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.
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.
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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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."
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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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.
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.
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.
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.
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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04/07/2011
The Great Rebalancing: State and local government fiscal challenges
Earlier this week, Federal Reserve Bank of Atlanta President Dennis Lockhart spoke in West Palm Beach, Fla., about the current phase of American economic history, which he termed the "Great Rebalancing." (In his remarks, Lockhart noted that he borrowed this term from a reference to the economic recovery in Britain.) Lockhart sees three rebalancing processes now under way: rebalancing of consumption and savings, regulatory rebalancing, and fiscal rebalancing. With regard to the latter, he noted that
"Spending cuts have begun at all government levels, and some improvement in revenues is now being reported. The extent of cuts is being discussed, quite literally, as we speak."
While, as Lockhart noted, it is too early to determine the outcome of overall fiscal rebalancing at the national or state level, we can look at public sector employment at the state and local levels to see where some of this rebalancing currently is taking place. State and local employment data through February show that the number of public sector workers (excluding federal employment) has been on the decline for some time, while private sector employment is increasing.
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With regard to improvements in revenues, the data are more clear. Looking at the states in the Southeast, revenues are indeed on the upswing.
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A recent report by the Nelson A. Rockefeller Institute of Government, written by Lucy Dadayan, senior policy analyst, and Donald Boyd, senior fellow, confirms that
"After the deepest recession since the Great Depression, most states are now on the gradual road to tax revenue recovery."
President Lockhart's view that fiscal rebalancing lies mostly ahead of us is confirmed by the Rockefeller Institute authors, as they caution that
"Broad state fiscal conditions remain fragile. The longer-term outlook is still ominous due to record revenue declines during the Great Recession, spending trendlines still pointing upward, and unemployment rates remaining nearly double their prerecession levels, to name a few. While some economic indicators signal improvement in overall conditions, fiscal recovery for the states typically lags a national turnaround and is likely to take several years."
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
April 7, 2011 in Economic Growth and Development, Fiscal Policy, Recession, Sales Tax, Southeast | Permalink
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07/14/2010
Manufacturing cools in the U.S. and elsewhere
Manufacturing leveled off in the United States and Southeast in June. In fact, most developed countries' manufacturing sectors cooled off last month:
| Global Manufacturing Sectors, May versus June | ||||||
| JP Morgan Global PMI | U.S. | U.S.: Southeast | Japan | EuroZone | China | |
| May PMI | 57.0 | 59.7 | 62.7 | 54.7 | 55.8 | 53.9 |
| June PMI | 55.0 | 56.2 | 57.9 | 53.9 | 55.6 | 52.1 |
| % change | –2.0 | –3.5 | –4.8 | –0.8 | –0.2 | –1.8 |
| Source: Institute for Supply Management, Markit Economics, and JPMorgan Chase | ||||||
While this doesn't signal an end to the manufacturing sector's recovery, it's clear that growth is slowing. Though each purchasing managers index (PMI) mentioned above lost ground in June, each continues to be higher than the 50-point threshold that indicates growth in the manufacturing sector.
"Cooling off" is common after sharp expansions
It is important to remember how these surveys are fashioned and how that affects the outcome of the index. PMIs measure growth, not actual levels of new orders, production, etc. Survey participants are asked to compare their current month's levels of new orders and production (among other variables) with the previous month's level. Responses are generally collected in a "better/same/worse" questionnaire format. In most cases for June, including the United States and the Southeast, many participants jumped from indicating "better" conditions, as they had over the past several months, to reporting that conditions were the "same" from May to June. This response resulted in a lower reading of the PMI, which is a common trend early in recovery stages.
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U.S. and Southeast PMIs indicate above-average growth but are coming off of initial recovery highs
Regarding the Institute for Supply Management's (ISM) PMI, Norbert Ore, chair of the ISM Manufacturing Business Survey Committee, said the following:
"We are now 11 months into the manufacturing recovery, and given the robust nature of recent growth, it is not surprising that we would see a slower rate of growth at this time. The sector appears to be solidly entrenched in the recovery. Comments from the respondents remain generally positive, but expectations have been that the second half of the year will not be as strong in terms of the rate of growth, and June appears to validate that forecast."
