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COMPTROLLER'S FORECAST
Growth in Three Areas

To offer the most accurate forecasts possible, the Comptroller prepared separate forecasts by breaking the region into three smaller semi-homogeneous areas nearly equal in population. Of the three, the Central South Texas area, including the San Antonio Metropolitan Statistical Area (MSA) and surrounding counties, has been the most populous, with 1.6 million people in 1995. Next in density, the counties south of San Antonio, including the Brownsville, McAllen, Corpus Christi, and Laredo MSAs, comprised the Lower South Texas area, with a total population of 1.5 million. Finally, the geographically sprawling Upper Rio Grande Valley contains a population of nearly 900,000 residents spread among 21 counties along the Rio Grande from El Paso to Presidio, Del Rio, and Eagle Pass (see Map A-2.1)

The border region is divided into 3 economic subregions.

Boundaries for the defined areas were developed using established state planning regions as a guideline in an effort to create regions reasonably expected to function as single labor markets. This attempt helped to ensure that economic links within each region were maximized, at least with respect to the degree to which external economic shocks can shake throughout the region in adjustments to the supply and demand for labor. The next task was divining the economic prospects for each region through 2020.


Central South Texas

The Central South Texas region, as of 1995, was both the most populated and the wealthiest of the three Border areas. Home to 40 percent of the Border region's population and boasting more than 45 percent of its jobs, the Central South region claimed more than half of the Border's $64 billion in personal income in 1995. More people were employed within this area, compared to the rest of the Border region, and wages averaged nearly 10 percent above the Border average. Consequently, the area's per-capita income of $19,900 in 1995 was 25 percent greater than the Border average and only 6.6 percent less than the state average of $21,300 (see Table A-2.1).

Buoyed by strong transportation, communications, business, and health service sectors, the Central South region's outlook through 2020 appears fairly positive. From 1995 through 2020, area employment is expected to increase an annual average of 2.3 percent, or about one-quarter point above the state average, while rising employment and wage rates are expected to push personal income higher by almost 3.4 percent a year, adjusting for inflation. Central South employment in business services should increase at an annual average rate of 4 percent, while transportation employment will likely rise 3.6 percent annually, in part because the area will benefit from international trade and build on its strength as a distribution center for Texas and the Southwest. San Antonio's growing role as a major health center is expected to add health services jobs at 3.3 percent a year. Communications jobs and construction employment--due to expanding housing, industrial, and retail demands--will both rise at 3.2 percent a year through 2020.

Although its impact on area employment is hard to quantify, the importance of San Antonio's expanding convention and tourism sector, including increasing sales to visiting Mexican shoppers, bears consideration. According to the Greater San Antonio Chamber of Commerce, visitors spent $1.6 billion and contributed $3.2 billion in economic impact to the area in 1995. 1 The growing tourism sector, combined with expenditures by local residents, is expected to more than double Central South retail sales from $34 billion in 1995 to an inflation-adjusted $78 billion by 2020.

The Central South region's manufacturing employment, evenly split between the production of non-durable and durable products, is expected to favor durable manufacturing by 2020. In 1995, almost two-thirds of non-durables employees were concentrated in food processing and apparel. By 2020, apparel employment is expected to decline somewhat because of shifting production to lower-cost parts of the world, but food processing employment will remain relatively constant, thanks to a strong Texas market for beverage, bakery, and other products. Overall, area non-durables employment will be relatively flat, at approximately 26,000 employees during this period. In contrast, the Central South region's durables industry employment is expected to increase from 26,000 to more than 36,000. Most gains will be in machinery, electronics, and construction-related industries.

Despite the area's generally robust outlook, one segment of the San Antonio economy--military expenditures--will restrain economic growth at least through 2000. Assuming that Kelly Air Force Base, with its 13,100 federal civilian employees, shuts down in 2001 as required by the Base Realignment and Closing Commission, and that a significant number of replacement private aircraft maintenance and repair positions are not created, federal civilian employment in the area is expected to drop from 37,800 in 1996 to 23,400 in 2001. The military-related job losses will shave total Central South annual job growth from approximately 3 percent in 1996 and 1997 to 2 percent in 1998 and to 1.7 percent in 1999. But annual growth will rebound to nearly 2.5 percent in 2000 and later years as gains in construction and related industries outweigh military job losses.

