UTEP Professor of Economics Dr. Tom Fullerton discusses the Borderplex Business Barometer for 2026. Here is a transcript of their conversation:
KC Counts:
How long have you been putting together a Borderplex business forecast?
Dr. Tom Fullerton:
Well, let's see. The first forecast that we put together was published in 1998, and we have been publishing annually every year since then. Occasionally, we have also published long-term structural trend forecasts, but those are more expensive. And so we only publish those when the stars align and and the sufficient funding becomes available to justify the investment in it. But in terms of a, let's see, short-term business cycle predictions, we publish those every year in either December or January.
KC Counts:
What's new with the new year?
Dr. Tom Fullerton:
Well, in terms of Las Cruces, some of the highlights of the forecasts are the following. First of all, the jobless rate is, let's see, likely to increase by about 40 basis points up to 5.4%. That's a move in the direction nobody likes, but by historical standards, 5.4%, you know, that's, let's see, a pretty manageable unemployment rate for Las Cruces. Dona Ana County at large, that's one that falls within the category of the metropolitan economy is still growing. And that's what we anticipate.
KC Counts:
Can you point to anything in particular as the driver for that?
Dr. Tom Fullerton:
Well, some of the growth is due to all of the investment activity, the business investment activity taking place in the southern portion of the county in and around Santa Teresa and Sunland Park. There's a lot of new activity taking place there, and not all of it is associated with Project Jupiter, in terms of the data centers that are going in. A lot of it's associated with manufacturing and warehousing that is related to international trade with Mexico. In terms of jobs, some of the highlights there, let's see, are the ones that stand out include health care and social services. Just like a lot of places in the United States, that is a source of strong employment growth this year in Las Cruces. And part of that's being driven by the Mesilla Valley recovering its status as one of the premier retiree locations in the United States. You know, the Las Cruces and up and down the Mesilla Valley that you have some of the best qualities of living in the entire country. So, it's only natural that retirees are going to be attracted to this area. The other area that is growing pretty rapidly in terms of jobs this year is financial activities, and that's driven in large part by the housing market. You know, all the retirees that are relocating here, all of the housing investment taking place in the southern portion of the county in anticipation, or as a consequence of all the business investment is translating into a big increase in the number of houses being built and the real estate market is accelerating. And so all that financial activity requires employees to be able to manage it. and make it operate efficiently. And that's, let's see, that shows up in the table. We have the detailed employment table we have for the Doña Ana labor market.
KC Counts:
In your forecast, are there any red flags that kind of go along with that report and things that you're really keeping your eye on?
Dr. Tom Fullerton:
Well, the southern portion of the county is really oriented towards international trade. And let's see, there's, let's see, I guess the biggest red flag for this year, the biggest cautionary flag, maybe it's a yellow flag. Let's see, the raceway over in Vado, but let's see, in terms of the yellow cautionary flags for the metropolitan economy this year, whether or not the United States-Mexico-Canada trade agreement gets renewed is one of the things that's really, you know, a wild card this year. And the White House seems to have an ambivalent attitude towards trade in general, and especially towards trade with Mexico. And right now, we're going through kind of a tense period because President Sheinbaum down in Mexico City criticized the actions that were taken in Caracas. And that just raises the overall, let's see, level of uncertainty regarding the eventual fate of USMCA. Hopefully, the business sector in the United States will prevail upon the White House to re-approve USMCA. Mexico has already increased its tariffs on Chinese imports, and so that does away with one of the criticisms that the Trump administration had throughout 2025 regarding USMCA. But we'll just have to see.
KC Counts:
And when you look at Las Cruces and Doña Ana County, New Mexico in general, as it compares to El Paso and the rest of Texas, what are some of the comparisons that you can draw there and the way things are different?
Dr. Tom Fullerton:
Well, both El Paso and Las Cruces have a pretty heavy reliance on public sector budgets. And in the case of Las Cruces, that's because of all the federal contracting that goes on, see within the county, both defense related as well as research related at New Mexico State University. And those budgets have been slashed. The federal budgets have been slashed and it's not clear what's going to happen with a lot of the defense related contracting this year. And so that's something that separates El Paso and Las Cruces from the rest of Texas. and the rest of the United States. And it's another, let's see, sort of cautionary flag for the Mesilla Valley, simply because whenever federal budgets get slashed, it tends to have a negative outcome in terms of a large portion of payrolls within New Mexico. State agencies up in Santa Fe, their budgets are not growing very rapidly either. And so both of those things represent some more downward risk associated with Las Cruces in general.
KC Counts:
Is that what you would say is kind of behind the expectation in terms of an increase in the unemployment rate?
Dr. Tom Fullerton:
Yes, that's definitely one of the things that's causing us. Simply put, Elon Musk and Doge did not do Las Cruces or El Paso any favors at all.
