Inflation and Monetary Restraint : Too

A 40-percent devaluation and its multiplier effects could cost approximately 1 percent of the state's total employment, or about 75,000 jobs, over the next three years. Because the state has been gaining employment at an annual rate of 240,000 jobs per year, such a loss represents about four month's worth of growth. Texas' economy should continue to expand in 1995, but the peso devaluation will slow the state's growth. Before the devaluation, Texas employment was predicted to grow around 2.8 percent in 1995. With a 40-percent devaluation of the peso, growth near 2.5 percent is more likely. As the effects of the peso devaluation ripple through the Texas economy, some industries will feel a much greater impact than others. The devaluation makes Texas exports —sold in dollars—more expensive in pesos and Mexican imports— sold in pesos—relatively cheaper in dollars. In the near term, Mexico's demand for Texas goods and services may drop, which will mean production cutbacks for Texas industries that are sensitive to peso–dollar exchange rate fluctuations. T exas' close economic ties with Mexico will make the impact of the peso's plunge much stronger here than in other parts of the United States. the Mexican peso lost roughly 40 percent of its value. This dramatic devaluation should have few long-term effects on the level of U.S. employment, but it could have a substantial influence on the kinds of jobs people do and where they do them. Nowhere will these shifts be more evident than in Texas. The short-term impact of the peso devaluation could be four times stronger in Texas than in the rest of the United States. One-third of U.S. exports to Mexico come from Texas. As Texas' largest foreign trading partner, Mexico plays a greater role in the Texas economy than in the U.S. economy. Excluding trade with Mexican maquiladora plants, Mexico receives 27 percent of Texas' merchandise exports, compared with 6 percent of U.S. merchandise exports. 1 Exports to Mexico represent nearly 2 percent of Texas output but less than 0.5 percent of U.S. output. " Texas' economy should continue to expand in 1995, but the peso devaluation will slow the state's growth. "