Welcome. Our region Outlook for Tucson. A Look Ahead 6/6/ Breakfast with the Economists ebr.eller.arizona.edu

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1 1 Breakfast with the Economists //1 Welcome. Paulo Goes Dean, A Look Ahead Our region Outlook for Tucson George Hammond, Ph.D. Director, Revised Arizona job data show stronger growth Particularly for Tucson Federal procurement spending in Arizona is on the rise Which matters for defense/aerospace/tucson Arizona exports to Mexico have declined significantly But there are signs of stabilization Interest rates and gas prices are moving up Increasing risks to the expansion Continued growth is on the horizon, but keep an eye on risks

2 1 Breakfast with the Economists //1 Tucson MSA Jobs: A Look Back Thousands 3 37 EBRC Benchmark BLS Arizona Job Growth Before And After Revision, 1 To II III IV I II III IV I II III IV Arizona Phoenix MSA Tucson MSA Preliminary Revision 5 Arizona Job Growth Federal Procurement Spending Over The Year 1 In Arizona Arizona Phoenix MSA Tucson MSA U.S $Billions 1 FY1 FY11 FY1 FY13 FY1 FY15 FY1 FY17 Department of Defense Non DOD

3 1 Breakfast with the Economists //1 Arizona And U.S. Real House Prices Federal Housing Finance Agency U.S. Arizona Phoenix MSA Tucson MSA Q1=1 1 1 Tucson Ranks High On Affordability Single-Family Housing Affordability Housing Affordability Is Declining But Still Much Higher Than During The Boom mapazdashboard.arizona.edu Housing Cost Burden Varies By Income Housing Affordability: Low Income Residents Struggle mapazdashboard.arizona.edu 11 1

4 1 Breakfast with the Economists //1 Arizona And U.S. Wages Per Job Smoothed, Over-The-Year Growth Rates % 35% Arizona Merchandise Exports Country Share Of Arizona Exports In 17 azmex.eller.arizona.edu 3.3% Arizona U.S. 5 3% 5% % 3 15% 1% 9.9% 1 5% % Mexico Canada China United Kingdom Germany Japan United Arab Emirates Thailand Singapore Taiwan France Hong Kong Brazil Netherlands Korea, South Malaysia Saudi Arabia Israel Switzerland Australia Ireland Belgium Italy India Chile Turkey Philippines Russia Czech Republic Vietnam Spain New Zealand Indonesia Malta Qatar South Africa Poland Sweden Costa Rica Denmark Norway Austria Kuwait Bangladesh Peru Colombia Afghanistan Panama Argentina Pakistan Arizona-Mexico Tourism Cost Index Tucson MSA: Lodging, Gasoline, Food Away From Home azmex.eller.arizona.edu :1 = 1 Peso Denominated 1 1 Dollar Denominated Millions Arizona Exports To Mexico Merchandise Exports And Legal Northbound Border Crossings azmex.eller.arizona.edu Arizona BPOE Personal Vehicle Passenger and Pedestrian Crossings (Left Axis) Exports to Mexico (Right Axis) $ Millions

5 1 Breakfast with the Economists //1 Tucson MSA Economy Scorecard Tucson MSA And U.S. Job Growth Annual Growth Rates Tucson U.S U.S. Real Federal Spending Growth U.S. Interest Rates Excluding Transfers, IHS Markit, May 1 1 IHS Markit, May Year Conv. Mtg Federal Defense Federal Nondefense Federal Funds 1 Year Treas

6 1 Breakfast with the Economists //1 Tucson MSA Income And Sales Growth Annual Growth Rates 1 Tucson MSA Job Growth Baseline And Alternative Scenarios Optimistic Retail Sales Personal Income Pessimistic Explore data for border economies. Arizona-Mexico Economic Indicators azmex.eller.arizona.edu

7 1 Breakfast with the Economists //1 Visit the award-winning Arizona s Economy Learn about Southern Arizona. mapazdashboard.arizona.edu National, State and Local Recognition Our world U.S.-Mexico Trade and NAFTA Jesus Cañas Senior Business Economist, Federal Reserve Bank of Dallas

