SouthPoint

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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed’s Regional Economic Information Network and Public Affairs Department.

Postings are weekly.


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09/30/2011


When will economic vigor return to the Southeast?

The New York Times published a story by Michael Cooper earlier this week titled "Deep Recession Sharply Altered U.S. Jobless Map." The article looks at differences among state unemployment rates and focuses on how the South's unemployment rates are higher than most other areas of the country. Cooper writes:

"The once-booming South, which entered the recession with the lowest unemployment rate in the nation, is now struggling with some of the highest rates, recent data from the Bureau of Labor Statistics show."


This is clearly the case, and the Times piece has a set of charts that illustrate the point. What the chart does not show is that apart from the 2002–7 period, the states that represent my part of the South (the Sixth Federal Reserve District: Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee) had a similar or higher rate of unemployment than did the rest of the country between 1976 and 2002. The question that arises, and one that we continue to investigate, is whether the current period Cooper writes about is all that abnormal.

Unemployment Rates: Jan 1976 to Aug 2011

Getting back to the main point of the Times article, that the region's unemployment rates are higher than the rest of the country, Cooper spoke to a number of people in researching the article:

"Economists offer a variety of explanations for the South's performance. 'For a long time we tended to outpace the national average with regard to economic performance, and a lot of that was driven by, for lack of a better word, development and in-migration,' said Michael Chriszt, an assistant vice president of the Federal Reserve Bank of Atlanta's research department. 'That came to an abrupt halt, and it has not picked up.' "


Shameless plug notwithstanding, the point was that the driving force behind the region's economic growth was population gains, which in turn ignited development and, in the case of Florida and Georgia in particular, overbuilding in both residential and commercial space.

Population Growth: 1970-2010

The slowdown in population growth to the levels experienced by the rest of the country explains a big part of the regional economic deceleration. The above chart shows the difference between our region's growth rate and that of the rest of the country from 1970 to 2010. From 1970 to 2005 the region's rate of growth exceeded the rest of the country, but from 2006 through 2010 it was lower.

Difference in Nominal GDP Growth, 1970-2010

Richard Kaglic, my colleague at the Richmond Fed, had a great quote in the same Times article:

" 'If your nose is high, if you're climbing faster and your engine cuts out, you fall farther and it takes you a longer time to recover,' he said. 'The conditions we experienced in late 2008, 2009, are as close as you come to an engine-out situation in the economy.' "


I'm not a pilot like Richard, but we can use the same analogy for the states in the Atlanta Fed's district. We'll be digging deeper into the reasons behind the region's higher rate of unemployment, but it's clear that the major factor behind the Southeast's recent underperformance is the falloff in population growth and the resulting drop in residential and commercial real estate development that had been driving regional economic growth.

Photo of Michael Chriszt By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

September 30, 2011 in Construction, Economic Growth and Development, Employment, Labor Markets, Real Estate, Southeast | Permalink

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09/26/2011


Southeastern housing update: Polls show sales ahead of weak levels in 2010

Reports from the Atlanta Fed’s southeastern housing contacts indicated that home sales growth remained slightly ahead of weak levels a year earlier in August while the outlook for sales and construction activity picked up slightly.


Florida brokers reported that home sales growth slowed notably in August; less than half reported sales gains compared with more than half in July. Outside of Florida, southeastern brokers noted a modest pick-up in sales growth.


We have been hearing for some time that cash buyers were major players in the southeastern housing market, so we asked brokers about these cash buyers. According to our sources, investors, second-home buyers, international buyers, and retirees are purchasing with cash. Our sources also note that investors dominate cash purchases across most of the Southeast. These anecdotal reports appear to line up with available data. The National Association of Realtors reported that cash buyers accounted for 29 percent of August home sales and 22 percent of total sales while the organization noted that investors accounted for the bulk of cash purchases. The Orlando Regional Realtors Association reported that cash sales accounted for 50 percent of August home sales. Knoxville Area Association of Realtors data indicated that cash purchases accounted for 25 percent of sales in August.

More than half of southeastern builders reported that home inventories were below the year-earlier level in August while close to half of brokers reported declines. Brokers indicated that August inventories were similar to July, while builders indicated declining inventories over the period.


