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.
Southeast Manufacturing Dips in May
National manufacturing activity hasn't been particularly strong so far this year. It hasn't been particularly horrible mind you, but there hasn't been much to get excited about, either. Southeastern manufacturing activity—until recently—has been a different story. The Southeast purchasing managers index (PMI) and the Institute for Supply Management's national index both indicated that southeastern activity had been outpacing national activity in each of the first four months of 2015. I hate to throw cold water on the strong numbers, but according to the latest PMI report, released on June 5, that trend may be reversing.
The Atlanta Fed’s research department uses the PMI to track manufacturing activity in the Southeast. The survey, produced by the Econometric Center at Kennesaw State University, analyzes current market conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The PMI is based on a survey of representatives from manufacturing companies in those states and analyzes trends concerning new orders, production, employment, supplier delivery times, and inventory levels. A reading above 50 indicates that manufacturing activity is expanding, and a reading below 50 indicates contracting activity.
The Southeast PMI has averaged a 57.9 reading so far in 2015, compared with a 52.4 for the national index. However, the May Southeastern PMI's overall index fell 5.2 points from April to 52.4, clocking in below the national index for the first time in four months (see the chart).
The index remained above the 50 threshold for expansion, but the subindexes of the May report contained some disconcerting numbers:
- The new orders subindex fell 11.0 points to 46.0.
- The production subindex decreased 16.0 points compared with the previous month and now reads 49.0.
- The employment subindex declined 1.0 to 60.0.
- The supplier deliveries subindex increased 3.0 points to 56.0.
- The finished inventory subindex decreased 1.0 points to 51.0.
- The commodity prices subindex rose 9.0 points and now reads 54.0.
The 11-point fall in the new orders subindex was discouraging since it is the most forward-looking indicator of future activity. The new orders subindex has seen large one-month fluctuations in the past. For instance, it fell 27 points last December only to rebound 23.4 points the following month. So it could be a one-month aberration. Let's hope so. The 16-point fall in the production subindex was also an abnormally large fall, but—like new orders—it has happened before. Optimism for future production also decreased from April to May. When asked for their production expectations during the next three to six months, only 38 percent of survey participants expected production to be higher going forward, compared with 46 percent in April. The good news is that the employment subindex registered a strong reading, which is a good indication that manufacturers are still adding to their payrolls. So even though production outlooks have come down, firms still seem to expect that they will need employees to work more hours in the future, which could be a good sign for employment.
We should remember that the overall index still indicated expansion in manufacturing. Hopefully, as the summer heats up, so will manufacturing activity. I hate to throw cold water on our hot streak, but this time of year, a little cold water can feel good.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch
Assessing the Impact of Oil Price Declines on Louisiana's Economy
It's no big secret that the energy sector is a huge contributor to Louisiana's economy. According to the Energy Information Administration, Louisiana is one of the nation's biggest energy producers and consumers, largely because of the industrial sector, which includes many refineries and petrochemical plants. In fact, with 19 operating crude oil refineries, Louisiana ranks second in the nation in both total and operating refinery capacity. Nearly 112,000 miles of pipelines transporting crude petroleum and natural gas run throughout the state and the Gulf of Mexico. Additionally, the Henry Hub natural gas distribution point in Erath, Louisiana, is the interconnecting point for nine interstate and four intrastate pipelines that provide access to major markets throughout the country.
A 2014 study by Louisiana State University economist Loren Scott cited that the oil and gas industry's total direct and indirect annual impact on the state economy is around $73.8 billion from taxes, royalties, fees, salaries and other money spent in Louisiana by the industry. Also, according to the U.S. Bureau of Economic Analysis (BEA), oil and gas extraction and petroleum and coal products manufacturing accounted for more than 12 percent of Louisiana's real gross domestic product in 2012.
Consequently, what happens in energy markets influences Louisiana's economic performance. So when oil prices tumbled in 2014, I wondered about the extent of the impact on the state's economy. A barrel of West Texas Intermediate crude oil fell from a peak of more than $105 in mid-2014 to less than $50 a barrel in early 2015. The price has since recovered a bit, to about $61 a barrel as of June 11, yet it remains a fair distance from last year's peak (see chart 1).
Earlier this year, the Atlanta Fed's Energy Advisory Council shared some insights about changes in business activity and investment in the region as a result of lower energy prices, which I recapped here. But what about the labor market? During the last several months, I've seen numerous announcements of worldwide oil and gas layoffs, which Houston consulting firm Graves & Co. tallied at more than 100,000 jobs. How many Louisiana energy sector workers will be caught up in those layoffs?
