Thread: Housing Slump, Crackdown Cut Flows, Hurt Mexican Peso

Housing Slump, Crackdown Cut Flows, Hurt Mexican Peso

By Valerie Rota and Alexander Ragir

May 29 (Bloomberg) -- Ernesto Perez, a 27-year-old Mexican immigrant, says construction work in New York has become so scarce he's stopped sending money back to his parents in the southwestern state of Guerrero.

``If I don't find work soon, we're moving back home,'' Perez said last week as he walked away from the corner in Queens, New York, where he and dozens of Hispanic workers hope to get chosen for construction jobs. On this day, Perez gave up after a six-hour wait.

The U.S. housing slump is squeezing Mexican migrant workers from Los Angeles to New York, where permits for new home construction are down 20 percent this year, according to the Census Bureau. That's reducing the pace of money transfers, the second-biggest source of dollars in Mexico after oil exports, and turning the peso into a laggard among Latin American currencies.

Remittances rose 3.4 percent in the first quarter, the slowest growth in eight years. The peso has strengthened 0.03 percent this year to 10.8165 per dollar, the second-worst performance among the most-traded currencies in the region.

Cross-border transfers, which totaled $23 billion last year, also have been hurt by President George W. Bush's crackdown on illegal immigrants. Bush increased security along the border and stepped up raids on factories hiring undocumented workers to help win congressional support for a bill that would give illegal immigrants a chance for permanent residency.

The number of people caught trying to enter the U.S. illegally from Mexico dropped almost one-third in the first quarter to 265,000, according to U.S. Border Patrol data.

Decline Predicted

The crackdown ``certainly has an impact,'' said Pia Orrenius, an economist who tracks immigration and remittances at the Federal Reserve Bank of Dallas. ``It raises the cost of coming over.''

The only Latin American currency to do worse than the peso this year is the Argentine peso, which has fallen 0.7 percent because of daily dollar purchases by the central bank. The Colombian peso gained the most, up 17 percent, followed by the Brazilian real, up 9.6 percent.

Morgan Stanley and Dresdner Kleinwort predict the Mexican peso will fall for a second straight year because of the slowdown in money transfers, a drop in oil production and weakening demand for the country's exports. New York-based Morgan Stanley forecasts a 5 percent drop to 11.4 pesos per dollar by year-end. Dresdner, the investment banking unit of Munich-based Allianz SE, predicts it will slide to 11.19. The peso fell 1.7 percent in 2006.

Leading Indicator

``We should expect some weakness,'' said Omar Borla, a Latin America economist with Dresdner in New York. ``Remittances won't help the currency as much as they did in the past.''

The decline in illegal immigrants mirrors the U.S. housing market. Residential construction in the U.S. fell by 17 percent in the first quarter, according to the Commerce Department. The construction industry is the biggest source of work for Mexicans in the U.S., accounting for about 20 percent of jobs, data from Mexico's central bank shows.

The pace of money transfers has moved in step with the U.S. construction industry since the late 1990s, said Dawn McLaren, a research economist at Arizona State University in Tempe. The correlation between the two has become so strong that she uses border apprehensions as a ``leading indicator'' for the U.S. housing market.

McLaren said she expects transfers to slow ``at a more visible rate than we have previously seen.''

`No Work'

Perez, who lives in the Corona section of Queens with his wife, two-month-old son and brother, said construction work was stronger when he arrived a year ago.

``Last summer I had work six days a week, making $80 a day,'' Perez said. ``It's started off slow this year. If I don't have any money, I can't stay.''

Some 2,500 miles away (4,023 kilometers) in Los Angeles, Miguel Saldivar is also struggling to find work.

``There has been no work for two, three weeks,'' Saldivar, 44, said as he waited at the corner of Oxnard Street and Van Nuys Boulevard, one of more than 100 intersections where day laborers congregate in Los Angeles. He said he sends as much as 75 percent of what he earns back to his mother and brother in Mexico.

``It depends on how many days we work,'' Saldivar said. ``Now I am making nothing.''

Rufina Rodriguez, a 46-year-old mother of three, is feeling the squeeze in Mexico City. Her brother, who picks strawberries in California, has sent her less than $100 this year, down from about $230 each month in 2006.

Slowing Growth

She said her brother, an illegal immigrant, is holding on to more money, concerned he will lose his job because of the crackdown against undocumented workers.

``Its tougher now,'' Rodriguez said as she walked out of a bank branch in downtown Mexico City. ``He says the authorities are on top of them.''

The slowdown in transfers will start to crimp consumer spending in Mexico, said Alberto Ramos, a Latin America economist at Goldman Sachs Group Inc. in New York. Almost 90 percent of transfers received in Mexico go to consumption, according to the central bank.

The economy expanded 2.6 percent in the first quarter from the year-ago period, down from 4.8 percent last year.

``Families will have less money to spend and so activity will slow,'' Ramos said. ``That will strain the peso.''

To contact the reporters on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net ; Alexander Ragir in New York at aragir@bloomberg.net .

Last Updated: May 29, 2007 12:34 EDT

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