8 1 Breakfast with the Economists //1 Benefits and Challenges of Trade under NAFTA Breakfast with the Economists, 1 University of Arizona June 1 A Historic Agreement -1- Canada and U.S. already had an agreement Adding Mexico broke the mold NAFTA s stated objectives Eliminate barriers to trade & investment Remove tariffs and non-tariff barriers Facilitate cross border movement Resolve disputes Jesus Cañas and Pia Orrenius Federal Reserve Bank of Dallas The views expressed in this presentation are strictly those of the author Average tariffs fell most in Mexico following NAFTA 1. Mexican Tariffs on Imports from the United States U.S. Tariffs on Imports from Mexico SOURCE: Executive Office of the President, Study on the Operation and Effects of the North American Free Trade Agreement, July 1997, p. 7. A Historic Agreement -- U.S. fears: Massive job losses, falling wages There will be a giant sucking sound going south -Ross Perot; October 15, 199 Fears unrealized, but so were aspirations Elusive Mexican economic development 31 3

9 1 Breakfast with the Economists //1 U.S. trade with NAFTA partners more than doubled since Exports Billions of Dollars % Change Canada Mexico Imports Canada Mexico Total Canada Mexico NOTE: Data is in billions of 1 U.S. dollars. SOURCE: U.S. Census Bureau. Foreign direct investment higher after NAFTA Billions, real 1 $ US to Mexico. Average Annual average Pre-NAFTA pre-nafta Average Annual average NAFTA post-nafta.3 Mexico to US NOTES: Pre NAFTA U.S. to Mexico represents years ; Pre NAFTA Mexico to U.S. represents years Post NAFTA represents years SOURCE: Bureau of Economic Analysis Aggregate effects of NAFTA tariff reductions Country Volume of Trade Terms of Trade Real Wages Mexico Canada United States Aggregate gains mask winners, losers Recent research identifies losers from trade Manufacturing workers, whose industries have been most affected by Mexican imports including along the border experienced substantially lower wage growth than their counterparts in other industries Limitations on the mobility of workers both geographically and across industries appear to be very important SOURCE: Lorenzo Caliendo and Fernando Parro, Estimates of the Trade and Welfare Effects of NAFTA, NBER working paper No. 15, 1. SOURCE: Looking for Local Labor Market Effects of NAFTA, by John McLaren and Hakobyan Shushanik, Review of Economics and Statistics, vol. 9, no., October

10 1 Breakfast with the Economists //1 U.S. and Mexico business cycle synchronicity grows post-nafta, Y/Y Corr:.13 Mexico Corr:.7 ' ' ' ' ' '9 '9 '9 '9 '9 ' ' ' ' ' '1 '1 '1 '1 NOTE: Monthly changes in manufacturing component of industrial production. SOURCES: INEGI; Federal Reserve Board. U.S. Intra-industry trade high within NAFTA: U.S. content highest in imports from Mexico, Canada Mexico Canada Weighted Average China (Mex-Can) NOTE: Data is from. SOURCE: Robert Koopman, William Powers, Zhi Wang, and Shang-Jin Wei, Give Credit Where Credit is Due, NBER Working Paper No. 1, Billions of dollars 5 15 U.S. Exports Highly Correlated with Intermediate Imports from Mexico Consumer goods imports from Mexico Intermediate goods imports from Mexico U.S. total exports Billions of dollars 1, 1, 1, 1, 1, Cross-border manufacturing has been able to mitigate some of the impact of economic shocks China s entry to the World Trade Organization in Great Recession SOURCES: Bureau of Economic Analysis and Haver Analytics. SOURCE: Offshoring and Volatility: Evidence from Mexico s Maquiladora Industry, by Paul R. Bergin, Robert C. Feenstra, and Gordon H. Hanson, American Economic Review, vol. 99, no., 9, pp