Just over half of Southeastern builders continued to report declining home prices in August while fewer brokers reported declines than they have in recent months.


Southeastern brokers and builders reported that buyer traffic slowed in August on a year-over-year basis, but the outlook for sales growth improved slightly over weak results last year.


Note: August poll results are based on responses from 82 residential brokers and 44 homebuilders and were collected September 6–14, 2011. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity while negative values indicate decreased activity.

By Whitney Mancuso, a senior analyst in the Atlanta Fed's research department

 

September 26, 2011 in Housing | Permalink

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09/21/2011


Metro areas' GDP: Better in 2010, but still a long way to go

Last week we wrote about the city of Savannah, noting that its recent economic performance is similar to what the nation as a whole is experiencing. One of my colleagues asked if I were playing favorites by highlighting only one area. The answer is, of course, no (although I do think Savannah is terrific). But just to make sure there are no lingering questions, today I'm going to write about every other metro area in the region.

On September 13, the U.S. Bureau of Economic Analysis (BEA) released its annual estimate of metro areas' gross domestic product (GDP) for 2010. In the Sixth District, a majority (49) of metropolitan statistical areas (MSAs) reported positive growth in Real GDP. Only 11 of 60 MSAs experienced a contraction in their real GDP in 2010. In 2009, all but seven regional MSAs saw a contraction in real GDP, quite a turnaround. The BEA data for all U.S. metro areas can be found here.

In 2010, Lafayette, Louisiana, recorded the strongest expansion, at 8.3 percent annual growth in real GDP. (Lafayette also took the top spot in 2009 at 8.8 percent.) Hinesville-Ft. Stewart, Georgia, was second in 2010 at 7.7 percent, and Morristown, Tennessee, rounded out the top three regional performers at 5.1 percent. The bottom three performers were Brunswick, Georgia (down 2.4 percent), Pascagoula, Mississippi (down 2.8 percent), and Sebastian-Vero Beach, Florida (down 3.6 percent).

But one year does not tell the whole story. If we looked back to 2007 and calculated the percent change in real GDP for the region's metro areas, the picture is quite different. Only 19 of the 60 MSAs in the Sixth District show positive real GDP growth. Pascagoula—one of the weakest metro areas in 2010—has by far the strongest three-year performance, with a gain in real GDP of 30 percent. This gain is largely attributable to a one-off increase in manufacturing activity in 2008 linked to the huge Chevron refinery there. Hinesville-Ft. Stewart, Georgia, is second at 17.1 percent, but this increase is tied to the military base realignment, which has benefited this area over the past few years. Lafayette, Louisiana, is third at 17 percent. As President Lockhart noted in his August 31 speech in Lafayette, part of Lafayette's increase is a result of increased energy exploration and extraction activity:

"Positive news is coming from the oil and gas industry, especially here in Louisiana. Business contacts in the region have been reporting an influx of fabrication work and backlogs in orders for pipelines, supply boats, and drilling equipment. In Lafayette, employment in the energy sector has increased, providing a big boost to the local economy."

Less positive news from Florida over the past several years was backed by fact that seven of the 10 weakest performers in terms of GDP were from the Sunshine State—southwest Florida in particular, where Punta Gorda, Ft. Myers, and Naples were all near the bottom. But the worst-performing metro area in the region in terms of real GDP growth over the past three years was Dalton, Georgia, which was down 18.6 percent. Long known for its carpet and home-flooring industry, the collapse of homebuilding during the recession has hit this city hard.

While 2010 metro area GDP reports for the region's metro areas showed some improvement, the report also showed that we are still a down quite a bit from prerecession levels.

The tables below rank the region's metro area performance in real GDP for 2010 and for the 2007–10 period. Data are annual percent changes for 2010 and total percent changes from 2007–10.


Photo of Michael Chriszt By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department


September 21, 2011 in GDP | Permalink

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09/16/2011


Silver linings around the manufacturing sector?