Just as residents enjoy relatively strong economic growth, the Central South area will continue to experience the lowest natural population increase rate in the Border region. Through 2020, the area's natural increase rate will average 0.6 percent, compared to a 1 percent rate for the Border as a whole. Even with strong net in-migration of new potential workers into the area, the Central South's unemployment rate fell from 4.4 percent in 1995 to slightly more than 4 percent in 1997. Despite projected population growth trends, the area's jobless rate will likely fall to 3.2 percent by 2020. Overall, the area's population will increase by almost 800,000, reaching 2.4 million by 2020.


Lower South Texas

Lower South Texas is the poorest and the most rapidly growing Border area. Mainly because of its proximity to Mexico, the Lower South's average wage of $20,100 per worker in 1995 was 7 percent less than the Border average of $21,700. The Lower South's extremely high birth rate, combined with the migration of adults from Mexico, has also made jobs scarce. With nearly 15 percent of its labor force out of work in 1995, Lower South Texas had the highest jobless rate of any area in the state. Low wages and rates of employment lead to relatively low incomes. In 1995, the Lower South's per-capita income of $13,200 was almost 20 percent less than the average for the Border region and nearly 40 percent less than the state average (see Table A-2.2).

Despite this generally gloomy assessment of economic conditions, the Lower South Texas economy has been booming. After experiencing declining retail sales and exports after the 1994 peso devaluation and a Mexican recession in 1995, local job growth climbed to more than 3 percent annually, and the unemployment rate declined slightly. This trend is expected to continue, although at a slowing rate, through 2020. From 1995 to 2020, Lower South employment is projected to grow at an annual 2.6 percent rate, the highest of the three Border areas, and nearly three-quarters of a percentage point greater than the state's anticipated overall growth rate of 2 percent. During the same period, increasing wage rates and transfer payments, mainly Social Security checks, will allow Lower South personal income to rise at a solid 4 percent, greater than the overall annual inflation rate.

Curiously, the same factor driving the Lower South's low incomes and high unemployment--its proximity to Mexico--is likely to account for most of its growth. From 1995 through 2020, transportation and business services, linked to growing trade, will each grow at an annual rate of more than 4 percent. Employment in health services will also increase more than 4 percent annually due to the area's fast-growing population and the increasing demand for health services. In addition, growing industrial and retail construction, along with increasing housing needs, will lift Lower South construction employment by 3.5 percent annually through 2020.

Manufacturing, which accounts for only 7 percent of area employment, remains an important sector in the area economy. Traditionally, manufacturers have located in Lower South Texas because of available labor willing to work for relatively low wages. Altogether, non-durable industries, including low-wage apparel, petroleum refining in Corpus Christi, and food processing in the Rio Grande Valley, accounted for more than 70 percent of area manufacturing employment in 1995. Subsequent layoffs of 1,340 workers by Haggar and Fruit of the Loom in the apparel industry, however, along with the shift of apparel, agricultural production, and associated food processing to Mexico, suggest that Lower South non-durables employment will be stagnant, at best, through 2020 and beyond.

In contrast, the continued attraction of automobile and other transportation-related suppliers, drawn by Mexico's fast-growing maquila industry, combined with increasing demands for offshore drilling equipment produced in Corpus Christi and Brownsville, and the growth of construction-related manufacturing, is expected to lift area durables employment by more than 2.5 percent annually from 1995 to 2020. Because of this rapid growth, durables will account for almost half of Lower South manufacturing jobs by 2020.

Largely because of its relatively high birth rate, the Lower South's population is expected to increase by more than 1 million, from 1.5 million in 1995 to 2.6 million in 2020. With its very young population, the Lower South's natural increase rate of 1.8 percent was an astonishing 80 percent greater than the state rate in 1995. Through 2020, the Lower South's natural increase rate is expected to fall to an average of 1.4 percent as the median age rises, but the excess of area births over deaths will still far outpace the rest of the Border region and the state as a whole.