Chris Williamson, chief economist at Markit, cites stimulus-driven growth contributing to the second quarter peak and hints that challenges remain for manufacturing:
"The second quarter most likely represents a peaking in the rate of expansion of manufacturing output, as growth slows in coming months as stimulus-driven tailwinds are replaced by mounting headwinds."
On a more local level, Kennesaw State University (KSU), primary producer of the Southeast's PMI, said declines in the Southeast PMI for May and June likely are adjustments to April's unusually high levels of new orders and production.
ISM and KSU reports additionally conclude that U.S. and Southeast production growth measures are still above the global average in June.
So June's PMI data should not be a cause for concern. Further deceleration of purchasing managers indices, however, could signal bad news for not just manufacturing sectors, but the overall economies they represent.
By Mark Carter, an economic analyst in the Atlanta Fed’s research department
July 14, 2010 in Economic Growth and Development, Manufacturing, Southeast | Permalink
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06/09/2010
Georgia on my mind
Determining the sustainability of the current recovery is an important topic here at the Atlanta Fed. Much depends on the rebound in labor markets-job growth and a decline in unemployment. Part of our overall strategy in determining labor market activity is, of course, to look at the data to identify in which areas are new jobs being created.
Let's look at the states of the Sixth District in geographic terms. The chart below shows what we call an "Employment Momentum" snapshot. We plot the longer-term trend in employment (the year-over-year percent change) along the horizontal x-axis against the short-term trend (the three-month average percent change) along the vertical y-axis. The size of the bubble represents the relative proportion of the measured area.
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Interpreting the chart is straightforward. When a state is performing well and new job creation has a lot of momentum, it will be located in the "Expanding" quadrant, signifying that both its long-term (year-over-year) and short-term (three-month average) measures are positive. When conditions begin to deteriorate, the short-term measure turns negative, but the longer-term measure remains positive, evidencing "Slipping" momentum. When an area has experienced sustained net job losses, both measures are negative, and it moves into the "Contracting" quadrant. When job growth returns, the area's short-term momentum turns positive while the longer-term measure stays negative. Then the area is experiencing "Improving" momentum.
Two observations stand out. First, Florida is clearly on the mend. Its momentum is squarely in the Improving quadrant. Second, Georgia is lagging and remains in the Contracting quadrant. Let's look into that.
The three-month average employment change in Georgia is negative, but the latest reading for April showed that Georgia gained 14,500 new net jobs-the state's first substantial seasonally adjusted monthly gain since February 2008. Another positive month of job growth should land Georgia in the Improving quadrant. Nevertheless, why is Georgia lagging other states in the region in terms of job growth? Is there a part of the state that is underperforming the rest, or is weakness concentrated in a particular sector?
Let's look at another momentum chart, this one focusing on the major Georgia metro areas:
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Most metro areas in Georgia have moved into the Improving quadrant. Notably, Atlanta—the state's largest metro area by far—has improving employment momentum (barely). A few smaller areas remain in the contracting quadrant. What stands out is the fact that nonmetro Georgia (derived by subtracting the total employment in all Georgia's metro areas from total state employment) is deep within the contracting quadrant. It appears that most of the state's metro areas are exhibiting either improving or close to improving employment momentum, while for nonmetro Georgia, weakness in job markets means that they remain entrenched in contraction territory.
By Michael Chriszt, an assistant vice president in the Atlanta Fed’s research department
June 9, 2010 in Economic Growth and Development, Employment, Georgia, Southeast | Permalink
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01/27/2010
Geaux Saints! On to Miami!
The Sixth Federal Reserve District is currently pro-football central. In just over a week, Miami, home to an Atlanta Fed branch office, will host Super Bowl XLIV (44, for those of us who are Roman numeral-challenged). That game will feature the New Orleans Saints—from another city that is home to an Atlanta Fed branch office.
Hosting and playing in the Super Bowl will be a shot in the arm to the economies of Miami and New Orleans. And they need it.
Few cities have felt the recession as deeply as Miami. Employment in the Miami-Ft. Lauderdale metro area peaked in December 2007. Between then and July 2009, a total of 225,000 jobs were shed, which amounts to a 9.2 percent decline. Miami has seen a bit of a rebound in employment since then, driven largely by local government hiring and a small increase in retail.
