WESLACO, RGV – The Rio Grande Valley is not headed for a recession but economic growth will slow down in 2019, says a top economist.
Dr. Luis Torres, a research economist at the Real Estate Center of Texas A&M University, was keynote speaker at the recent State of the RGV Construction & Real Estate Economy.
The luncheon was hosted by the Rio Grande Valley Partnership and RGV FIRST and held at a packed Knapp Conference Center.
“Our analysis shows that 2019 is going to be a year of slower growth than 2018, but growth nonetheless,” Torres told the Rio Grande Guardian and RGV Public Radio 88 FM, at the end of his slideshow presentation.
“The recession was in the minds of many at the end of last year but it is not going to happen. We are going to see slow but steady growth.”
Torres received his bachelor’s degree in economics from the Monterrey Institute of Technology in Mexico. He received a masters in economics from the University of Texas at El Paso, where his dissertation received honors. He later earned a scholarship to participate in the American Economic Association Ph.D. Summer Minority Program.
His Ph.D. is from the University of Colorado at Boulder where he specialized in international economics and econometrics. During his doctoral studies, he worked at the El Paso Branch of the Dallas Federal Reserve. From 1995 to 2012, he was with Banco de Mexico in the research department and the institutional liaison department. He has more than 15 years of central banking experience.
Torres has taught classes and seminars at U.S. and Mexican universities, as well as in national and international forums. He has published various articles in academic and nonacademic publications about banking, international economics, trade and applied econometrics.
In his presentation, Torres said the border economy faced an uncertain time for a variety of factors, most notably tariffs and what is going to happen with NAFTA.
“Less growth but more uncertainty is a good way to sum it up,” Torres said in his interview. “USMCA, the successor to NAFTA, has been signed but not ratified. It still has to pass through the legislative process in the U.S., Mexico and Canada. Let’s see what happens. It is uncertain. We do not know for sure.”
The good thing, Torres said, is that NAFTA will remain in place if USMCA is not ratified. “That is definitely a good thing,” he said.
There is also uncertainty about how the tariff war with China will turn out. “We do not know what is going to happen with China nor how much slower the growth in the world economy is going to be,” Torres said.
Torres said he wanted to refute a popular viewpoint for some politicians, that a trade deficit is a bad thing.
“People say international trade is a zero sum game. That is not the case. It is unfortunate people talk about that. They say because we import more than we export, that is bad. No. It has another implication. When you have a negative current account, what is happening is you are investing more than you are saving,” Torres said.
“What do you have to do? You have to bring capital from around the world to supplement that investment. That is foreign investment. All those imports are being used to produce other goods, which makes you competitive. One of the big things about NAFTA is it has made the U.S. competitive with the rest of the world.”
Another misconception, Torres said, is that the U.S. produces fewer goods than in decades past.
“We are producing just as much but with less people. It is automation. Manufacturing jobs reached a peak in the 1970s. Since then, jobs, not output, has fallen. We have to fact the fact that we have a major structural issue in the U.S., the skills gap. Middle jobs are disappearing.”
Asked about Mexico’s economy, Torres said the biggest problem is the lack of the rule of law.
“Violence is still an issue in Mexico. They need stronger institutions. One of the reasons Mexico has not achieved stronger growth is the lack of institutions. You have to fortify the institutions.”
An issue that interested many of those in the audience centered on non-residential construction. Torres presented a slide that showed a dip in such investment for one year in Brownsville and two in McAllen.
“Will non-residential investment come back? For two years straight years it has declined in McAllen. It declined in Brownsville but then came back. Will there be more offices, hospitals or schools built? I am not sure. The housing market looks good but not non-residential construction,” Torres said.
Contractor, Perry A. Vaughn, executive director of the RGV chapter of the Associated General Contractors of America, was in the audience. Interviewed afterwards, Vaughn said his association was concerned about the dip in non-non-residential construction.
“I was particularly interested in the discussion of the downward turn towards non-residential construction. We are seeing that in our organization. There was a spike when the university (UT-Rio Grande Valley) was building but they have now pretty much completed the large projects,” Vaughn said.
Vaughn said part of the problem is fast-growing school districts that need more classrooms are struggling to pass meaningful bond issues.
“So few of those guys are building at the speed they need to because they have to pass bond issues and bond issues in the Valley are difficult to pass. Some of these school districts need to pass $100 million bond issues, but that seems to be politically incorrect,” Vaughn said.
“The school districts are strapped for cash. We see bond issues passed in the larger metropolitan areas of the state – hundreds of millions of dollars. Down here, if they pass a $30 million bond issue, they feel they have accomplished something.”
Vaughn acknowledged that Torres’ slide about non-residential construction was “alarming.” He said: “We have seen it trending down. I have seen it tapering off these last couple of years. It is a big concern.”
After the luncheon had concluded, the Rio Grande Guardian and RGV Public Radio 88 FM interviewed Brian Godinez, one of the founders of RGV FIRST. The group’s mission is to get more work for contractors, sub-contractors, engineers and architects that are based in the Valley.
“RGV FIRST is starting to gain momentum. We are starting to get a lot of public sector decision makers supporting the hiring of our local firms, knowing how important it is for our economy,” Godinez said.
“The fact that we can create jobs and bring back those kids that leave, that they can work get architectural, engineering, and contractor jobs is important. We are really excited about the acceptance and reception we are getting from public decision makers.”
Godinez said RGV FIRST has plans to host exclusive events over the coming 12 months.
“We are going to hold these so we can talk about the importance of hiring local firms, what it means when you put money in that bank account that is local and where that money gets distributed. It will almost be like a follow-the-money presentation.”
Godinez said there is a “dedicated team” of about 30 individuals who are part of the RGV FIRST committee. He said thanks to the vision of Sergio Contreras, president of the Rio Grande Valley Partnership, that committee is now connected to RGVP.
“Sergio was very wise to form this new committee with the Partnership. We have got 30 individuals from the architectural community, from the engineering community, contractors and subcontractors. We are all just very passionate about pulling this off, and making everyone aware of the positive impact of having local firms working here all the time.”
Godinez said RGV FIRST has also been accepted by the Lower Rio Grande Valley Partnership and the Rio South Texas Economic Council. “It gives our initiative more credibility, the fact that we have partnerships with these entities. We have regional acceptance,” he said.
Editor’s Note: The main photo accompanying the above news story shows Sergio Contreras of the Rio Grande Valley Partnership, Luis Torres of the Real Estate Center at Texas A&M, Brian Godinez of RGV First, and Nicole Jinks of Jinks Realty.