This high natural increase, combined with a net in-migration rate of 0.8 percent, with many migrants coming from Mexico for jobs, will increase the Lower South's population by 2.2 percent a year from 1995 through 2020. Even with this rapidly growing population, the Lower South's economic growth will be high enough to reduce the area's jobless rate from 1995 to 2020, but unemployment will still hover at double-digit rates.


Upper Rio Grande

The Upper Rio Grande area, with an average wage of $20,300 per worker and per-capita income of $13,400 in 1995, was nearly as poor as Lower South Texas. The Upper Rio Grande's economic woes, as in Lower South Texas, were mainly linked to its proximity to Mexico. Yet, largely because of a sizable but declining apparel industry, the Upper Rio Grande is not expected to reap nearly as many benefits from the growing Mexican economy as its sister area to the south. From 1995 through 2020, area employment growth of 2.3 percent is projected to be only about one-quarter percentage point above the state rate, while area personal income growth, after adjusting for inflation, will probably only match the state annual rate of 3.4 percent (see Table A-2.3).

Major factors driving the growth of the Upper Rio Grande area are likely to be the same as in Lower South Texas. Because of increasing trade with Mexico and growing maquiladora demands, Upper Rio Grande employment in transportation and communications services will increase at 4.4 percent and 3.4 percent per year, respectively, through 2020. In addition, health and other services will also add jobs at more than 3 percent annually, driven largely by the area's growing population. Construction employment will also increase at more than 3 percent per year because of increased housing needs, as well as soaring industrial and retail construction linked to growing demands from both maquiladoras and the expected return of Mexican retail shoppers previously driven away by the peso devaluation.

With almost 20 percent of its workforce employed in manufacturing during 1995, the Upper Rio Grande was one of the most industrialized areas of Texas. Almost half of the manufacturing jobs were in apparel. With nearly 24,000 employees, the Upper Rio Grande's apparel industry was twice as big as the same industry in Lower South Texas. However, changing fashion tastes and increasing competition from Mexican and other international competitors have led to leaner times. Levi Strauss--hard hit by the popularity of "designer jeans," along with stiff world competition in the jeans market--announced in Fall 1997 that it would lay off 1,500 workers at three El Paso sewing plants. 2

Because of the layoffs and the general weakness of the apparel industry, total Upper Rio Grande apparel employment is expected to fall by almost 20 percent, reaching slightly more than 19,000 employees in 2020. Including food processing, printing, and chemicals, total non-durable manufacturing employment in the Upper Rio Grande will remain relatively constant at slightly more than 30,000 through the forecast period. Durables manufacturers, on the other hand, are expected to experience rapid growth, adding jobs at 2.5 percent a year through 2020. Major contributors to growth will include a wide range of automobile and other maquila-related suppliers as well as construction-related manufacturers benefiting from the rapid growth of the construction industry. In total, Upper Rio Grande durable manufacturing employment will likely increase from 14,500 in 1995 to nearly 27,000 in 2020, rivaling non-durables as a main source of area manufacturing jobs.

The Upper Rio Grande suffers from the same population growth problem as Lower South Texas. Because of a somewhat older population, the Upper Rio Grande's natural increase rate of 1.6 percent during 1995 slightly trailed Lower South Texas's 1.8 percent rate. Through 2020, the Upper Rio Grande's natural annual increase rate will fall somewhat, to an average of 1.2 percent as the population ages, but the area will still remain well above the state average. Because of relatively low job growth, net migration into the Upper Rio Grande will remain low, at 0.4 percent per year, less than half the rate for Lower South Texas. Overall, the Upper Rio Grande's population will increase approximately 1.6 percent annually, reaching 1.3 million in 2020. In addition, the area will experience sufficient job growth to reduce unemployment from 1995's level of 11.5 percent to a still relatively high 9.4 percent rate by 2020.

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