The Southeast manufacturing Purchasing Managers Index (PMI) for August signaled that counting out the region's manufacturing sector might just be premature. The index jumped 4.1 points over the month to reach 57.8 points, a much higher level than the national Institute for Supply Management (ISM) manufacturing survey for August, which has been hovering right at the 50-point benchmark for the last two months. (A level higher than 50 points indicates growth.) The very next day, the Atlanta Journal-Constitution ran a cautiously optimistic piece that said conditions had improved notably for some Southeast manufacturers over the month of August:

" 'Manufacturing seems to be headed in the right direction,' said Don Sabbarese, professor of economics and director of the Econometric Center [at Kennesaw State University], 'but it will take time to discern whether manufacturing will return to its higher second quarter trend or remain at its current slower pace.'

"He added that, 'Gains in the last month may signal that the big declines in June and July may not have been a trend, but a soft spot for manufacturing.' "

While data from the Southeast and national PMI surveys may disagree for the month of August, the Southeast PMI data may have been a bellwether of other manufacturing data that are now showing some silver linings for the sector. For example, take a look at the Federal Reserve Board's index of industrial production and capacity utilization released September 15: for the months of April through June, capacity utilization remained absolutely flat, possibly reflecting the temporary slump Sabbarese hinted at in the Journal-Constitution. (Remember, the tsunami struck Japan in March, but most economic data began reflecting its full effects in April.) However, for the months of July and August, capacity utilization edged up 0.3 percentage points both months, more consistent with a "slow growth" narrative than one of the sector losing steam entirely. Likewise, industrial production for manufacturers was stagnant for May and June but has increased 0.6 and 0.5 percentage points for July and August, respectively. Also just released, the New York Fed's regional Empire State Manufacturing Survey suggested improved future general business conditions for September.

What was behind this temporary summer slump, if indeed it is not a longer-term trend? Most analysts would agree the effects from the tsunami in Japan earlier this year are almost entirely phased out throughout the supply chain now, but its waning took a few months. While the data were already sagging, fiscal policy uncertainty grew and stock market volatility increased, weighing on broad economic activity that was likely reflected in manufacturing measures. Perhaps as temperatures across the South begin to cool this fall, the manufacturing sector will start heating back up.

Photo of Mark CarterBy Mark Carter, an analyst in the Atlanta Fed's research department


September 16, 2011 in Manufacturing | Permalink

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09/14/2011


A view from the Coastal Empire

We have posted about several of our university contacts in our Local Economic Analysis and Research Network (LEARN) over the years. Most publish regular updates on their state or local economies, which have proven very valuable in our understanding of how the economic recovery is progressing across the region.

One such publication is the Coastal Empire Economic Monitor, written by Dr. Michael Toma and his staff at Armstrong Atlantic State University's Center for Regional Analysis. For those of you who may not know what the Coastal Empire refers to, or where Armstrong Atlantic State University is, I'll give you a few hints:

  • Money Magazine named this city #8 on its list of top places to retire.
  • Paula Deen cooks there.
  • Its port is one of the fastest growing in the country.
  • It is often ranked as #1 on lists of the most haunted cities in America.
  • It is on a coast.


Give up? The answer is Savannah, Georgia.

I'm not writing to plug the town, although it is one of my favorites in the region. I have visited Savannah and its region, but most of what I know about the area's economy I learn from Mike Toma and his report. Here are a few points from his latest reading on the Coastal Empire economy:

"The region's economy continued its slow recovery for the sixth consecutive quarter. The pace of expansion dipped, as compared to the first quarter, mimicking the nationwide slowdown in economic growth.

"The Coastal Empire leading economic index significantly improved during the second quarter of 2011. This consolidates and extends the modest improvement in the forecasting index during the past nine months. The forecasting index is pointing toward more apparent improvement in economic conditions in early 2012, while the remainder of 2011 should feel modestly better than the year's first half."

Below is the graph that shows the coincident and leading indicators for the Coastal Empire economy:

110914


Dr. Toma concludes his assessment of the Savannah area economy by noting:

"Economic growth in the remainder of 2011 will not be particularly impressive, but should outpace growth in the first half of the year. The current expectation is conditions will show more improvement in early 2012."

This assessment is not unlike what Atlanta Fed President Dennis Lockhart sees for the U.S. economy as a whole. Late last month he spoke about his outlook in Lafayette, Louisiana:

"On a national level, the negative effects of the unusual forces that restrained the economy in the first half of this year have diminished. For example, auto production that was disrupted by shortages of supply parts from Japan has bounced back.

