March 01, 2022
Communities along the Texas-US border suffered a series of economic blows beginning with the arrival of COVID-19 in March 2020. Challenges included high infection and death rates, a closure of ports of entry and a collapse in trade.
However, subsequent U.S. pandemic relief policies have boosted the frontier economy, helping it keep pace with the state’s growth. Reviving trade with Mexico and a surprise migration surge have also supported more recent border economic activity.
A heavy toll on activity
Texas’ frontier economy is heavily dependent on processing international trade with Mexico, valued at approximately $350 billion annually, as well as Mexican citizens who cross daily to shop and work in the United States. Mexican buyers. Once the pandemic hit and COVID-19 spread through the region, the border was closed to non-essential traffic and trade, and tourism plummeted.
During the early waves of COVID-19 in Texas through the fall of 2020, the infection rate at the border was about double that of the state. Hospitalization and death rates also exceeded state levels.
Given these challenges, it would not have been surprising to see the frontier economy come to a halt. Besides navigating trade and disruptions at border crossings, the border has faced the negative impact of the pandemic on its outsized service sector and the difficulty of transitioning to a work-from-home regime like the had done many professionals and office workers elsewhere.
Nonetheless, the frontier economy has emerged from tough times and is doing well nearly two years after the arrival of COVID-19.
Federal COVID-19 aid cushions economic impact
The main reason for the surprisingly good performance of the frontier economy has been an array of federal relief programs, including the CARES Act (Coronavirus Aid, Relief and Economic Security); the Consolidated Credits Act 2021; and the American Rescue Plan Act of 2021.
Texas has received nearly $322 billion from federal sources through January 2022, second only to California with $555 billion, according to calculations by the Peter G. Peterson Foundation. The amount of aid per recipient, including stimulus payments and additional federal unemployment benefits, did not vary by location. This meant that families in low-income areas, such as the Texas-Mexico border, received much higher transfers as a percentage of their income.
Chart 1 plots Texas Metropolitan Statistical Areas (MSAs) as a function of the change in inflation-adjusted per capita income from 2019 to 2020 (vertical axis) and MSA per capita income as a proportion of the US national average (horizontal axis). The 10 poorest MSAs, six of which are on the border, have a per capita income that represents on average 56% of the national level. In 2019-20, their average per capita income adjusted for inflation increased by 6.9%.
In the top 10 MSAs, where per capita income is well above the national average, per capita income increased by only 0.8%. By comparison, revenues were mostly down in MSAs heavily exposed to oil and gas production like Midland and Odessa in the Permian Basin, a sector that suffered badly at the start of the pandemic.
Along the border, additional federal unemployment benefits of $600 a week had a far greater impact than in Texas as a whole. Unemployment benefits vary by state, averaging $385 per week nationwide in January 2020. The addition of the $600 supplement included in the CARES Act brought average weekly unemployment benefits at $985.
The average weekly border wage was $609 in 2019, so expanded unemployment benefits represented a 62% increase over typical border wages. Statewide was not as worker-friendly; the average weekly wage was $1,150, which exceeded expanded unemployment benefits by 17%.
Fiscal stimulus helped the border region weather the initial pandemic-induced decline in economic activity, and employment rebounded faster than statewide (Chart 2).
The fiscal stimulus supported local demand and bolstered retail sales which would otherwise have fallen given the loss of cross-border shoppers. Instead, combined inflation-adjusted retail sales for the four major Texas border MSAs were little changed in 2020 (Chart 3).
The border is ground zero for trade between the United States and Mexico
A rapid recovery in trade between the United States and Mexico also contributed to the timely recovery of the border economy. Total trade between the two countries fell by 43% in April 2020 and another 10% in May. However, it rebounded in June, rising 64%, and in July, rising 14%. Trade returned to pre-COVID-19 levels in October 2020.
Trade and manufacturing processes between the United States and Mexico have become increasingly integrated through cross-border production links since the entry into force of the North American Free Trade Agreement in January 1994 and during the United States-Mexico-Canada Agreement that followed. While U.S. manufacturers depend on Mexican supply chains, Texas border towns benefit from serving trade flows between the two countries. A 2013 Federal Reserve Bank of Dallas study suggested that a 10% increase in manufacturing on the Mexican side of the border boosts employment by 2.2% in Brownsville, 2.8% in El Paso, 4.6% in Laredo and 6.6% in McAllen.
Growing migration creates ripple effects
After two decades of declining unauthorized border crossings, they jumped again in fiscal year 2021 to a record 1.7 million. This supported the frontier economy due to the concentration of law enforcement infrastructure and manpower.
Border Patrol and other federal agencies initially deployed resources in response to a flood of asylum seekers in 2019, then to deal with increased illicit border crossings in 2020 and 2021. Construction and Support poured in at the border, including for more border barriers and detention centres. —provide additional tax incentives that have boosted local economies.
Overall Texas Economic Growth Includes Border
Job losses along the border and across the state are about the same since the start of the pandemic. While employment at the border is 0.4% below pre-pandemic levels, employment in Texas is down 0.1% (Chart 4).
Frontier has surpassed Texas in construction and mining, education and health services, manufacturing, information and other services, and recreation and tourism. ‘homepage. Frontier employment increased nearly 4.6% in the year ending December 2021, compared to a 5.1% increase for the state over the period.
Border to Grow Although Challenges Remain
Despite a series of economic challenges since the start of the pandemic, the frontier economy has done almost as well as Texas as a whole.
Economic growth along the border could slow this year as federal stimulus payments are largely over and supply chain bottlenecks persist. However, investment interest in the region will most likely increase as global manufacturing companies look to the frontier to build supply chain resilience in a post-pandemic world. The reopening of the normal border crossing in November 2021 will further support trade activity.
about the authors
The opinions expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.