1. Outlook for the El Paso-Juarez
Border Region
Roberto Coronado
Economist
Federal Reserve Bank of Dallas, El Paso Branch
Paso del Norte Group
March 22, 2011
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.

2. El Paso is Recovering at Full Speed
205
-4.8% from peak
200
195
190 +3.8% from bottom
185 U.S. Recession of 2001 and jobless recovery
180
175
170
165
160
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Federal Reserve Bank of Dallas

3. Percent Change in El Paso Employment
(Dec/Dec)
4
3.6
3 2.7 2.8
2.5 2.6
2.0 2.0 2.0
2 1.9
1.5
1.1
1 0.9
0
-0.3
-1
-1.1 -1.2
-2
-2.3
-3
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*
Notes: 2011 is Jan/Jan.
Source: Federal Reserve Bank of Dallas.

4. El Paso Employment
2000-Present (000s, SA)
285.0
280.0
275.0
270.0
265.0
260.0
255.0
250.0
245.0
240.0
235.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Federal Reserve Bank of Dallas

5. El Paso’s Recession Milder Than
Other Border Cities
Metro Area Peak Trough Decline Bottom to
(%) Today (%)
Texas June 2008 November -5.6 2.9
2009
El Paso February 2008 September -4.8 3.8
2009
Brownsville February 2008 August 2009 -5.4 2.1
Laredo August 2007 November -19.1 3.8
2009
McAllen Feb 2008 March 2010 -15.8 3.2

6. Unemployment Rate
El Paso vs. US, SA
El Paso now matches U.S. Unemployment Rate
12.0
10.0
El Paso
8.0
6.0
4.0 U.S.
2.0
0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
The Federal Reserve Bank of Dallas and the Bureau of Labor Statistics

7. What Makes the El Paso Economy Work?
 U.S. economy, in particular industrial sector
 The Mexican economy and the exchange
rate
 Maquiladoras
 Local Military Spending

8. U.S. recovery is gaining traction…

9. Gross Domestic Product
Quarterly Percent Growth, Chained 2005 Dollars
9
7
5
3
1
-1
-3
-5
-7
Source: Department of Commerce and Bureau of Labor Statistics

10. Divide GDP into Inventory Change and
Final Sales
• GDP = Final Sales + Inventory Change
• Final Sales = C + If + G + X – M
• Final Sales are sales from current production
• Change in inventory is negative, it is a draw of
past production for current use
• Change is inventory is positive, it is current
production held for future sales

11. Percent Contribution to
GDP By Sector
-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0
-1.1
-1.0
1.1
Inventory Change 2.8
2.6
0.8
1.6
-3.7
-3.8
0.3
0.5
Final Sales 2.2
1.1
0.9
1.0
6.5
2009 - Q1 2009 - Q2 2009 - Q3 2009 - Q4
2010 - Q1 2010 - Q2 2010 - Q3 2010 - Q4

12. Nonmanufacturing ISM Points to a
Continued Pick-up in Near-term GDP Growth
Q/Q % change,
SA Index, 50+ = Econ Expand annualized
65 8
ISM Non-manufacturing
6
60
4
55
2
Real GDP Growth
50 0
-2
45
-4
40
-6
35 -8
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Source: Bureau of Economic Analysis and the Institute of Supply Management

13. Payroll employment gained momentum in February
Thousands (SA)
600
400 February
136K
192K
200
0
-200
-400
3-month MA
Δ in Payrolls
-600
-800
-1000
'03 '04 '05 '06 '07 '08 '09 '10 '11
Source: Bureau of Labor Statistics

14. Private employment continue to post gains since early 2010
Thousands (SA)
600
February
400 152K
222K
200
0
-200
-400
3-month MA
-600 Δ in Payrolls
-800
-1000
'03 '04 '05 '06 '07 '08 '09 '10 '11
Source: Bureau of Labor Statistics

15. U.S. unemployment rate begins to decline
11.0
10.0
February 2011 = 8.9 %
9.0
8.0 10.8% on Nov/Dec 1982 highest since 1948
7.0
6.0
5.0
4.0
3.0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Source: Bureau of Labor Statistics

16. U.S. manufacturing sector continues to grow
Index
2007= 100, SA
105
100
95
90
85
80
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Board of Governors, Federal Reserve System

17. U.S. manufacturing sector gaining momentum
SA, 50+ = Increasing
80
70 ISM Manufacturing: New Orders Index
60
50
ISM Manufacturing Index
40
30
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Institute of Supply Management

18. Coincident Index Shows Growth Gaining Speed
108
107
106
105
104
103
102
101
100
99
98
2006 2007 2008 2009 2010 2011
Source: The Conference Board

19. Leading Index Points to Pick Up in Economic Activity
116
114
112
110
108
106
104
102
100
98
96
2006 2007 2008 2009 2010 2011
Source: The Conference Board

