01/19/2012
Georgia on my mind (again)
You wouldn't think a breakfast talk about economics would be all that interesting. Not true. Yesterday morning, I participated in a monthly breakfast seminar hosted by a local group aptly called "Eggo-nomics." The discussion was about the current state of Georgia's economy.
I'm not saying that my presentation was all that enthralling, but the questions and comments from the participants certainly were interesting. Of the several questions I received, the most common centered on the theme of why Georgia's economy continues to lag other parts of the country.
As it so happens, these questions mirrored one that was posed to Atlanta Fed President Dennis Lockhart in a recent interview with the Atlanta Journal-Constitution. He was asked, "Certain areas of the country, like the Northeast, are recovering faster than the Southeast. Why?" Here is President Lockhart's response:
"I get the question frequently: 'How is the Southeast doing relative to the rest of the country?' And my answer is, broad generalization, a little worse than the national averages. Not dramatically worse, just a little worse. And I use unemployment as an example. The unemployment rates for the six states we follow here, with the exception of Louisiana, are above the national average.
"Those rates have been coming down, just as the rate nationally has been coming down. But there is a lagging picture for Georgia and for most of the Southeast. You can explain some of the cause by looking at the exposures in the bust which were real estate-oriented, the dramatic slowdown in construction and the number of people put out of work who were in the construction trades.
"And to some extent in banking [many of the problems stemmed from] the dependence on real estate lending in many banks.
"If you want to step back even further, you had a couple of decades of in-migration, particularly Atlanta. You have to build houses to hold the people who migrate here, so real estate construction was a big thing. They come and get jobs; they need office buildings in which to work. So commercial real estate is a big thing and when that turns negative, it creates a problem that is more difficult than in the Northeast service-industry contraction."
SouthPoint has reported on this topic and will continue to dig into reasons behind Georgia's lagging recovery.
Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
January 19, 2012 in Georgia, Outlook | Permalink
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01/06/2012
More on the Sixth District's exposure to Europe
Europe remains in the news as 2012 begins. Developments there continue to influence global financial markets and might be pushing the euro area's economy into recession. Many forecasters have identified contagion from the European financial crisis and recession as a significant risk to U.S. economic growth in 2012.
Atlanta Fed President Dennis Lockhart noted this in his November 29, 2011, remarks during the University of Georgia's Terry College of Business 2012 Economic Outlook conference:
"My baseline forecast for 2012 builds on the picture I've just painted of the second half of 2011. I'm expecting continued moderate growth, decently behaved inflation, continuing net job creation, but slow progress on unemployment. You will note I used the word ‘baseline.' I need to emphasize that at this juncture I perceive considerable downside risk to this baseline forecast. The most prominent source of risk is Europe. "
Steven B. Kamin, the director of the Division of International Finance at the Federal Reserve's Board of Governors, discussed the economic situation in Europe and its impact on the U.S. economy in testimony before the U.S. House of Representatives on December 16, 2011:
"Here at home, the financial stresses in Europe are undoubtedly spilling over to the United States by restraining our exports, helping to push down business and consumer confidence, and adding to pressures on U.S. financial markets and institutions."
A few weeks ago, SouthPoint looked at trade connections between Europe and the Southeast, noting that
"While there is concern about the financial impact of instability in Europe, a souring of economic activity across the Atlantic would also affect international trade. In either case, the region is not immune."
We thought we'd dig a little deeper into the issue and look more closely at which parts of the Southeast economy are vulnerable to the crisis in Europe.
Clearly, U.S. companies that depend on sales of their products to the euro area are likely to see the weakening of demand for their Europe-bound products as the euro area's economy contracts and if the euro continues to depreciate. According to the U.S. International Trade Administration, the exposure of Southeast's exporters—as measured by the share of goods sold in the euro area as percent of total goods exports—is relatively low, but the share varies significantly across the Southeast states.
Alabama's exporters appear to be the most vulnerable to changes in European demand—almost a fifth of the state's merchandise exports are shipped to the euro area. About half of those exports are sold in Germany, mainly autos. The good news is that Germany seems to be one of the more resilient European economies, along with the Netherlands, Belgium, and France—the other large euro area markets for Southeast's exporters. The economically weakest countries in the euro area—Greece, Ireland, and Portugal—account for a small fraction of the region's exports.
