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U.S.-Mexico Economic Update: Where are we headed?. Roberto Coronado Assistant Vice President in Charge and Sr . Economist May 17, 2013. The views expressed in this presentation are strictly those of the author and do not necessarily reflect the positions

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U s mexico economic update where are we headed

U.S.-Mexico Economic Update: Where are we headed?

Roberto Coronado

Assistant Vice President in Charge and Sr. Economist

May 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
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








Is m anufacturing picking up
Is manufacturing picking up?



What about the rest of the economy
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




Expansion is broad based
Expansion isbroad-based


What is driving the strong recovery
What is driving the strong recovery?

  • External sector

    • Mexicotappedintothestronggrowth of emergingeconomies, around 20% of itsexportsgoto EM

    • U.S exportshavealsogrown, specially autos

  • Internal sector

    • Formal employmentpostedstronggains

    • Healthybankingsystem

    • Jobs + Lending = Strongconsumption

  • Capital flows

    • FDI bouncing back afterthe “Great recession”

    • Portfolio investmenttakingthe lead



What is driving the strong recovery1
What is driving the strong recovery?

  • External sector

    • Mexicotappedintothestronggrowth of emergingeconomies, around 20% of itsexportsgoto EM

    • U.S exportshavealsogrown, specially autos

  • Internal sector

    • Formal employmentpostedstronggains

    • Healthybankingsystem

    • Jobs + Lending = Strongconsumption

  • Capital flows

    • FDI bouncing back afterthe “Great recession”

    • Portfolio investmenttakingthe lead




Retail s ales
Retail sales


What is driving the strong recovery2
What is driving the strong recovery?

  • External sector

    • Mexicotappedintothestronggrowth of emergingeconomies, around 20% of itsexportsgoto EM

    • U.S exportshavealsogrown, specially autos

  • Internal sector

    • Formal employmentpostedstronggains

    • Healthybankingsystem

    • Jobs + Lending = Strongconsumption

  • Capital flows

    • FDI bouncing back afterthe “Great recession”

    • Portfolio investmenttakingthe lead



Outlook for the mexican economy
Outlook for the Mexican economy investment taking the lead


Trade is the main catalyst for U.S.-Mexico economic investment taking the leadintegration


World trade now exceeds pre crisis peak
World trade now exceeds pre-crisis peak… investment taking the lead

Title in here


But still below 1992 2007 trend
…but still below 1992-2007 trend investment taking the lead

Title in here


U s mexico trade
U.S.-Mexico trade investment taking the lead

Source: Census Bureau/Haver Analytics


U s mexico trade1
U.S.-Mexico trade investment taking the lead

Source: Census Bureau/Haver Analytics


U.S.-Mexico trade investment taking the lead

  • 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? investment taking the lead

    • 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 t rade by sector
    U.S.- investment taking the leadMexico total tradeby sector

    Source: U.S. Census Bureau


    Trade by port of entry
    Trade by port of entry investment taking the lead

    Source: U.S. Department of Commerce Bureau of the Census, Foreign Trade Division


    Texas–Mexico border synchronization investment taking the lead

    Mc Allen-Reynosa

    El Paso-Ciudad Juarez

    Laredo-Nuevo Laredo

    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 InstitutoNacional de EstadisticaGeografia e Informatica.


    Piedras negras eagle pass
    Piedras investment taking the leadNegras- Eagle Pass

    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 InstitutoNacional de EstadisticaGeografia e Informatica.


    Maquiladoras impact by border city
    Maquiladoras investment taking the lead 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


    Maquiladoras are quite important for Texas border cities investment taking the lead

    Title in here


    Texas mexico border economy in transition
    Texas-Mexico border economy in transition investment taking the lead


    Border economy in transition
    Border economy in transition investment taking the lead

    Source: Bureau of Economic Analysis

    Employment migrating from manufacturing to services

    Per capita income closing gap with national levels



    Percentage point contribution to border city earnings growth by selected industries 2001 2010
    Percentage-point contribution to border-city earnings growth by selected industries, 2001-2010

    Source: CrossroadsIssue 2: July 2012; Federal Reserve Bank of Dallas, El Paso Branch


    Future of manufacturing in mexico
    Future of manufacturing in Mexico by selected industries, 2001-2010


    Future of mexico s manufacturing
    Future of Mexico’s manufacturing by selected industries, 2001-2010

    • 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
    China’s manufacturing wages are growing faster than Mexico, but…

    Index, 2002=100

    Source: Bureau of Labor Statistics and author’s calculations


    Mexico s manufacturing compensation still higher than china
    Mexico’s manufacturing compensation still higher than China

    $/hour

    Source: Bureau of Labor Statistics and author’s calculations


    But manufacturing productivity is growing in mexico
    But manufacturing productivity is growing in Mexico China

    Source: INEGI and author’s calculations



    Mexico gains ground in north america light vehicle production
    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
    Mexico becomes largest source country of U.S. motor vehicle parts

    Mexico

    Source: Thomas H. Klier, Federal Reserve Bank of Chicago, with data from International Trade Commission.


    Mexico is closing the gap with china
    Mexico is closing the gap with China parts

    Source: U.S. Census Bureau

    2013* Year to date




    Concluding remarks
    Concluding remarks parts

    • 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: partsWhere are we headed?

    Roberto Coronado

    [email protected]

    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.


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