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01/27/2010
Geaux Saints! On to Miami!
The Sixth Federal Reserve District is currently pro-football central. In just over a week, Miami, home to an Atlanta Fed branch office, will host Super Bowl XLIV (44, for those of us who are Roman numeral-challenged). That game will feature the New Orleans Saints—from another city that is home to an Atlanta Fed branch office.
Hosting and playing in the Super Bowl will be a shot in the arm to the economies of Miami and New Orleans. And they need it.
Few cities have felt the recession as deeply as Miami. Employment in the Miami-Ft. Lauderdale metro area peaked in December 2007. Between then and July 2009, a total of 225,000 jobs were shed, which amounts to a 9.2 percent decline. Miami has seen a bit of a rebound in employment since then, driven largely by local government hiring and a small increase in retail.
In the New Orleans metro area, the job losses have not been nearly as severe, in large part because of ongoing rebuilding efforts as New Orleans continues to recover from Hurricane Katrina. Employment peaked in December 2008 at 531,500 and then declined by 12,000, to 519,500, in July 2009 (–2.3 percent). Since July, New Orleans has added just under 5,000 jobs, with more than half of these in the healthcare and education sector. However, overall employment levels remain well below pre-Katrina levels—by 79,500 jobs, to be exact. The latest "Metropolitan Report" from the University of New Orleans Division of Business and Economic Research notes that post-Katrina population and employment growth stabilized before the recession began, therefore a large part of those 79,500 jobs represent a structural loss.
So, Miami is experiencing a cyclical downturn and New Orleans is still feeling the effects of Katrina. How much of an impact will hosting the Super Bowl have on Miami, and how much of a boost will playing in the game give New Orleans?
The positive impact of hosting big-time sporting events has been the subject of debate and a number of economic studies. Matheson and Baade conclude in their paper, "Padding Required: Assessing the Economic Impact of the Super Bowl," that
Recent NFL studies have estimated that Super Bowls increase economic activity by hundreds of millions of dollars in host cities. Our analysis fails to support NFL claims. Our detailed regression analysis revealed that over the period 1970 to 2001, on average Super Bowls created $92 million in income gains for host cities, a figure roughly one-quarter that of recent NFL claims. While this figure, like any econometric estimate, is subject to some degree of uncertainty, statistical analysis reveals that, on average the Super Bowl could not have contributed, by a reasonable standard of statistical significance, more than $300 million to host economies.
Nevertheless, Miami will receive a much-needed shot in the arm even if the overall impact on economic activity is not as great as anticipated. Add in the Pro Bowl, which will be played this coming weekend, and the overall impact will be greater.
As for the impact on New Orleans, measurement is even less tangible than in the case of Miami. Let's look at it in two ways: first the ongoing impact of the Saints on New Orleans, then what playing in the Super Bowl means to the economy in the short term.
Regarding the longer term, a report by University of New Orleans Chancellor and economist Timothy P. Ryan, "The Economic Impact of the New Orleans Saints," states that the Saints continue to be an essential revenue producer for the city of New Orleans by serving as an engine that pumps more than $600 million annually into local parishes and the state.
As for the short-term economic gains, there will certainly be more retail purchases of Saints paraphernalia and additional revenue that having a successful sports franchise generates, but the intrinsic psychological impact on the overall recovery of New Orleans is immeasurable.
So, even if some folks don't cheer for the Saints on Super Bowl Sunday, we will all be cheering for both New Orleans and Miami for the boost their economies will receive from the game.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
January 27, 2010 in Economic Growth and Development, Labor Markets | Permalink
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01/20/2010
Regional retail holiday sales wrap-up: Strong start, feeble finish
National results
Nationally, retail sales in December were disappointing. A review shows national retail sales posted a strong gain of 5.4 percent from December of last year, the largest year-over-year growth since November 2007. However, December 2008 posted dismal retail sales numbers, so this gain should not be weighted too heavily. On a month-to-month basis in 2009, the market showed signs of rallying; retail sales looked strong in November, anticipating the beginning of at least adequate holiday sales. But hopes were dashed as the numbers came in reporting a drop of 0.3 percent in national retail sales from November to December. The Bloomberg market consensus predicted an increase of 0.5 percent for the same time frame. This information could suggest that most consumers did their holiday shopping in November rather than December 2009 as November retail sales were comparatively strong on both a monthly and annual basis. Coming out of the 2009 holiday season, the national retail sales trend remains positive for the year and appears to be showing growth.
Regional results
Regional retail sales were slightly more encouraging than the national results. Retailers throughout the district reported that sales either met or surpassed expectations in December. Because expectations for holiday sales were conservative at best, retailers had prepared accordingly by choosing to keep inventories at low levels, and many expressed that this "just in time" level may be the new norm.