Unfortunately, the true impact is not very easy to extrapolate. It's not as simple as extracting employment data on oil and gas industries, since pieces of so many other industries (such as manufacturing and construction) support the energy sector. Plus, even more industries are influenced by the energy sector's growth or contraction, such as education, health care, tourism, and services industries—it's extremely difficult to determine the number of "spillover" jobs created or lost. Using an input-output table constructed by the BEA, the impact study cited above estimated that for every job created in the extraction, refining, and pipeline industries, 3.4 additional jobs are created in other industries in Louisiana. Holding all else constant, that multiplier should apply to jobs lost in Louisiana's economy.
Business contacts in the Atlanta Fed's Regional Economic Information Network (REIN) have cited instances of layoffs tied to falling energy prices over the last few months. Furthermore, various media outlets have reported recent layoffs in Louisiana's energy sector (for example, here, here, and here). However, REIN contacts also indicated that firms that generally compete with oil and gas companies for workers in a very tight labor market have scooped up recently laid off workers, likely masking the net impact and potentially clouding the multiplier calculation.
If the focus is on jobs lost in Louisiana's energy sector alone as a result of falling energy prices, at this time I'll concentrate on what's happened in the segment that encompasses the bulk of energy-related jobs: the goods-producing sector, which includes the mining and logging, construction, and manufacturing subsectors. When more detailed industry data through the first quarter of 2015 are published by the U.S. Bureau of Labor Statistics (BLS) later this year, I'll revisit the impact on specific energy-related industries.
In mid-2014, when the price of oil peaked and then began to fall, jobs in the goods-producing sector in Louisiana followed a very similar trajectory (see chart 2).
In July 2014, the goods-producing sector contributed about 4,000 new jobs on net in Louisiana. Then, as the price of oil began to fall, job creation followed suit, and in January 2015 the sector subtracted nearly 3,000 jobs. Judging from the data, as well as REIN anecdotes, it is clear that oil price declines from mid-2014 to early 2015 resulted in job losses in Louisiana's energy sector. Recent BLS data reflected just 800 net goods-producing jobs lost in the state in April. So is the environment improving, considering oil prices recovered a bit?
Reports from REIN contacts have been mixed. Some business leaders indicate that the volatility of lower energy prices has become better understood and integrated into flexible business plans, positioning firms to respond to the current environment. However, their response, in some cases, has involved and continues to involve layoffs, though these reports have tempered recently.
Time will tell what the ultimate impact of this period of precipitous oil price declines will be on Louisiana's economy and labor market. I'll revisit this topic after our next Energy Advisory Council meeting and the release later this year of detailed industry data from the BLS.
By Rebekah Durham, economic policy analysis specialist in the Regional Economic Information Network at the New Orleans Branch of the Atlanta Fed
Seeking the Slack
Where is the excess slack in the labor force?
Last week, the April Employment report from U.S. Bureau of Labor Statistics reported that the unemployment rate (U-3) edged down slightly to 5.4 percent (after rounding) over the prior month, which is well below the high of 10.0 percent in late 2009. Despite this encouraging improvement, wage growth remains low, and many agree that slack remains in the labor market. The consensus of the Federal Open Market Committee (FOMC) has been that more progress can be made, as noted in the Chair’s press conference in March. One factor we have been paying particular attention to here at the Atlanta Fed is excess slack in the labor market captured in the U-6 unemployment rate, which includes the unemployed, those who are working part-time but would prefer full-time employment (part-time for economic reasons, or PTER), and those who have stopped looking for work during the last 12 months but were willing to work (marginally attached).
Below is a chart showing the U-3 unemployment rate (depicted in blue) and the U-6 rate (in red). The difference between the two is often referred to as “the gap,” and this area shaded below in light red represents the excess slack in the labor force. Between 2000 and 2008 the gap averaged 3.7 percentage points but then rose to a high of 7.3 percentage points during the recession. Since late 2011, the gap has declined and was 5.4 percentage points in April, but it remains well above the usual amount of excess slack in the labor force experienced earlier in the decade. Earlier analysis by my Atlanta Fed colleague Pat Higgins identified a significant connection between U-6 and the subdued wage growth the economy has experienced in recent years.
