Immigration and population growth are two trends that allow the Gross Domestic Product (GDP) to grow in Texas. The Lone Star State also needs more prepared workforce to attract a variety of industries and to create wealth. Recently, the President and CEO of the Federal Reserve Bank of Dallas Robert S. Kaplan visited El Paso and had a dialogue with the business community as well as with the academics and economists of the region. BORDERNOW was part of the “Conversation with Dallas Fed President Kaplan” and had the opportunity to be part of the conversation with media members after the event. These are excerpts of Mr. Kaplan’s view of the region and the future of its economy.

 

Have the tariffs had a negative impact in the region?

Most CEOs will tell you that input cost is going up. They are trying, if possible, to pass those on to the customer. If they are in the manufacturing sector, what I have been noticing is they are comfortable to pass on the increases. If they are in other sectors, such as the consumer sector, they are more skeptical about their ability to pass on the increases due to competitive pressures. It is raising input cost. It will either be passed through prices or you are going to see marginal ratios. This is one of the reasons why we are seeing most of the merger activity for companies to absorb cost and other costs on technology. In the energy sector, especially near the Permian Basin, pipeline capacity is one of the constraints to more production growth on the Permian. I have been advised by some of the people in the industry that steel and aluminum have at least raised the cost of pipeline capacity. They fear, in some cases, that these tariffs have slowed the build of pipeline capacity, which will plummet production growth. That is a comeback of the tariffs.

Do you think the USMCA will have a positive impact in the border region?

Yes. The uncertainty had some chilling effect on the willingness of CEOs to expand operations. I think the removal of this uncertainty will be helpful. Still, some details need to be worked out, but the removal of the uncertainty will be helpful.

Will this reduction of uncertainty benefit the regional or national economy?

I will say both. The reduction of uncertainty will benefit Texas and the country. There is still some uncertainty with China, but this deal reduces at least some of the uncertainty in North America. 

What other trends can help the Texas economy?

The thing about Texas that makes it different is migration. The migration trend is powerful. If the country population is slower, it is not good for Texas. But I believe this migration trend is going to be a powerful tale for the State of Texas. Population growth is critical. We don’t talk enough about this in the United States, but workforce growth is critical for GDP growth.

Texas has had this workforce growth for a period of time. What I am worried about is the rest of the country that does not show these trends. El Paso has more of a challenge of benefiting from the state’s population growth because El Paso has not been the destination that Austin, San Antonio, Houston, and Dallas have been. But the rate State population growth is going to have some spillover effect in El Paso. 

Another key to growing both the United States and Texas economies in the future is to improve workers’ education levels and job skills.

If you’re one of the 46 million that don’t have a college diploma, your job is likely to get restructured or eventually eliminated. And unless you go get re-trained, which is a lot easier to say and a lot harder to do, you’re going to find another job in a strong job market, but you’re going to see your income and productivity go way down, and that’s one reason productivity growth is sluggish.

Why is immigration important for Texas?

Part of my job is to assess the economy, make good judgements in monetary policy, and another part related to that is to share our research to elected and appointed officials locally, at the State level and nationally. We do that without political considerations and political influence both sides of the aisle. 

What we shared in our research is that we believe more skilled-based immigration approach. We think this would be beneficial to the United States. Another comment we have made is that workforce growth is an essential part of GDP growth. Our analysis shows that the workforce in this country is aging and workforce growing is slowing. So, it is likely the case immigration is going to be a piece of the puzzle to increase workforce growth.

So far, elected and appointed officials have found that analysis very useful when we share that with them. 

While Texas is growing its workforce and population, the rest of the country is not. The participation rate the percentage of 16 to 64-year-olds that are in the nation’s labor force has declined since 2007, and we believe this is due to aging demographics.

Growing the workforce is a key to future economic growth. That can be done by getting more African Americans, Hispanics, women, and former prisoners back into the workforce, and by reforming federal immigration policies.

Will interest rates go up?

What I submitted and I’m comfortable with is one more increase in December, and right now my base case for 2019 is two more increases, but that is subject to revision based on how the economy moves forward. 

My base case for 2019 is to gradually and patiently raise the federal funds rate into a range of 2.5 to 2.75% or, more likely, into a range of 2.75 to 3%.

I supported the most recent federal funds rate increase. I have been arguing that the Federal Reserve should be gradually and patiently raising the federal funds rate until we get into the range of a “neutral stance.”

Once we’ve reached that point, I intend to assess the outlook for the U.S. economy and look at a broad range of factors before deciding what further actions, if any, might then be appropriate.

What is the neutral rate?

The neutral rate is the theoretical federal funds rate at which the stance of Federal Reserve monetary policy is neither accommodative nor restrictive. It is the short-term real interest rate consistent with the economy maintaining full employment with associated price stability.