While Florida's exporters appear to be least exposed to the euro area compared to other states in the Southeast (most of Florida's exported goods go to Latin America), the state's large tourism industry may feel some impact if a recession and a weakening euro keep Europeans from traveling to the United States. Based on data from the Office of Travel and Tourism Industries and VISIT FLORIDA, an estimated 1.2 million residents of the euro area visited Florida in 2010. Fortunately, this number represents less than 2 percent of all the visitors to the state.
Another important part of Florida's economy that to some extent depends on European spending is residential real estate. In Florida, sales to nonresident foreigners account for about 25 percent of total residential sales (compared with only 3 percent nationally). For the state as a whole, Western Europeans (excluding U.K. residents) account for about 11 percent of all nonresident foreign buyers. While the number is relatively low, some parts of the state are much more dependent on Europeans. For example, in the Miami-Fort Lauderdale-Miami Beach market residents of Germany accounted for nearly a quarter of all nonresident foreign buyers in the 12 months ending in June 2011, according to the National Association of Realtors.
In general, whether through exports, tourism or real estate, the Sixth District's exposure to Europe appears relatively small. The bigger concerns are the possibilities of severe financial contagion (via the banking system and financial markets) and a hit to business and consumer confidence, which apply as much to the District as to the nation overall.
By Galina Alexeenko, director of the Atlanta Fed’s Regional Economic Information Network
and
Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
January 6, 2012 in International, Outlook, Trade | Permalink
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01/04/2012
Happy new year
Resolutions and predictions are hard to avoid as the new year begins. With regard to the former, most focus on personal improvements and tend to be fuzzy and are abandoned by February. "Lose weight" is one that seems to appear on my list every year. But this year is going to be different. I've set real, measurable goals and shared them with my family so they can hold me accountable. We'll see how it goes, but I'm counting on the fact that my children take every opportunity to point out my mistakes (in a fun-loving way, of course).
Predictions can be even more fuzzy. I always seem to predict that my Cleveland Browns will make the playoffs. That's more like a wish than a prediction, but I can't help it. With regard to the region's economy, we don't call "predictions" predictions. They are "forecasts" or "outlooks." Whatever we call them, it is a thoughtful and necessary exercise to look back at where we've been and think about where we're going.
The latest issue of the Bank's quarterly publication EconSouth does just that. In our outlook for 2011 we said that:
"In 2011, the regional economy will have to surmount a number of obstacles before it can resume the growth that made it one of the nation's most dynamic economies."
In the introduction to the 2012 outlook, we asked if the region surmounted these obstacles:
"Has [the region] resumed the growth that made the Southeast so dynamic? Unfortunately, the answer is no. Not completely, anyway. While the region made some progress along the road to recovery, many impediments remain. The challenges the region faces are similar to those faced by the nation as a whole, but many of these barriers have proven especially tough to overcome in the Southeast."
In-migration has been a hallmark of regional economic development for decades. As EconSouth points out:
"The driving force behind the region's economic growth over the years has been robust population growth, which ignited development and spurred job creation. The slowdown in population growth to the levels experienced by the rest of the country explains a big part of the regional economic contraction, and lagging in-migration appeared to continue in 2011."
Drags on regional economic activity in 2011 were largely tied to real estate, which showed few signs of a turnaround. Quoting EconSouth again:
"The dynamic between population and economic growth is quite nuanced, but when real estate developers anticipate steady population gains that fail to materialize, serious imbalances can result. Construction of homes and commercial space does not stop on a dime, hence the high degree of overbuilding apparent in many parts of the region. Housing demand remained historically low in 2011, according to regional business contacts, while commercial property vacancy rates—especially for retail space—barely budged from 2010 levels. Add in continued falling home prices, and it is little wonder that the real estate sector remained a drag on the region's economy in 2011."
The 2012 regional outlook article goes on to discuss trends in agriculture, small business, manufacturing, consumer spending and tourism, government, and overall employment. It concludes by saying:
"Barring unforeseen shocks, economic activity in the Southeast is expected to improve in 2012. But, with in-migration stalled, there is only a small likelihood that the region will regain in 2012 the solid expansion levels seen before the recession. And, while the region is expected to see positive net job creation in 2012, the pace will probably be too slow to make a significant or rapid dent in the high unemployment rates seen in 2011."
In December 2012 I'd love to look back and say we were wrong about our outlook and that the region outperformed our expectations. I also hope to look down at the scale and see that I lost more weight than I said I would. We'll be watching the data and listening even more intently to our business and community contacts with regard to the former, and I'll be watching my waistline and listening to my kids' comments on the latter.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
January 4, 2012 in Outlook | 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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09/14/2011
A view from the Coastal Empire
We have posted about several of our university contacts in our Local Economic Analysis and Research Network (LEARN) over the years. Most publish regular updates on their state or local economies, which have proven very valuable in our understanding of how the economic recovery is progressing across the region.