KC Counts:
So if you had to pick a checkered flag story for the forecast, the winner, if you will, what would that be?
Dr. Tom Fullerton:
The region as a whole is still very attractive. And Dona Ana County has really been successful during the last three years in terms of reclaiming, its pole position in terms of attracting both business investment as well as reemerging as a retiree destination. You know, as long as those two factors remain in place, the overall future for Las Cruces remains good. And let's see, the private sector is going to continue to expand. It wouldn't be surprising if a decade from now, the private sector portion of overall economic activity in Las Cruces was, you know, similar in size and magnitude of what's observed down here in El Paso. So for the most part, it's a bright future for Dona Ana County. It's going to stand out for much of the rest of New Mexico. But see, there are downside risks and anybody that overlooked them would be making a mistake.
KC Counts:
Anything else you think is important for the everyday person who's not an economist or a business person, maybe macroeconomics, a little bit of a tricky subject. What do you think is important for people to know and their takeaways? What should their takeaways be?
Dr. Tom Fullerton:
Well, there are some risks associated with financial markets due to the increase in federal deficit spending in 2025. And let's see, most analysts think it's going to increase even further in 2026. And the risk is that long-term interest rates are likely to go up in spite of what the White House is trying to obligate the Federal Reserve to do with respect to short-term interest rates. The bond markets will shrug off any of the Fed monetary policy actions if it becomes convinced that the increase in liquidity is simply outstripping the growth and production in the economy as a whole. And what that means in layman's terms is that mortgage rates may go up, especially during the second half of 2026. And housing is one of the areas where we spoke about, the additional economic activity occurring in Las Cruces in 2026. But if mortgage rates start going up, then the gains that are projected in this report for affordability in Dona Ana, they could turn out to be, let's see, too optimistic. Right now, the increases in affordability due primarily to the fact that mortgage rates are still expected to decrease marginally this year are such that the average monthly housing payments, at least with respect to interest payments and principal payments, are expected to decline this year. And it's been a long time since that's happened. In fact, we saw years, recent years, where monthly average monthly payments increased by 24 and 35% per year. So that's definitely a move in the right direction, but it is a risky forecasts in that the federal deficit keeps growing. So if that happens, that means that one, the number of housing units sold this year in Las Cruces will be smaller than what we're predicting. Two, it means that the number of construction jobs are going to decrease if the number of new houses being built also decrease. And this year, our forecast indicates that there's, most of the growth in residential construction is going to occur in single family housing units. There's going to be, you know, we're going to see the number of multifamily starts more than double this year, but that's starting off a real small base in terms of 2025. So there's a lot of risk associated with that aspect of this forecast, but the baseline calls for that growth to occur.
KC Counts:
We just heard some numbers associated with what the stepped-up immigration enforcement might mean for our population over the coming years. And it's quite a decrease. And I wonder if you can give some perspective on how that might impact, say, Social Security.
Dr. Tom Fullerton:
Yes, in the United States, Social Security, the Social Security revenue system is built upon the assumption of a growing labor force. And in recent years, the number of children being born in the United States has been declining. And so the increased source of population growth has come in the form of international immigration. Well, right now, international immigration. is a dirty word in certain circles within the beltway. And, we saw the news out of Minneapolis. The risk of that is, if you look at the United States, heck, if you look at Canada for that matter, historically, both of these economies have had really good capital markets, really good capital resources, really good natural resource endowments. but they've always faced shortages in terms of labor endowments. And the way they've addressed those labor shortages is to encourage international immigration from abroad. And so we have overcome the constraints to growth in both of these countries by attracting workers from other countries. Whenever the United States limits migration in fairly substantial manners like what is being attempted currently, it invariably flattens the rate of increase in the labor force. And that is what, let's see, causes the problems with Social Security. funding mechanism to become more prevalent. And so by having fewer young people available to go to work here in the United States, and the demand for those workers that see exists, what that does is it limits the volume of FICA taxes that are generated by all of those paychecks. If those paychecks don't materialize because workers can't be hired, because they can't see arrive, or if they've arrived, they have to return to their points of origin, then the Social Security Trust Fund starts shrinking a lot more rapidly than if those revenue injections were occurring. So that's the problem in a nutshell of what's going on with the Social Security Trust Fund and whether or not it's going to become insolvent. Hopefully that won't occur. If it does occur, I think that Washington, D.C. is going to really quickly reverse its stand on international immigration. It'll start actively recruiting workers from abroad, which is, you know, in sharp contrast to what we've seen since the 2015 forward. Things started, the political atmosphere really started to change in 2015, but a Social Security trust fund solvency crisis would probably reverse those attitudes. pretty quickly.
KC Counts:
I know I've kept you longer than I said I would already, but can I just ask you one more question?
Dr. Tom Fullerton:
You can, and there's another area of the forecast we haven't focused on yet.
