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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
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
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
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
u s mexico trade
U.S.-Mexico trade

Source: Census Bureau/Haver Analytics

u s mexico trade1
U.S.-Mexico trade

Source: Census Bureau/Haver Analytics

slide29
U.S.-Mexico trade
  • 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%)
slide30
How are the U.S.—Mexican industrial sectors linked?
  • 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.-Mexico total tradeby sector

Source: U.S. Census Bureau

trade by port of entry
Trade by port of entry

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

slide33
Texas–Mexico border synchronization

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
PiedrasNegras- 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 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
border economy in transition
Border economy in transition

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 mexico s manufacturing
Future of Mexico’s manufacturing
  • 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

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

Source: U.S. Census Bureau

2013* Year to date

concluding remarks
Concluding remarks
  • 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.
slide53
U.S.-Mexico Economic Update: Where 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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