20. Real GDP Unemployment Industrial
(Annual %) Rate (%) Production
(% Annual Rate)
Blue Chip Philly Fed Blue Chip Philly Fed Blue Chip Philly Fed
2011 3.1 3.2 9.0 9.1 4.5 4.4
2012 3.3 3.1 8.4 8.5 4.1 4.2
2011 Q1 3.4 3.6 9.2 9.3 4.4 4.6
2011 Q2 3.4 3.5 9.1 9.2 4.4 4.2
2011 Q3 3.4 3.1 8.9 9.0 4.5 4.4
2011 Q4 3.4 3.4 8.8 8.8 4.4 4.3
2012 Q1 3.1 3.1 8.6 8.7 4.1 3.7

21. Mexico is also in recovery mode…

22. Percent Growth of Mexico's GDP
1990 to Present
Percent
8 7.2
6.0
6 5.2 5.5 5.2 5.5
4.8 5.0
4.2 4.0
4 3.6 3.6 3.3
3.2
2.5
2 1.4 1.5
0.1
0
-2 -0.9
-4
-6
-6.2 -6.1
-8
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Instituto Nacional de Estadística Geografía e Informática

23. Link Between U.S. and Mexico Economies
In the Industrial Sector
120 (Index, 2003=100)
115 Mexico
110
105 U.S.
100
95
90
2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Board of Governors and Instituto Nacional de Estadística Geografía e Informática

24. How are the U.S.–Mexican industrial
sectors linked?
• 18 percent of U.S. exports go to Mexico
• 72 percent of U.S. exports to Mexico are
industrial products
• 8 percent of U.S. imports are from Mexico
• 90 percent of these imports are industrial
• Maquiladoras are a major vehicle for this cross-
border movement of industrial goods
Sources: Foreign Trade Division, U.S. Census Bureau, and U.S. International Trade Commission

25. US-Mexico trade: mostly intra-industry
Imports Exports
SITC SITC
Product Billions $ Product Billions $
Code Code
1 33 PETROLEUM 41.6 1 77 ELECTRICAL MACHINERY 16.6
2 78 ROAD VEHICLES 32.1 2 78 ROAD VEHICLES 13.9
TELECOMMUNICATIONS/SOUND
3 76 31.2 3 33 PETROLEUM 9.6
RECORDING
OFFICE/AUTOMATIC DATA
4 77 ELECTRICAL MACHINERY 22.3 4 75 7.3
PROCESSING MACHINES
GENERAL INDUSTRIAL
5 74 9.2 5 74 GENERAL INDUSTRIAL MACHINERY 7.2
MACHINERY
POWER GENERATING MACHINERY TELECOMMUNICATIONS/SOUND
6 71 7.3 6 76 6.6
AND EQUIPMENT RECORDING
PROFSSIONAL/SCIENTIFIC MISCELLANEOUS MANUFACTURED
7 87 6.4 7 89 6.6
INSTRUMENTS ARTICLES
OFFICE/AUTOMATIC DATA
8 75 6.4 8 57 PLASTICS IN PRIMARY FORMS 5.6
PROCESSING MACHINES
POWER GENERATING MACHINERY
9 5 VEGETABLES AND FRUIT 5.9 9 71 5.3
AND EQUIPMENT
SPECIAL TRANSACTIONS AND
10 93 5.1 10 51 ORGANIC CHEMICALS 5.2
COMMODITIES
Subtotal 167.6 Subtotal 83.8
Other 48.3 Other 67.7
Total 215.9 Total 151.5

26. Mexico’s value-added in auto
production at record high
US-Mexico Balance of Trade
30,000
(US Imports minus US Exports)
Millions
25,000
20,000
15,000
10,000
5,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: U.S. Dept. of Commerce and the U.S. International Trade Comission

27. Mexico Auto Exports
March 2004-Present, SA
3-mo Moving Avg.
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Source: Asociación Mexicana de la Industria Automotriz, A.C.

28. Trade in apparel lost to China,
a growing role for autos
Real $, Index, 1997:Q1 = 100
250
200
150
100
50
0
Transportation Equipment Apparel

29. Mexico gains ground in North America light vehicle
production
1985 2009
Mexico 3%
Canada 14%
Mexico 17%
Canada 17%
USA 83%
USA 66%
Source: Thomas H. Klier, Federal Reserve Bank of Chicago, with data from Ward’s Automotive Group.

30. Mexico becomes largest source
country of U.S. motor vehicle parts
Percent
35%
Mexico
30%
25% Canada
Japan
20%
15%
Rest of World China
10%
Germany
5%
0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Thomas H. Klier, Federal Reserve Bank of Chicago, with data from International Trade Commission.

