News Column

Long-term Unemployment in Texas, Banking Industry Conditions and Mexico's Energy Reform Topics of Dallas Fed's Southwest Economy

May 20, 2014



DALLAS, May 20 -- The Federal Reserve Bank of Dallas issued the following news release:

The second-quarter issue (http://www.dallasfed.org/research/swe/index.cfm) of the Federal Reserve Bank of Dallas'Southwest Economy includes articles on long-term unemployment in Texas, the banking industry's recovery from the financial crisis and Mexico's energy reform.

Both a greater ability to find work and a higher incidence of individuals exiting the labor force have helped keep the Texas long-term unemployment rate below the nation's after the Great Recession, according to senior research economist and advisor Anil Kumar in "Strength of Economy, Limited Benefit Eligibility in Texas Curb Long-Term Unemployment Rate."

Based on a 12-month moving average of long-term unemployment, the ranks of those jobless for more than six months reached a high of 2.9 percent in Texas in 2011, compared with a peak of 4.1 percent for the U.S., Kumar finds. Texas' long-term unemployment rate now stands at 1.8 percent, still above prerecession levels.

Lower long-term unemployment in Texas likely results from two factors, the author notes. First, the state's economy was stronger than the nation's, with faster job growth, a booming energy sector and a milder housing market downturn.

Second, a somewhat higher percentage of Texans exited the labor force compared with the nation, in part due to the shorter average duration of unemployment benefits and lower eligibility for those benefits compared with people nationwide.

In "Banking Recovery Could Be Vulnerable to Interest Rate Increases," assistant vice president Kenneth J. Robinson says that the banking industry is bouncing back from the financial crisis and recession, but rising interest rates could challenge bank performance.

Profitability and asset quality continue to strengthen for banks in the U.S. and the Eleventh Federal Reserve District, Robinson states. However, banks have struggled with declining net interest margin--the interest earned on assets minus the interest paid on deposits--and face the challenge of finding alternative sources of revenue.

As a result, it appears many banks have lengthened the maturity structure of their asset portfolios, potentially boosting exposure to rising interest rates, the author notes.

"This exposure appears to be greater than what was observed in the prior period of low interest rates but is mitigated by sufficient amounts of capital," Robinson writes.

In "'Reforma Energetica': Mexico Takes First Steps to Overhaul Oil Industry," senior research economist Michael D. Plante and business economist Jesus Canas say the outcome of energy industry reforms in Mexico will depend on still-to-be-resolved details.

The fiscal health of the Mexican government and living standards of Mexico's citizens are tied to the state-run oil company, Pemex, the authors say. Pemex provides 25 to 30 percent of government revenue, but the company's output has decreased more than 25 percent since 2004.

The reforms will allow both Pemex and private companies to produce oil and gas in Mexico, Plante and Canas say. This will be a major break from the past, when only Pemex was allowed to produce oil and gas in the country.

"The overhaul, if effective, should entice private companies to invest in the oil sector and allow Pemex to become a more efficient and effective company," the authors write. "The benefits of this would include greater oil production and positive spillovers into other parts of the economy."

The reforms should also strongly benefit the Texas economy, home to many energy companies that could participate in the opening of Mexico's oil and gas sector.

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Source: Targeted News Service