In December, about half of our contacts reported sales above year-ago levels. Similar responses were logged when we asked how the entire holiday season stacked up to last year's experience. Information gathered from other retail contacts showed strength in discount stores and outlets while high-end/luxury stores had a mixed performance during the holiday season.
What can we take from this?
Overall the nation experienced disappointing holiday sales. While November numbers looked promising, the trend did not continue into December. Regionally, retailers appear to have experienced somewhat stronger holiday sales trends, especially in December, than the nation. Retail surveys for September, October, and December 2009 reported about half the retailers in the Southeast expressing optimism for the coming months—the highest levels since September 2007, which is an encouraging sign.
By Courtney Nosal, a research analyst in the Atlanta Fed's research department
January 20, 2010 in Inventories, Retail, Southeast | Permalink
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01/13/2010
Automobile production's impact on the Southeast
Automobile production has become a major industry in the Sixth District and has significant impact on the economic health of the region. Recently, the near-term outlook for several regional assembly plants brightened because of two major developments. The first development was a stronger-than-expected rebound in national vehicle sales at year-end. The second piece of positive news concerned changes in the production mix announced by some regional auto manufacturers. Additional facilities recently opened or scheduled to begin production also bodes well for the future of the auto industry in the region.
National vehicle sales rose in December, up to 11.2 million units compared to 10.9 in November 2009 and 10.3 million in December 2008. Although economic uncertainties such as high unemployment and low consumer confidence will likely continue to pressure auto sales, the reported progress is encouraging.
The national economic downturn had a drastic impact on auto production and auto assembly utilization rates. According to MonthlyAutocast.com, national and Southeastern plants' utilization rates, defined as the share of vehicle production volumes to plants' capacity, dropped to 42 percent in early 2009. By the fourth quarter of 2009, however, utilization rates climbed to over 60 percent as most automakers rebuilt vehicle inventories depleted by the "cash for clunkers" program. According to Cliff Swenson, editor of MonthlyAutocast.com, December 2009 capacity was 71 percent, a bit higher than in November, but still anemic at best. Swenson noted that although at year-end dealers were keeping leaner vehicle inventories, with business picking up, a need to rebuild inventories, and higher exports, he estimated that capacity utilization rates will steadily rise in the next two years.
Favorable developments for changes in the production mix of several automakers have also brightened the near-term outlook for auto production. According to the December 2009 sales report from JD Power & Associates, the sales pace of fuel-efficient autos like the Nissan Versa, Honda Fit, and others far outperformed the year-over-year 7 percent increase for all vehicles.
Additionally, several new facilities have begun or will soon begin vehicle production in the region—for example, Kia in West Point, Ga., and Volkswagen in Chattanooga, Tenn. Increased assembly will not only result in additional jobs at the plants themselves but for suppliers as well. Auto industry employment trends from the U.S. Bureau of Labor Statistics show the importance of auto assembly production in job creation at the companies of parts suppliers. According to BLS data (NAICS 3361 and 3363), one job in an assembly plant supported 2.8 jobs in motor vehicle parts industries during 2008. These facts are confirmed by many communities in the region that have seen the spread of jobs in the parts suppliers industry around the fastest-growing regional assembly plants.
The chart below gives an outlook for regional auto production:
Highlights regarding future auto production in the region:
- According to MonthlyAutocast.com, future production estimates for eight regional producers are much higher than the depressed volumes reported in 2009. Several regional auto producers recently announced plans to adjust their production mix to rapidly changing vehicle demands.
- Automotive News reported that Mercedes Benz USA announced plans to produce its C-class sedans at its plant in Vance, Ala., with expected production starting in 2014. The Vance plant currently produces the M-class SUV and R and GL crossovers, with some shipments exported to Europe. With a nearly 60 percent utilization rate, during 2009 this plant produced about 91,000 vehicles, far below the 150,000 assembled a year earlier.
- In late 2009, Kia Motors, a subsidiary of Hyundai, started production of its Sorento crossover at its West Point, Ga., plant, with an annual estimated production of 100,000 vehicles by late 2010. This is a sister company to the Montgomery, Ala., plant that assembles the Hyundai's Sonata and Santa Fe models. Currently, demand for Hyundai vehicles is strong with some models taking market share from discontinued domestic models.
- Nissan plans to add capacity for a new wave of light commercial vehicles, including the Leaf, the nation's first electric vehicle, which would start production in late 2011. According to company officials, Nissan is expanding its Canton and Smyrna, Ga., facilities to update its production mix to more fuel-efficient vehicles. This news is important for a regional company with the largest output (about 500,000 vehicles scheduled to be assembled in 2010).
- Decisions for Toyota's Tupelo, Miss., plant are wild cards in the regional production game. News reports from Tokyo are pointing to the company's continued interest in adding production in the United States, its largest and most profitable market. The $1.3 billion plant was to open this year and produce the Prius, but these plans were cancelled in late 2008 as fuel prices dropped and vehicle demand weakened.
