• Home ::
• Fundamental ::
• Market View

• Send
• Print
• Add To

Texas Trends

Moderation of growth for the short run

Thu, May 31 2007, 09:22 GMT
by Rae Anne Dodds

BBVA Bancomer

• Data points to sharper moderation for 2007 GDP growth
• Weak exports & industrial production cause drag
• Texas will see GDP rebound in 2008

The falling leading indicator signals GDP moderation. The indicator has been declining since October 2006 and moved into a negative year over year (YoY) growth rate in February. The last time a negative YoY growth rate occurred (11/2000), personal income and labor growth slowed from 8.50% (2000) to 2.71% (2001) and 2.15% (2000) to 0.16% (2001), respectively. We do not predict as severe of a decline since a stronger US economy and stronger Texas fundamentals in the housing and energy sector exist today compared to 2000. Nonetheless, we do expect a slowing from the 2006 growth.

Two other indications of pending moderation stem from industrial production and trade. Texas industrial production YoY growth rate is declining towards the US 2007 average (3.4%), while exports to Texas’s main trading partners, Mexico and Canada, have flattened. Trade with Mexico decreased in 1Q07 YoY by 3.6%. This trend will likely continue because of the forecasted slowing of US 2007 GDP. (Mexico’s GDP moves in tandem with US GDP.) However, our 2008 forecast expects US GDP growth to rebound and US industrial production has accelerated the past three months. The US production index typically leads the TX by approximately six months, so the moderating influences of production and exports will likely be transitory.

Nonfarm payroll YoY growth has slowed from the 2006 average (3.0%), another signal of GDP moderation from 2006. However, payroll growth is still above the US trend. Moreover, recent unemployment numbers put positive pressure on future personal income and consumption. The unemployment rate fell from 4.3% (March) to 4.2% (April) indicating continuing labor tightness. Thus slowing payroll growth indicates moderation from the 2006 GDP rate, but the payroll growth and the low unemployment rate will aide future GDP rebounding.

Two positive aspects within the Texas economy, again suggesting brief growth moderation, are the healthy housing and energy sector. New residential construction is slowing within a yearly perspective, but the monthly perspective reveals some recovery. We expect to see existing home sales increase by 4.1% in 2007, below the 2006 rate (11%). This is a deceleration from recent numbers but above the US trend, consequently Texas home demand should remain relatively strong. The energy sector has also maintained relative strength with an upturn in the petrochemical sector and continued YoY expansion of the oil and gas production index equal to 8.8%.

Our expected Texas GDP moderation will be milder than the national average but short-lived, similar to the brief US moderation.

• Download full Texas Trends

Published on  Thu, May 31 2007, 09:22 GMT

Texas Trends

Tue, Mar 27 2007, 10:02 GMT
by Javier Amador, Nathaniel Karp

BBVA Bancomer

Recent data confirms our expectation of a more moderate rate of economic growth

• As we have forecasted, recent indicators suggest the economy is slowing from its rapid pace in 2005 and H106
• Moderate job creation and firm real personal income gains will support private consumption. Exports and industrial production growth will likely remain solid
• Although we maintain our 2007 GDP forecast of 3.6%, downside risks have increased

The latest economic indicators are consistent with a slowdown in activity and suggest that the economy has downshifted to a more moderate rate of growth. Dallas Fed estimates of job growth indicate that nonfarm employment grew 3.5% saar in the first half of 2006 but slowed to a 2.3% pace in the second half. In January 2007 employment remained flat; we estimate job creation will slow in 2007 to a still solid 1.8% pace. Notwithstanding these trends, the unemployment rate dropped to 4.5% in January, which indicates that the labor market remains tight, particularly in high-skilled occupations and the energy sector. The latter along with solid gains in underlying productivity and lower inflation –as energy prices level off in 2007– will result in solid real personal income growth.

Although new residential construction has slowed sharply in recent months – single-family permits decreased 14.7% in the 3 months ended in January 2007–, the most recent home sales data indicates that home demand remains firm. Solid fundamentals: favorable demographics, strong growth of real personal income, and low cost of borrowing, will support the housing sector. We continue to forecast existing home sales to increase 4.1% in 2007. Although Texas exports have slowed down, they remain solid and growth continues to be broad-based. The main drivers, chemicals, petroleum and coal products, and machinery are likely to keep growing steadily, while computers and transportation exports are moderating and will likely continue doing so, led mainly by a weakened demand from Mexico and Canada. We expect industrial production to grow around 3.5% in 2007 as domestic demand slows down.

Recent data is consistent with our expectation of a gradual economic slowdown, and while moderation will be milder than national average, downside risks have increased. We continue to judge that the biggest downside risk is a sharper deceleration in US overall economic activity, with significant second-round effects on world demand and the energy sector. We maintain our base scenario of 3.6% GDP growth for 2007, still almost 1pp above the nation’s pace.

• Download full Texas Trends

Published on  Tue, Mar 27 2007, 10:02 GMT

Archive

• Moderation of growth for the short run
  Published On Thu, May 31 2007, 09:22 GMT
• Texas Trends
  Published On Tue, Mar 27 2007, 10:02 GMT

[ View All ]

• More Reports from this Contributor

BBVA Bancomer  | Av. Universidad 1200 Col. Xoco México 03339 D.F.
http://www.bancomer.com/economica | e.economicos@bbva.bancomer.com