Just as the U-3 unemployment rate varies widely across states, so too does U-6.
Below is a map that shows where the gap between U-6 and U-3 was greatest during the first quarter of 2015. States shaded in red have a gap higher than the United States overall, and states with a lower-than-average gap are shaded in green.
Twenty-one states are shaded red, and they are mostly concentrated along the West Coast, the Southeast, and the Great Lakes region. The gaps were largest in Arizona, Nevada, and California, respectively—the so-called Sand States—where the housing boom and bust were most dramatic.
The gap was below the U.S. average in 29 states and Washington, DC. Notably, the central part of the country is shaded green. The smallest gap is in North Dakota, South Dakota, and Wyoming, states that have benefited in recent years from a boom in mining activity or energy extraction.
Of course, a large or small gap relative to the U.S. average does not tell us if the gap is unusual. For example, the red states in the chart also tend to be states whose U-3 rate and U-6 rate are also above the U.S. averages.
A way to get a sense of whether the gaps are abnormally high is to compare the gap on a state-by-state basis with that state's average gap prior to the Great Recession. (Here, I use data from 2003 to 2007 to create a prerecession baseline for each state.) As the map below shows, most states remain above their prerecession average gap and are shaded red, although a few exceptions are shaded green and sit slightly below the prerecession average. Nevada and Arizona's gaps remain stubbornly high and actually worsened in the latest quarter.
Clearly, many states have a ways to go to attain the average labor market conditions they experienced prior to the Great Recession.
By Whitney Mancuso, a senior economic analyst in the Atlanta Fed's research department
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Southeast Manufacturing: Solid as an Oak
When I was a kid, I spent a few fall afternoons cutting and splitting firewood with my older brother. I must say that I didn't care for the process at all. It was hard work, and I have much respect for people that carry on the time-honored tradition. I learned quickly that there were certain types of wood you wanted to stay away from. Oak was one of them. Now, I am ashamed to say that I didn't pay close attention when collecting tree leaves for science class, but I always knew when I was trying to split a piece of oak. As a matter of fact, when I would come across a piece of oak, I preferred to skip over it. Oaks are strong and stately trees and no fun at all to split. The March Southeastern purchasing managers index (PMI) report, released on April 6, reminded me of my ill-fated attempts to split oak. It is one tough piece of wood.
The Atlanta Fed's research department uses the Southeast PMI to track regional manufacturing activity. The Econometric Center at Kennesaw State University produces the survey, which analyzes current market conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The PMI is based on a survey of representatives from manufacturing companies in those states and analyzes trends concerning new orders, production, employment, supplier delivery times, and inventory levels. A reading above 50 indicates that manufacturing activity is expanding, and a reading below 50 indicates that activity is contracting.
The March Southeast PMI's overall index declined slightly from February, falling 2.5 points to 58.0 (see the chart). However, the index has remained above the 50 threshold for expansion 14 out of the last 15 months. It also averaged a solid 58.0 during the first quarter.
- The new orders subindex fell 6.6 points to 56.9.
- The production subindex decreased 2.9 points compared with the previous month and now reads 61.8.
- The employment subindex declined 9.2 to 57.8. The March report indicated that manufacturing payrolls have now grown for 18 consecutive months.
- The supplier deliveries subindex increased 1.2 points to 54.9.
- The finished inventory subindex increased 5.2 points to 58.8.
- The commodity prices subindex rose 4.8 points and now reads 40.2.
Optimism for future production also increased in March. When asked for their production expectations during the next three to six months, 53 percent of survey participants expected production to be higher going forward, compared with 46 percent in February.
Much of the recent national manufacturing data have been weak. In March, the industrial production report indicated that manufacturing output increased 0.1 percent during February, but output had declined in the previous two months. New orders for core capital goods also declined for the sixth consecutive month in February and the March ISM index, although still indicating expansion, fell to its lowest reading since May 2013. Some analysts believe cold weather and the strong dollar are affecting overall manufacturing activity.
Despite the recent weak national numbers, southeastern manufacturing appears to be holding strong...just like the oak trees I tried to split as a kid. If you've never split wood—and especially a piece of oak—try it sometime. I doubt it will make your top-five list of things to do. Oak is one tough piece of wood.
