u.s.-mexico economic update: where are we headed?
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U.S.-Mexico Economic Update: Where are we headed?
Roberto CoronadoAssistant Vice President in Charge and Sr. EconomistMay 17, 2013
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. Any secondary distribution of this
material is strictly prohibited. May be quoted with appropriate attribution to the author.
Today’s agenda U.S. economic update Mexico’s economic update Trade between the U.S. and Mexico Texas-Mexico border economy in
transition Future of manufacturing in Mexico Concluding remarks
U.S. recovery continues to be modest
3.8
2.6
0.70.5 0.5
-0.5
2.1
1.5
1.0
0.1-0.3
-0.2
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Real GDP PCE Non-Residential ResidentialInvestment
Government Net Exports
Three prior recoveries This recovery (2009 Q3-2013 Q1)
-1.6
-1.1
0.3
-0.4-0.8
0.4
Average contribution to real GDP growth over 15 quarters
Source: HAVER Analytics
What do we mean by a sluggish recovery?
2.7
2.3
2.5
1.3
2.7
2.0
1.3
3.1
0.4
2.5
1.7
2.5
2.8
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2009: H2 2010: H1 2010: H2 2011: H1 2011: H2 2012: Q1 2012: Q2 2012: Q3 2012: Q4 2013: Q1 2013:Q2 2013: H2 2014
Source: Bureau of Economic Analysis, Haver Analytics, Blue Chip Economic Indicators
% change, annualized
Forecast
2013: H1 Avg. 2.1
GDP growth: two steps forward, one step backward
-1000
-800
-600
-400
-200
0
200
400
600
03 04 05 06 07 08 09 10 11 12 13
April165K 212K
Thousands (SA)
3-month MA
∆ in Payrolls
Source: Bureau of Labor Statistics
Payroll employment continues to improve
0
2
4
6
8
10
12
Source:Bureau of Labor Statistics
Percent
April 2013: 7.5
Unemployment rate is coming down
80
85
90
95
100
105
Source: Board of Governors, Federal Reserve System
Index: Jan 2007=100, S.A.
20%
6%
U.S. manufacturing recovery gaining momentum
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ISM Manufacturing Index
ISM Manufacturing: New Orders Index
SA, 50+ = Increasing
Source: Institute of Supply Management
Increasing
Decreasing
Is manufacturing picking up?
8
10
12
14
16
18
20
2006 2007 2008 2009 2010 2011 2012 2013
Million Units, SAAR
Source: Bureau of Economic Analysis/HAVER Analytics
Cash for ClunkersTsunami disrupts auto output
in Japan and the US
April=14.9
Vehicle sales continue to improve
What about the rest of the economy
Housing has bottomed down. Recovery gaining momentum.
Consumer spending has picked up. However, consumer sentiment still low.
Inflation in the comfort zone. The big elephant in the room:
Uncertainty
Mexico’s recovery has moderated
5.2
4.23.6
2.5
4.8
-6.2
5.5
7.2
5.0
3.6
6.0
-0.9
0.1
1.4
4.03.2
5.1
3.2
1.2
-6.0
5.3
3.9 3.9
-8
-6
-4
-2
0
2
4
6
8
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
GDP growth, Percent
Source: Instituto Nacional de Estadistica Geografia e Informatica.
Mexico’s economy is moderating
103
108
113
118
123
128
133
138
143
2007 2008 2009 2010 2011 2012 2013
IGAE Total
IndustrialProduction
Services
Source: INEGI.
Index, 2003=100, S.A.
Expansion is broad-based
What is driving the strong recovery?
1. External sector– Mexico tapped into the strong growth of emerging
economies, around 20% of its exports go to EM– U.S exports have also grown, specially autos
2. Internal sector– Formal employment posted strong gains– Healthy banking system– Jobs + Lending = Strong consumption
3. Capital flows– FDI bouncing back after the “Great recession”– Portfolio investment taking the lead
Non-U.S. Mexico’s exports in the lead
0
50
100
150
200
250
300
350
400
450
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Banco de Mexico
Exports_US
Exports
Exports_ROW
Index Jan 2000= 100, real, s.a.
79%
21%
Exports U.S. Exports ROW
What is driving the strong recovery?