One such publication is the Coastal Empire Economic Monitor, written by Dr. Michael Toma and his staff at Armstrong Atlantic State University's Center for Regional Analysis. For those of you who may not know what the Coastal Empire refers to, or where Armstrong Atlantic State University is, I'll give you a few hints:
- Money Magazine named this city #8 on its list of top places to retire.
- Paula Deen cooks there.
- Its port is one of the fastest growing in the country.
- It is often ranked as #1 on lists of the most haunted cities in America.
- It is on a coast.
Give up? The answer is Savannah, Georgia.
I'm not writing to plug the town, although it is one of my favorites in the region. I have visited Savannah and its region, but most of what I know about the area's economy I learn from Mike Toma and his report. Here are a few points from his latest reading on the Coastal Empire economy:
"The region's economy continued its slow recovery for the sixth consecutive quarter. The pace of expansion dipped, as compared to the first quarter, mimicking the nationwide slowdown in economic growth.
"The Coastal Empire leading economic index significantly improved during the second quarter of 2011. This consolidates and extends the modest improvement in the forecasting index during the past nine months. The forecasting index is pointing toward more apparent improvement in economic conditions in early 2012, while the remainder of 2011 should feel modestly better than the year's first half."
Below is the graph that shows the coincident and leading indicators for the Coastal Empire economy:
Dr. Toma concludes his assessment of the Savannah area economy by noting:
"Economic growth in the remainder of 2011 will not be particularly impressive, but should outpace growth in the first half of the year. The current expectation is conditions will show more improvement in early 2012."
This assessment is not unlike what Atlanta Fed President Dennis Lockhart sees for the U.S. economy as a whole. Late last month he spoke about his outlook in Lafayette, Louisiana:
"On a national level, the negative effects of the unusual forces that restrained the economy in the first half of this year have diminished. For example, auto production that was disrupted by shortages of supply parts from Japan has bounced back.
"While the risks have increased, I do not expect a recession. In my view, there is sufficient fundamental strength in the economy for a modest cyclical recovery to proceed while the process of necessary structural adjustments moves along. I believe the unemployment rate will come down very gradually over time."
The message here is that Savannah's challenges are not unlike those facing the rest of the country.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research
department
September 14, 2011 in Georgia, Outlook | Permalink
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08/02/2011
Deep breath time
The Atlanta Fed's macroblog post from August 1 looked at the disappointing first half gross domestic product results for the nation and notes that:
"The news that the U.S. economy is not only growing slowly but has grown more slowly than anyone even knew has justifiably rattled some nerves."
Have nerves been rattled enough to drastically alter our view that the second half of 2011 will show stronger growth than the first? The answer is no. Not yet, anyway.
Atlanta Fed President Dennis Lockhart outlined his view of the current economic outlook last week at the third annual Rocky Mountain Economic Summit in Jackson Hole, Wyoming. He noted that:
"I am expecting greater strength in the second half of 2011 and into 2012, accompanied by inflation numbers that converge to around 2 percent. But, as I said, I don't dismiss the possibility that we're in the alternative, more problematic world I described of low and slow growth improving only very gradually. At this juncture, I think we have to wait and see what the incoming data indicate."
President Lockhart concluded:
"I am not yet ready to shift away from the more optimistic outlook I presented. I feel it's premature to abandon the expectation of a stronger second half that will bring renewed gradual progress on unemployment and a leveling out of inflation pressures. I'm not resigned to the view that we are dealing with economic problems that are more persistent and intractable than I thought."
What are we seeing around the region that helps us stick to our guns in calling for a stronger second half of 2011? There are several reasons:
- Our contacts in the auto sector have indicated that production will be back to normal levels during the second half of the year. Also, manufacturing of equipment tied to energy exploration is strong.
- Tourism activity and business travel are healthy, indicating that consumer and business confidence may not be as bleak as some surveys show. Strong international tourism has helped as well.
- Activity at regional ports has been strong. Imports and exports continue to rebound from 2009 lows, indicating that the region's international sector is doing well.
- Business spending and investment in efficiency-enhancing technologies continue to be healthy. Of course, this sort of activity holds downside implications for labor markets, which may be one of the reasons employment gains have been rather subdued.