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Tiny Bubbles in Alabama
Do you like to blow bubbles when you're chewing gum? I do. I recently discovered that bubbles are not just fun to blow when you're chewing gum—they can also be a fun and interesting way to visualize data. Yes, I said data. At the Atlanta Fed, we often use bubble charts to track and analyze certain data series. It is particularly helpful when we compare two bubble charts with the same information from different points in time.
In the charts below, which focus on Alabama, each bubble provides a static representation of a given value while also providing comparative information to other industries. The bubble size in these charts illustrates the most recent three-month average of jobs in that industry. The y (vertical) axis shows the three-month average annualized (or short term) job growth, and the x (horizontal) axis shows year-over-year (or long-term) job growth.
The chart is divided into four quadrants. A bubble in the upper-right quadrant (expanding) indicates positive movement in employment (both short- and long-term measures are positive), whereas the lower-left quadrant (contracting) indicates both measures are negative. The upper-left quadrant (improving) indicates the three-month measure is positive, but we're not seeing positive movement year over year. Lastly, the lower-right quadrant (slipping) is positive year over year, but the three-month measure is negative.
As you can see in the first chart, Alabama's leisure and hospitality employment in December 2013 was in the expanding quadrant. We interpret that as this sector has been making gains over the short and long run. This gain stands in contrast to the information sector, which contracted during both the short and long term, putting it firmly in the bottom-left quadrant.
Now, let's take a look at how some of Alabama's industries are doing. In December 2014, the leisure and hospitality sector was still expanding (gaining 8,800 jobs). According to the University of Alabama's Center for Business and Economic Research (CBER), the increase in leisure and hospitality is the result of staffing in food services and drinking places (restaurants, for example). CBER's Ahmad Ijaz said, "Restaurants are adding jobs all across the country."
The construction sector is in an even better position, moving from a contraction in December 2013 to expansion a year later. The Birmingham Business Journal, in an article from January 2015, said "Alabama is ranked eighth among the 50 states and the District of Columbia in construction jobs added." Likewise, the Alabama Department of Labor reported that Alabama "employment in the construction sector is at its highest point since November 2010."
Finally, a look at the manufacturing industry in Alabama also showed notable improvements. In 2013, it seemed like manufacturing employment was easing into the "slipping" quadrant, indicating a short-run slowdown. But 2014 saw it move firmly into the expanding quadrant. CBER's Ijaz tells us that this is the result of the automotive industry adding jobs from October 2013 to October 2014. He said that Alabama is one of the few states adding jobs in this sector. In September 2014, AL.com reported that Alabama's auto industry was projected to grow 2 percent in 2014 while the rest of the U.S. auto industry would contract about 4 percent.
So now that we've scrutinized past data, what are Alabama's employment projections for 2015? According to CBER's latest forecast, Alabama is expected to see stronger growth in employment in 2015 overall. I look forward to comparing bubble charts later in the year. In the meantime, I think I'll grab a piece (or two) of gum.
By Susan Remy, a Regional Economic Information Network analyst at the Birmingham Branch of the Atlanta Fed
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A New Year, a Better Economy?
The optimism expressed by the Jacksonville Branch's contacts in north and central Florida in the latter half of 2014 continued through the holidays and into early 2015. Conditions were described as quite good, and the majority of contacts reported strengthening demand across multiple sectors. Further, reported headwinds for current and future activity decreased noticeably.
Universities noted some challenges with enrollment, which—although negative for the schools—reflects a strengthening economy and an improving job market as prospective students lean toward employment rather than continuing education. Growth in new customer demand for utilities indicates people moving. Several financial institutions cited robust consumer lending, led by an increase in demand for auto loans. Some banks reported double-digit increases in credit card use by consumers. However, they described residential mortgage lending as soft, with inventories of both existing and new homes remaining low. Small business lending was characterized as very strong compared with the same period a year ago. Tourism in central Florida remained robust amid reports of record-setting attendance and revenue at some attractions, along with elevated occupancy rates at area hotels for the last half of 2014. Regarding holiday sales, contacts reported increases over year-earlier levels.
Employment and labor markets
Employment stories were mixed during the past couple of months. Some larger companies reported increases in staff, but others indicated that employment levels have shrunk as a result of efficiency and automation. Struggles to find talent continued to be widespread across higher-skilled jobs, including those in compliance, engineering, underwriting, and actuarial science. Some contacts suggested that some lower-skill jobs are also becoming more difficult to fill. In the Orlando area, service workers were in high demand to meet strong tourism activity, which has resulted in employee churn among employers in the hospitality, retail, and theme park/entertainment industries.
