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05/26/2010
The Gulf oil spill and northwest Florida
Several universities in the region have shared their thoughts and ideas concerning the economic impact of the Gulf oil spill. As members of the Atlanta Fed's Local Economic Analysis and Research Network (LEARN), these experts provide valuable insight into local economic conditions. This week's SouthPoint highlights one such contributor, Dr. Rick Harper, director of the Haas Center for Business Research and Economic Development at the University of West Florida.
In addition to the direct negative economic impacts resulting from the spill on sectors such as tourism and commercial fishing, Dr. Harper notes in a recent report that
"It will also be seen in diminished asset values that reflect expected future lost profitability due to the damage to their income-producing potential. Above and beyond these market transactions, it will be seen in lost well-being of residents, visitors, and others who value our natural assets."
Measuring the direct impact on tourism is complicated by the fact that the Gulf Coast is largely a "drive-to" destination and that many vacationers do not plan their trips far in advance. As a result, Harper contends that
"[F]ears that the oil spill may reach our [northwest Florida] shores this spring or summer is clearly causing visitors to change their summer vacation plans. For potential visitors, alternative vacation destinations or activities instead of a Florida Gulf Coast beach vacation become much more attractive once the risk of encountering the ongoing oil spill is factored in."
Much of the focus on the spill's impact on the tourism sector has focused on 2010. But Dr. Harper points out that not only is the current season in jeopardy, but there are possible implications beyond this year.
"Under the best-case scenario, in which the spill is completely stopped and it never reaches our shores, this negative impact to the Florida visitor industry may be largely limited to the 2010 summer season. If the spill does reach our shores, affected areas are likely to suffer longer-lived damage to one of our most valuable income-generating assets—the Florida brand image of pristine beaches, beautiful marshes, and abundant fish and wildlife."
Harper's conclusion recognizes the fact that the economic impact of the oil spill on Florida cannot yet be calculated with precision.
"However, the effect will be substantial, even if the spill never reaches our shores, because of the important role that perceptions play in planning and decision-making for our customers. The effects will be seen first in our visitor industry, including all of the businesses that rely on visitor spending in the key summer season. Those effects will have collateral damage as they ripple through the economy. Changes in asset values will be more severe if the perceptions of risk and damage are more pronounced and non-market valuations of environmental amenities will also suffer. The fiscal impact to local and state government will be seen in reduced revenue and increased spending. These effects will only become larger should a hurricane or tropical storm exacerbate the potential for damage. The more quickly the oil flow can be completely stopped, and the spill contained, the less the damage will be."
By Michael Chriszt, assistant vice president in the Atlanta Fed's research department
May 26, 2010 in Energy, Florida, Local Economic Analysis and Research Network (LEARN), Oil | Permalink
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05/19/2010
Manufacturers' new orders and production levels grow even faster in April
Like the rest of the nation, manufacturing in the Southeast continued expanding at a faster pace in April. The Southeast purchasing manager index (PMI) rose 3.4 index points to reach 63.3 based on gains in every component except for the employment index, which nevertheless remains in expansion territory.
Respondents reporting higher new orders were up by 11.6 percent in April compared with March, causing the new orders component to rise 11.1 index points to 78.3, a new high for the series, which began in 2006. (Both February and March's new orders indices were also series highs.) In April, 64.5 percent of respondents reported higher levels of new orders across the Sixth District, while 27.6 percent reported order levels similar to those in March. Only 7.9 percent reported lower levels of orders.
The production component also had significant gains in April, with 53.9 percent of respondents reporting higher production levels for the month, while 38.2 percent of respondents indicated production levels similar to those in March. Production set a series high in April, gaining 3 index points and reaching 73.
Manufacturing employment grew at a slower pace in April than in March, according to the survey; the employment index lost 1.2 index points for the month, but at 55.3 was still firmly in expansion territory. This level was consistent with U.S. Bureau of Labor Statistics' April Employment Situation Summary, which showed the manufacturing sector adding 44,000 jobs for the month across the nation. (Among those April gains were 9,000 jobs in fabricated metals, 7,000 jobs in machinery, and 14,000 in nondurable goods production.) The regional employment component has lagged the national Institute for Supply Management's manufacturing employment component; however, the Southeast PMI employment index has been in expansion territory since February.
Several regional and national data now point at an inventory expansion trend for manufacturers. In April, 75 percent of Southeast PMI respondents indicated inventories were at the same level or greater than they were in March. The regional index of manufacturing inventories has hovered around the 50-point benchmark expansion for the previous three months.
Again on the national level, the U.S. Census' manufacturing and trade inventories and sales data reported a lower manufacturing inventories/sales ratio for March (1.27). This ratio was as a result of manufacturer's sales rising 2.2 percent in March, faster than inventory growth, which was 0.3 percent for the month. This growth echoes the Southeast PMI's strong production and inventory figures for April.
As we watch lagging data come in, it will be interesting to see if the recent disasters in the Sixth District will be reflected in the Southeast PMI. No doubt, New Orleans and Nashville are both important manufacturing and trade centers for the region. April data, however, put Tennessee at the top of the district in terms of PMI at 65.3, with Louisiana at 58.9.
