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11/29/2011

Bit by bit

SouthPoint has discussed, frequently, the depth of the employment downturn in the Southeast and the slow jobs rebound experienced by the region. While a couple of months of positive employment growth may only be small steps in the recovery, it is still good news.

The District as a whole gained 34,400 jobs in October. All states within the district added jobs, with Florida and Tennessee experiencing the largest over-the-month increases (see the first table below). In addition, September's total employment increase was revised up from a gain of 46,800 to 50,000. The District unemployment rate decreased by 0.2 percentage points, to 9.8 percent in October. All District states continue to have unemployment rates higher than the national unemployment rate, with the exception of Louisiana (see the second table below). Data from the U.S. Bureau of Labor Statistics for October are listed below.

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The September-October average monthly gain for the region was 42,200, which compares favorably to the 38,000 average monthly gain from 2004 to 2007. While two months' worth of data are not enough to claim a trend, these numbers are still impressive; the regional unemployment rate of 9.8 percent, the lowest reading since May 2009, provides further encouragement for the near-term outlook (albeit still remaining elevated and well above the comparable U.S. rate).

Our business contacts continue to convey limited hiring plans, but perhaps the last two months show that hiring—although modest—is becoming more widespread.

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

 

November 29, 2011 in Employment | Permalink

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11/22/2011

Exploring trade connections between Europe and the Southeast

Thanksgiving. What a great holiday. Family, friends, turkey, stuffing, apple pie (not a big pumpkin pie fan). And perhaps, if we are true to the spirit of the holiday, a time to pause and remember all there is to be thankful for. My list contains the usual suspects—wife, kids, parents, friends, and others that no doubt would be on your list as well. One item that's on my list that would surprise me to find on yours would be Europe.

There's a little more to it than just "Europe." In 1985, my parents sent me to study in Europe for my junior year of college. Miami University (the one in Ohio) has a small campus in the Grand Duchy of Luxembourg, and I studied there from September to May of 1986. I still don't know how my parents did it on their wages—but they did, and I'm ever thankful because my year in Europe did as much to mold me as any other experience.

Of course today, not many people are feeling particularly thankful for the European debt situation, which is causing much-discussed pain and uncertainty in the global economy. It's a topic that's been on Atlanta Fed President Dennis Lockhart's mind. He shared this concern last month in a speech in Chattanooga, Tenn., when he noted that the U.S. fiscal situation and "financial instability from developments in Europe" were the most significant risk factors facing the U.S. economic outlook. As more news has come out of Europe in the weeks since then, many have discussed the risk of possible financial contagion from the situation there spreading "across the pond" to the United States.

Federal Reserve Vice Chair Janet Yellen mentioned the issue in her November 11 speech in Chicago:

"We are monitoring European developments very closely, and we will continue to do all that we can to mitigate the consequence of any adverse developments abroad on the U.S. financial system."


Fed Chairman Ben Bernanke offered some thoughts about the European situation in response to a question at his press conference following the FOMC meeting on November 2:

"...what we can do, really, is only a couple of things. One is that we can look at our own financial institutions and try to assess the exposures and the linkages between our institutions and those in Europe and the sovereign debt in Europe, and we've been doing that on a consistent basis. We've looked also, of course, with other regulators at money market mutual funds and other types of financial institutions that have connections to Europe...


"And the other thing that we can do is stand ready, if necessary, to provide whatever support the broader economy needs and the financial system needs, should things worsen. I mean, we are hopeful that the latest measures, vigorously implemented, will indeed ultimately reduce these stresses, but in the case that things do get worse, both monetary policy and our policies of lender of last resort are available to insulate the U.S. economy from the effects."


The other channel where problems in Europe can affect the United States is through international trade. The members of the European Union have accounted for roughly 20 percent of U.S. exports over the last decade. Thus, any slowdown or decline in economic activity in Europe would most likely lead to a decline in demand for U.S. goods there, which in turn would lead to a decline in U.S. exports to Europe.

How would such developments affect the Southeast? Over the past decade, the states of the Sixth District have shipped an average of nearly $22 billion worth of goods per year to the European Union member countries. The dollar value of these goods accounts for almost 19 percent of total exports from the six states in the region—a number similar to the United States as a whole.

The importance of Europe as an export market varies by state, as the table below shows. Complete data are available through 2009, but by using the 10-year average we can see the longer-term pattern.

Exports to Europe (2000-09 average)

Based on these figures, Florida ships the most goods in terms of value to Europe, but Alabama is more dependent on exports to Europe than any other state in the region. Georgia also sends a significant portion of its total exports to Europe. While there is concern about the financial impact of instability in Europe, a souring of economic activity across the Atlantic would also affect international trade. In either case, the region is not immune.

I'll be thankful when Europe's debt issue is resolved.

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

November 22, 2011 in Economic Growth and Development, Exports, Southeast, Trade | Permalink

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11/18/2011

The long climb ahead

A colleague of mine here at the Atlanta Fed is an expert rock climber. I'm not talking about scaling some indoor wall, but real rock climbing—Rocky Mountain–type rock climbing. I don't know how she does it. I thought about trying it once several years (and several pounds) ago, but after about three seconds of deep contemplation I chickened out. Probably the smartest decision of my life, seeing how I'm rather clumsy and afraid of heights…

Anyway, maybe it's a stretch to compare my colleague's rock climbing expeditions to what the states of the Sixth District are doing in terms of trying to climb back to where they were with regard to prerecession employment levels. Regardless, it's a useful analogy.