Labor and nonlabor costs and prices
Although few contacts reported wage pressures building, certain jobs continue to command higher salaries as competition for talent increased. For example, we heard that some firms are increasing wages to attract and retain accountants. Also, talented lawyers fresh out of law school seeking positions with large law firms are asking for, and getting, higher wages that not only cover the cost of living but help pay down college debt. However, contacts noted a change in the types of jobs where wage increases were evident, such as entry-level distribution center labor, and they expect that wage pressures will increase. Contacts reported offering a variety of other types of compensation, including performance-based incentive payouts, stock options, and equity increases to retain key employees. Increased offerings of "soft benefits," such as more time off and flex time, were also reported. Most contacts reported merit increases between 2 percent and 3.5 percent. Health care premium increases continued to be mixed across all contacts.
We continued to hear from a majority of contacts that nonlabor input cost increases appeared to be stable or slowing. Companies with contractual agreements of multiple years with customers were reporting some pricing power during renegotiations, although government and defense contractors reported very limited pricing power and have been forced to reduce costs to maintain margins.
Falling gas prices have had a positive effect, giving consumers in particular a psychological boost regarding spending. Travel and tourism contacts in central Florida reported increased passenger traffic and hotel occupancy. Others reported higher activity in auto sales, where product sales have shifted to trucks and SUVs in response to lower fuel prices.
Availability of credit/investment
Credit continued to be readily available for most large companies. Bank and credit union contacts indicated strong demand across most lines of business, with an increased interest in warehousing as the retail sector continued to increasingly use online fulfillment in addition to traditional brick-and-mortar stores. Other financial institutions reported significant improvements in the credit quality of consumers. Contacts cited examples of capital investments in IT (for efficiency and process automation), acquisitions, and infrastructure.
Contacts have expressed increased confidence in their outlook, and most are experiencing and expect further improvement. They cited few domestic headwinds outside of the unknowns related to oil's rapid price decline and the regulatory environment in banking and other industries. We continue to hear more about a possible resurgence of domestic manufacturing, with rising wages in Asia and the lower cost of energy in the Western Hemisphere, which could drive manufacturing to Mexico and to the United States during in the medium term. Contacts with a strong international presence didn't view the strengthening dollar as their biggest worry. Rather, they described demand challenges in certain markets and U.S. tax policy as more worrisome. Overall, contacts during the past three months were upbeat about economic conditions, with the majority forecasting higher growth during the short and medium term.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch, and Chris Oakley, regional executive at the Jacksonville Branch
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Charting Employer Sentiment in the Southeast
In a recent speech, Atlanta Fed President Dennis Lockhart remarked, "Overall, there was more improvement in labor markets in 2014 than in any other year of the recovery. Employment conditions are improving, and improving faster, and prospects of continued progress are encouraging moving into the new year."
Although President Lockhart was referring to national labor market conditions in his speech, his assessment holds true for the Southeast as well. In 2014, the Atlanta Fed's Regional Economic Information Network (REIN) staff polled business contacts across the Southeast both at the beginning of the year and the end to get a sense of their hiring plans for the year ahead. Polling our contacts twice allowed REIN to gauge whether business hiring plans had changed during the course of the year, and we shared the January results with you. Fast-forward to last November, when we approached our contacts to ask the same set of questions. We were pleasantly surprised to see that the results were more upbeat.
The survey was conducted from November 10–19 and resulted in a total of 303 responses from a wide variety of firm types and sizes. In this post, we want to share the results as well as some comparisons over time.
The survey's first question asked contacts whether they expect to increase employment, leave employment unchanged, or decrease employment in 2015. The results showed that 59 percent of respondents said they planned to increase employment levels over the next 12 months; up from 46 percent in January and the highest reading in the six times we've conducted this survey. Another 31 percent indicated they planned to leave employment levels unchanged; down from 44 percent in January and the lowest reading since we began asking these questions in 2011. The remaining 10 percent of participants planned to decrease payrolls; unchanged from the beginning of the year. As the chart below shows, a noticeable shift in sentiment took place from January, when we last asked this question. It appears that firms that said they would leave employment levels unchanged are now saying they would increase employment.