31. Growth began as export-driven
Index, Jan 2000=100
250
200
150
100
Exports to US
50
Total Exports
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Secretaría de Hacienda y Crédito Público, Banco de México, Instituto Nacional de Estadística Geografía e

32. Consumption is picking up
Retail sales, Index 2007=100 Household credit
5mma, s.a. Index, s.a., January 2007=100
104 140
103 130
102
120
101
100 110
99 100
98 90
Retail sales
97
Household credit 80
96
95 70
94 60
Sep-08
Sep-07
Sep-09
Sep-10
Mar-08
Jan-07
Mar-07
Nov-07
Jan-08
Nov-08
Jan-09
Mar-09
Nov-09
Jan-10
Mar-10
Nov-10
May-07
May-08
May-09
May-10
Jul-07
Jul-08
Jul-09
Jul-10

33. The domestic market is catching up
(Index, January 2007 = 100, 3mma, seasonally adjusted)
105
100
95
90
85
Consumer Confidence
80
Consumer Expectations
75
70

34. C&I lending coming back…
y-o-y growth rates
45
40
35
30
25
20
15
10
5
0
-5

35. Employment is growing again…
Thousands of workers y-o-y growth rates
1,000 10
800 8
600 6
400 4
200 2
0 0
-200 -2
-400 -4
level
-600 -6
yoy%
-800 -8
-1,000 -10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

36. What about the Border region?
Index, 2003:Q1 = 100
140
130
120
110
Coahuila de Zaragoza
100 Nuevo León
Tamaulipas
90 Mexico
Chihuahua
80
2003 2004 2005 2006 2007 2008 2009 2010
NOTES: Indicador trimestral de la actividad económica estatal (ITAEE) and Indicador global de la actividad económica.
SOURCE: INEGI

37. Mexico’s recovery underway
• In 2010, economic growth was fueled by manufacturing
exports, higher oil prices, and capital inflows.
• The shape of the recovery going forward depends on the
U.S. industrial sector
• The domestic market continues to improve with retail sales
and consumer confidence picking up.
• International reserves rose 25% and now stand at $122
billion.
• The peso continues to appreciate; now at $12.05 pesos per
dollar.
• In the wake of the presidential elections next year, Mexico
set up a contingent credit line with the IMF in the amount
of $73 billion.

38. Outlook for the Mexican economy
2011 GDP 2012 GDP
Forecast (%) Forecast (%)
Banxico (3/11) 4.1 4.0
Banamex (3/11) 4.8 3.8
Bancomer (2/11) 4.3 3.8
IMF (10/10) 3.9 n.a.
Blue Chip (3/11) 4.1 3.7
UTEP BRMP (12/10) 3.2 n.a.

39. Juarez and the Maquiladora Industry

40. El Paso Follows Maquiladora Industry
Thousands, SA Index Jul-1992=100
280 210
260 200
240
190
220 Juarez Maquiladora Employment
180
200
170
180 El Paso CI
160
160
150
140
120 140
100 130
1990 1993 1996 1999 2002 2005 2008 2011
Source: INEGI and Dallas Fed

41. Economic integration at PDN
0.4 El Paso-Ciudad Juarez 0.04
U.S. border City Employment
0.3 0.03
Maquiladora Value Added
0.2 0.02
0.1 0.01
0 0
-0.1 -0.01
-0.2 -0.02
-0.3 -0.03
1991
1992
1993
1994
1995
1996
1997
1998
1999
2003
2004
2005
2006
2000
2001
2002
Maquiladora Value Added U.S. Border City Employment

42. Juarez Maquiladora Employment
m-o-m annual rates
80
60
40
20
0
-20
-40
-60
2007 2008 2009 2010 2011
FRB El Paso Estimate U.S. IP IMMEX

43. Maquiladoras are Rebounding
110 Matamoros Nuevo Laredo Reynosa Juarez
105
100
95
90
85
80
75
70
65
60
Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
Source: Manufacturing, Maquiladora, and Export Service Industry (Mexico)

44. Maquiladoras impact on El Paso
• 10 percent increase in maquiladora output in Ciudad Juarez leads
to an increase in El Paso employment as follows:
− 3.0 percent increase in total employment
− 5.4 percent in transportation employment
− 1.4 percent in retail trade employment
− 2.2 percent in finance, insurance and real estate (FIRE)
employment
− 2.0 percent in services employment
− (-) 1.2 percent in manufacturing employment

45. Has the maquiladoras’ impact to the El
Paso economy changed over time?
• Over the years, the bulk of the impact has
switch from the manufacturing sector to the
services sector.
• El Paso continues to be a supplier to the
maquiladoras in Juarez, but we now supply
business services.
• This is good news to us because these type of
jobs pay higher wages than the traditional
manufacturing jobs

