeks (estimated ½ percentage point
decline in GDP in 2009:Q2)
A Snapshot of the Border Region in 2007
Baja California
Sonora
Chihuahua
Coahuila
Nuevo Leon
Tamaulipas
California
Arizona
New Mexico
Texas
Population
2,993,422
2,463,707
3,326,882
2,573,950
4,337,085
3,116,054
18,811,100
Employment
691,031
442,116
711,981
546,174
1,130,801
591,873
4,113,975
36,377,534
6,353,421
1,964,402
23,843,432
68,538,789
21,238,947
3,520,106
1,116,089
14,160,490
40,035,632
TOTAL
87,349,889
44,149,607
NOTES: Employment for the Mexican States is formal employment provided by
IMSS; for the U.S. States is total employment provided by BEA
Border Economies
− Have common features as border cities, features that
also make them different from other U.S. cities
− Typically, marked by strong job growth and weak
growth in per capita income
− Impacted by changes in national policies such as
minimum wage, trade, and environment
− Border adapts quickly to change, ex: security post 9-11
Common Features of Border Cities
− A large transportation and distribution sector due to
international traffic
− A large retail sector inflated by serving goods to two
cities
− A large government sector because of border
enforcement and public programs that address high
poverty levels
Per-Capita Income along the Border
United States
Texas
Brownsville
Del Rio
Eagle Pass
El Paso
Laredo
McAllen
New Mexico
Las Cruces
Arizona
Nogales
Douglas
Yuma
California
El Centro
San Diego
1970
100.0
88.9
52.8
67.6
38.3
72.9
54.9
47.4
78.0
73.4
93.9
83.4
87.1
84.3
117.7
94.2
112.6
Percent of U.S. per capita income
1980
1990
2000
100.0
100.0
100.0
97.7
89.4
94.9
56.3
50.6
50.0
61.9
57.3
56.3
41.1
36.1
38.6
64.2
63.1
62.2
53.6
48.3
50.5
52.4
47.7
45.5
82.5
76.6
74.2
67.9
64.7
59.7
94.2
87.3
86.0
77.8
61.6
56.6
75.9
71.0
66.1
80.6
70.7
55.3
118.2
111.1
108.8
93.4
82.2
59.5
109.7
107.1
109.9
Source: Bureau of Economic Analysis, Regional Economic Information System, 1969-2006
2006
100.0
95.8
50.6
64.1
42.7
68.0
54.8
47.4
81.5
66.2
87.0
60.8
76.7
59.7
107.9
62.0
116.6
U.S.-Mexico Trade
− Mexico is the third most important trading partner for the
U.S.
 In 2008, Total trade with Canada almost reached $600
billion, with China $410 and with Mexico $370
− For Arizona, California and Texas, Mexico is their top
trading partner:




Arizona ---- $5.2 billion (27%)
California ---- $18.3 billion (14%)
New Mexico ---- $375 million (15%) 3rd trading partner
Texas ---- $56 billion (34%)
Link Between U.S. and Mexico Economies In the
Industrial Sector (Index, 2003=100)
120
115
Mexico
110
U.S.
105
100
95
90
2003
2004
2005
2006
2007
2008
2009
How are US–Mexican
Industrial Sectors Linked?
• 91 percent of Mexican exports go to the US
• 82 percent of Mexican exports to the US
are industrial products
• 62 percent of Mexican imports are from the
US
• 91 percent of these imports are industrial
• Maquiladoras are a major vehicle for this
cross-border movement of industrial goods
Maquiladora Employment Mirroring US IP
Thousands, SA
1,400
1,200
Index, SA, 2002=100
120
Maquiladora
1,000
110
100
800
90
600
80
400
70
U.S. IPI
200
60
0
50
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Sources: INEGI and Federal Reserve Board
Maquiladora jobs distribution
along the border
100%
90%
80%
Services
70%
Other
Toys
60%
Electronics
Machinery
50%
Transportation
40%
Chemicals
Furniture
30%
Leather
Textile
20%
Food
10%
0%
Tijuana
Mexicali
Sources: INEGI
Nogales
Juarez
Acuna
Nuevo
Laredo
Reynosa Matamoros
How Are Maquiladoras Doing Now?
Percent
20
15
10
5
0
-5
-10
U.S. Mfg. Index
-15
Juarez Maquiladora Employment
-20
Juarez Maquiladora Employment --- FRB El Paso Estimate
-25
-30
2000
2001
2002
2003
2004
2005
2006
Note: Seasonally Adjusted Data
Source: INEGI , Federal Reserve Board, and Federal Reserve Bank of Dallas, El Paso Branch
2007
2008
2009
Maquiladora Growth Feeds Back Into
U.S. Border Cities in Many Ways
- In general, a 10% increase in maquiladora
activity in Mexican border cities leads to a
1.1% to 2.0% employment increase in U.S.
border cities side:
• 2.1% to 2.7% in wholesale trade
• 1.7% to 2.7% in transportation
• 1.2% to 2.1% in manufacturing
• 1.0% to 1.8% in retail trade
“U.S.–Mexico Integration and Regional Economies: Evidence from Border-City Pairs“
Gordon H. Hanson
Journal of Urban Economics, 2001
U.S.-Mexico Border Crossings
− Besides heavy trade flows, the U.S.-Mexico border is
the busiest border in the world.