Focusing on the 59 percent of firms that indicated that they planned to increase employment, we asked them to give us the top three motivating factors driving their decision. The most frequently cited reasons were similar to past results. The majority of firms cited high expected growth of sales as the most important reason for increasing employment. For the second most important factor, two selections garnered similar levels of response: current staff was overworked, and the firm needed skills not currently possessed by existing staff. Finally, the third factor was improvement in the firm’s financial position (see the chart).
Conversely, we also wanted to learn the top three factors restraining hiring. Similar to January, firms' primary concern remained their need to keep operating costs low. Other frequently selected reasons were the firms' inability to find workers with the required skills and uncertainties related to regulations or government policies. What stood out this time was that a larger share of firms said that they were unable to find workers with required skills: 13.8 percent in January compared with 21.0 percent in November. Also, fewer contacts said that expected sales growth was low: 15.2 percent in January compared with 9.7 percent in November. Additionally, uncertainty about health care costs subsided; a smaller share of firms noted this factor as a reason for not hiring (see the chart).
In short, it's clear that employment levels in the Southeast should improve this year, which is exactly what we said this time last year. Were we correct for 2014? Now that we have data in hand, let's see. According to the latest employment data from the U.S. Bureau of Labor Statistics, the district averaged 38,800 net payrolls per month for 2014, up from 33,600 net payrolls a month in 2013. So our contacts did, in fact, increase payrolls like they said they would last year. Let's see what happens this year!
By Shalini Patel, a REIN director in the Atlanta Fed's research department
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New Orleans Area Optimistic Heading into 2015
During the last couple of months, the Regional Economic Information Network team from the New Orleans Branch of the Atlanta Fed was in contact with more than 30 business leaders to gauge sentiment about current and anticipated economic conditions in the region (which covers central and south Louisiana and Mississippi, south Alabama, and the Florida Panhandle to Apalachicola). The optimism and confidence that our contacts expressed over the last few quarters continued and was in fact more prevalent this time. Although contacts' expectations in previous months were for "slow and steady" growth, many business leaders now feel assured about their outlook for a pickup in growth in 2015.
In particular, we continue to receive upbeat reports about the tourism sector. This time, the message came from the Florida Panhandle again, where it was mentioned that tourism was growing into a year-round business, supported largely by an emergence of international travelers rather than the typical wintertime snowbirds. Retail contacts were also very positive, especially about holiday sales in November but also about a notable general sense of improving consumer sentiment. Another sign of strength in the region was commercial real estate, which was reported as robust across Louisiana, particularly for retail, multifamily, and office space leasing and development.
Employment and labor markets
Generally, contacts continued to report positive net hiring in response to increases in demand, though they didn't report acceleration from previous months. We continue to receive reports about firms' efforts to use automated solutions to reduce staffing or conduct optimization studies to enhance efficiency while reducing costs. Once again, contacts noted major challenges filling certain skilled positions, such as trades workers, engineers, truck drivers, and information technology professionals—a predicament business contacts have expressed for more than a year.
Costs, wages, and prices
For several months now, contacts have reported some cost pressures with little pricing power. In most cases, firms have been able to increase prices only after a competitor successfully does so or when contracts are up for renegotiation. Regarding the declining price of oil, energy industry representatives shared their view of the impact on their industry, which they indicated would initially affect smaller players (described in a recent SouthPoint post). In addition, a few contacts noted that declining energy prices posed a risk to their 2015 outlook. For the first time in many months, a number of contacts reported across-the-board wage pressures, which were previously isolated to certain positions. Others indicated they expect to encounter pressure in 2015. Several firms we spoke with indicated they expanded merit program budgets in 2015, with most increases being in the range of 2.5 to 3 percent, though a few in the range of 3 to 5 percent. Though a number of firms reported they were investigating strategies to control compensation costs with tools such as performance-based incentives, health care contributions, and targeted salary increases—a trend we've noted over the last couple of quarters.
Availability of credit and investment
Access to capital and availability of credit remained a nonissue for the majority of our contacts, though some small firms indicated obtaining credit from traditional banks remained difficult because of qualification requirements. Banking contacts indicated that loan demand strengthened in the third quarter. Capital investment reports were consistent with the last few cycles, reflecting some expansion activity but mostly focused on efficiency or maintenance.
Although some contacts noted a bit of uncertainty about the outlook—including the declining price of oil, increased government regulations, and the strengthening U.S. dollar—contacts were overall positive and confident about 2015 expectations. What's your outlook for 2015?