- Volkswagen is opening a $1 billion facility in Chattanooga, Tenn., in 2011 and plans to employ 2,000 workers. Production plans are supported by recent strong demand for VW products and by company officials recently stating plans to more than double its sales in the United States.
The outlook for the automobile industry in the Southeast, like the outlook for the nation, shows signs of a slow recovery.
By Gus Uceda, a senior economic research analyst in the Atlanta Fed's research department
January 13, 2010 in Automobiles, Employment, Manufacturing | Permalink
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01/06/2010
Looking ahead to 2010
January is the month for outlooks. The Atlanta Fed's 2010 Outlook for the region starts by noting that:
"The region, like the rest of the United States, weathered a difficult year in 2009, but indications of a turnaround in the economy suggest a less rocky 2010. However, daunting challenges remain before Southeasterners can be confident of a full and lasting recovery."
The outlook goes on to describe current and expected performance in several sectors. Here are a few of the highlights:
Employment
The decline in initial unemployment claims suggests that job losses will continue to ease into the next year. In 2008, when employment losses accelerated, the big question was, When would job losses subside? In 2009, as job losses eased in parts of the Southeast and the nation as a whole, the question turned to, When would employment expand and labor markets recover?
Two factors should support employment growth in 2010. As of Oct. 31, 2009, Southeastern states received less than 35 percent of the federal stimulus funds they were awarded, and this influx of funding should continue to fortify the jobs picture in 2010. Additionally, after four quarters of contraction, the U.S. economy expanded in the third quarter of 2009, which should encourage hiring.
On the other hand, a number of factors could dampen employment recovery. Before hiring, firms will likely rely on current workers for increased productivity. Several Atlanta Fed regional business contacts across the Southeast have indicated that they want to see a few months of sustained growth before they consider increasing hours for current workers or recalling laid-off workers, suggesting that employers may require even longer sustained growth before they hire new workers.
Once firms begin to hire, the rate of hiring may be weak compared with previous expansions. Some business contacts indicated that they have not only reduced their work forces but have structurally changed their firms so they might need fewer workers in the future. Furthermore, the large number of firms closing across the Southeast produced permanent layoffs. For example, the region's auto parts manufacturers will continue to feel the pinch from auto plant closings. Despite some recent improvements in the economy and easing of job losses, Southeastern labor markets are far from recovered.
Auto production and manufacturing
The outlook for Southeastern auto production in 2010 is mixed. Factors such as imbalances among vehicle production and consumer demand, tight credit markets, and low consumer confidence will continue to limit discretionary spending on autos and thus production flows.
On the positive side, foreign automakers are investing heavily in the region, and the economic ripple effects will be felt for years to come. Volkswagen is opening a $1 billion facility in Chattanooga, Tenn., in late 2010 or early 2011 and plans to employ 2,000 workers. Parts suppliers for the new plant will create more than 11,000 additional jobs, according to a University of Tennessee study. Kia Motors also opened its West Point, Ga., plant in the third quarter of 2009 to manufacture its Sorento model, a move that will bring 1,200 jobs to the area and have economic effects felt fully in 2010.
Manufacturers other than automakers are also putting down Southeastern roots. Mitsubishi's Pooler, Ga., plant producing advanced steam and gas turbines and servicing turbines used in power generation is expected to add 500 jobs to the region in early 2010. High-tech firm GS Yuasa is scheduled to open its doors, creating 100 jobs in Roswell, Ga., producing lithium-ion battery packs. NCR is already making ATMs in Columbus, Ga., and plans to employ 870 people during the next three years. Additionally, Huiheng Medical is opening a Baton Rouge, La., plant that will manufacture radiation treatment devices, creating 300 jobs in the area.
Real estate
In the coming year, Southeastern housing markets will continue their recovery, but activity will remain weak by historical standards. Bank-owned properties will continue to come to market, particularly in Florida and Georgia, and will continue to depress home prices and keep construction activity in check. Homebuilders have found it difficult to compete against bank-owned properties that have typically sold below replacement cost.
Southeast commercial real estate (CRE) markets will remain challenging in 2010 although activity should stabilize and slowly improve during the year. Construction backlogs are currently at very low levels across most of the region, and financing is likely to remain tight, particularly for CRE projects. Consequently, commercial development should remain at low levels, and projects will remain largely build-to-suit.
Take a look at the entire issue of EconSouth for more detail and reports on other sectors as well.
In addition to the Atlanta Fed's outlook, several university research centers produce economic outlooks for their regions. These centers are part of our Local Economic Analysis and Research Network (LEARN), and most produce updates to their outlooks throughout the year.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
January 6, 2010 in Automobiles, Employment, Manufacturing, Outlook, Real Estate | Permalink
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