"While the risks have increased, I do not expect a recession. In my view, there is sufficient fundamental strength in the economy for a modest cyclical recovery to proceed while the process of necessary structural adjustments moves along. I believe the unemployment rate will come down very gradually over time."

The message here is that Savannah's challenges are not unlike those facing the rest of the country.

Photo of Michael Chriszt By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

September 14, 2011 in Georgia, Outlook | Permalink

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09/02/2011


Irene's impact

As we witness another hurricane hit the U.S. mainland, we recount our own region's past disasters and lessons we have learned regarding the economic impact of these events. It was six years ago that Hurricane Katrina struck, and we have written about that experience in past posts. Data are still coming in, but it appears that while flooding associated with Hurricane Irene caused severe damage in several areas, destruction was not as bad as many had forecast. Looking back at previous disasters can help us understand what lies ahead in terms of the economic impact of Irene.

In the Wall Street Journal's Real Time Economics blog, Conor Dougherty writes that:

"Areas hit by some of the biggest natural disasters have in many cases recouped the economic losses in the form of federal aid and insurance payments, according to data from Moody's Analytics and the Insurance Information Institute. Here's a chart of past disasters, their cost and the eventual tally of aid and insurance payments.

"Hurricane Katrina, which hit in August 2005, has been by far the most costly natural disaster in recent history, resulting in $140 billion in damage and lost output. (That figure is in 2011 dollars and does not include the impact of higher energy prices after the storm.) But over the following months and years, businesses, residents and governments in the area collected a total $149.2 billion in aid and insurance payouts.

"There is no dollar figure that can be attached to the loss of life, emotional toll and massive loss of population that lingers six years later. But with Hurricane Irene barreling down on the Eastern seaboard, it's worth noting the damage of lost property and output is often made up in the end."

A recent Brookings Institution publication, Resilience and Opportunity Lessons from the U.S. Gulf Coast after Katrina and Rita, makes another point about economic recovery from natural disasters:

"Opportunity is a critical component of post-disaster recovery. It is defined by the extent to which a community uses a disaster as an occasion not simply to return to normal but also to achieve a new and better standard of living."

What is the Fed's role in helping the economy recover from natural disasters? The first response is through our role in the payments system. Federal Reserve officials helped to ensure the country's payments and financial systems get back online as quickly and efficiently as possible. The Atlanta Fed's response to Hurricane Katrina is one example.

Our superb economic education staff also used Hurricane Katrina to develop a financial and economic education tool in Katrina's Classroom: Financial Lessons from a Hurricane. The program is a four-chapter, DVD-based curriculum developed to help people prepare for disasters and recover from them.

Another question to be addressed in the wake of a natural disaster is what the role of monetary policy should be. Again, looking back to Katrina, the discussion was primarily about the potential impact on overall economic activity and inflation from reduced oil supply and transportation disruptions on the Mississippi River. At the Atlanta Fed, the view was that trying to mitigate a temporary supply shock by easing policy may have adverse implications for the economy down the road. Some economic research goes so far as to suggest policy should tighten in response of temporary supply disruptions from disasters. In 2007, the St. Louis Fed published a study, "Monetary Policy and Natural Disasters in a DSGE Model: How Should the Fed Have Responded to Hurricane Katrina?" Authors Benjamin D. Keen and Michael R. Pakko wrote:

"In the immediate aftermath of Hurricane Katrina, speculation arose that the Federal Reserve might respond by easing monetary policy. This paper uses a dynamic stochastic general equilibrium (DSGE) model to investigate the appropriate monetary policy response to a natural disaster. We show that … a nominal interest rate increase following a disaster mitigates both temporary inflation effects and output distortions that are attributable to nominal rigidities."

Similar to how hurricane forecasters have improved their models by taking advantage of past experience and applying lessons learned, economic forecasters are also trying to improve their understanding of the economic effects of disasters and the optimal policy responses.

Photo of Michael Chriszt By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

September 2, 2011 in Hurricanes, Katrina, Natural Disasters, Recovery | Permalink

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