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| The New Mexico economy is in the
midst of a long economic expansion that began in the early 1980s. Employment and income
growth peaked in 1994 and 1995 but have begun to show signs of slowing in 1996. During the
long expansion, the New Mexico economy has become more diversified with strong growth in
services and manufacturing offsetting shrinking mining and government sectors. Though more
slowing is expected in 1996 and 1997, New Mexico will retain one of the strongest
economies the region as growth resumes a more moderate, sustainable pace.
The state's energy industry has achieved some limited gains recently as higher oil prices have boosted oil exploration and production. Natural gas prices have been soft, however, and the recent uptick in energy activity is likely to be temporary with oil prices expected to come back down in 1997. Thus, the energy industry will maintain its steady-as-she-goes performance of the past several years. Longer-term, environmental concerns should lead to increased output from the state's considerable natural gas reserves.
Drought conditions and serious problems in the cattle industry have battered the New Mexico farm economy the past two and a half years. As a result, farm income in the state slumped in 1994 and 1995 and is expected to decline again this year. The outlook is improving, however, as cattle prices move higher. Already, cattle feeders have regained narrow profit margins. While profits likely will remain elusive for the state's cattle ranchers in the year ahead, the fundamentals are pointing are pointing toward improvement.
Service-producing industries have been leading the state's expansion. Strong growth in business, engineering, and health care services have pushed service job growth in New Mexico well ahead of service job growth in the nation. Other service-producing industries such as retail trade have also been growing at a solid pace. The recent period of rapid growth in service-producing industries is growing to a close, but the state's business climate remains attractive to telemarketing and other business service firms. And while expansion in retail trade likely will slow in the months ahead, income growth in the state will remain strong enough to support moderate growth.
The manufacturing sector in New Mexico has been more volatile than other sectors over the course of the long expansion. While most other sectors avoided job losses during the national recession in the early 1990's, the state's manufacturers suffered two years of sharp declines in employment. Since then, however, manufacturing employment has rebounded with the high-technology and food processing industries leading the way. Expansion in the state's factories, while perhaps slower than during the past few years, is expected to maintain a healthy pace in the coming months.
After several years of declining employment in the late 1980s, the construction sector in New Mexico has made a strong comeback in the 1990s. Robust homebuilding, commercial construction, and public infrastructure building have pushed construction job growth in the state into double-digits for the past three years. Completion of several large projects have already begun to slow construction job growth in 1996. In the year ahead, a slower and more sustainable pace of construction activity and job growth is expected to prevail.
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