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11/25/2009
Holiday sales cheer?
In October of this year, the National Retail Federation (NRF) released its 2009 holiday forecast, projecting a 1% decline in holiday retail sales, to $437.6 billion. The NRF said "While this number falls significantly below the ten-year average of 3.4 percent holiday season growth, the decline is not expected to be as dramatic as last year's 3.4 percent drop in holiday retail sales."
Similar sentiment was shared by retail associations and other retailers and experts in the region. For example, Georgia Retail Association president John Heavener said in a November 15 article in Macon.com that "We are hoping that if we can come in this year somewhere flat with last year, we will be thrilled."
The Florida Retail Federation (FRF) said that holiday sales in 2009 are expected to be better than 2008. Rick McAllister, president and CEO of the FRF, believes the retail industry will break even, which is better than 2008.
Kerry Gatlin, dean of the College of Business at the University of North Alabama, discussed the holiday shopping season in a Times Daily article in late November. He said that "From all indications, it's going to be a pretty good shopping season. This won't be a record-setting Christmas shopping season, but there's no reason to think it will be gloom and doom, either."
At a recent meeting with mall managers, we learned that many expect an increase in holiday sales compared to last year. There seemed to be a feeling that shoppers will "do Christmas right" since they have been cutting back and saving since the recession began.
The Atlanta Fed's most recent retail survey revealed that retail conditions are continuing to strengthen throughout the region. The majority of retailers that participated in the District's retail survey reported that activity was at or above their expected levels. Sales, traffic, satisfaction with inventory levels and expectations for the upcoming months continued to improve. Click here to see the full report.
Taken as a whole, these reports suggest that this holiday shopping season may indeed be a bit more cheerful than last year. We will continue to track retail activity in the region throughout December and will share our findings in future SouthPoint postings as well as in our Regional Economic Information Network reports on consumer spending.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
November 25, 2009 in Holiday Sales, Retail, Southeast | Permalink
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11/19/2009
Is regional residential construction rebuilding?
The short answer is no, regional residential construction is not rebuilding. After a hopeful spring and summer that saw new home construction cease its decline and begin to tick up, recent data show the rebound has stalled. Homebuilders polled in the six states of the Atlanta Fed district (Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee) indicated that new construction activity remained weak and that their expectations for future construction was tepid at best.
National housing starts fell 10.6 percent from September to October, according to the Census Department's latest housing construction report. Single-family housing starts declined a monthly 6.8 percent in October to a level below the average of the third quarter of 2009, suggesting a possible stalling of any rebound in the housing market. However, the level of single-family starts remains above that of the first half of the year.
Consistent with this impression of some stalling in the modest recovery in single-family housing, the National Association of Homebuilders Housing Market Index remained at very low level of 17 in November, indicating that homebuilders still see conditions as very poor (the "breakeven" level of the index is 50).
Data for new home starts in the region follow the national trend's path although the decline has been a bit steeper. The chart below shows the level of new residential construction starts from January 2005 through October 2009. The data are normalized to January 2005 = 100.
Many of our contacts in the housing industry conveyed optimism that extending the first-time homebuyer tax credit into next year and expanding eligibility would have a positive impact on construction activity. However, they also expressed concern that the number of qualified potential buyers for new homes was not increasing. While it seems clear that residential construction has stopped declining, we cannot yet say that regional construction is rebuilding.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
November 19, 2009 in Housing, Southeast | Permalink
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11/10/2009
Recession lessons
As business owners and CEOs in the Southeast react to the positive media stories on third quarter GDP, they have also been quick to remind us that while the recession may be over technically, there is still fallout to be dealt with.
Our contacts note that economic headwinds (things like high unemployment, cautious consumers, and uncertainty about commercial real estate, just to name a few) are having an effect on their business decisions, but all is not negative.
On the contrary, companies positioned to ride out a deep downturn like the one we are experiencing are providing a glimpse into how our region's most successful organizations got that way. Here are a few "lessons from the recession" from some of our business contacts:
- It's great to have access to credit and even better to have access when you don't need it. Many of our contacts have emphasized the importance of maintaining an "emergency fund" for their businesses much like financial planners encourage for individuals.
- Managers should take advantage of the unprecedented level of talent that is available in the labor market. We hear repeatedly that one of the best places to deploy emergency fund dollars is with new employees who can add immediate value to the enterprise. Some of the stories we've heard paint the picture of highly productive new staff doing the jobs of two and even three staff, and at the same time, challenging other staff to increase their own productivity. Our contacts also note that slow periods provide an opportunity to further develop strong performers in anticipation of deploying more productive and flexible human resources when demand picks up.
- While many organizations have reduced both staffing and other expenditures, it's been noted by some contacts that even after the "first wave" of cuts, they were able to find additional savings through more creative uses of current resources. The point here is that when conventional wisdom would make one think that there was no more opportunity for efficiency gains, a deeper gaze can identify additional opportunities that will set them apart from the competition.
- It appears there is a new paradigm for managing inventories at lower levels as compared to the past and that this won't change once the recovery gains momentum. Managers in the best companies will work harder to ensure idled assets are minimized.