- Banks are reporting that loan demand is showing some improvement, although current levels are still considered low. In addition, banks are reporting that lending standards have not tightened. In sum, these developments indicate slow improvement in credit markets.
- Finally, the majority of Atlanta Fed directors (nine Atlanta directors and 35 from our five branches) see stronger growth six months out compared to current conditions. I should add that "stronger" was usually qualified by words and phrases like "cautiously optimistic" and "grow at a modest pace" when we asked them about their outlook for economic activity in late July.
While we are still optimistic that the second half of 2011 will prove to be better in terms of overall economic growth, it's important to be cautious, as our directors advised. Indeed, President Lockhart noted his realistic approach to the outlook:
"I think a continuing flow of weak numbers through the third quarter and into the fourth will call for a serious reconsideration of the situation. The weight of cumulative data could point to a different order of problem—that is, different than just a passing slowdown—if indicators show continued weakness much past year's end."
In periods of economic uncertainty it's essential to take a deep breath and reflect on all aspects of incoming information. Sometimes we forget that we are still emerging from the deepest recession since the Great Depression—a recession that hit the Southeast harder than any other region. Recovery will clearly take time and patience. We will continue to watch the data and listen carefully to what our contacts are saying as the year progresses.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
August 2, 2011 in Outlook | Permalink
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06/07/2011
Regional housing activity remains in the doldrums
The decline in real estate activity is a significant contributor to the depth of the economic downturn here in the Southeast, and it is also a big part of why our national recovery has been slow. Dennis P. Lockhart, president and chief executive officer of the Federal Reserve Bank of Atlanta, spoke to the National Funding Association's Council for Quality Growth in Atlanta in mid-May. The title of his remarks was "Real Estate and the Economic Recovery." With regard to the national picture, President Lockhart commented that
"The residential real estate market remains depressed. In my baseline forecast, the housing sector will contribute only modestly at best to economic growth this year and next."
The same can be said for housing's contribution to economic activity in the region as well. The theme regionally continues to be that housing is stabilizing at very low levels. Whitney Mancuso noted this in her May 17 SouthPoint post.
Looking again at President Lockhart's remarks, he noted that
"Home sales have not shown any clear trend of improvement since the end of the recession, except for a short pick-up during the period of the federal tax credit last year."
Looking at home sales in the states that have experienced the largest decline in housing activity—Florida and Georgia—the national picture is quite similar. Some areas of Florida have experienced a renewed upward trend in sales, and the chart below reflects this uptick. However, it is important to recognize that our Florida contacts in the real estate sector have told us that this is being driven largely by sales of distressed properties and by investors making block purchases of condos, in many cases with cash. Therefore, we hesitate to conclude that a sustainable recovery in home sales is under way.
With regard to home prices, President Lockhart said that
"S&P/Case-Shiller data show that home prices are down more than 30 percent from their peak. While prices appeared to stabilize in 2009 and 2010, today prices appear to be under renewed pressure from the increasing supply of distressed properties that are selling at a deep discount."
The next chart shows that home prices in Miami and Tampa, two Florida metro areas that are components of the national S&P/Case-Shiller Index, are down much more than the national measure—50 percent in Miami and 46 percent in Tampa. They are down 26 percent in Atlanta, the only other southeastern metro area in the national composite measure. Importantly, as President Lockhart noted, prices have been drifting lower recently, although not at the pace of decline seen in 2007 and 2008. Nonetheless, we do not see a recovery in home prices in the Southeast to date.
Weak sales and drifting prices have resulted in a very slow pace of new construction activity in the region. The last chart shows that permits for new residential construction remain at historically low levels. Reflecting this data, our most recent survey of homebuilders noted that more than half of builders reported that sales and construction were down from weak levels a year earlier.
President Lockhart concluded his remarks by noting that
"Because of the factors I've discussed, I do not expect significant new residential construction nationally. Thus, it's unlikely that residential real estate will directly contribute much to GDP growth this year or next."
Unfortunately, the same can be said for the region's real estate outlook.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research
department
June 7, 2011 in Housing, Outlook, Real Estate | Permalink
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ryan homes |
11/01/2011 at 09:59 PM
02/02/2011
Confidence improving in the region
My friends often ask me when things are going to get better. While I enjoy pretty much any discussion about the region, it's been difficult to explain that the economy is recovering despite persistently high unemployment and what has been an overall dearth of measurable confidence in what I hear from my friends and what we have heard from our business contacts throughout the Southeast. Just this past weekend, one of my friends shared that his business was picking up and he was feeling better about things. It's part of a larger theme we've been picking up on recently.
