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10/31/2011

Southeastern housing update: Atlanta Fed polls show sales mixed in September

Reports from southeastern housing contacts were mixed in September. Builders indicated that new home sales slowed notably, falling below the year-earlier level in September. Meanwhile, brokers reported that sales growth improved in September, with nearly two-thirds reporting gains. However, most described gains as modest.


More than two-thirds of southeastern builders reported that home inventories were below the year-earlier level in September, while close to half of brokers reported declines. By most broker accounts, September inventories were flat to slightly below August levels, while nearly half of builders described declining inventories over the period.


Reports from throughout the region confirm significant declines in home inventories on a year-over-year basis and more modest declines from August to September (see the table).

Home Inventory Changes, September 2011

Market

Year/Year

Month/Month

Source

Alabama

–11.0% –2.1% Alabama Center for Real Estate

Jacksonville, FL

–14.5% –1.4% Northeast Florida Realtors Association

Knoxville, TN

–16.9% –14.3% Knoxville Area Realtors Association

Orlando, FL

–39.3% –1.2% Orlando Regional Realtors Association

Nashville, TN

–12.7% –3.5% Greater Nashville Association of Realtors

Tampa, FL

–40.3% –8.7% Greater Tampa Association of Realtors


Despite fewer available homes for sale, contacts continued to report downward pressure on home prices in the region. More than half of southeastern builders and brokers reported declining home prices in September.


Southeastern builders reported a sharp drop-off in buyer traffic in September on a year-over-year basis, while brokers noted a small improvement.


On balance, the outlook in September was little changed from August reports. However, the outlook among Florida brokers remained slightly positive but continued to weaken from its recent peak this past spring.


Note: August poll results are based on responses from 70 residential brokers and 35 homebuilders and were collected October 3–13, 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

October 31, 2011 in Housing | Permalink

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10/27/2011

Middle Tennessee's economy slowly improving

Middle Tennessee residents have been exposed to several less-than-stellar reports regarding the pace of the economic recovery. The Middle Tennessee State University (MTSU) Office of Consumer Research published the Middle Tennessee Consumer Confidence Index, reporting a sharp dive in the overall consumer confidence index. Some of this negative sentiment could be tied to Tennessee's high unemployment rate, which ticked up to 9.8 percent in September. Yet positive reports can be found in sectors such as technology: the Nashville Technology Council reported that more than 900 tech jobs are available in Nashville.

Searching for some sense of clarity on the future of business conditions—even if only for the short term—local residents and business leaders were particularly interested in hearing from economist David Penn from MTSU's Business and Economic Research Center at the annual MTSU Economic Outlook Conference.

Held each fall, the conference offers insight into the local and regional economy. Dr. Penn believes the Nashville metropolitan statistical area (MSA) and Middle Tennessee will likely continue to see slow growth, but growth will greatly depend on overall trends in the national economy.

Positive signs in the Nashville MSA are evident. For example, the unemployment rate of 8.5 percent remains well below the state average, helped by stabilization in manufacturing and construction sectors. In addition, retail sales have increased, resulting in sales tax revenue growth.

The manufacturing sector in both Tennessee and Nashville has seen stability for nearly two years, with the auto sector experiencing growth and exports showing an increase. Dr. Penn is optimistic about the auto sector because fuel cost increases appear to be leading manufacturers to produce closer to their customers, and Middle Tennessee is centrally located to many large markets. In addition, labor costs are increasing overseas, helping to erode one of the main driving forces behind offshoring production.

Despite the depressed housing market, the overall construction sector in the Nashville MSA has grown during 12 of the last 14 months largely because of public infrastructure projects and educational facilities. While acknowledging lackluster consumer sentiment, Dr. Penn also noted that Tennessee residents have increased retail spending over the last year.

Regardless of the strengths present in the Nashville and Tennessee economies, in the current environment some challenges will linger. Dr. Penn expressed a concern about the slow growth rate of the education and health care services sectors. With health care being the second-largest economic driver in Middle Tennessee, the sector has traditionally been the region's safety net.

Dr. Penn forecasts continued moderate growth in nonfarm employment for Middle Tennessee, slow growth in sales tax collections, minimal housing construction, and a slight decline in the unemployment rate for the coming year. Improved consumer confidence and increased spending were reported as key factors needed to continue the recovery. Population in-migration is needed to spur the local housing market, which requires job growth. Dr. Penn forecasts that the region's unemployment rate will decline in 2012. As for total employment levels, it will take about a couple of years of job growth at the current level to return to the prerecession peak.