− In 2007, almost 220 million people crossed from
Mexico to the U.S. while only 62 million people
came from Canada (non-commercial crossings)
− This means that almost one-million people cross the
U.S.-Mexico border on a daily basis (northbound)
− Along the U.S.-Mexico border, Texas receives the
most visitors 107 million, California 76 million,
Arizona 32 million, and New Mexico 3 million
U.S. Running Surplus in
Cross-Border Shopping
6-mo. Moving Average
Balance in millions of Dollars
REX, Index, 1990=100
300
160
Exchange Rate
250
140
200
120
150
100
100
80
50
60
0
40
-50
20
U.S. Cross-Border Shopper Balance
-100
0
1982
Source: Banco de Mexico
1987
1992
1997
2002
2007
Mexican Nationals Impact Texas Border Retail Sales
Share of Total Retail Sales,
Average 1978-2001
60
53.3
51.1
50
Basic Model
Econometric Model
40
35.6
31.7
30
24.4
25.7
20
13.7
11.3
10
0
Brownsville
El Paso
Source: Federal Reserve Bank of Dallas
Laredo
McAllen
Cross-Border Retail in Arizona
- Direct spending by Mexican visitors to Arizona
totaled $963 million in 2001. With ripple effects, the
economic impact rose to nearly $1.6 billion.
- The visitors came mostly from the adjacent Mexican
state of Sonora, and 86 percent of the Mexican
spending took place in the Arizona border counties of
Pima, Santa Cruz, Yuma and Cochise.
- 72% shopping, 14% work, 8% family visits.
The Economic Impacts of Mexican Visitors to Arizona: 2001
by Alberta H. Charney and Vera K. Pavlakovich-Kochi,
University of Arizona, Research Study, July 2002.
Cross-Border Retail in California
- Mexican nationals’ total impact at about $4.5 billion,
supporting 67,000 jobs.
- Jobs tied to cross-border retail trade account for a
large portion of employment in some areas—39% in
California’s Imperial County and 3% in San Diego
The Economic Impact of Mexican Visitors Along the U.S.-Mexico Border: A Research Synthesis
by Suad Ghaddar, and Cynthia J. Brown
Center for Border Economic Studies, University of Texas–Pan American,
December 2005
.
Economic Concentration in Border Cities
Texas Border Cities
Eagle
Brownsville McAllen Laredo Del Rio Pass Presidio El Paso
Mining
*
*
Retail trade
*
*
*
*
*
Transportation and
warehousing
*
*
*
*
*
Health care and social
assistance
*
*
*
*
Accommodation and
food services
*
Government
*
*
*
*
*
*
*
*
*
*
*
*
Economic Concentration in Border Cities
New Mexico
Border
Las Cruces
Forestry, fishing, related
activities
*
Construction
*
Arizona Border
California Border
Douglas Nogales SLRC Calexico
San Diego
*
*
*
*
Wholesale trade
*
Retail trade
*
*
*
*
Information
*
Real estate and rental and leasing
*
Health care and social assistance
*
Accommodation and food
services
*
*
*
Government
*
*
*
*
*
*
*
Outlook for the U.S. economy
Real GDP
(%)
Previous
New
Quarterly data:
2009:Q2
-1.8
-1.5
Q3
1.0
0.4
Q4
1.8
1.7
2010:Q1
2.4
2.2
Q2
N.A.
2.9
Annual average data:
2009
-2.0
-2.8
2010
2.2
2.0
2011
N.A.
2.7
2012
N.A.
3.0
Unemploment Rate
(%)
Previous
New
Payrolls
(000s/month)
Previous
New
8.3
8.7
8.9
9.0
N.A.
9.1
9.6
9.8
9.8
9.7
-311.2
-202.1
-43.0
38.7
N.A.
-521.5
-282.5
-104.7
19.9
103.2
8.4
8.8
N.A.
N.A.
9.1
9.6
8.7
7.7
-328.4
6.2
N.A.
N.A.
-422.6
-13.9
N.A.
N.A.
Source: Survey of Professional Forecasters, Second Quarter 2009, Federal Reserve Bank of Philadelphia,
released on May 15, 2009.
Outlook for the Mexican economy
2009 GDP
Forecast (%)
2010 GDP
Forecast (%)
SCHP (Hacienda)
-5.5
n.a.
Banxico (6/1/09)
-5.82
2.09
Banamex (6/1/09)
-6.2
3.0
Bancomer (4/29/09)
-3.8 – -4.8
1.1
IMF (5/1/09)
-3.7
1.0
Outlook for The Border
• Peso remains weak (33 percent depreciation) – hard
to predict changes. Cross-border retail sector
negatively impacted.
• Mexico and Texas expected to weaken further and
U.S. remain in decline through first half of 2009.
• Border’s Economy Chilled by U.S. and Mexico
Recession
Outlook for The Border
• Maquiladoras are weak due to U.S. and world
economies – autos having a particularly
significant impact.
• Reduced trade impacting border trade and
transportation jobs.
• Health care and government sectors might help
cushion the recent downturn
• Long-term outlook is still good.
Border Economy:
Not Immune to U.S. Pain
Jesus Canas
Federal Reserve Bank of Dallas
El Paso Branch
NALCAB Border Community & Econ Dev Summit
July 17, 2009
El Paso, Texas
Disclaimer: 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.
Has this relationship changed?
Mexican Maquiladora Imports by Country of Origin
Percent
100
90.2
90
80
70
60
79.2
2000
2001
2002
2003
2004
2005 Q1
70.8 69.1
59.0
55.8
50
40
30
22.5
20
10
24.6
26.5
19.7
16.5
8.3
7.7
0.9 2.1
11.1 10.6
4.2
3.0
1.2 2.2 2.6
0
U.S.
Asia without China
China
Source: Federal Reserve Bank of Dallas, El Paso Branch with data from Banco de Mexico
Other
5.3
7.2