1. External sector– Mexico tapped into the strong growth of emerging
economies, around 20% of its exports go to EM– U.S exports have also grown, specially autos
2. Internal sector– Formal employment posted strong gains– Healthy banking system– Jobs + Lending = Strong consumption
3. Capital flows– FDI bouncing back after the “Great recession”– Portfolio investment taking the lead
Growth in Mexico’s formal employment
-15
-10
-5
0
5
10
2007 2008 2009 2010 2011 2012 2013
Total Employment, S.A, Annualized Percentage
Source: STPS
40
60
80
100
120
140
160
180
200
2005 2006 2007 2008 2009 2010 2011 2012 2013
Consumption
Mortgage
Commercial
Total Private Sector
Real, Index 2007=100
Source: Banco de Mexico
Lending has returned to pre-crisis levels
90
100
110
120
130
140
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Instituto Nacional de Estadística Geografía e Informática
(Index, January 2000=100, real,s.a.)Retail sales
What is driving the strong recovery?
1. External sector– Mexico tapped into the strong growth of emerging
economies, around 20% of its exports go to EM– U.S exports have also grown, specially autos
2. Internal sector– Formal employment posted strong gains– Healthy banking system– Jobs + Lending = Strong consumption
3. Capital flows– FDI bouncing back after the “Great recession”– Portfolio investment taking the lead
-20
-10
0
10
20
30
40
50
60
70
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Foreign Direct Investment Foreign Portfolio Investment
Source: Banco de México/HAVER Analytics
Billions
Capital inflows making a strong comeback: portfolio investment
taking the lead
Outlook for the Mexican economy
2013 GDP Forecast (%)
2014 GDP Forecast (%)
Banxico (4/13) 3.4 3.9Banamex (3/13) 3.6 3.8Bancomer (5/13) 3.1 3.1
IMF (4/13) 3.4 3.4Blue Chip (5/13) 3.4 4.1UTEP BRMP
(Q1/13) 3.5 3.9
Trade is the main catalyst for U.S.-Mexico economic integration
40
50
60
70
80
90
100
110
120
130
140
1992 1996 2000 2004 2008 2012
Index, 2005=1003MMA
Source: CBP Netherlands Bureau for Economic Policy Analysis
Pre-crisis peak
Last observationFeb. 2013
Title in here
World trade now exceeds pre-crisis peak…
3.6
3.8
4
4.2
4.4
4.6
4.8
5
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Last observation Feb. 2013
Pre-crisis peak April 2008
Log Index, 2005=100
26% Below 1992 - 2007
trend
Source: CBP Netherlands Bureau for Economic Policy Analysis
Title in here
…but still below 1992-2007 trend
U.S.-Mexico trade
Source: Census Bureau/Haver Analytics
0
50
100
150
200
250
300
350
400
45019
7419
7519
7619
7719
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
13
Bill
ions
of D
olla
rs, R
eal,
SA, 3
m-m
-a
U.S.-Mexico trade
0
50
100
150
200
250
300
350
400
450
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Bill
ions
of D
olla
rs, R
eal,
SA, 3
m-m
-a
3.16% above trend
Source: Census Bureau/Haver Analytics
U.S.-Mexico trade • Mexico is the third most important trading
partner for the U.S.• In 2012, Total trade with Canada almost
reached $616 billion, with China $536 and with Mexico $493
• For Arizona, California, New Mexico and Texas, Mexico is a key trading partner:
• Arizona ---- $6.3 billion (34%)• California ---- $26.3 billion (16%)• New Mexico ---- $0.6 billion (21%)• Texas ---- $94.8 billion (36%)
How are the U.S.—Mexican industrial sectors linked?