You won’t find the neutral rate quoted on your computer screen or in the financial section of the newspaper. The neutral rate is an “inferred” rate— that is, it is estimated based on various analyses and observations.

This rate is not static. It is a dynamic rate that varies based on a range of economic and financial market factors. A number of economists inside as well as outside the Federal Reserve System do extensive work to model and estimate this rate. While the estimates produced by these models can differ substantially, they all typically draw on a variety of inputs, which reflect, to varying degrees, prospects for U.S. economic growth, global growth and various aspects of overall financial conditions.

In assessing the stance of monetary policy and making judgments about the future path of the federal funds rate, I prefer to focus on measures of the neutral rate that de-emphasize the impact of more volatile, shorter-run transitory factors. I tend to focus more on a range of indicators that reflect the sustainable (medium-term and longer-run) growth potential for the U.S. economy. 

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  string(59) " Refrigerators investment to increase Sonora-Arizona trade "
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Arizona Governor Doug Ducey presented a 2020 budget proposal of US$700,000, which would improve refrigerated capacity at international customs between Sonora and Arizona to increase international trade.

In social networks, the president of Arizona said that "Arizona is open to business, and we have investment proposals to bring more trade through the Mariposa checkpoint in Nogales.

The Governor's Office said that the expenses would attract new imports to the international port, and the Fresh Produce Association of the Americas (FPAA) based in Nogales.

The group of investors said in a statement that the investment would help the state to add jobs and increase its tax base.

FPAA president, Lance Jungmeyer, assured last fall to supervisors in Santa Cruz County, Arizona, that 4 prefabricated cold storage units would cost between US$800,000 and US$1 million.

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Refrigerators investment to increase Sonora-Arizona trade
Arizona Governor Doug Ducey presented a 2020 budget proposal of US$700,000, which would improve refrigerated capacity at international customs between...
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  string(67) "3 million jobs threatened by potential U.S.-Mexico border shutdown "
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US – A border shutdown such as the one U.S. President Donald Trump has threatened to impose could seriously affect trade between Mexico and the United States, greatly harming Mexico’s maquila industry, upon which more than 3 million jobs depend, as well as US$195 billion in annual exports.

According to the U.S. Chamber of Commerce, bilateral trade amounts to US$1.7 billion per day.

Furthermore, the food sector would also be at risk of losing US$127 million a day in avocado, tomato, beer, corn, and meat exports, according to experts.

Commercial relations between Mexico and the United States showed a trade value of US$527 billion in 2018, out of which US$328 billion resulted from Mexican exports while imports rose to nearly US$199 billion, according to the Ministry of Economy.

Luis Aguirre, president of Consejo Nacional de la Industria Maquiladora y Manufacturera de Exportación (index), Jorge Torres, president of American Chamber of Commerce in Mexico and Ignacio Martinez, coordinator of the Commerce, Economy, and Business Laboratory at Universidad Nacional Autónoma de México (UNAM) expressed their concern about U.S. President Donald Trump´s threat to close the border with Mexico, since numerous companies depends largely on trade with the United States.

Mexican exporters said that they this week they were looking into sending their goods to the United States by air freight to avoid a five-mile-long line of trucks at the border caused by the Trump administration moving federal agents away from customs checks to immigration duties.

Source: El Universal

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3 million jobs threatened by potential U.S.-Mexico border shutdown
US – A border shutdown such as the one U.S. President Donald Trump has threatened to impose could seriously affect trade between Mexico and the Unit...
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  string(38) "5,000 jobs have been lost in Matamoros"
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MATAMOROS – The labor conflict in Matamoros, Tamaulipas, which began in January this year, counts 5,000 layoffs.

"At least 5,000 workers have ended their employment relationship, and the rights of each have been respected," said María Estela Chavira Martínez, Minister of Labor of Tamaulipas.

The labor relationship of the workers has ended, through an agreement in Junta Local de Conciliación y Arbitraje, and those that are of federal competence have taken their case to the federal board; in total it is an average of 390 lawsuits.

Chavira Martínez indicated that there are still four companies that went on strike because they demand a 20% wage increase, plus a bonus of US$1,654, known as the 20/32 movement.

"Of the 85 companies (which called a strike), 81 work in a normal way, 4 of them are still in dialogue with some demonstration on the part of the workers, but in short is gaining the strength of the worker and progress has been made thanks to conciliation," said the official.

Source: El Economista

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5,000 jobs have been lost in Matamoros
MATAMOROS – The labor conflict in Matamoros, Tamaulipas, which began in January this year, counts 5,000 layoffs. "At least 5,000 workers have ende...

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