- We have also heard repeatedly about the importance of relationships with both vendors and customers. There is a heightened sense of the importance of knowing whom the organization works with, why they are important to the enterprise, and how the relationship can be strengthened through increased communication and flexibility.
While these are only a few of the lessons our contacts have shared, perhaps it is even more important to recognize that tomorrow's most successful businesses are those that are planning for the future today.
Chris Oakley serves as vice president and regional executive of the Jacksonville Branch. His territory includes all of central and north Florida, including the Panhandle. He and his counterparts in other parts of the Sixth District work to develop networks of individuals with "boots on the ground" who provide economic insight and intelligence to the Federal Reserve Bank of Atlanta. This information supplements the data that are analyzed and used in forecasting, and ultimately, policymaking.
November 10, 2009 in Recession, Southeast | Permalink
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11/04/2009
State revenues and recessions, part two
Last week we noted that this recession has hit state government finances hard. Declines in revenue have been deep, and Southeastern states are no exception. The reason is rather straightforward—the economic downturn was deep in the region, and the falloff in economic activity led to unprecedented declines in state revenues. States in the region responded by reducing spending, cutting services, and reducing employment. Direct federal assistance to state governments through the American Recovery and Reinvestment Act (ARRA) has helped mitigate revenue shortfalls, but pressure on budgets remains significant. How long this pressure remains is an important component of the outlook for 2010 and beyond.
Gauging the downturn and its impact on state finances
Since state level GDP data are only available on an annual basis, we look to higher-frequency series to more closely track economic activity. The Federal Reserve Bank of Philadelphia produces a monthly coincident index for each of the 50 states. The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP) so long-term growth in the state’s index matches long-term growth in its GDP.
Chart 1 shows the year-over-year percent change in the weighted average coincident indicator for the six states in the Sixth Federal Reserve District (Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee) and total tax revenues for these states. The current downturn represents the deepest decline for both measures, and it also reveals how the two are related as the decline in economic activity hits revenue resources—especially sales tax intake—quite hard during recessions.
The current decline in Southeastern states' revenues is also deeper than in previous downturns. Chart 2 takes the data used in Chart 1 for total state tax revenues back to the early 1970s. In April 2009, the year-over-year measure reached –13.7 percent before improving to –10.2 percent by September. Before the current year, the deepest decline in total state tax revenues for the region was –3.5 percent, reached in March 2002.
The impact on state budgets
State spending is generally procyclical. When economic activity is positive and tax revenues are strong, states tend to spend more on services and programs like education and transportation. During economic downturns, states tend to spend more on social welfare programs. However, this spending is constrained by limited revenues. State budget shortfalls have been significant in the region. The table below estimates these shortfalls for the current fiscal year.
States have responded by cutting spending and services. According to The Center on Budget and Policy Priorities (CBPP), four Southeastern states have enacted cuts in Medicaid or children's health insurance programs: Florida, Georgia, Louisiana, and Tennessee. Cuts include reduced or frozen reimbursements to health care providers. The CBPP also reported that several states have also made cuts to education budgets, including K-12 and higher education budgets. In addition, state employment has also been curtailed. For example, Georgia imposed furloughs and/or pay cuts for some state employees, and Tennessee’s governor announced the elimination of more than 2,000 state positions, about 5 percent of the state workforce. Hiring freezes have also been ordered in Alabama, Florida, and Georgia.
The American Recovery and Reinvestment Act
Christina Romer, chairman of President Obama’s Council of Economic Advisors, testified before Congress in October that a total of $43.8 billion in federal stimulus has been devoted to state fiscal relief. An informal Atlanta Fed survey of Southeastern state budget officials found that the majority of these funds was being applied to address budget shortfalls in Medicaid and education. But as noted earlier, budget gaps persist. While it’s clear the ARRA has helped states under fiscal stress, it has not completely bridged budget gaps.
Outlook
FRB Atlanta President Dennis Lockhart noted in a September 30 speech in Mobile, Alabama, that "I agree with all who are declaring that a technical recovery is under way."
Improvements can also be seen at the state level. Two Southeastern states showed monthly increases in their coincident economic activity indexes in September compared with zero in July and one in August. For those states that continued to experience month-to-month declines, the rate of the deterioration was much smaller than earlier in 2009. Unfortunately for states budgets, the emerging recovery will not result in immediate relief.
The Rockefeller Institute of Government estimates that it takes three to five years after the onset of serious revenue declines before states again reach their precrisis levels. The chart below, taken from a September presentation by Senior Fellow Donald Boyd, plots this analysis.
Summing up, the impact of the recession on state government finances has been and remains severe. The downturn in economic activity has led to declines in state sales tax intake as well as drops in other revenue resources. Budget cuts have been enacted, and the relief from federal stimulus funds has not fully mitigated the budget shortfalls. As a result, pressure on state budgets remains significant. Despite the fact that the economy is growing again, state finances are expected to remain challenged over the next several years.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
November 4, 2009 in Recession, Southeast, Taxes | Permalink
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SoltanGris |
12/09/2009 at 10:05 AM
Excepting Florida, all of those states are already losers. They take more than they give WRT federal tax dollars. Very strange considering the strong 'conservative' and 'individual freedom' sentiments in those areas, eh?