46. Peso Devaluation Hurts Local
Retail Sales

47. Retail Sales to Mexican Nationals By US Border City
(Net of Sales by US Shoppers in Adjacent Mexican City)
Share of Exportable Retail Sales Real Exchange Rate, 2007=100, Pesos/$
70
19
60 17
15
50
13
40 11
30 9
7
20 5
10 3
1
0
-1
1978 1982 1986 1990 1994 1998 2002 2006
-10 -3
REX Pesos/$ Brownsville El Paso Laredo McAllen

48. Influence of Retail Sales Has Declined with NAFTA and Perhaps
Higher Security
60
50
40
1978-1992
30
1993-2001
2001-2007
20
10
0
El Paso Brownsville Laredo McAllen

49. Border retail sales response to value of the Peso
Index, 2000:Q1 = 100, Real Peso/Dollar
160 16
150 15
NEX
140 14
McAllen
130 13
El Paso
120 12
110 Brownsville 11
100 10
Laredo
90 9
80 8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

50. The exchange rate also affects border crossings
Index, January 2006 = 100 Pesos per dollar
140 15
Nominal Exchange Rate
130
14
120 Truck Crossings
110 13
100
12
90 Vehicle
80 Crossings 11
70
10
60
50 9
2006 2007 2008 2009 2010 2011
NOTE: Seasonally adjusted data.
SOURCES: Texas A&M International University, Texas Center for Border Economic
and Enterprise Development and Banco de Mexico.

51. US-Mexico trade by top 10 land ports in 2010
(billions of U.S. $)
Rank City Total Trade Share of Total (%)
1 Laredo, TX 121.3 39.0
2 El Paso, TX 55.8 17.9
3 Otay Mesa – San Ysidro, CA 31.0 9.9
4 Hidalgo, TX 22.7 7.3
5 Nogales, AZ 19.8 6.4
6 Eagle Pass, TX 16.8 5.4
7 Santa Teresa, NM 13.3 4.3
8 Brownsville – Cameron, TX 12.3 3.9
9 Calexico, CA 10.3 3.3
10 Del Rio, TX 3.1 1.0
11 Other 5.0 1.6
Total 311.3
Source: Texas Center for Border Economic and Enterprise Development, Texas A&M International University

52. Why Has Peso Strengthened?
• Economy growing again
• US continues zero interest rate policy,
encouraging capital flows to Mexico
• Mexico has pursued good fiscal and monetary
policy
• Mexico seen as part of the developing world
which leads the world’s economic growth

53. Fort Bliss Kept El Paso
From Serious Recession

54. Fort Bliss
• Ft. Bliss continues to support the local economy, with $3.2
billion spent 2006-2009, and 40% going to local contractors.
• For the 2010-2012 period, Ft. Bliss expenditures will be
decline to $0.5 billion per year.
• However, as the troops arrive the local stimulus shifts from
construction spending to population growth.
• Counting soldiers, wives, and children, from 2006 and 2012
the population associated with Ft Bliss increases by nearly
50,000.

55. Cumulative Construction Spending
at Ft. Bliss Will Reach $5 Billion
Between 2008 and 2013
$Million
6000
5000
4000
3000
2000
1000
0
pre- 2009 2010 2011 2012 2013
2009

56. The Biggest Years for Military
Construction Spending Are
Now Behind Us
$ Million
2000
1500
1000
500
0
pre- 2009 2010 2011 2012 2013
2009

57. Net Additions to Fort Bliss
Population Sees a Peak in 2011
8000
15,969
7000
6000
5000
8,891
4000 7,863 7,833 Soldiers
3000 Spouses
5,006
4,072 Children
2000
1000
0
2008 2009 2010 2011 2012 2013
School Year (2008=Fall 07/Spring 08)
Source: Team Bliss Base Transformation Office

58. El Paso growing again, leading the U.S.
The local recession was milder than
elsewhere.

59. El Paso outperforming the nation in the
recovery
El Paso US
3-Month 0.61 0.24
6-Month 1.01 0.30
12-Month 2.37 0.81
24-Month 1.66 -2.43
Comparison through January 2011: employment data seasonally adjusted

60. Outlook for the El Paso-Juarez Region
• The U.S. economy is coming out of the worst
recession in decades, recovery has gained
momentum in recent months.
• El Paso’s dependence on manufacturing continues.
The maquiladora’s turnaround is good news for El
Paso job growth.
• Maquiladora recovery depends heavily on autos.
Can we expect a normal cyclical recovery there?
• Stimulus from Ft. Bliss continues to be strong, but
the stimulus into the local economy now changes
from construction spending to population growth.
• The impact of the violence across the border might
be sending mixed signals.

61. Outlook for the El Paso-Juarez
Border Region
Roberto Coronado
roberto.coronado@dal.frb.org
915.521.5235
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.