El Paso’s economy has been performing well this year even as predictions of a national recession continue and inflation and rising interest rates wreak havoc with prices and consumers’ pocketbooks.
But the local economy’s growth is decelerating, in large part due to recent interest-rate increases imposed by Federal Reserve System officials, said Tom Fullerton, an economics professor at the University of Texas at El Paso. The slowdown is likely to get worse in 2023 because at least two more interest-rate hikes appear to be coming, he said.
To get a better understanding of what’s happening in the local economy, the El Paso Times looked at El Paso job growth along with several important sectors of the economy. Here are the snapshots:
This is the year company expansions began happening again in El Paso on a more regular basis as the economy continues to emerge from the pandemic and companies look to grow again.
Several companies have opened new facilities in El Paso this year, or have announced plans for new operations, with hundreds of new jobs. Companies also have added new factories across the border in Juárez.
Call center operators Spectrum, TransPerfect and Avantive Solutions opened new facilities in El Paso this year; manufacturer Schneider Electric is close to completing a new factory here, while manufacturer Novipax recently announced plans for a new El Paso factory. Technology companies FinHabits and SumUp opened new operations with modest job numbers.
“For a variety of reasons, I am very bullish on the next 12 to 24 months based on the activity that we are seeing coming through the Borderplex Alliance,” said Jon Barela, CEO of the regional economic development organization. “We’re at record levels of activities for vetted projects.”
On the opposite side, not many job layoffs have been announced.
Food City, a small El Paso supermarket chain, and the tiny Quickie broom factory laid off people this year, and El Paso consumer products company Helen of Troy announced a restructuring that includes an unspecified number of job cuts.
More: El Paso’s Helen of Troy reducing workforce as part of cost-cutting restructuring plan
El Paso’s annual job growth rate went from negative 1.3% in January to a positive 2.2% in June, Federal Reserve Bank of Dallas data show. It slowed to 1.4% in October, the latest data available.
El Paso’s unemployment rate declined from 5.3% in October 2021 to 4.4% this October, the latest data available.
Even with the unemployment rate above national and state levels, many El Paso-area employers continue to struggle to fill jobs, especially in the restaurant and retail sector where wages tend to be lower than in other sectors.
El Paso County had an average 13,903 job openings per month from January through November, show data from Workforce Solutions Borderplex, this area’s public employment agency. That’s just below the average 14,126 openings per month in the same 11 months in 2021.
However, job growth is slowing because the El Paso economy is slowing, said UTEP economics professor Tom Fullerton, who follows the local economy closely.
“I wouldn’t be surprised if it (job growth) slows down some more,” Fullerton said.
Niel Campbell is breathing a sigh of relief as increasing interest rates bring a slowdown to new home construction, which was at a hectic pace in the past two, pandemic-influenced years.
“It was crazy there for a while. We we’re starting a lot of homes every month, and they were presales. Now, we are slowing that cadence a bit” as the inventory of new homes begins to increase a bit, said Campbell, Rio Grande Division president for Hakes Brothers, a large homebuilder in the El Paso-Las Cruces area.
“For a while there we (the housing industry) were really out of control in terms of pricing. These (higher) interest rates have cooled things off and slowed things down,” he said. “I’m grateful for the change in the market because it needed to happen.”
Home mortgage loan rates are hovering around 7%, around double the 3%-plus rates in January.
So, what’s this mean for homebuyers?
Well, new homes are becoming more readily available, but interest rates are keeping more people out of the market, Campbell said. And home prices, which skyrocketed in the past two years, aren’t likely to go down much, he predicted.
UTEP economists predict in a recent report that this area’s “2023 housing market will still be characterized by fairly tight supplies, which may prevent prices from declining very sharply.”
Ray Adauto, executive vice president of the El Paso Association of Builders, the local homebuilders group, said residential building permits are down, especially inside El Paso city limits, where, he said, permitting and other costs are higher than outside the city.
“The industry is good, but restrained because we don’t know what the next six months will bring,” Adauto said.
An estimated 9,000 people work in the El Paso home construction industry, making it one of the area’s large industries, he noted.
Jackie York, a longtime El Paso real estate agent, and president of the Greater El Paso Association of Realtors, said home sales still are good even though sales have decreased in recent months. The 624 homes reported sold in November is almost 30% less than this year’s peak sales month in August when 885 homes were sold, association data show. But prices keep increasing.
People still are buying, but adapting to higher interest rates by going for lower-priced homes, York said.
One problem with that is it’s often difficult to find El Paso homes priced below $250,000, she said.
It was not unusual to go to new car dealerships during the pandemic and find few or no new cars on El Paso dealership lots.
That’s changing in recent months as dealerships begin to build some new-car inventory as supply-chain issues improve.
“Prior to the pandemic, it would be normal to have around 500 new Fords in stock. Today (late November), we have 98, which is still not enough, but much better than zero,” which some of Casa’s dealerships had at certain times, said Ronnie Lowenfield, CEO of the Casa Auto Group, one of the area’s largest new car dealers.
Pre-ordering vehicles is still a common way for buyers to make new car purchases in the pandemic-altered auto world.