In the New Orleans metro area, the job losses have not been nearly as severe, in large part because of ongoing rebuilding efforts as New Orleans continues to recover from Hurricane Katrina. Employment peaked in December 2008 at 531,500 and then declined by 12,000, to 519,500, in July 2009 (–2.3 percent). Since July, New Orleans has added just under 5,000 jobs, with more than half of these in the healthcare and education sector. However, overall employment levels remain well below pre-Katrina levels—by 79,500 jobs, to be exact. The latest "Metropolitan Report" from the University of New Orleans Division of Business and Economic Research notes that post-Katrina population and employment growth stabilized before the recession began, therefore a large part of those 79,500 jobs represent a structural loss.
So, Miami is experiencing a cyclical downturn and New Orleans is still feeling the effects of Katrina. How much of an impact will hosting the Super Bowl have on Miami, and how much of a boost will playing in the game give New Orleans?
The positive impact of hosting big-time sporting events has been the subject of debate and a number of economic studies. Matheson and Baade conclude in their paper, "Padding Required: Assessing the Economic Impact of the Super Bowl," that
Recent NFL studies have estimated that Super Bowls increase economic activity by hundreds of millions of dollars in host cities. Our analysis fails to support NFL claims. Our detailed regression analysis revealed that over the period 1970 to 2001, on average Super Bowls created $92 million in income gains for host cities, a figure roughly one-quarter that of recent NFL claims. While this figure, like any econometric estimate, is subject to some degree of uncertainty, statistical analysis reveals that, on average the Super Bowl could not have contributed, by a reasonable standard of statistical significance, more than $300 million to host economies.
Nevertheless, Miami will receive a much-needed shot in the arm even if the overall impact on economic activity is not as great as anticipated. Add in the Pro Bowl, which will be played this coming weekend, and the overall impact will be greater.
As for the impact on New Orleans, measurement is even less tangible than in the case of Miami. Let's look at it in two ways: first the ongoing impact of the Saints on New Orleans, then what playing in the Super Bowl means to the economy in the short term.
Regarding the longer term, a report by University of New Orleans Chancellor and economist Timothy P. Ryan, "The Economic Impact of the New Orleans Saints," states that the Saints continue to be an essential revenue producer for the city of New Orleans by serving as an engine that pumps more than $600 million annually into local parishes and the state.
As for the short-term economic gains, there will certainly be more retail purchases of Saints paraphernalia and additional revenue that having a successful sports franchise generates, but the intrinsic psychological impact on the overall recovery of New Orleans is immeasurable.
So, even if some folks don't cheer for the Saints on Super Bowl Sunday, we will all be cheering for both New Orleans and Miami for the boost their economies will receive from the game.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
January 27, 2010 in Economic Growth and Development, Labor Markets | Permalink
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08/26/2009
Grassroots and green shoots
Chairman Bernanke noted the detection of "green shoots" in financial markets back in March during his interview with 60 Minutes. Ever since, the term "green shoots" has become synonymous with any detection of a budding turnaround in the economy. We saw green shoots here in the Southeast as well, but in a different form.
The difficulty with finding evidence of green shoots with regard to regional economic activity as opposed to financial markets is that data on financial markets are available in real time, while data measuring economic activity are not. For example, the Bureau of Labor Statistics reported on July state employment levels on August 21. The data, along with other series we monitor, are very useful in ascertaining where the regional economy has been. Trend analysis helps us identify where it may be going, but determining emerging turning points in economic activity requires additional information.
That's where the "Grassroots" nature of the Atlanta Fed enters the picture.
Not only do the economists and analysts in the Bank's research department maintain numerous business and academic contacts, but our regional executives do as well. What's a regional executive, you ask? Each branch office of the Atlanta Fed is headed by one. They maintain extensive contacts in their communities and use these relationships to gather first-hand, real-time information about economic performance in their respective geographic region. Lee Jones, the Nashville regional executive said in an EconSouth article that as a regional executive he has become involved with civic and business groups, partnered with a number of organizations to conduct business roundtable meetings, and gathered intelligence from home builders and residential and commercial real estate agents.