By Rebekah Durham, economic policy analysis specialist in the Regional Economic Information Network at the New Orleans Branch of the Atlanta Fed
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A Closer Look at Earnings in the Southeast
It is widely accepted that average incomes can vary from location to location. A look at recent data on average earnings by state compiled by the Regional Economic Analysis Project demonstrates the variability in average earnings among Southeast states. Average earnings in all six states in the Federal Reserve Bank of Atlanta’s district fall below the national average. Within the district, average wages are notably higher in Georgia, Louisiana, and Tennessee than in Mississippi, and they are somewhat higher than in Alabama and Florida (see the chart).
Average wages largely reflect the mix of jobs in the state, and so the differences across states partly reflect differences in the industry mix as noted in this report. The table below shows the industry mix of employment among Southeast states:
We might expect to see similarities in average wages across state lines within a particular industry, but in fact average earnings also vary considerably from state to state among almost every broad sector (see the table; figures highlighted in yellow are above the national average):
This information suggests that there is also a lot of variation across states in other factors such as the types of jobs and the mixture of types of businesses within the industry. In fact, the industry categories used here are rather broad and probably encompass a wide range of possible job and business types.
The preceding gives a snapshot of the earnings picture in the region at a point in time. Another perspective is to look at the pattern of earnings over time.
In the chart below, we show for each state a ratio of per-worker wages to the national average. This ratio allows us to see how state wages have compared to the national trend over time (a reading above 1.0 for a given state indicates wages per employee are higher than the national wage per employee measure).
Several things jump out at you as you look at the chart. Once again, per-worker wages among Sixth District states have been below the national level during the last three decades. (The exception is Louisiana, which saw a run-up in wages that coincided with the sharp rise in oil prices in the late 1970s, followed by a sharp drop as the oil industry went bust.) Also, you can see the rise in wages following Hurricane Katrina’s landfall on August 29, 2005.
Wages in Alabama, Florida, and Tennessee were very similar from the late 1980s until the early 1990s, when all three (to varying degrees) experienced a decline in wages. Much of this decline coincided with the decline in manufacturing jobs that took place during this time and affected the entire region. The nondurable manufacturing sector, which accounted for nearly half of all manufacturing jobs in the region (but only about 40 percent of manufacturing jobs nationally), was particularly hard hit as many textile and apparel firms shifted jobs outside the United States after the North American Free Trade Agreement (NAFTA) was implemented on January 1, 1994 (as noted here and here). It wasn’t until the early 2000s that wages across much of the region began to rise. This period coincided with improvements in the manufacturing sector, driven by the durable sector as the automotive industry moved more production to the region, as noted in this paper, and new home production increased as well, particularly in Florida. The subsequent bust in the housing market later in the decade put downward pressure on wages, most notably in Florida.
Average Georgia wages grew strongly during the 1980s and very nearly equaled the national level from the mid-1980s to early 2000s. A striking feature is how Georgia has lost ground relative to the United States since about 2000. Interestingly, this decline in relative performance coincided with a sharp retrenchment in employment in the information technology industry from December 1993 to October 2000. Employment in the relatively high-paying information sector grew by 57 percent in Atlanta (a city that represented about 55 percent of Georgia’s employment base at the time), but by January 2005 employment in that sector had shrunk by 23 percent. Weaker demand for workers in the technology sector may have contributed to declining average wages in Georgia relative to the United States during the early 2000s even as relative wages were rising elsewhere in the region.
Since the end of the Great Recession, wages per worker have varied across the region, with the overall effect being flat to slightly falling average wages compared with the national trend.
So wages vary by location, and the industry and occupational mix clearly influences these differences. Moreover, over time, shocks (both positive and negative) to a particular industry can have a strong influence on average wage growth within a state.
By Whitney Mancuso, a senior economic analyst, both of the Atlanta Fed's research
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Employment Momentum Grows in Florida and the Retail Sector
The U.S. Bureau of Labor Statistics published October 2014 state-level labor market data on November 21. For Sixth District states, a couple of factors stood out. First, after several months of anemic job growth, Florida employers added lots of jobs. In fact, Florida contributed 61 percent of October's net payrolls to the region. Second, although job gains were solid in a number of sectors, retail shined with 13,300 jobs added on net across the District, a figure that represents nearly half of the 27,100 jobs added to the sector in the entire United States in October. These regional retail job growth data confirm what the folks in our Regional Economic Information Network described earlier this month in their recap of economic intelligence gathered from business contacts across the Southeast: retailers anticipate strong holiday sales, and this anticipation translated into robust seasonal hiring in the retail sector in October.