Dr. Penn's presentation can be found here.

By Amy Pitts, a regional economic information network senior analyst in the Federal Reserve Bank of Atlanta’s Nashville Branch

October 27, 2011 in Tennessee | Permalink

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10/26/2011

Regional employment: Looking better, but still not great

State employment data for September were released by the U.S. Bureau of Labor Statistics last week, and the report was rather positive for the Sixth District as a whole (see chart 1). Regionally, we added a net 46,800 jobs for the month, the largest increase since February 2011. All states in our region added jobs except Georgia, which saw its fifth straight monthly decline. More on that in a minute.

Chart 1

111026a
(Enlarge)

Florida led the region with a net increase of 23,300. Gains in leisure and hospitality and health care drove September's gains in Florida, but most other sectors also saw net increases. Over the last twelve months, the Sunshine State has added 93,500 jobs—granted, a small dent in the more than 900,000 jobs lost during the downturn, but Florida appears headed in the right direction. Also heading in the right direction is Florida's unemployment rate, which is down to 10.6 percent from its peak of 12 percent in December 2010. The total number of unemployed in Florida is down to its lowest level in two years and September saw a slight increase in the state's labor force, two more positive signs.

Louisiana also saw a solid increase in employment in September. Gains were broad-based, but the increase of 5,000 jobs in government should be interpreted cautiously as the same sector saw a similar decline in July. Stepping back from the monthly data, Louisiana has outperformed the rest of the region in terms of job gains—up 2.4 percent over the past year. In addition, the state's unemployment rate is by far the lowest in the region at 6.9 percent (see chart 2).


At the other end of the spectrum is Georgia. The Peach State lost another 7,100 jobs in September, bringing total losses over the past five months to more than 27,000. Gains in manufacturing, health care and business services were more than offset by declines in construction, leisure and hospitality, and government. In addition, Georgia's unemployment rate ticked up to 10.3 percent. The state is clearly headed in the opposite direction.

We will continue to monitor job growth and unemployment for the region and individual states.

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

October 26, 2011 in Employment, Florida, Louisiana | Permalink

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10/21/2011

Some growth is better than none

As a lifelong Cleveland Browns fan, I'm prone to pessimism. A win on Sunday only brings expectations of a loss next Sunday. I wait for good news, then don't believe it when it comes. It's a tough way to go through a football season, but I can't help it.

Tracking the economy over the last few years is a perfect fit for a Browns fan—good news followed shortly by bad. When positive economic reports come out, skepticism creeps in. In September, several pieces of economic data came in better than expected and, when combined with what our business contacts in the region were telling us, paint a picture of an economy that appears to be doing better than what we experienced over the summer. Let's look closer.

The lead from the October 19 Beige Book summary reads:

"Reports from the twelve Federal Reserve Districts indicate that overall economic activity continued to expand in September, although many Districts described the pace of growth as modest or slight."

The opening sentence from the Sixth District's section of the Beige Book struck a similar note:

"Business contacts in the Sixth District indicated that economic activity continued to expand at a modest pace in September."

The message here is an important one. Businesses here in the Southeast and in most other regions are telling us that the economy does not appear to be contracting. True, the overall pace of activity may be modest or slight, but we were told that it is still positive. Recent data support what our contacts were telling us. As Atlanta Fed President Dennis Lockhart said in his October 18 speech to the CFA Society of East Tennessee in Chattanooga:

"The somewhat overlooked story of the period since the end of August is that much of the incoming data have exceeded most forecasters' low expectations. For the third quarter at least, it appears that downgrades of growth forecasts have been too pessimistic."

Of course, we're not going to proclaim that the economy is clearly on a path to significantly better outcomes based on a month of data and anecdotal information. After all, three weeks ago the Browns were 2-1 and tied for first place. Today we are 2-3 and in the cellar.

Along those lines, it is important to recognize that modest economic growth does not help address the high rate of unemployment. As President Lockhart noted in Chattanooga:

"[M]ost private sector forecasters envision growth in 2012 approaching 2.5 percent. In the opinion of many economists, that 2.5 percent approximates the steady-state growth rate of the economy's potential. This rate would certainly be an improvement over 2011 as a whole. The problem is without growth measurably better than 2.5 percent, little progress will be made in absorbing slack in the economy—above all, labor market slack."