Atlanta Fed President Dennis Lockhart spoke earlier this week at Miami-Dade College. In this speech, "Functions of the Fed and the Current Economic Situation," he noted an increase in confidence throughout the region.
"Confidence appears to be growing. According to the Conference Board, consumer confidence rose sharply in January. Business confidence is also building. Business leaders remain cautious regarding investment and hiring, but in my contacts with businesspeople across a range of industries I hear more optimism than I heard even a few weeks ago. I believe that as businesses become more assured that growth will continue and their revenues will grow, they will increase investment and hiring."
As I noted above, throughout the economic recovery we detected an absence of confidence with regard to the outlook. We identified this uncertainty as an important headwind to a durable and sustainable recovery. Improving attitudes about the future could be an important, positive influence on the overall economic outlook.
In addition to economic intelligence President Lockhart gathers through the Bank's Regional Economic Information Network, we review what researchers at universities throughout the region are reporting. Recent reports from our Local Economic Analysis and Research Network (LEARN) seem to support what our network of business contacts is telling us.
Florida's January consumer confidence index showed an impressive increase in January. Dr. Chris McCarty, the survey director, writes that:
"Consumer confidence among Floridians soared in January up seven points to 77 from the revised December index of 70. ... The size of this increase in confidence among Floridians was not expected. Confidence among Floridians had been mired in the low 70s for the past few months, consistent with other economic indicators that characterize the Florida economy. This rise is unusual given the University of Michigan's preliminary reading for U.S. consumer sentiment which declined in January..."
Middle Tennessee State University's Office of Consumer Research reports on consumer confidence in the Middle Tennessee area. In their December publication, Dr. Timothy Graeff writes that:
"On the positive side, consumers feel slightly better about the current economy. The current situation index rose modestly to -90 from -93. The percent who said that business conditions in the country as a whole are 'good' gained only slightly to 7 from 5, but the percent who said that business conditions are 'bad' dropped to 34 from 41."
(As an aside and a plug for our friends at MTSU's Business & Economic Research Center, see their heat maps of Tennessee's employment picture. They also provide similar maps for major state metro areas, including Nashville.)
The University of Alabama's Center for Business and Economic Research recently released their first quarter 2011 Alabama Business Confidence Index (ABCI). Dr. Sam Addy, center director, discussed the latest reading during his presentation of the Alabama Outlook. The first quarter ABCI report notes that:
"Alabama business executives are generally feeling optimistic about prospects for the economy and for their industries as 2011 gets underway. The Alabama Business Confidence IndexTM (ABCI) rose 7.1 points to 55.0, indicating that the recovery will be on firm ground in the first quarter. ABCI is approaching its pre-recession reading of 56.8 recorded in the third quarter of 2007."
Mississippi's Business is a publication from the Mississippi Institutions of Higher Learning Department of Forecast and Analysis. They produce coincident and leading indicators for the state. In their latest report, Dr. Darrin Webb writes that:
"The Mississippi Index of Leading Indicators rose 1.2 percent to 97.5 in November. The index has risen for three consecutive months. The growth relative to the level six-months prior turned positive in November. The gain was small, but is a welcomed departure from five months of decline."
President Lockhart concluded his remarks in Miami by noting that while consumer and business confidence appears to be growing, he believes overstatement of the likely speed of improvement should be avoided:
"There are definitely hopeful signs of sustained recovery in 2011. That said, I believe it is a bit early to declare victory, and, to be sure, employment is nowhere near acceptable levels. Progress is real, but fitful, and support of accommodative Fed policy is still required, in my view. The appropriate outlook at this juncture is one of cautious optimism, avoiding overstatement of the likely speed of improvement."
I'm going to share these positive insights with my friend. While I'll note we're cautious when citing the improvement in confidence, I should also note that he is also the manager of my daughter's softball team. I think I may be able to parlay this into more playing time for my kid.