By Mark Carter, an economic analyst in the Atlanta Fed's research department
May 19, 2010 in Employment, Manufacturing | Permalink
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05/12/2010
The region's other disaster
With most of the attention directed at the Gulf oil spill, the Tennessee floods have perhaps been little-noticed outside the Volunteer State. But the events of May 1–2 were significant to say the least. In terms of comparison, the U.S. Geological Survey wrote that the flows on major Tennessee rivers
" '[W]ere much greater than anticipated based on previous experience and exceeded those observed in both the 1975 and 1927 floods,' according to Rodney Knight, surface-water specialist with the USGS Tennessee Water Science Center."
The Atlanta area experienced a similar flooding event in September 2009. A big difference was that the flood in Georgia did not hit the city's major business districts. Stretches of I-20, the major east-west highway, were submerged for a day or so, but most damage to the infrastructure was temporary. Flooding to the west of the city was devastating, and many homes and businesses were destroyed. Some roads were washed out, but repairs were quickly made, and for the most part the Atlanta region recovered quickly.
Nashville's experience was different. In addition to destroying homes and businesses, the floods hit the city's central business district, and highways were shut down for several days. The rail line between Nashville and Memphis was also damaged, but freight has been rerouted. So we do not expect that the floods in Tennessee, like those in Atlanta last year, will have a significant national economic impact.
State and local government response has been positively recognized by national agency officials such as Homeland Security Secretary Janet Napolitano, who visited Nashville on Saturday, May 8, and expressed how impressed she was by the way the state and local governments are handling the disaster. During a visit on Monday, May 10, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan said that the federal government is standing behind local leadership's actions toward recovery.
The Tennesseean wrote last Sunday about the flood. Its report noted that government and aid agencies said they don't know how many damaged homes and businesses have flood insurance, but it is clear that many do not. "That could lead to more foreclosures in a housing market already struggling," according to David Penn, an economist with Middle Tennessee State University.
Along those lines, HUD's Donovan announced a 90-day moratorium on foreclosures by Federal Housing Administration lenders, allowing some temporary relief from past-due mortgages of flood victims. HUD will partner with housing agencies in Nashville and surrounding counties. Funds including $29 million in community development block grants will be redirected to flood recovery efforts, and FHA loans will be available to help citizens rebuild.
The Tennesseean report also quoted Matt Murray, an economist at the University of Tennessee in Knoxville, who said tourism dollars lost to the city will never be recovered, although he didn't think the flooding would do long-term damage to the industry.
The Atlanta Fed's Nashville Branch sits on higher ground and was far enough away from the Cumberland River that it did not sustain damage. In addition to reporting on Tennessee's recovery from the flood, the branch is playing a key role in meeting the region's cash delivery needs and disposing of currency contaminated by flood water from submerged ATMs and several bank vaults. The city will rebound, but it will take time to fully estimate the economic damage caused by the May flood.
Loss of property has been devastating to say the least, but loss of life has been worse. Ten people lost their lives in the Atlanta floods; the toll in Tennessee is nearly three times as great.
By Michael Chriszt, assistant vice president in the Atlanta Fed's research department, Lee Jones, regional executive at the Atlanta Fed's Nashville Branch, and Amy Pitts, REIN executive at the Nashville Branch
May 12, 2010 in Housing, Natural Disasters, Tennessee | Permalink
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05/05/2010
Spillonomics
Estimating the economic impact of the Gulf oil spill is a largely speculative exercise at this point. The variables are significant—how much has been spilled and how much more is coming? Where will it come ashore? How long will it take to clean up? The list goes on.
What we do know is that the fishing, recreation, and tourism sectors in the Gulf are already feeling the effects. The extent of the impact depends on the duration of the spill—the longer it continues, the worse the impact. That's a pretty easy call.
Some of the projections are nightmarish. David Kotok of Cumberland Advisors paints a dire picture, writing that "Three scenarios lie ahead. They rank as bad, worse, and ugliest (the latter being catastrophic and unprecedented). There is no 'good' here."
Jonah Goldberg in USA Today suggests that we keep the oil spill in perspective. "But it's worth remembering that the damage from previous, and much larger, spills wasn't nearly so lasting as people had feared."
Nobody is downplaying the event and its impact on the environment, nor should we forget about the 11 people who lost their lives in the tragedy. What we will do going forward is keep up with current events and attempt to measure their potential impact based on confirmed information we gather. Here are some sources of information that we are tracking to keep up to date with the economic impact of the spill.
The U.S. Department of the Interior's Mineral Management Service along with other agencies has created a Web page dedicated to the Gulf of Mexico Oil Spill Response that features regular updates, maps, and fact sheets. You can also register to receive e-mail notification of updates. Here are some others we are tracking:
The White House has a regular blog on the spill as well as containment efforts.
The National Oceanic and Atmospheric Administration is providing coordinated scientific weather and biological response services to federal, state, and local organizations.
The Wall Street Journal is also providing regular updates and coverage.
By Michael Chriszt, assistant vice president in the Atlanta Fed's research department
May 5, 2010 in Energy, Louisiana, Oil | Permalink
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