The Atlanta Fed's Beige Book recorded little improvement in regional labor markets in September:

"Employers continued to manage their labor supply very tightly. Most contacts indicated that the outlook for hiring remained restrained by modest expectations regarding future sales. Several reports suggested that permanent employees were primarily being used to maintain a firm's core business, while specific projects were being assigned to contractors and temporary hires. Firms continued to seek efficiency gains through investment in technology and other cost-saving applications."

Although not mentioned in our Beige Book, we should also note that while we did not pick up on significant plans to increase employment in our discussions with business contacts, we also did not hear much in the way of plans to reduce current levels of employment. The economy may not be improving enough to help cut into unemployment much, but it appears to be doing well enough to prevent further job declines.

Back to the Browns. They are playing better and we may be looking at a .500 season. After two straight years of going 5-11, 8-8 looks pretty good. But, like the Browns, a steady-state rate of growth and not experiencing further reductions in employment is not the best outcome, but it is better than where we were a few years ago.

President Lockhart concluded in Chattanooga that

"[A]s the numbers over the last couple of months demonstrate, outcomes better than consensus expectations can happen. Let's not talk ourselves into believing that enduring weakness or recession is inevitable."

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

October 21, 2011 in Beige Book, Economic Growth and Development, Forecasting, Labor Markets, Outlook, Southeast | Permalink

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10/19/2011

A tale of two indicators

The national manufacturing Purchasing Managers Index (PMI) produced by the Institute for Supply Management (ISM) is considered by many economy watchers to be a, if not the, most important leading indicator measuring the health of the U.S. manufacturing sector. Throw in timeliness, a fair degree of accuracy, and a correlation with gross domestic product growth, and you can see why it's an indicator to be taken seriously. On the first business day of each month at 10 a.m., I am one of many analysts around the world constantly refreshing my browser to be one of the first to see the health of the manufacturing sector over the previous month. Our own regional version of this, the Southeast PMI, is produced just up I-75 from the Atlanta Fed at Kennesaw State University's Econometric Center. As its name suggests, the Southeast PMI measures the manufacturing health of roughly the same geographical area as the Fed's district (Georgia, Florida, Alabama, Tennessee, Mississippi, and Louisiana). As one might suspect, these two indicators are usually highly correlated, with major divergences in their data only lasting an average of one or two months.

In August, the national PMI was flirting with contraction territory, which is any reading below 50 on an indexed scale, at 50.6 points. The widely watched release of the indicator on September 1 spooked skittish investors and raised the eyebrows of analysts around the nation. However, here in the Southeast, it looked like a somewhat brighter picture for August: the Southeast PMI reading was higher than the national PMI by more than 7 index points for the month, and it had safely cleared the benchmark indicating growth at 57.8 points. I was blogging about silver linings in the manufacturing sector and the General Motors plant reopening in Spring Hill, Tenn. Could it be that maybe things weren't so bad after all?

Then data for September were released.

The Southeast PMI shed 8.4 index points during September, catching up (or "down," if you will) with the more cautious national PMI. Broad-based losses in every survey category took readings for employment, supplier deliveries, and commodity prices back to historical "norms" from slightly elevated levels, but losses in the new orders and production categories went further south, signaling a possible turnaround in sentiment from roughly the same managers who seemed much more optimistic one month prior. In September, these two critical components of the Southeast PMI—new orders and production—fell below 50 index points for the first time in 2011. This is not the first time those components have dipped below 50 points since the National Bureau of Economic Research declared that the recovery from recession began in June 2009. But if data for October show a new-orders reading below 50, it will be the first two consecutive months below 50 for this component—which is considered to be an indicator of future manufacturing activity—since the recession (specifically, since the first quarter of 2009).

Here's how all Southeast PMI components fared against their national counterparts in September:

National vs SE PMI

Keep an eye out for October data: The ISM releases its reading on the national manufacturing sector on the first business day of each month, referencing the previous month. The Southeast/regional data are released on the fifth business day of the following month by Kennesaw State University's Econometrics Center. To receive a copy of the Kennesaw State University release, sign up to take the three-minute survey at the Econometric Center's website.

