Editor's Note: This is the third of a multi-part series of articles on the "2012 Economic Outlook: Where is the Economy Heading," a symposium hosted by Western New Mexico University Business School, with representatives from the Federal Reserve Bank as speakers.

Robert W. Gilmer, vice president in charge of the El Paso Branch of the Federal Reserve Bank of Dallas, spoke on the Outlook for the New Mexico Economy.

He titled his presentation "New Mexico Economy Still Struggles to Recover."

"New Mexico lost about 6 percent employment and has added only 1 percent so far," Gilmer said. He explained the data was centered in the Albuquerque area, "but the data improves across the southern part of the state."

The progress is due to copper in Grant County, cotton and pecans in Las Cruces, and oil in Hobbs, Portales and Carlsbad.

"New Mexico since 2000 has strongly outpaced the U.S." Gilmer said. "The downturn has been deeper in Albuquerque and Farmington. Las Cruces skirted the downturn, because El Paso helped with the expansion of Fort Bliss."

However, he pointed out that the New Mexico monthly job growth lags U.S. growth in the recovery, and Albuquerque job growth "has yet to get off the ground. Santa Fe has picked up over the past several months, and Las Cruces has turned weak in recent data. Farmington also has problems."

If a line were drawn south of Albuquerque, it would show the northern part of the state suffering the deeper recession, with the southern part having a milder recession and improving faster than the north. Overall, the New Mexico unemployment rate rose later and more slowly than the U.S. and did not rise as high.

Right now, the U.S. economy and housing markets, commodities and global growth, and oil and natural gas markets are driving New Mexico's economy.

Gilmer pointed out that households paying off debt is good for the long term, but weakens spending in the short term. Retail sales have suffered and remain weak, but tourism is picking up, so lodger's tax increases.

New Mexico housing markets are following the U.S. lead, with existing home sales in the state still not improving, and home prices continuing to fall in metro areas.

The share of homes, at the low point of the housing boom, showed that only 2 percent of Los Angeles residents with a median income could afford houses. Many were drawn to New Mexico, which also drew speculators. In Albuquerque, only 39 percent of homes were affordable for median-income residents.

"I don't see stability in the New Mexico housing market yet," Gilmer said.

His next topic was the commodity boom.

"Primarily, the growth of the developing world is driving the commodity boom," Gilmer said. "It was brought to us by the Chinese raising their living standards. Dollar depreciation also raises the purchasing power of other currencies, and raises prices of imports to U.S. consumers."

He explained low interest rates in the U.S. can raise the price of commodities by lowering the cost of borrowing, reducing the price of storage and encouraging speculation.

Global growth fell into recession in 2009, but was back on track growing rapidly in 2010.

"Emerging economies are driving the growth of commodities, and the less developed countries are now approaching the gross domestic product of developed countries," Gilmer said. "However the global growth potential is for slower growth through 2013."

Acquisition costs of crude oil by refiners dropped quickly in 2008-09, but is rising again, mainly because of supply issues in the Middle East. The recovery in oil is led by Asia.

Natural gas was up to $10 per thousand cubic feet in 2008, but has dropped to around $3 per thousand cubic feet.

"Every dollar drop costs New Mexico $11 in revenues," Gilmer said. "There is a weak industrial demand due to the slow recovery and due to enormous new supplies and a warm winter."

The international rig count is reaching new peak levels, and the U.S. rig count has passed prior peaks. In the past few years, 80 percent of drilling is for natural gas, using horizontal drilling and hydrofracturing.

"New Mexico gas production is declining, while oil production is slightly rising," Gilmer said. "Oil employment and the rig count are recovering."

The San Juan Basin is driven by natural gas, and few rigs continue to work there. In Southeast New Mexico, oil-directed drilling dominates.

Grant County job growth bounced back from recession in 2011, with 5.4 increase in employment. The total wage increase is up 12.3 percent.

"We are beginning to see New Mexico unemployment bottoming out," Gilmer said.

He stood for questions.

Q: I have a concern about whether natural gas is clean.
A: I'm not a scientist, so I can't answer that question.

Q: Do we overprotect or underprotect banks?
A: During the crisis, Fed Chairman Ben Bernanke hated bailing out banks, but he did what had to be done. I refer you to Richard Fisher's report. 'Too big to fail' needs to be put behind us.

Q. Why is renewable energy not a commodity, or if it is, why was it not mentioned?
A: Renewable energy is only a commodity when it is transferred into a commodity, such as electricity. The economics of renewable energy are not good, so they have not made it to being an energy commodity.

Q: Do prices reflect subsidies to oil and gas?
A: Yes. In terms of subsidies, larger ones go to renewable energy projects for little energy created. We have seen a number of failures. (To a protest that there had been only one, Gilmer said yes, more than one).

Q: I came here 20 years ago and thought Silver City and Grant County were going to grow a lot. Why haven't they?
A: The trend is toward urbanization. For example, if you're in finance, you want to be in New York City, because your costs are less. If you don't like your employer, you can find another job. If the employer doesn't like the employee, he can find another.  A larger percentage of the population has gone into urban areas—to New York City for finance; Houston, for oil; California, for technology. You need to find your niche, whether it be tourism or education.

Q: With Baby Boomers and the Internet, will it change?
A: If you want nursing homes instead of International Harvester and John Deere on the edges of town, as in Hobbs and Clovis.