In our most recent Economic Trends Monthly report, you will continue to see the dichotomy between the U.S. and San Antonio economies. As you are well aware by now, the U.S. economy has hit a soft patch, and there is even an increasing number of discussions about the possibility of a double-dip recession. I think the main determinant of the U.S. economy slipping back into recession is how quickly the policy uncertainty can be reduced. At the mid-year economic update in July, I gave my projections under the assumption that an agreement would be reached on the debt ceiling and the deficit and the U.S. would keep their credit rating. Well, as you know by now, that assumption was only partly correct. With the downgrading of the U.S. credit rating, the uncertainty that was very temporarily reduced with the budget ceiling agreement was re-injected into the economy. Combined with the other policy uncertainty, I think this is one of the main reasons why the national economy has stalled out. The big concern with the credit rating downgrade was its potential impact on interest rates. While it increasingly appears that it may not drive interest rates upward, uncertainty still exists around this impact that is causing many to hesitate from fully engaging in the economy. It is restricting demand for and supply of business loans, limiting business investments, and causing consumers to delay some of their spending. Additionally, a U.S. housing market still searching for a bottom, concerns from the E.U. sovereign debt issues, and slowing growth in China and other developing countries are also not helping the recovery. With all of these negative factors in play, it seems like the recovery for the remainder of the year may be slower than all of us would like.
Fortunately, the economic picture in San Antonio is a but more optimistic, as you can see in the report. Based on the business cycle Index (a broad measure of how the economy is concurrently growing) for San Antonio, the local economy is still growing, and according to the leading index for Texas, the state economy should continue to grow into the near future. While employment continues to grow in San Antonio, the growth rate has not yet been strong enough to pull down the unemployment. The government and construction sectors are the main drags on employment growth. As of July, the unemployment rate in San Antonio registered 7.7% and has fluctuated slightly around that level since about the beginning of 2010. At our Mid-Year Economic Update, I stuck with my forecast made in January of employment growth between 2.75%-3.25% for this year in San Antonio with the economy likely to see growth at the high end of that range. That was assuming resolution to the debt ceiling and the U.S. government maintaining its credit rating. As already mentioned, that assumption was not completely correct. You know what they say about assumptions. I still think we will see growth continue to pick-up in San Antonio, but given that the national recovery will not be as strong as hoped, we may end up toward the bottom end of that range rather than the top end. Our local economy will continue to outshine the U.S. and other metropolitan economies throughout the country.