By Mark Carter, an economic analyst in the Atlanta Fed's research department

October 19, 2011 in Manufacturing | Permalink

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10/14/2011

Economic education: A call to action

Real Time Economics blogged on a recent poll of fifth graders through high school seniors about work, education and training, and their entrepreneurial aspirations. Before turning to the poll itself, I wanted to spend a moment on the group that was behind it.

The survey was performed by Gallup and Operation HOPE, a nonprofit that promotes financial literacy. I heard Operation HOPE's founder, chairman, and chief executive officer John Hope Bryant speak with passion about financial literacy a year ago, and his message has stuck with me. As the group's website notes, their mission is to expand economic opportunity in underserved communities through economic education and empowerment.

In describing the poll, Real Time Economics' Brenda Cronin wrote that:

"According to the first findings, released Thursday morning, 77% of all students surveyed want to be their own boss; 45% plan to start their own businesses and 42% went even further, saying they agreed with the statement "I will invent something that changes the world."

The press release from Gallup describing the poll goes on:

"Despite their energy and ambitions, the Gallup-HOPE Index findings suggest many students are not getting the education and work experience they need to help achieve their goals. While 87% agree that the more education they get, the more money they will make, far fewer report getting the type of practical knowledge and experiences that will be useful once they are in the workforce.

"Less than 6 in 10 students (58%) say they have a bank or credit union account with money in it, and just over half (54%) agree their school teaches them about money and banking. Half of students (50%) say their school offers classes in how to start and run a business."

It is heartening to see evidence that young people remain engaged in the entrepreneurial spirit, but it's also clear that we need to do even more to help equip them with the necessary tools to achieve their dreams.

The Atlanta Fed's economic education team and other Federal Reserve education efforts are working to meet this need by helping teachers learn new ways to teach economics and personal finance and also by providing rich online content and resources for teachers, parents, and students.

Our latest addition to the resources available online is "The Classroom Economist," which offers videos, a PowerPoint lesson, and other content designed to enhance teachers' presentation of topical economic and financial issues.

In addition to the resources online, our economic education team reaches out to teachers directly through workshops and other special presentations. And, as I noted, we're not the only ones operating in this field. Our colleagues in the Federal Reserve System also have many resources and tools aimed at improving economic and financial literacy.

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

October 14, 2011 in Education | Permalink

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10/06/2011

General Motors reopens Tennessee plant as it seizes market share

Cranking out more than 207,000 vehicles in September, General Motors was the nation's largest auto manufacturer by volume and has gained the most volume in the first nine months of 2011. Conversely, Toyota has lost the most volume so far in 2011 (down 116,793 units from this point last year). GM has been aggressively seeking a cut of Toyota's market share since the supply chain disruptions earlier this year, but recently the firm has announced plans that hint they'd like to keep that increased market share—and perhaps expand it.

Note: Auto production was up 10 percent in September 2011 compared with one year earlier as the domestic Big Three automakers continued to pick up market share.

In a closely followed round of bargaining, GM announced last Wednesday that it had reached an agreement with the United Auto Workers that would add 6,400 manufacturing payrolls to GM facilities around the country. Part of this agreement, though very unconventional, has residents of a small town about 30 miles south of Nashville very excited. It's extremely rare for auto facilities to reopen once closed, but part of the agreement reached last week will once again get gears moving at GM's Spring Hill, Tennessee, plant.

Plant history and new beginnings
The facility opened in Spring Hill in 1990, originally producing the Saturn. The plant was an economic boon for the area, causing the population of sleepy Spring Hill to grow twentyfold. However, nearly twenty years from the date of opening, the factory, like many others, began feeling the pains of the sluggish global economy. In an attempt to adapt to changing economic conditions, the plant underwent a major retooling phase in 2008 when GM transitioned from producing Saturn vehicles to a crossover SUV, the Chevrolet Traverse. However—to make a long, painful story short—it wasn't enough to save the facility, and GM announced its closure in June 2009, ironically the month that marked the official end of the recession.

SP_photo
Roughly 30 miles south of Nashville, the town of Spring Hill, Tennessee, is witnessing a rare occurrence: GM's auto production facility there is reopening.