• 18% of U.S. exports go to Mexico• 72% of U.S. exports to Mexico are
industrial products• 8% of U.S. imports are from Mexico• 90% of these imports are industrial• Maquiladoras are a major vehicle for this
cross-border movement of industrial goods
U.S.-Mexico total trade by sector
Sector 1996 (Billions)
2012(Billions) % change
Petroleum 7.9 60.6 667%Road Vehicles 19.6 73.4 274%Electrical Machinery 20.9 50.0 139%Telecommunications 9.5 38.8 308%Office /Automatic Data Processing
5.6 30.4 443%
General Industrial Machinery
4.7 24.2 415%
Power-Generated Machinery
4.8 18.2 279%
Total Trade U.S.-Mexico 131.1 494.0 277%Source: U.S. Census Bureau
Trade by port of entry
Source: U.S. Department of Commerce Bureau of the Census, Foreign Trade Division
Texas ports 2012 $ Billions
2012 % of Texas total
Brownsville-Cameron 15.39 3.73%Del Rio 4.14 1.00%Eagle Pass 21.65 5.25%Laredo 168.79 40.91%Hidalgo/Pharr 26.84 6.51%Rio Grande City 0.27 0.07%Progreso 0.38 0.09%Roma 0.05 0.01%El Paso 66.85 16.20%Presidio 0.50 0.12%Texas 412.57
Texas–Mexico border synchronization
Laredo-Nuevo Laredo
El Paso-Ciudad Juarez
-0.1
-0.05
0
0.05
0.1
0.15
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Maq
uila
dora
Val
ue A
dded
U.S
. bor
der C
ity E
mpl
oym
ent Laredo-Nuevo Laredo
Maquiladora Value Added U.S. Border City Employment
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
0.04
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Maq
uila
dora
Val
ue A
dded
U.S
. bor
der C
ity E
mpl
oym
ent El Paso-Ciudad Juarez
Maquiladora Value Added U.S. Border City Employment
Mc Allen-Reynosa
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Maq
uila
dora
Val
ue A
dded
U.S
. bor
der C
ity E
mpl
oym
ent Mc Allen-Reynosa
Maquiladora Value Added U.S. Border City Employment
-0.01
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Maq
uila
dora
Val
ue A
dded
U.S
. bor
der C
ity E
mpl
oym
ent Brownsville-Matamoros
Maquiladora Value Added U.S. Border City Employment
Brownsville-Matamoros
Notes: Charts show nonfarm employment annual growth rates (left-axis) for U.S. border cities and maquiladora value-added annual growth rates (right-axis) for Mexican border cities, for the period 2000-2006.Sources: U.S. Bureau of Labor Statistics and Instituto Nacional de Estadistica Geografia e Informatica.
Piedras Negras- Eagle Pass
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.419
91
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Maq
uila
dora
Val
ue A
dded
U.S
. bor
der C
ity E
mpl
oym
ent
Eagle Pass-Piedras Negras
Maquiladora Value Added U.S. Border City EmploymentNotes: Charts show nonfarm employment annual growth rates (left-axis) for U.S. border cities and maquiladora value-added annual growth rates (right-axis) for Mexican border cities, for the period 2000-2006.Sources: U.S. Bureau of Labor Statistics and Instituto Nacional de Estadistica Geografia e Informatica.
Maquiladoras impact by border city
• 10 percent increase in maquiladora output leads to an increase in the adjacent U.S. city as follows:− 2.8 percent increase in total employment in El Paso− 4.6 percent increase in total employment in Laredo− 2.2 percent increase in total employment in
Brownsville− 6.6 percent increase in total employment in McAllen− 3.9 percent increase in total employment in Eagle
Pass
Title in here
Maquiladoras are quite important for Texas border
citiesEstimation method: IV El Paso Del Rio
Eagle Pass Laredo McAllen Brownsville
City Level 2.77* -1.23 3.90* 4.62 6.58* 2.21
Construction 0.20 -1.47 0.99 3.19 4.04* 1.29*Manufacturing -1.28 -6.85 1.63 1.02 1.64 0.66Transportation 5.30* 2.16 11.4* 7.21* 6.63* 4.6*Wholesale 0.43 33.92 30.88 1.96 4.01* 0.84Retail 1.31 -6.46 4.06* 0.66 3.21* 1.34*FIRE 2.12* -4.34 3.99* 8.23* 4.63* 0.64Services 1.84* n.a. n.a. 5.93* 7.38* 3.89*Notes: This table shows elasticity estimates. That is the table shows the percentage increase in local employment from a 10 percent increase in maquiladora production for each Texas Border Cities. * indicates significant at the 10% level. Source: J. Cañas, R. Coronado, R. Gilmer, E. Saucedo (2011) “The Impact of Maquiladoras on U.S. Border Cities”, Federal Reserve Bank of Dallas, working paper.
Texas-Mexico border economy in transition
Border economy in transition• Employment migrating from manufacturing to
services
• Per capita income closing gap with national levels
1990Mfg.
2011Mfg.
