Published On: Thu, Feb 11th, 2016

Peso’s slide brings negative fallout to Texas as well

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The latest trouble in the oil patch has already gashed the Texas economy. Now a big drop in the buying power of the Mexican peso could deepen the wound, according to MarketWatch, a Wall Street Journal affiliate.

The peso has lost nearly 9% of its value against the dollar so far in 2016, falling to a record low despite a solidly performing Mexican economy. That means Mexican consumers and companies won’t be able to afford as many American-made goods that are suddenly more expensive.

It’s no small thing. Mexico is the second-largest destination for American exports and the biggest foreign market for Texas. More than one-third of all the state’s exported goods end up in Mexico, according to the U.S. Commerce Department.

(ILLUSTRATION: money.cnn.com)

(ILLUSTRATION: money.cnn.com)

Texas depends more on exports for growth than most other states. Texas is strategically located next to the Gulf Coast and on the border of Mexico. It’s also a major manufacturing hub and the center of the U.S. energy industry.

How much will the weaker peso hurt Texas? Hard to say, an expert on the region says.

“As oil prices drop, the peso tends to devalue at the same time that the Texas economy cools,” said Robert Dye, chief economist at Dallas-based Comerica Bank. “There still may be a direct linkage between a weak peso and a weak Texas economy, but it may be a smaller lever than oil prices.”

Cheap oil hasn’t devastated a more diversified Texas economy like it did in the 1980s, but the state has still taken a hit. Annualized growth in the first half of 2015, for example, slowed to 0.5% after a blistering 5.2% pace in 2014 that was the second fastest in the nation.

More than 1.1 million jobs in the state are tied to exports, government data show, and some of those workers have found themselves out of work. The Texas unemployment rate crept up to 4.7% at the end of 2015 from a 14-year low of 4.1% last summer.

The state’s unemployment rate had been much lower than the national average through most of the economic recovery, but now they are almost the same. The U.S. unemployment rate, which stood at 5% in December, dipped to 4.9% in January.

Higher unemployment means less spending in Texas on new homes, retail goods and the like.

Although Texas posted record sales of single-family homes last year, signs of a pullback are emerging in key hubs such as Houston. Sales in the state’s largest housing market fell slightly in 2015 after soaring 41% between 2011 to 2014, figures from the market research firm RealtyTrac show.

The weak peso could also spur Mexican-Americans in the state to send more money back across the border to help out family, “taking a little more money out of the Texas economy that might otherwise be spent here,” Dye noted.

Source: MarketWatch.com

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