A summary of the payroll and unemployment data for Sixth District states sheds more light on recent activity.
Payrolls flex some muscle
Employers in all Sixth District states except Mississippi added to payrolls: 56,600 jobs were added on net (see the chart). Florida dominated aggregate net gains in October, adding 34,400 jobs on net. Most of these gains came from the leisure and hospitality sector (up 9,300). Big contributors to Florida gains also included the educational and health services (up 9,000), professional and business services (up 6,100), and goods-producing sectors (up 5,100). (The good-producing sector was up 6,200 payrolls from construction alone but was reduced by losses in manufacturing.)
The sectors with payroll additions varied by state, though gains in the trade, transportation, and utilities sector were prevalent, with 16,800 net jobs added. Gains in this sector were dominated by retail trade (see the chart), which was the only sector tracked by all states that added jobs in every Sixth District state in October. This increase is typical for October, as retailers gear up for the holidays.
Employment momentum in the retail sector has been building for most of the region's states for a few months now (see the chart).
District gains in the professional and business services sector were also sizeable, with 13,100 jobs added. Momentum in this sector has been building in district states (see the chart). However, two states subtracted jobs from this sector in October: Louisiana (down 1,200) and Mississippi (down 1,500).
A few other facts about the Sixth District's October payrolls and sectors are noteworthy:
- Alabama added 2,200 jobs on net. The leisure and hospitality (up 3,200) and professional and business services (up 1,400) sectors were the top contributors. The biggest losses occurred in the government (down 1,500); trade, transportation, and utilities (down 600); and financial activities (down 500) sectors.
- In Florida, aside from job gains mentioned above, payrolls fell in the information (down 2,100) and financial activities (down 100) sectors.
- Employers in Georgia added 11,600 jobs on net. The largest gains occurred in trade, transportation, and utilities (up7,900, with 4,700 of those payrolls from wholesale trade) and professional and business services (up 5,400). The biggest losses came from government (down 3,200) and financial activities (down 1,200).
- Louisiana added 1,200 payrolls on net, most of which came from the trade, transportation, and utilities (up 1,500) sector. That sector was up 2,900 from retail trade, reduced by losses in wholesale trade) and educational and health services (up 1,200) sectors. The biggest losses occurred in leisure and hospitality (down 2,600) and professional and business services (down 1,200).
- Mississippi was the only district state to subtract payrolls from the aggregate district figure. The largest losses came from the professional and business services (down 1,500) and government (down 700) sectors. The only gains occurred in the educational and health services (up 1,300), leisure and hospitality (up 500), and trade, transportation, and utilities (up 400) sectors.
- Tennessee employers increased payrolls by 7,900 on net. The largest increases occurred in the trade, transportation, and utilities (up 3,500) and professional and business services (up 2,900) sectors. The biggest losses occurred in educational and health services (down 700) and leisure and hospitality (down 400) sectors.
Regional unemployment declines, if only slightly
The aggregate district unemployment rate was 6.6 percent in October, a decline of 0.2 percentage point from September (see the chart).
The rate fell in all states except for Louisiana, where it increased to 6.2 percent from 6.0 percent the previous month and was the sixth straight month of an increasing unemployment rate in that state. As I reported last month, this isn't necessarily a bad thing in the short run, since the state added jobs yet appears to have increased its labor force participation rate.
The unemployment rate fell in all remaining District states. Alabama's rate fell 0.3 percentage point in October to 6.3, its lowest rate in nine months. Florida's rate fell 0.1 percentage point to 6.0 percent, the lowest it's been in more than six years. The unemployment rate in Georgia fell for the second month in a row, to 7.7 percent in October from 7.9 percent in September. Though Georgia's unemployment rate declined, it had the highest rate in the United States in October for the third month in a row, at 7.7 percent. Mississippi's rate declined 0.1 percentage point to 7.6 percent, the lowest it's been in six months. In Tennessee the unemployment rate was 7.1 percent, a 0.2 percentage point decline from September.
So once again, collectively, the Sixth District states' labor market showed continued strengthening in October, particularly the state of Florida and the retail sector.
Hopefully, this progress continues for the month of November. We'll see when the data are released on December 19.
By Rebekah Durham, economic policy analysis specialist in the New Orleans Branch of the Atlanta Fed
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