In May 2009, the unemployment rate in Maury County, Tennessee, was an already-elevated 11.8 percent. With the closing of the factory doors in June 2009, the unemployment rate in the county skyrocketed to 17.3 percent. The unemployment rate has remained elevated for the county since the factory's closing. Although approximately 3,000 workers were impacted by this closure, some workers initially avoided the unemployment line as the GM plant continued to build engines for other GM cars as well as performing operations related to stamping, polymers, and providing service parts and powertrain operations.

One possible explanation for the dip in Maury County's unemployment rate (see the chart below) shortly after the plant's closing was a reallocation of labor to Lansing, Michigan, home of another GM plant where some Spring Hill employees were offered positions (thus causing a decrease in the number of unemployed, which yielded a lower unemployment rate for months following the plant's closing.). Even still, the rate for Maury County is sticking stubbornly around an unlucky 13 percent (as of August 2011, it was 12.7 percent).

Now, however, initial reports from GM estimate a new 1,700 jobs will be created at the Spring Hill facility. Of these jobs, 600 will produce one model, while another 1,100 workers would focus on the production of the second model. In an area where there were 31,190 employees working across all industries in August, there's certain to be a substantial positive impact from increasing employment by roughly 5 percent of the current number of employed people. The plant is already undergoing capital investments that suggest hiring would begin early next year.

Southeastern states hold advantage in recruiting new foreign auto plants
Southeastern states have particularly had success landing assembly plants opened by foreign automaker in the U.S., as explained in the newly released third quarter edition of the Atlanta Fed's magazine, EconSouth. By offering tax breaks, state-funded training programs and other incentives, Southeastern states have secured over half of the foreign automaker assembly plants opened in the United States since 1990. Tennessee could be viewed as a leader of the pack in automotive manufacturing strength; the state has been ranked No. 1 for the second year in a row by Business Facilities, a national economic development publication.

Evidence of this can be seen in the recent opening of the Volkswagen plant in Chattanooga as well as Nissan's lithium ion battery plant, which is currently under construction. But last week's announcement by GM has left Tennessee residents and the state's leaders excited about potential positive employment growth in the manufacturing sector from domestic automakers. At first glance, research economists familiar with the automotive industry believe the Spring Hill plant announcement of 1,700 positions could offer a total gain of 6,000 jobs to Tennessee, once an estimate of indirect job creation is included.

Photo of Mark CarterBy Mark Carter, an analyst in the Atlanta Fed's research department, and Amy Pitts, an analyst for the Regional Economic Information Network at the Atlanta Fed's Nashville Branch

October 6, 2011 in Automobiles, Employment, Manufacturing | Permalink

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10/04/2011

Digging into the weak jobs outlook

Atlanta Fed President Dennis Lockhart commented on national labor market conditions during his recent speech to the World Affairs Council of Jacksonville:

"In terms of job creation, we appear to be treading water. Basically, the weak pace of growth in output since the end of the recession has translated to only modest net job creation. Modest gains in the private sector have been partially offset by ongoing losses in the public sector."


In the states of the Sixth District, this weakness has certainly been evident. Over the last three measured months (June, July, and August), total net employment has declined 36,600, with government payrolls declining 37,500 and private sector job growth a paltry 900. Local government employment accounts for much of the total job losses with a decline of 25,600. State government employment fell 10,300 and federal government employment fell 1,600 in June through August. While the data are seasonally adjusted, I'm skeptical about the magnitude of the decline in local government employment, as it occurred when public sector K–12 schools were not in session.

But as the chart below shows, even if we discounted local government employment over the summer months, the real story here is the drop in private sector job growth. After posting gains from February through May, private sector job gains decelerated to just 4,000 in June, then declined a total of 3,100 in July and August.

To help us better understand these dynamics, we reached out to our business contacts throughout the region, and we heard several key messages. First, most agreed that there was indeed little hiring taking place across much of the District. Employers are clearly managing their labor supply very tightly.

A significant contributor to hiring restraint was an unclear outlook. Uncertainty was a notable impediment to hiring. While many contacts associated the cause of uncertainty with regulatory agencies and economic policymakers, it is clear from our conversations that the murky macroeconomic environment is also a major culprit. We should not downplay the negative influence of an uncertain economic policy environment on business planning, but we should also recognize that this aspect of uncertainty is only a part of the story.

Despite the uncertain forecast, our contacts were not overly pessimistic regarding the outlook, which is not to say that we detected much optimism, but the absence of panic or despair is a good sign.

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

October 4, 2011 in Employment | Permalink

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