The regional executives bring to the table grassroots information about what is happening in real time, which helps us bridge the gap caused by lags in economic data.
This spring, anecdotal information these contacts provided led our staff to conclude that signs of economic stabilization were emerging. The Atlanta Fed's Beige Book contribution for that time period noted that "Sixth District business contacts reported that economic activity remained weak in March. However, residential real estate contacts noted modest sales improvements in several areas. Also, while manufacturing contacts noted that production and orders remained very low, their outlook was less pessimistic than last reported."
The final, and most essential, piece of the regional economic analysis puzzle is our boards of directors. The Atlanta Fed and each of its branches has a board (Birmingham, Jacksonville, Miami, Nashville, and New Orleans). The directors are drawn from different industries and geographies to gain a full representation of the regional economy.
Our branch boards meet about a week and a half before each Federal Open Market Committee (FOMC) meeting. These meetings are attended by senior bank officers, economists, and, of course, our regional executives. The discussions focus on current and expected economic conditions and are shared with FRB Atlanta President Dennis Lockhart.
The Atlanta Board of Directors meets the week before each FOMC meeting. We ask the branch and Atlanta directors to share their thoughts on the outlook at every meeting. President Lockhart incorporates the information he receives from the branch and Atlanta boards into his view of current economic conditions as well as the outlook.
The grassroots complexion of the Atlanta Fed, and the entire Federal Reserve System, often goes unnoticed but is indispensable to the formulation of sound monetary policy.
Note: These first three installments of SouthPoint focused on why and how the Atlanta Fed conducts regional economic analysis. Beginning next week we will turn our focus to the "what we do" part of the equation by looking at recent employment trends.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
August 26, 2009 in Economic Growth and Development, Monetary Policy, Southeast | Permalink
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08/19/2009
There's a lot to LEARN
When the Atlanta Fed set out to improve its understanding of the Southeast economy, one thing that became immediately apparent was that we could not hope to field a staff of experts on every area in the region. Clearly, there are vast differences between the economies of south Florida and north Georgia, between east Tennessee and west Mississippi. And New Orleans, well, that's a world unto itself! So we set out to find experts on local economic conditions, and we found a bunch. Most are located in university-based business and economic research centers, and a list can be found on our Web site.
Many of these centers are also part of the Association for University Business and Economic Research (AUBER), which is the professional association of business and economic research organizations in public and private universities.
We called our network "LEARN," which stands for Local Economic Analysis and Research Network. Our goal was not to establish a formal organization, but an informal network of local economic experts throughout the region. We held a conference in September 2008 in New Orleans and will meet again in 2010. The real benefit of these relationships is the information we gather on local conditions throughout the year as well as insight into larger trends in the broader economy.
Most of the centers that are in the LEARN network produce regular commentary and hold conferences that focus on regional economic developments and outlooks. For example, the University of Alabama's Center for Business and Economic Research publishes a quarterly newsletter titled "Alabama's Business," which includes an overview of economic conditions in the state as well as an outlook. In addition, they held a midyear economic update conference in July 2009.
Many centers also produce unique economic measures of local activity. For example, Kennesaw State University's Econometric Center produces a monthly purchasing managers index (PMI) for the state of Georgia and for the Southeast region. The regional PMI can be compared to the Institute for Supply Management's National PMI index to compare regional manufacturing trends to those developing at the national level.
We tap our LEARN members directly for insight into some of the questions we are trying to answer here at the Atlanta Fed. For example, when some national economic data began showing signs of improvement, we approached our network in the late spring and asked if they were seeing an increase in economic activity in their areas. The overwhelming response was that conditions remained very weak but appeared to be stabilizing. A number of the respondents also shared their belief that the economy would turn around in the second half of the year.
This information provided some additional perspective and helped in developing our opening sentence to the June Beige Book, which read, "Sixth District business contacts reported that economic activity continued to contract in late April and May, although the pace of decline had moderated in some industries and most noted that their outlook had improved."
More recently most of our LEARN members shared their belief that while economic conditions were turning, they expected only a modest recovery.
