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01/27/2012

"Rats!"

That was the word I mumbled when I saw the headline data from December's employment report for the region's states. The U.S. Bureau of Labor Statistics' (BLS) latest regional and state employment and unemployment report showed that total job growth was a paltry 6,000 for Sixth District states, well below the 31,700 increase logged in November and a similar 31,500 rise in October. Individual state reports were mixed, with Florida and Georgia adding a net 7,300 and 3,700, respectively. Alabama gained 1,100 while Louisiana saw a net increase of only 600. Losing jobs were Tennessee (down 3,100) and Mississippi (down 3,600).

After the U.S. gained 200,000 net new jobs in December, I expected a better report for the region. We've written before about how the region saw deeper job losses than the United States as a whole during the recession and how our employment recovery has been, well, rather tepid. In the three months preceding December, the region experienced somewhat stronger job gains—the strongest pace since the recession began, in fact. In that light, our inability to maintain employment growth momentum in December was a real letdown.

Never one to pass up an opportunity to seek out silver linings, I took a step back from my disappointment and remembered that one month of lousy data does not a trend make. Also, it's hard to dismiss the fact that four of our six states added to payrolls in December, and two of those—Florida and Georgia—were among the hardest-hit states in the country when it comes to job losses during the recession, Additionally, Georgia has been among the weakest in terms of job creation during the recovery. So while the headline number of a gain of 6,000 may be modest, there is some good news there.


More positive news can be seen from the report on unemployment from the BLS's regional and state number for December. Unemployment rates in all Sixth District states declined, and the aggregate unemployment rate for the region fell from 9.5 percent to 9.3 percent. While still elevated, we're definitely moving in the right direction. We had concerns that the decline in unemployment rates may be driven by discouraged workers dropping out of the labor force. Atlanta Fed research economist and policy adviser Julie Hotchkiss has looked into this and wrote last April that "[t]he question remains whether the economy will continue to create enough jobs both to entice people back into the labor market and continue to reduce unemployment at the same time."

The data from our states in this regard are encouraging. Every state in the region has logged declines in the number of people reporting that they are unemployed over the past few months. In fact, the number of unemployed in the region has been declining since July 2011 and dropped by 170,300 in the fourth quarter alone. In addition, state labor forces have been largely stable or increased. The ongoing decline in initial claims for unemployment insurance is also a good sign.


True, unemployment remains elevated throughout the region, and December's job gains for the region as a whole were disappointing. Yet, it's important to note that job gains were positive in four of the six states in the District and that unemployment rates continued to drop.

Also, "rats" spelled backwards is "star." OK, I'm reaching with that one.

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

January 27, 2012 in Employment | Permalink

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01/20/2012

Initial unemployment claims head down, slowly

The idea that regional labor markets are healing is supported by the following chart:


Because initial claims are a sign of emerging unemployment, we can say that declines are a sign of an improving unemployment situation—or, more precisely, of an employment situation that does not appear to be getting worse. That the initial claims are headed in the right direction is clear, but what is also evident is that we are still nowhere near pre-recession levels. In fact, the current level for the region is still 55 percent higher than it was in January 2006. This table shows the percent changes for individual southeastern states:

120120_tbl


Florida's level is well above its January 2006 reading, as are the levels of Alabama and especially Georgia. Louisiana, Mississippi, and Tennessee's levels are about 20 percent over their January 2006 readings. In fact, these latter three states have seen initial claims drop at a faster rate than the nation.

As a whole, the region's levels are still above comparable U.S. figures. Nevertheless, despite the wide divergences in the region, the initial claims of all southeastern states are moving in the right direction.

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

January 20, 2012 in Unemployment | Permalink

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01/19/2012

Georgia on my mind (again)

You wouldn't think a breakfast talk about economics would be all that interesting. Not true. Yesterday morning, I participated in a monthly breakfast seminar hosted by a local group aptly called "Eggo-nomics." The discussion was about the current state of Georgia's economy.

I'm not saying that my presentation was all that enthralling, but the questions and comments from the participants certainly were interesting. Of the several questions I received, the most common centered on the theme of why Georgia's economy continues to lag other parts of the country.

As it so happens, these questions mirrored one that was posed to Atlanta Fed President Dennis Lockhart in a recent interview with the Atlanta Journal-Constitution. He was asked, "Certain areas of the country, like the Northeast, are recovering faster than the Southeast. Why?" Here is President Lockhart's response:

"I get the question frequently: 'How is the Southeast doing relative to the rest of the country?' And my answer is, broad generalization, a little worse than the national averages. Not dramatically worse, just a little worse. And I use unemployment as an example. The unemployment rates for the six states we follow here, with the exception of Louisiana, are above the national average.