Here's a disturbing fact: Georgia is the only state in the nation that has not seen any recovery in total employment. In other words, only in Georgia is employment still declining—the Peach State has not even begun to climb yet. Here's another troubling detail: Florida has farther to climb to recover the jobs it has lost than any other state in the nation save one. Let me explain.

The first column in the table below shows the percent change in total employment by state from each state's peak employment level before the recession to its trough, or the point at which employment stopped declining. The second column shows the percent change in total employment from the trough to September 2011, the latest month that state-level data are available. As you can see in the chart, Georgia is the only state in the nation that does not have a positive reading in the "trough to present" column, meaning that the current level of employment is at its low point.

The third column simply measures the difference between the two. I call this the "Assuage Gauge"—a positive number means that the current level of total employment has recovered and is above its prerecession level. In other words, the higher the number, the more the employment situation has been alleviated. A state with a negative reading indicates that the employment level is still below its prerecession peak. In looking at the states of the Sixth District, Florida has a very weak reading in its Assuage Gauge. In fact, only Nevada has a poorer reading.


Back to my original analogy: Georgia has not even started its climb, and when Florida looks up at where it needs to go to get back to where it was in terms of total employment, its climb is incredibly steep. Alabama has a long way to go, Mississippi and Tennessee are a bit farther along, and Louisiana is getting close to the summit.

SouthPoint has discussed the Southeast's lagging recovery over the past year, noting in our September 30 post 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." Let's look a bit more broadly.

Atlanta Fed President Dennis Lockhart has spoken about the nation's lagging employment recovery on several occasions, most recently in Washington, D.C., where he discussed the important role new businesses play in job creation. In late September in Jacksonville, Florida, President Lockhart noted that

"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. As a result, there has been little progress in bringing down the high rate of unemployment."

The charts below highlight the divergence between public and private sector employment growth. We use the methodology of "employment momentum," which is a tool to gauge the relative strength of direction of employment. For example, if a data point shows a positive percent change in its short-term measurement (the three-month percent change) and a positive percent change in its longer-term measurement (the year-over-year percent change), we can say that momentum is strong. Data points showing this pattern are in the "Expanding" quadrant. Figures with both short- and long-term negative percent changes are seen as reflecting weak momentum and fall in the "Contracting" quadrant. Those deemed as "Slipping" show a positive long-term percent change, but the short-term measurement has turned negative. "Improving" reflects a negative long-term percent change, but a positive short-term movement.



Each point in the charts represents a state, and the states of the Sixth District are labeled. Two things jump out. First, as President Lockhart noted, public sector employment is much weaker than private sector employment. Only six states fall in the "expanding" quadrant for government employment, and only two states have private sector employment that falls in the "lagging" quadrant. The other is that Georgia not only has lagging government sector employment, but it is only one of two states with lagging private sector employment. Any way you cut it, the employment situation in Georgia and Florida is pretty lousy. The Atlanta Fed's macroblog has investigated the national employment picture for some time. To look more closely at employment trends and other data series for the states in the Sixth District, please see our State Data Digests. We update these on a monthly basis, so check back for updates.

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

 

November 18, 2011 in Employment, Florida, Georgia | Permalink

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11/09/2011

A view from the region

The Atlanta Fed constructs regular reports on economic conditions in the Southeast. The most widely known is the Beige Book, which was released on October 19 through the Federal Reserve Board of Governors. This report includes input from all 12 Reserve Banks.

But we update our Bank's regional economic perspectives on a continuous basis. We do this through our Regional Economic Information Network (REIN), which helps us coordinate the inflow of economic intelligence about the region's economy into the Atlanta Fed's overall view of the economy. The input provided by our boards of directors from Atlanta and our branches plays an essential part in developing our assessment.

In surveys conducted since the release of the last Beige Book, the majority of our directors and business contacts described economic activity as expanding at a slow pace, and their outlooks remained subdued. Retail and transportation contacts noted that consumer activity was tepid and expectations for holiday sales are restrained. Tourism-related spending remained positive, although there are some indications of a deceleration in cruise line bookings. Auto sales remained strong. Homebuilders and Realtors indicated that the housing sector remains depressed, although multifamily sales and construction were bright spots. Manufacturers reported a slowdown in new orders and production.

111109a


Since one of the Federal Reserve's mandates is to maximize employment, we consistently ask our contacts about labor conditions. Over the past month we specifically asked them about their workforce plans. Overall, our business contacts and directors indicated that job growth was minimal place across much of the District. Forty-three percent of contacts said they were likely to add to their workforce, but these expectations were in many cases tied to filling vacancies or adding seasonal hires. Importantly, we did not detect much in the way of plans to reduce staffing levels, either. Just over 80 percent of business contacts said it was unlikely that they plan to eliminate any current employees. The accompanying charts highlight these findings.

We heard more reports of businesses still seeking to maximize productivity gains from current employees. Several contacts also remarked that efficiency gains continued to be achieved as firms invested more in technology. In addition, several contacts noted the ongoing trend of reducing their permanent, full-time workforce in favor of part-time help.

Concerning the Fed's other mandate—to maintain stable prices—we routinely ask businesses to tell us about any cost pressures they may be experiencing. Most contacts this period were less concerned about input cost increases, and several noted some moderation. However, they continue to feel the effects of the earlier run-up in many commodity prices. Where possible, companies are trying to pass along some of the increased costs by increasing their prices, but they have to balance that with the potential to lose business. Spotty reports continue of wages pressures that are primarily a result of a short supply of specialized skills such as IT, some professional services and trade skills, and long-haul truck drivers. Overall, wage increases appear to be modest.

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

 

November 9, 2011 in Employment, Prices | Permalink

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