New and used car sales combined are up 15% this year at the Casa dealerships, Lowenfield said. But new car sales have been slightly down at Ford, Nissan and Kia, while sales increased at Buick GMC, he said.
“The primary reason (for sales declines) is that we just couldn’t get the inventory; demand continued to outpace supply,” he said. “Used car sales helped, although that market has been very volatile.”
Nationwide, new car sales are projected to be almost 9% below 2021 levels, largely due to historically low inventories, but as car inventory levels increase, 2023 is expected to be better, according to a recent forecast from Cox Automotive, an auto research firm that publishes the Kelly Blue Book, a car-price guide.
Domestic car brands tend to have larger inventories than Asian brands, Cox reported.
Nationally, the average price of new, nonluxury vehicles is more than $44,000 and for new, luxury vehicles the average price is more than $66,000, according to Kelly Blue Book data.
“Inventory is improving, but prices remain stubbornly high” and automakers and car dealers continue to hold back on purchase incentives, Rebecca Rydzewski, a research manager for Cox Automotive, said in a recent news release.
Loan interest rates also have increased, which hurts sales, said Alfred Alvarado, Casa Ford general manager and president of the El Paso New Car Dealers Association. But he’s optimistic about the coming year.
Sales have been good, but “with more inventory you would think there’d be more sales,” he said. However, Alvarado and others in the industry said new car inventories aren’t likely to ever return to pre-pandemic levels.
Lowenfield also expects increased sales next year. However, if a national recession hits, demand likely would be hurt as was the case in 2008 and 2009, he said.
“But we (auto dealers) are a resilient bunch,” he said.
Supply chain problems and other pandemic-related issues are helping attract more manufacturers and distribution facilities to the El Paso-Juárez area, those in the industry said.
“It’s our day, it’s El Paso’s day, it’s Juárez’s day. And it’s pretty remarkable,” said Alan Russell, co-founder and CEO of The Tecma Group of Companies, a large El Paso company operating factories, or maquiladoras, in Mexico for a variety of companies. It now operates about 80 factories in Mexico (38 in Juárez), which is about 30% more than two years ago, he said.
“I don’t care if you’re from China, from the U.K., from France, or Taiwan, or Pennsylvania; you’re all trying to better yourself in the supply chain. And that all points to El Paso-Juárez. We’ve never seen the kind of activity we have now, with companies trying to align themselves into this space.”
It’s also brought a boom to construction of warehouse and distribution buildings in El Paso.
“I see this continuing for the next couple of decades. It’s a global realignment,” Russell said.
Pandemic-related problems are helping boost sales at Keats Southwest, an East El Paso metal-stamping plant producing millions of small metal parts, mostly for factories in Mexico
“We are in a growth spurt, there’s no doubt. We are getting a lot of opportunities, a lot of looks, and a lot of action because of what happened in China (supply chain problems) and all that stuff,” said Matt Keats, company co-owner and president.
Companies are looking for new suppliers and some small metal stamping companies didn’t survive the pandemic, bringing more business to other companies, Keats said. Also, some big manufacturers are outsourcing more component work rather than doing everything in-house, he said.
That’s why Schneider Electric, a huge manufacturer of electrical products, is looking to bring more business to Keats Southwest as it looks to shut down its metal-stamping operations in Nebraska, Keats said.
One area that has grown for Keats is the electrical components business, which now makes up 30% to 40% of his company’s sales, he said.
Schneider is in the process of expanding its large, El Paso manufacturing campus, but Keats doesn’t know if any of his parts go to the El Paso plants.
If a recession comes, it will hurt some industries, such as automotive, Keats said, but his company has a diversified mix of customers in different sectors that would help dull the recessionary effects, he said.
“We’d feel it (recession), but it won’t kill us.” Keats said.
About half the factories in Juárez are related to the automotive industry, the Federal Reserve Bank of Dallas reported.
El Paso small businesses are doing OK, but not great.
That’s the assessment of Cindy Ramos-Davidson, CEO of the El Paso Hispanic Chamber of Commerce, whose membership is mostly made up of small businesses.
The small business sector still is recovering from the pandemic, which forced many businesses, especially restaurants, to close, she said. Many day care centers also went out of business, she said.
The number of El Paso-area small businesses open decreased 9.7% from January 2020, just before the pandemic began, to February 2022, based on businesses’ financial transaction activity, according to the latest data available from Opportunity Insights, a Harvard research organization. The number of businesses that closed was not reported.
Even as businesses close, more people are looking at starting a business. The chamber has seen a 15% increase in people seeking assistance in starting a business this year. How many of those people actually start a business is not known, Ramos-Davidson said.
The good news is 50% of small businesses recently surveyed by the chamber reported a 13% increase in sales this year compared with last year. However, the other half said they had no increase.
More than half the businesses surveyed reported problems tied to supply-chain issues and inflation.
Even so, 70% of business owners said they are optimistic about the economy and success of their businesses, the survey found.
Vic Kolenc may be reached at 546-6421; vkolenc@elpasotimes.com; @vickolenc on Twitter.