"Those rates have been coming down, just as the rate nationally has been coming down. But there is a lagging picture for Georgia and for most of the Southeast. You can explain some of the cause by looking at the exposures in the bust which were real estate-oriented, the dramatic slowdown in construction and the number of people put out of work who were in the construction trades.

"And to some extent in banking [many of the problems stemmed from] the dependence on real estate lending in many banks.

"If you want to step back even further, you had a couple of decades of in-migration, particularly Atlanta. You have to build houses to hold the people who migrate here, so real estate construction was a big thing. They come and get jobs; they need office buildings in which to work. So commercial real estate is a big thing and when that turns negative, it creates a problem that is more difficult than in the Northeast service-industry contraction."

SouthPoint has reported on this topic and will continue to dig into reasons behind Georgia's lagging recovery.

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

January 19, 2012 in Georgia, Outlook | Permalink

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01/13/2012

Forecasting at the national and regional levels

The Atlanta Fed produces economic forecasts on a regular basis, as do other Reserve Banks, economic think tanks, and many, many other institutions. The Fed's forecasts are published with the minutes of meetings of the Federal Open Market Committee (FOMC). In 2011, these forecasts were released after every other FOMC meeting, the last being in November. In the Atlanta Fed's latest macroblog, Dave Altig, our senior vice president and research director, detailed the changes coming in 2012 to the Fed's Summary of Economic Projections (SEP).

How are the Atlanta Fed's economic projections developed? It's a combination of sophisticated econometric modeling, application of intelligence gathered through our Regional Economic Information Network (REIN) and direct input from our Boards of Directors, expertise of our staff macro, micro, and financial economists, and, most importantly, President Dennis Lockhart's own views. The Bank's economic forecast is, after all, his forecast, so he gets the final word.

President Lockhart detailed his outlook for economic growth earlier this week in his speech before the Rotary Club of Atlanta:

"This brings me to the outlook for 2012. Europe is the biggest wild card for the coming year. Also, the rising tensions in the Persian Gulf and the jumpiness of oil market prices cannot be ignored.

If there are no surprises from Europe or elsewhere, we at the Atlanta Fed are expecting modest GDP growth for the year in the range of 2.5 to 3 percent, but we will not be surprised to see some retrenchment of consumer activity as well as exports and inventory accumulation in the first quarter as compared to the last quarter of 2011."

While these projections focus the national economy, several regional projections focus on state outlooks. The Atlanta Fed does not produce state forecasts, but many members of our Local Economic Analysis and Research Network (LEARN) do, several of which can be found below:

Alabama: University of Alabama's Center for Business and Economic Research

Georgia: Georgia State University's Economic Forecasting Center

Georgia: University of Georgia's Selig Center for Economic Growth

Florida: University of Central Florida's Institute for Economic Competitiveness

Although not a state forecast, Louisiana State University's Center for Energy Studies posted a September 2011 presentation by Dr. David Dismukes titled "Natural Gas Trends and Impact on Industrial Development" that dives deeply into the outlook for this important and rapidly growing sector.

The 18th Annual Mississippi Economic Outlook Webcast hosted by Mississippi's Institutes of Higher Learning Economics Department can be viewed in its entirety.

Quarterly updates on the Volunteer State's outlook are available from the University of Tennessee's Center for Business and Economic Research. The latest post is for fall 2011, but check back for its 2012 Economic Report to the Governor of the State of Tennessee which should be available sometime in January.

The Business and Economic Research Center at Middle Tennessee State University holds an annual outlook conference. The latest presentation from the center director, Dr. David Penn, can be found here.

Of course, forecasting is not an exact science. Macroblog has looked at forecasts and forecasting over the years. Take a look for some thoughtful dialogue on the topic and check back with us and our colleagues throughout the region to see how 2012 national and state forecasts evolve.

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

January 13, 2012 in Forecasting | Permalink

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01/11/2012

Regional economy expands in late 2011

The Atlanta Fed's latest Beige Book reported that:

"Sixth District business contacts described economic activity as expanding at a modest pace from late November through December."

Importantly, the report also notes that:

"Reports from most sectors were positive, yet expectations remained guarded."

Translating from Beige Book-speak, what this means is that (for the most part) our contacts reported their businesses performed well late in 2011, but this performance has not translated into immediate plans to accelerate expansion. They were pleased with their results but did not seem convinced that these results would carry over at the same pace in 2012. We've heard this from contacts from firms of all sizes and from across several sectors.

