A-choo!

New Mexico Business Journal, Jan-Feb, 1999 by Christopher A. Erickson

Erickson says the "Asian flu" has weakened the economy, but the worst is over

New Mexico has long had one of the most stable economies among the 50 states, insulated from business cycles by a large government sector funded by cold war defense research. While several factors continue to protect New Mexico from business fluctuations-these include a large government sector, a small manufacturing sector, and a small but important counter-cyclical oil industry-recent expansion of high-tech, export-oriented manufacturing has exposed the state to more of the vagaries of the world economy.

Indeed, approximately 70 percent of New Mexican merchandise exports in 1997 went to Asia. No state is immune to the ups and downs of the international economy. New Mexico has come down with a case of the Asian flu. As a consequence, economic growth has slowed considerably. The high-tech sector, which has been particularly important in recent years, has been hard hit by Asia's decline. Phillips Semiconductor and Motorola both have had layoffs. Intel, the state's largest hi-tech employer, is expected to downsize by close to 20 percent by the end of the year. Overall, the Asian flu has shaved about one percent off the state's growth rate during 1998. Nonagricultural employment growth has slowed to about 1.8 percent through the third quarter, which is slower than the national economy. The manufacturing sector has seen a decline in employment.

The outlook for the New Mexico economy during the next 18 months depends in large part on events in Asia. Fortunately, while the Asian recovery will be long and many problems remain, Asia has seen the worse.

New Mexico will also experience moderately strong income growth during 1999. Nonagricultural employment growth should average 2 percent during 1999. Current dollar personal income should increase by a moderately strong 5 percent in 1999 and 2000. (Personal income, adjusted for inflation, should increase by 2.5 percent). Employment growth should increase 2.5 percent by 2000. Manufacturing employment should increase by 1.5 percent and may accelerate during 2000. Construction employment is expected to remain more or less fiat. The real estate market, which recovered in 1998 thanks to low interest rates, will continue to be strong during 1999 and into the year 2000, although growth rates will moderate.

While the forecast for the state economy is moderately good, the outlook for southern New Mexico is more problematic. Historically low copper prices have lead to a cut back ill the mining industry in Grant County. The reduced supply of raw materials led to the temporary closing of the 100-year-old Asarco El Paso copper smelting plant, which will result in a loss of 400 jobs. The slowdown in El Paso is a drag on southern New Mexico.

Overall, the southern part of the state will likely experience slower growth than the state in general. Las Cruces remains a bright spot in the outlook for southern New Mexico. The city has experienced 3 percent employment growth during the last year. Increased enrollment at New Mexico State University, expansion of telemarketing facilities as well as the expansion at the Santa Teresa border crossing should lead to continued employment growth.

CHRISTOPHER A. ERICKSON IS AN ASSISTANT PROFESSOR OF ECONOMICS AT NEW MEXICO STATE UNIVERSITY