1990Services
2011Services
El Paso 20% 6% 73% 85%
Laredo 4% 1% 86% 91%
McAllen 14% 3% 74% 87%
Brownsville 16% 4% 76% 88%
Eagle Pass 17% 4% 72% 81%
Source: Bureau of Economic Analysis
Per capita income in El Paso and other Texas border cities, 1969-2010
(As a share of the US level)
30
35
40
45
50
55
60
65
70
75
30
35
40
45
50
55
60
65
70
75
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: Bureau of Economic Analysis
%
Brownsville-Harlingen El Paso Eagle Pass Laredo McAllen- Edinburg- Mission
Percentage-point contribution to border-city earnings growth by selected industries, 2001-2010
Brownsville El Paso Laredo McAllen US
Manufacturing -6.9 -10.3 -0.8 -4.4 -7.3
Health Care 8.8 2.7 5.3 11.2 4.6
Retail -0.3 -1.2 -1.2 0.2 -1.6
Cross-Border Trade 6.5 7.8 1.5 5.6 5.2
Transportation 0.1 0.3 -2.5 0.7 -0.2
Services 6.0 6.5 2.7 4.8 5.1
Federal Civilian 0.4 1.1 1.3 0.1 0.3
Total Earnings 5.0 4.4 4.9 6.8 2.7Source: Crossroads Issue 2: July 2012; Federal Reserve Bank of Dallas, El Paso Branch
Future of manufacturing in Mexico
Future of Mexico’s manufacturing
• Mexico has undergone a severe transformation in manufacturing and exports since 2001.
• Today, Mexico is a key player in global manufacturing.
• However, there are plenty of challenges ahead.
China’s manufacturing wages are growing faster than
Mexico, but…
0
50
100
150
200
250
300
350
2002 2003 2004 2005 2006 2007 2008 2009 2010
Mexico
China
Eastern Europe
Index, 2002=100
Source: Bureau of Labor Statistics and author’s calculations
Mexico’s manufacturing compensation still higher than
China
0
2
4
6
8
10
12
2002 2003 2004 2005 2006 2007 2008 2009 2010
Mexico
China
Eastern Europe
$1.7
$9.3
$6.2
$/hour
Source: Bureau of Labor Statistics and author’s calculations
But manufacturing productivity is growing in Mexico
90
95
100
105
110
115
120
125
2007 2008 2009 2010 2011 2012
Index, January 2007=100SA, real
Source: INEGI and author’s calculations
Mexico auto exports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Mill
ions
Source: Asociación Mexicana de la Industria Automotriz, A.C.
Millions of units, SAAR, 3-mo moving avg.
68.1%0.9%
16.5%
0.8%6.4%
1.1% 6.3%North AmericaCentral America and CarribeanSouth AmericaAsiaEuropeAfricaNot Specified
Mexico gains ground in North America light vehicle production
Source: Thomas H. Klier, Federal Reserve Bank of Chicago, with data from Ward’s Automotive Group.
Mexico becomes largest source country of U.S. motor vehicle parts
Source: Thomas H. Klier, Federal Reserve Bank of Chicago, with data from International Trade Commission.
Mexico
Mexico is closing the gap with China
0%
5%
10%
15%
20%
25%
Mexico
Canada
China
Source: U.S. Census Bureau 2013* Year to date
9
10
11
12
13
14
15
16
**
Source: Banco de Mexico
May 13: $12.14
2013: $12.3
2014: $12.27
Exchange rate
Exchange rate forecast
2013 Forecast
2014 Forecast
Banxico (4/13) 12.19 12.19Scotiabank (4/13) 12.44 12.51Banamex (5/13) 12.12 11.99Blue Chip (5/13) 12.30 12.27UTEP BRMP
(Q1/13) 12.56 12.75
Concluding remarks• The U.S. economy is coming out of the
worst recession in decades, slow recovery.
• The shape of Mexico’s recovery going forward depends on the U.S. industrial sector.
• Strong domestic market has fueled Mexico’s recovery.
• Mexico now plays a critical role in the North American auto sector.
• The U.S. auto sector is expected to continue to grow and this should be good news to the trade flows between the U.S. and Mexico.
U.S.-Mexico Economic Update: Where are we headed?
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. Any secondary distribution of this
material is strictly prohibited. May be quoted with appropriate attribution to the author.
Roberto Coronadoroberto.coronado@dal.frb.org
915.521.5235
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