KC Counts:
Is it AI by chance and how our jobs are going to be impacted by tech over the coming
years?
Dr. Tom Fullerton:
You know, usually a big technological breakthrough, like the internet in the 1990s or electricity, about 100 years ago. Even though it displaces certain jobs, big technological breakthroughs historically have always created more than enough new job opportunities to replace the lost jobs and generally at higher wage levels than the ones they are replacing. So at this point, can anybody rule out the possibility that artificial intelligence eliminates more jobs than it creates? Well, nobody can really rule that possibility out, but the historical evidence indicates that it's going to be in the other direction. Also, I think a lot of the predictions with regard to AI are overblown in terms of how adept AI is going to be with respect to replacing human talent, you know, in the labor force. I think AI is going to be complementary, but to fully take advantage of it is going to require a lot of new enrollments in both technical schools as well as community colleges and universities and programs geared towards the new job opportunities that AI is probably going to generate. Now, we went through something similar in the 1990s. A lot of people were worried that the internet was going to replace everybody. Instead, it created a lot of high-paying job opportunities that a number of people took advantage, including, let's see, alumni from both UTEP and NMSU. So I think that's probably what's going to occur, but I can't rule out the other possibility.
KC Counts:
All right. Now, you mentioned another area we haven't touched on. Was it something other than tech and AI?
Dr. Tom Fullerton:
Yes. And in terms of households and consumers, one additional downside risk that can't be overlooked in the context of 2026 is that consumer indebtedness, household indebtedness is higher than it was a few years ago. And all of those PPP and other specialized federal programs that emerged in 2020 and 2021, they've all been sunsetted. And so you've got higher indebtedness levels, still relatively high interest rates on most of the lending, especially the credit card loans that have been, let's see, indirectly accumulating. And so you end up with a situation where the likelihood of higher volumes of personal bankruptcies is going to be higher this year. And if any of the other risks that we discussed materialize, it could cause the increase in personal bankruptcies that are being forecast for Las Cruces and for El Paso for that matter, to actually be at a higher volumes than what the model simulations indicate. So personal bankruptcies are predicted to go up. They might even go up further than what's being projected based on the baseline forecast. In that regard, also, business bankruptcies are also expected to increase in Las Cruces as well as El Paso in 2026. And I would say there's probably, you know, more risk of a higher volume of business bankruptcies than there is a lower volume. I'd like it to be a lower volume materializing, but businesses and households have increased the volume of debt that they are carrying. If interest rates, let's see, don't go down in the manner they're predicted to right now, and if unemployment ticks up or more investment projects get canceled, we could easily see higher volumes of business bankruptcies in Dona Ana County as well this year.
KC Counts:
That certainly sounds like all the makings of a recession. And we've been hearing a lot about how the stock market has seemed pretty impervious to all the uncertainty that we've encountered, even considering COVID, I think. Any forecast in terms of when we could see a downturn or if you think we will?
Dr. Tom Fullerton:
Right now, I am not predicting a recession for the United States. I'm a member of the Bloomberg National Economics Panel, and they say if the next recession occurs, when are you predicting it to occur? I'm not predicting it before 2028, but If we keep making bad policy decisions out of Washington, D.C., eventually bad policy decisions turn into, let's see, bad economic results. So USMCA, that's an important one to watch. The United States historically has always depended upon international trade for a lot of really good reasons. When we try to reduce our international commerce, we do so at our own economic peril. By the same token, when we try to deliberately reduce the number of international migrants that we attract from abroad, we do so at our own economic peril. And there's other things that are going on. One of the things DOGE did during the first quarter last year was they slashed economic and statistics budgets so much at federal government agencies like the Census Bureau, Bureau of Labor Statistics, and Bureau of Economic Analysis, that we now have a much narrower slice of regional economic activity that we can use to monitor places like El Paso and Las Fruces. and reduced economic information, that translates into more investment mistakes being made because we don't have the quality of information we need in places that don't mimic the national business cycle the way that some places do.
KC Counts:
All right, Dr. Tom Fullerton, that is all the time we have. Thank you so much for sharing your insight with us. And we'll have links to the Borderplex business forecast for folks to dive into. Thank you so much for the time.
Dr. Tom Fullerton:
Thank you, KC. I'm glad to participate.
Update:
Dr. Fullerton has offered the following clarifications and/or corrections for items in this interview:
"DOGE reduced funding to BEA and that agency stopped publishing the jobs data it previously provided for all 3,144 counties.
Consequently, we now have less information available and that makes it more difficult to monitor and analyze business cycle developments in just about every region in the country, including ours – that is how Elon did not do ELP or LC any favors.
The increase in the unemployment rate comes from moderately slower jobs creation, even though employment is still rising.
Manufacturing, information services, and government payrolls are where most of the deceleration occurs – there is upside potential for manufacturing so that forecast may turn out to be too conservative even with higher operating costs."