As a result hiring plans remain modest as well. As our Beige Book reported:

"Contacts across most sectors continued to report modest hiring activity across much of the District. Most of the hiring has been temporary in nature and tied to seasonal employment."

That said, early results from an early January informal poll of our business contacts showed roughly 45 percent expect to increase hiring in 2012, 45 percent see their workforce levels remaining unchanged in the new year, and about 10 percent see further payroll declines. We will be digging deeper into the full results of this survey as the month goes on, and we'll be looking to the actual employment data to see if hiring plans do indeed translate into increased hiring activity.

Part of our hesitancy to ratchet up our expectations for a significant expansion in hiring was also noted in our January Beige Book:

"Firms also noted reluctance towards adding new full-time employees because of uncertainty surrounding healthcare reform, a large pool of both over and under qualified applicants, and because productivity enhancements have made several positions redundant."

Atlanta Fed President Dennis Lockhart talked about the idea of uncertainty in his January 9 speech to the Rotary Club of Atlanta:

"Uncertainty is a nebulous factor. Definition and measurement of uncertainty are elusive. Uncertainty is not as concrete and measurable a fundamental as business balance sheets or public finance, but it's affecting the behavior of consumers and businesses nonetheless. Most of the evidence I've seen for the effect of uncertainty comes from anecdotal comments. These comments reflect on a variety of concerns that are fueling risk aversion. Beyond lots of angst about the direction of the macroeconomy, concerns in 2011 included regulation, taxes, health care costs, and Europe."

Rather than throwing up our hands and writing off "uncertainty" as one of those—as President Lockhart said—nebulous, indefinable factors that may or may not affect economic activity, we do believe that it is having an impact. Lockhart continued:

"There is, however, a growing body of work in the economics profession trying to measure uncertainty, and correlate it to actual spending by firms and consumers. For example, economists at Stanford University and the University of Chicago have built an index based on economic, tax, and forecast uncertainties. Last year, this index reached its highest level since the mid-1980s. The economists concluded that this level of uncertainty has been a significant drag on the expansion."

So while we are receiving information from southeastern businesses that late 2011 activity was positive, we are, like our contacts, guarded about expectations for 2012.

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

January 11, 2012 in Employment | Permalink

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01/06/2012

More on the Sixth District's exposure to Europe

Europe remains in the news as 2012 begins. Developments there continue to influence global financial markets and might be pushing the euro area's economy into recession. Many forecasters have identified contagion from the European financial crisis and recession as a significant risk to U.S. economic growth in 2012.

Atlanta Fed President Dennis Lockhart noted this in his November 29, 2011, remarks during the University of Georgia's Terry College of Business 2012 Economic Outlook conference:

"My baseline forecast for 2012 builds on the picture I've just painted of the second half of 2011. I'm expecting continued moderate growth, decently behaved inflation, continuing net job creation, but slow progress on unemployment. You will note I used the word ‘baseline.' I need to emphasize that at this juncture I perceive considerable downside risk to this baseline forecast. The most prominent source of risk is Europe. "

Steven B. Kamin, the director of the Division of International Finance at the Federal Reserve's Board of Governors, discussed the economic situation in Europe and its impact on the U.S. economy in testimony before the U.S. House of Representatives on December 16, 2011:

"Here at home, the financial stresses in Europe are undoubtedly spilling over to the United States by restraining our exports, helping to push down business and consumer confidence, and adding to pressures on U.S. financial markets and institutions."

A few weeks ago, SouthPoint looked at trade connections between Europe and the Southeast, noting that

"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."

We thought we'd dig a little deeper into the issue and look more closely at which parts of the Southeast economy are vulnerable to the crisis in Europe.

Clearly, U.S. companies that depend on sales of their products to the euro area are likely to see the weakening of demand for their Europe-bound products as the euro area's economy contracts and if the euro continues to depreciate. According to the U.S. International Trade Administration, the exposure of Southeast's exporters—as measured by the share of goods sold in the euro area as percent of total goods exports—is relatively low, but the share varies significantly across the Southeast states.

Alabama's exporters appear to be the most vulnerable to changes in European demand—almost a fifth of the state's merchandise exports are shipped to the euro area. About half of those exports are sold in Germany, mainly autos. The good news is that Germany seems to be one of the more resilient European economies, along with the Netherlands, Belgium, and France—the other large euro area markets for Southeast's exporters. The economically weakest countries in the euro area—Greece, Ireland, and Portugal—account for a small fraction of the region's exports.


