What will 1996 be like? - New Mexico's economy - Economic Outlook

Still Good, With Moderating Growth.

The last few years have been excellent for New Mexico. In 1995, for example, the state easily out paced the nation as a whole. In fact, for the 12-month period ending in September 1995, New Mexico ranked second in employment growth at 4.5 percent, just behind Utah. Statewide employment growth was double the national average. The strength of the expansion is reinforced by its very broad base, with all sectors seeing growth. New Mexico ranked second in financial sector employment growth, second in retail and wholesale trade, fourth in construction, fifth in services, sixth in government and ninth in manufacturing. In only one sector did the state not exceed the national average; in transportation, communications and utilities, we matched the national average.

The strong economy is explained in part by the strength of the national economy, which translates into higher demand for New Mexico products, and continued expansion of Intel's Rio Rancho plant. The Intel expansion, in particular, seems to have generated a sense of optimism in the state, and this optimism has translated into a vigorous, self-confident economy. But New Mexico can't maintain this frantic growth indefinitely. And while the outlook continues to be optimistic, 1996 will see moderation.

The expansion has also been broad-based geographically, benefiting most regions of the state. Employment in the Albuquerque metropolitan area grew by just under 5 percent. For Las Cruces, despite slow growth at New Mexico State University and White Sands Missile Range, the city managed to achieve strong job growth at 4 percent. Reflecting slower government job growth and cut backs at Los Alamos National Laboratory, the Santa Fe metropolitan area, which includes Los Alamos County, grew by only 3 percent. Rural New Mexico also participated in the expansion. Employment grew by 4.6 percent outside the metropolitan areas.

Job Growth

Job growth has also translated into higher incomes. Personal income was up a healthy 7.2 percent during the first quarter compared to the first quarter of 1994. Among the metropolitan areas, both Albuquerque and Santa Fe saw personal income growth of better than 8 percent. Las Cruces, despite relative weakness in the areas that traditionally generate high paying jobs, still saw income increase by a healthy 7.2 percent.

Construction

One industry that has performed extremely well over the last two years is construction. Construction earnings, driven in part by the massive Intel project, rose by 25 percent during 1994. Unfortunately, this rate of growth is not sustainable. Construction already is showing signs of slowing. First quarter of 1995 construction earnings, while still strong, were up only 7.8 percent compared to the first quarter of 1994. Other factors also foreshadow a slow down in construction next year. The major phase of construction at the Intel Rio Rancho plant is winding down. The value of new contracts was off by 1.4 percent during the first half of 1995. Overall, construction earnings are expected to increase by better than 7 percent during 1996, down from the boom years, but still a respectable showing.

The residential real estate market is showing signs of slow down. Sales of new and existing homes, which are very sensitive to interest rates, are down throughout the western states. This decline in home sales is reflected in construction. Single-family residential construction was off in New Mexico by 16.8 percent through June. Flat interest rates coupled with slower economic growth will cause a modest decline in the real value of residential housing contracts, which are expected to fall by around 1 percent during 1996.

Federal Budget Impact

A major area of uncertainty is the impact of the federal budget on New Mexico. By some measures, the state is more dependent on federal dollars than any other state, and thus federal budget decisions can have a major impact. It appears that at best the final budget will be neutral toward New Mexico and could turn out to be a negative factor. Of particular concern is the impact of changes in anti-poverty program funding. New Mexico is a low income state. Currently we rank 47th in family median income, which currently stands at $27,904. (Nationally, median income is $32,264.) About 21 percent of New Mexicans live below the poverty line compared to 14.5 percent nationally. We therefore benefit disproportionately from federal anti-poverty programs. While the welfare reforms currently before Congress will not drastically change the resources available to New Mexico next year, it is likely that these reforms will set future funding increases available to each state at a fixed percentage. But because the state's population is growing faster than the national average, over the long haul, the new funding formulas will likely work against our state, to the detriment of New Mexican purchasing power.

The Labs

Because of projected cutbacks in the Department of Energy budget, the national labs, Los Alamos and Sandia, are also particularly vulnerable. Each is likely to lose somewhere around a thousand employees. The impact of the defense budget on the state is likely to be neutral. Cannon Air Force Base will lose some 1,000 positions over the next several years as its fighter wings are modernized. Kirtland has managed to dodge the realignment bullet and is likely to enjoy stable employment over the near term. Holloman AFB will see a small expansion in its NATO training program. Employment at White Sands Missile Range, after several years of decline, is projected to remain stable in 1996.

Albuquerque

Albuquerque should continue to experience rapid growth going into 1996. While the current phase of the Intel expansion is completed, the approval by Sandoval County of $8 billion in Industrial Revenue Bonds will mean strong construction growth for the next several years. This coupled with the opening of the Intuit facility in Rio Rancho as well as the completion of the Cottonwood Mall all bode well for the economy.

Las Cruces

For Las Cruces, the outlook is not as pleasant. The economy is dependent on three industries - the missile range, NMSU and the retirement industry. While White Sands is expected to maintain stable employment, it will not be the source of growth that it was during the 1980s. Employment at the University is also likely to change little in 1996. The one positive source of growth is the retirement industry, which should enjoy modest but steady growth.

Santa Fe

The Santa Fe metropolitan area, hampered by cutbacks at Los Alamos, will see a slowdown in employment growth to around 2 percent.

So bottom line, what is the outlook for the state during 1996? The coming on line of the Intel Rio Rancho Plant and continued strength in the national economy should allow the New Mexico economy to continue to experience growth, but not at the same pace as 1994 and 1995. New Mexico personal income is expected to increase between 5 and 6 percent while employment should grow 2 to 3 percent. That's solid performance but not the boom the state has experienced recently.

Christopher Erickson, Ph.D., is assistant professor of Economics and International Business and director of the Center for Econometric Modeling and Forecasting at New Mexico State University.

COPYRIGHT 1996 The New Mexico Business Journal
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