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.
It's Mostly Sunny in Florida
Jacksonville, Florida. Photo by Kendrick Disch
In a February SouthPoint post about economic conditions in north and central Florida, we reported that our contacts' optimism in late 2014 had carried into the new year. Since then, the Regional Economic Information Network team at the Jacksonville Branch has noted an overall improvement in activity and continued positive sentiment.
General business conditions continue firming
Feedback throughout the winter months was quite upbeat. Most contacts felt that an improving economy and labor market were driving growth. In early spring, although feedback remained positive, the messages became more mixed, with some contacts indicating a plateau in growth—most notably, transportation and retail contacts cited challenges from severe weather in various markets. However, bankers noted reasonable momentum with consumers and businesses; real estate contacts saw robust activity with increasing sales and prices at all price points; and homebuilders and commercial construction firms noted much stronger levels of activity. Tourism remained vibrant. Though the consumer inched along, restaurants reported revenue increases that they believe were the result of lower gas prices influencing discretionary spending. As spring progressed, activity continued along an upward, albeit slow, trajectory.
By midsummer, a small number of contacts reported demand was flat, and transportation contacts reported that activity—especially related to the movement of energy-related materials—declined notably since the first quarter. However, a majority of other contacts noted improved activity. Some began to add to capacity to meet increased demand—and, more importantly, anticipated future demand.
Employment largely stable
Throughout the first part of 2015, contacts continued to indicate no major problems in filling jobs outside of information technology (IT), accounting, compliance, and truck drivers. Staffing levels across firms generally remained steady, with some adding to headcount. Those hesitant to add staff turned to contingent labor (such as contract staff or temps) to meet demand. In late spring, we began to hear about increased turnover at many levels, and recruiting and retention appeared to be getting tougher. In central Florida, tourism contacts cited concerns of potential worker shortages as a result of a very low regional unemployment rate and increased construction attracting available labor.
Labor, nonlabor costs and price pressure surfacing
By March, mentions of mounting wage pressures at all job levels surfaced. Though not universally reported, numerous contacts said they were beginning to increase starting salaries, which they noted will eventually ripple through higher levels of staff to maintain internal pay equity and retain talent. Wages increased for engineers, truckers and technicians, and IT specialists. Into the summer, stories of referral and signing bonuses, customized perks, and other benefits enhancements for both recruitment and retention became more common.
Feedback on health care costs continued to be mixed. Health care costs for most increased at a pace greater than overall inflation, though companies continued to try to minimize the increases by changing plan designs or by sharing more of the cost with employees.
Overall, concerns about nonlabor costs were muted. Some mentioned lower energy and fuel costs have offset increases in other input costs.
The ability to raise prices varied among industries. However, a number of contacts indicated pricing power had improved, though the magnitude of price increases was limited. Generally, though, margins were edging up.
Credit, investment remain available
Throughout the first half of the year, credit was readily available and banking contacts reported increased activity. Many companies, especially small businesses, continued to deleverage even in the low interest rate environment, and many larger firms reported funding investments internally. Lenders reported increases in mortgage refinances as rates dipped, and they noted improved home equity levels. Auto lending was described as extremely strong.
Almost without exception, retail contacts noted expansion activity and further growth plans, all the result of expectations for stronger consumer spending. Real estate agents indicated that appraisal issues improved, and buyers, even the self-employed, generally faced little trouble financing home purchases. Stories regarding business investment were mixed between outlays for deferred projects and spending for new demand. This year, it's become clear that there is less hesitation about investment.
Business outlook mostly bright
Though we heard a couple of references to a cloudier outlook during the next two to three years as we approach another presidential election, collectively—and as recently as July—most REIN contacts and board members were as positive about current activity and future expectations as we have seen since the recession.
What's is in store for Florida in the second half of the year? Stay tuned.
By Chris Oakley, regional executive, and Sarah Arteaga, REIN director, both of the Atlanta Fed's Jacksonville Branch
Auto Manufacturing an Economic Boon for Tennessee
Making cars has been giving an economic boost to the Volunteer State since the early 1980s, when Nissan built the state's first large-scale auto manufacturing plant in Smyrna. General Motors followed by establishing a plant in Spring Hill in 1990. The latest automaker to set up camp in Tennessee is Volkswagen, which opened its plant in Chattanooga in 2011. About a year ago, Volkswagen announced plans for an expansion at its Chattanooga facility. The Center for Business and Economic Research (CBER) at the University of Tennessee recently released a report detailing the economic impact of the Volkswagen expansion, which, needless to say, should be significant.
Image copyright Volkswagen of America Inc.
The purpose of the Volkswagen plant expansion is to manufacture a new midsize SUV for the U.S. market. State and local governments offered incentives of nearly $300 million to entice Volkswagen to build its new SUV in Chattanooga and, according to the CBER report, the state should receive a high return on its investment. The expansion will add more than 500,000 square feet to the facility and an additional 1,800 employees. Tied to the expansion, Volkswagen plans to establish the North American Engineering and Planning Center in Chattanooga, which will create 200 jobs. The plant expansion and the R&D center together will create 2,000 new jobs, which will nearly double Volkswagen's current Chattanooga workforce of 2,358. These numbers are impressive, but they only scratch the surface of the estimated overall impact.
The CBER report breaks down the overall impact of the plant expansion into two phases: the construction phase and the operations phase. The CBER projects the construction phase alone to be quite lucrative for residents of the state. It estimates that the construction and development stage will create 5,391 full-time jobs for a year. The report also anticipates the generation of $217 million in new income during that year for Tennesseans. State and local municipalities stand to gain a one-time increase in tax revenues equal to $20.5 million. During the operations phase (after the plant is fully operational), the plant is expected to create 9,799 new full-time permanent jobs in the state. These jobs would not only include new Volkswagen employees but also the jobs created at the numerous Volkswagen suppliers located in Tennessee.
New income for Tennesseans will be in the neighborhood of $372.6 million, according to CBER estimates. The income generated during the construction phase may be direct or indirect income. (An example of indirect income would be the hiring of construction workers who are employed by Tennessee construction firms, which then spend their earnings on goods such as food or clothing in the state.) The report estimates that every dollar spent on construction of the plant will result in 47 cents of income for Tennessee. (An example of direct income would be the salaries Volkswagen pays its new employees, and estimates indicate that Volkswagen will pay $100.9 million in salaries to its new employees.) In addition, Volkswagen plans to purchase many inputs directly from Tennessee suppliers, so every dollar spent during the operations phase is estimated to lead to $3.69 of income for Tennesseans.
There are also intangible benefits to consider, such as an increase in charitable giving as incomes rise. The multiplying effects of the plant expansion will touch many aspects of not only Tennessee's economy but also the entire regional economy. It will be interesting to watch as auto manufacturing continues to put down roots in the Southeast. Hopefully, the economic benefits are just beginning to rev their engines.
By Troy Balthrop, a senior Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch
- Southeastern Transportation: Tapping the Brakes?
- Southeast Manufacturing Slows in August
- It's Mostly Sunny in Florida
- Auto Manufacturing an Economic Boon for Tennessee
- Southeast Manufacturing Rebounded in June
- Southeast Manufacturing Dips in May
- Assessing the Impact of Oil Price Declines on Louisiana's Economy
- Seeking the Slack
- Middle Tennessee Consumer Confidence on the Rise
- Trials and Tribulations in Transportation
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