11 1 Breakfast with the Economists //1 U.S. Mexico integrated processes help reduce volatility in U.S. manufacturing, Y/Y China enters WTO 3 1 Variance = 5. Mexico maquiladora employment Texas Border Cities: On the Front Lines of Trade -1 Variance = 1.7 U.S. manufacturing employment NOTES: Mexico's employment combines maquiladora and IMMEX. Shading is for manufacturing recession and the great recession. SOURCES: Bureau of Labor Statistics and INEGI. 1 Texas exports grow faster in post-nafta period Index, 19 = 1; real values 7 Texas 5 Texas exports to Mexico quite diverse Oil & gas, 3% Misc. manufactured goods, % Food & kindred products, 3% Fabricated metal products, % Primary metal mfg., % Plastics & rubber products, % Machinery, ex. electrical, % Computers and electronics, % 3 Pre-NAFTA Post-NAFTA Other, 7% Transportation equipment, 1% 1 U.S. without Texas SOURCES: WISERTrade; Census Bureau. Electrical equipment, % Chemicals, 1% NOTES: Data from 15. "Other" includes all categories under percent. SOURCE: U.S. Trade Database, Census Bureau. Petroleum & coal products, 11% 3

12 1 Breakfast with the Economists //1 Billions of 1$ Texas becomes top exporter in SOURCES: WISERTRADE; Census Bureau; BLS. Texas California Washington New York Illinois Michigan Costs of opening up to trade 5, Texas jobs lost due to NAFTA, according to BLS More than 5 percent of Texas job losses were concentrated along the Texas Mexico border El Paso textile and apparel industry Trade Adjustment Assistance (TAA) Low educational levels and limited English proficiency Levi-Strauss (3,39 displaced workers) 5 Displaced workers concentrated along the border El Paso (19,) Dallas (1,) Austin (3,) San Antonio (,) McAllen (1,) Houston (1,) Brownsville (3,) El Paso (19,) Foreign firms hiring more than offsets jobs lost Dallas (13,) Austin (9,) San Antonio (,) McAllen (,) Houston (17,) Brownsville (,) Maquiladora activity boosts employment in Texas border cities Title in here Estimation method: IV El Paso Laredo McAllen Brownsville TOTAL.77*..5*.1 Construction * 1.9* Manufacturing Transportation 5.3* 7.1*.3*.* Wholesale *. Retail * 1.3* FIRE.1*.3*.3*. Services 1.* 5.93* 7.3* 3.9* NOTES: This table shows elasticity estimates. That is the table shows the percentage increase in local employment from a 1 percent increase in maquiladora production for each Texas Border Cities. * indicates significant at the 1% level. SOURCE: J. Cañas, R. Coronado, R. Gilmer, E. Saucedo (11) The Impact of Maquiladoras on U.S. Border Cities, Federal Reserve Bank of Dallas, working paper. 7

13 1 Breakfast with the Economists // Unemployment rates declined along the border after NAFTA Brownsville El Paso Laredo McAllen SOURCE: Bureau of Labor Statistics Texas border cities narrowing the income gap with nation (income as a share of U.S. total) El Paso Laredo McAllen Brownsville SOURCE: Bureau of Economic Analysis What s left to be done 5 U.S. $, PPP adjusted, 5,, 3, Still unequal trading partners $31, $,3 GDP per capita $3, $51,, 1, $1, $1, SOURCE: OECD. Canada Mexico U.S. 51 5

14 1 Breakfast with the Economists //1 Inequality, poverty persist in Mexico Future calls for more NAFTA, not less North-central Per capita income: $,777 Informal labor: 57% of LF Poverty rate: 3% Northern Per capita income: $1,7 Informal labor: 3% of LF Poverty rate: 3% Central Per capita income: $1,15 Informal labor: 3% of LF Poverty rate: 9% Southern Per capita income: $,597 Informal labor: 9% of LF Poverty rate: 57% Mexico: manufacturing sector has boomed, but spillovers have been limited Will reforms spread the gains from trade to rest of sectors and reduce inequality? U.S. labor market effects Need for programs to identify and assist displaced workers Ability to adjust, diversify and grow Border cities overcame initial job losses, went on to thrive 53 5