While Florida's exporters appear to be least exposed to the euro area compared to other states in the Southeast (most of Florida's exported goods go to Latin America), the state's large tourism industry may feel some impact if a recession and a weakening euro keep Europeans from traveling to the United States. Based on data from the Office of Travel and Tourism Industries and VISIT FLORIDA, an estimated 1.2 million residents of the euro area visited Florida in 2010. Fortunately, this number represents less than 2 percent of all the visitors to the state.

Another important part of Florida's economy that to some extent depends on European spending is residential real estate. In Florida, sales to nonresident foreigners account for about 25 percent of total residential sales (compared with only 3 percent nationally). For the state as a whole, Western Europeans (excluding U.K. residents) account for about 11 percent of all nonresident foreign buyers. While the number is relatively low, some parts of the state are much more dependent on Europeans. For example, in the Miami-Fort Lauderdale-Miami Beach market residents of Germany accounted for nearly a quarter of all nonresident foreign buyers in the 12 months ending in June 2011, according to the National Association of Realtors.

In general, whether through exports, tourism or real estate, the Sixth District's exposure to Europe appears relatively small. The bigger concerns are the possibilities of severe financial contagion (via the banking system and financial markets) and a hit to business and consumer confidence, which apply as much to the District as to the nation overall.

Photo of Galina Alexeenko By Galina Alexeenko, director of the Atlanta Fed’s Regional Economic Information Network

 

and

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

January 6, 2012 in International, Outlook, Trade | Permalink

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01/04/2012

Happy new year

Resolutions and predictions are hard to avoid as the new year begins. With regard to the former, most focus on personal improvements and tend to be fuzzy and are abandoned by February. "Lose weight" is one that seems to appear on my list every year. But this year is going to be different. I've set real, measurable goals and shared them with my family so they can hold me accountable. We'll see how it goes, but I'm counting on the fact that my children take every opportunity to point out my mistakes (in a fun-loving way, of course).

Predictions can be even more fuzzy. I always seem to predict that my Cleveland Browns will make the playoffs. That's more like a wish than a prediction, but I can't help it. With regard to the region's economy, we don't call "predictions" predictions. They are "forecasts" or "outlooks." Whatever we call them, it is a thoughtful and necessary exercise to look back at where we've been and think about where we're going.

The latest issue of the Bank's quarterly publication EconSouth does just that. In our outlook for 2011 we said that:

"In 2011, the regional economy will have to surmount a number of obstacles before it can resume the growth that made it one of the nation's most dynamic economies."

In the introduction to the 2012 outlook, we asked if the region surmounted these obstacles:

"Has [the region] resumed the growth that made the Southeast so dynamic? Unfortunately, the answer is no. Not completely, anyway. While the region made some progress along the road to recovery, many impediments remain. The challenges the region faces are similar to those faced by the nation as a whole, but many of these barriers have proven especially tough to overcome in the Southeast."

In-migration has been a hallmark of regional economic development for decades. As EconSouth points out:

"The driving force behind the region's economic growth over the years has been robust population growth, which ignited development and spurred job creation. The slowdown in population growth to the levels experienced by the rest of the country explains a big part of the regional economic contraction, and lagging in-migration appeared to continue in 2011."

Drags on regional economic activity in 2011 were largely tied to real estate, which showed few signs of a turnaround. Quoting EconSouth again:

"The dynamic between population and economic growth is quite nuanced, but when real estate developers anticipate steady population gains that fail to materialize, serious imbalances can result. Construction of homes and commercial space does not stop on a dime, hence the high degree of overbuilding apparent in many parts of the region. Housing demand remained historically low in 2011, according to regional business contacts, while commercial property vacancy rates—especially for retail space—barely budged from 2010 levels. Add in continued falling home prices, and it is little wonder that the real estate sector remained a drag on the region's economy in 2011."

The 2012 regional outlook article goes on to discuss trends in agriculture, small business, manufacturing, consumer spending and tourism, government, and overall employment. It concludes by saying:

"Barring unforeseen shocks, economic activity in the Southeast is expected to improve in 2012. But, with in-migration stalled, there is only a small likelihood that the region will regain in 2012 the solid expansion levels seen before the recession. And, while the region is expected to see positive net job creation in 2012, the pace will probably be too slow to make a significant or rapid dent in the high unemployment rates seen in 2011."

In December 2012 I'd love to look back and say we were wrong about our outlook and that the region outperformed our expectations. I also hope to look down at the scale and see that I lost more weight than I said I would. We'll be watching the data and listening even more intently to our business and community contacts with regard to the former, and I'll be watching my waistline and listening to my kids' comments on the latter.

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

January 4, 2012 in Outlook | Permalink

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