Finally, LEARN members are frequently cited in press reports, offering commentary with regard to economic developments at the local, state, regional, and national levels. My recent favorite comes from Sean Snaith, director of the University of Central Florida's Institute for Economic Competitiveness. He said in a June interview on National Public Radio that people should "forget the V-shape or other letters that economists talk about when they describe the economy. This will be a 'gravy boat recession' with a steady and gradual recovery. After touching bottom in the third quarter of 2009, we'll see GDP slowly climb like a gravy boat's spout." Who said economists can't be colorful?
I hesitate to highlight only a few members of our LEARN network because they are all doing very interesting work and are making significant contributions in the field of economic research and analysis. Fully understanding local economic developments and conditions would be impossible without them. We invite you to visit their Web sites—I promise you, there is indeed a lot to LEARN.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
August 19, 2009 in Economic Growth and Development, Forecasts, Local Economic Analysis and Research Network (LEARN) | Permalink
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08/12/2009
Why SouthPoint?
Welcome to SouthPoint, the Atlanta Fed's new weekly blog on regional economic developments. In this blog, we'll focus on the states in the Sixth Federal Reserve District—Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee—a very economically diverse area of the country.
One of the regional Federal Reserve banks' roles is to gather and process regional economic information to help inform the Fed's monetary policy process. The president of the Federal Reserve Bank of Atlanta is a member of the Federal Open Market Committee (FOMC) and as such plays a role in deciding the direction of certain interest rates. In gathering regional economic intelligence to assist our Bank president in his role as a member of the FOMC, we gain a deep understanding of what is happening in our district.
With that information as background, I should make another distinction up front. That is, the mission of the Atlanta Fed does not include being experts in regional economics. Our mission, as laid out in the Federal Reserve Act, specifies that the FOMC should seek "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." The Fed's mandate is for the U.S. economy as a whole, not the regional economy. We feel that the actions we take to meet the mandate put us in a position to offer educated commentary on economic developments in our region.
To that end, a little more than a year ago we launched the Regional Economic Information Network, or REIN, to provide an enhanced structure for handling incoming information and process it into useful economic analysis. "In our monetary policy role, we collect and analyze data covering various industries and indicators within the Sixth District," said John Robertson, vice president and then regional research team leader at the Atlanta Fed in announcing the initiative. "Sharing information helps to better position the Atlanta Fed as a knowledge source. At the end of the day, our objective is enhanced understanding of the economy. More information leads to more informed decision making."
Our REIN activities are geared toward "more informed decision making," as John put it, in relation to our FOMC-related duties. His reference to "sharing information" is what SouthPoint is all about. Please also look to the REIN section on this Web site for regular analysis of recent economic developments in the region.
So, what is so special about the Southeast region? What leads us to believe that what we learn about economic developments here is so useful when developing a picture of the national economy as a whole? After all, when the Atlanta Fed's President Dennis Lockhart goes to FOMC meetings, his policy decisions are not based on what he thinks is best for the region but what he believes is in the best interest of the U.S. economy as a whole.
Well, for starters, the states of the Sixth Federal Reserve District account for a substantial proportion of total U.S. economic output and employment. What happens in this region has a large impact on national economic trends.
Table 1 shows that if the Sixth District were an independent country, it would have the world's eighth-largest economy.
Table 1
In addition, the structure of the Southeast economy is very similar to the U.S. economy as a whole. Table 2 shows the share of gross domestic product (GDP) by industry for the combined states of the Sixth District and the United States as a whole. Except for durables manufacturing, where the Southeast is below the U.S. percentage, and construction as well as leisure and hospitality, where the region is above the U.S. concentration, the industrial structure of this region's economy is very similar to that of the national economy.
Table 2
In other words, the Southeast economy is very big, and it's structured a lot like the U.S. economy as a whole. Therefore, the picture we paint through data analysis and talking to decision-makers throughout our region puts us in a pretty good position to advise our Bank's president on broader U.S. economic developments—which is directly tied the to Fed's mandate.
It is this information and insight that will be the focus of SouthPoint, and we hope you find our posts interesting and informative.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
August 12, 2009 in Economic Growth and Development, Forecasts | Permalink
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