By Michael Chriszt
Assistant vice president in the Atlanta Fed research department
February 2, 2011 in Economic Indicators, Outlook | Permalink
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01/05/2011
A look into 2011
January is the time when economic forecasts for the new year percolate throughout the country. The general consensus is that the U.S. economic recovery will remain on track, and the Atlanta Fed's assessment is in line with this consensus. The latest issue of the Bank's quarterly publication EconSouth reviews 2010 and comments on the outlook for 2011. Here are some highlights from the national outlook:
"While the U.S. economy has been expanding for almost a year and a half, and a number of key fundamentals such as business investment and consumer spending have picked up, the recovery has not been strong enough to meaningfully reduce the unemployment rate…
"Lingering joblessness, along with weak income growth, lower housing wealth, and tight credit, are acting as headwinds to the economic recovery…
"The U.S. economy is not all doom and gloom, however. Business investment, a particularly bright spot, grew at a 20 percent annual rate during the first three quarters of the year. This theme of improvement in some areas and ongoing weakness in others illustrates the unevenness of the recovery and heightened uncertainty about future economic prospects."
The story is much the same for the region:
"The Southeast economy in 2010 was marked by strength in some areas and continued weakness in others, with more of the same expected for 2011…
"The ailing real estate market has been a dark cloud over much of the Southeast economy. Florida's real estate market was especially hard hit, but it has also bounced back the strongest. Georgia has seen its share of real estate problems, which have hurt its banking sector. The state has the nation's most bank failures since the crisis began…
"Notwithstanding unprecedented cutbacks in production during the recession, regional vehicle manufacturing recovered in 2010. The region's production outlook is encouraging because of favorable consumer demand for products made here and additional plants that will expand production capacity in the coming year."
The issue also includes information on individual Southeast states:
"Alabama has shown some of the s strongest job growth among southeastern states, regaining in the first three quarters of 2010 about 18 percent of the jobs it lost in 2009. These job gains are reflected in one of the more dramatic drops in unemployment the region has seen since the recession. A fortunate implication of stronger job growth—and the greater spending expected to follow—is that Alabama is projecting the smallest state budget shortfall in the region for the current fiscal year. With the greatest share of pending stimulus projects among southern states, Alabama is poised for those projects to complement its current path of recovery.
"After suffering the hardest fall in real estate in the Southeast, Florida has seen the most dramatic recovery, with total residential sales through most of 2010 at 71 percent of their peak level seen in 2005. Florida is also experiencing its share of the relatively strong performance of manufacturing in 2010. Over the next few years, a drinkware manufacturer and a medical product manufacturer plan expansions there. Another boost to the state's economy in 2010 came from foreign travelers taking advantage of the weak dollar to visit the Sunshine State. On a more somber note, Florida is projecting one of the highest state budget shortfalls among southeastern states in the current fiscal year.
"Georgia holds the dubious honor of being home to the most bank failures in the United States since the banking crisis began and also faces the highest projected budget shortfall of the southeastern states for the current fiscal year. In spite of these financial challenges, farmers in the state have benefited from historically high cotton prices in 2010. In addition, biofuels have become big business in Georgia. The ready availability of privately owned forests has even attracted European manufacturing to the state to create jobs in the biofuel sector. The state has also topped others in the region in terms of tourism growth. Employment in that sector is growing at nearly twice the pace of tourism employment in the next fastest-growing state.
"With residential home sales at only 58 percent of their 2006 peak, Louisiana has the slowest-recovering real estate market among states in the region. On the upside, through the first three quarters of 2010, Louisiana regained the greatest percentage of jobs lost during 2009 (39 percent) and continues to enjoy the lowest unemployment rate among southeastern states. In addition, the announcement of a new facility producing electric and hybrid boats and other recreation vehicles in the state will further boost the region's growing green manufacturing sector. In spite of weak economic conditions, New Orleans once again saw record-breaking attendance at its many festivals and celebrations, including Mardi Gras.
"Mississippi has been slow in regaining jobs. Through the first three quarters of 2010, the state has regained only 7 percent of jobs lost in 2009. Only Georgia recovered a smaller share of lost jobs (less than 1 percent). On the other hand, Mississippi manufacturing is jumping on the green machine with the announcement of a start-up firm planning to manufacture energy-saving electrochromic windows and, over the next few years, the arrival of three biofuel plants.
"Tennessee is looking forward to when Volkswagen's automaking plant in Chattanooga begins production in 2011. The addition of the Leaf electric vehicle from Nissan, whose Smyrna manufacturing plant will be under construction through 2012, will add to the state's history of innovative automaking endeavors. The Volunteer State has enjoyed the fastest growth among southeastern states in personal income in 2010, resulting in one of the smallest projected shortfalls in state budgets in the region for the current fiscal year. The state is also one of the three leaders in the United States for clean technology jobs: 2010 saw the addition of hundreds of solar manufacturing jobs in Tennessee, and increased manufacturing of electric car–charging stations could produce further jobs in coming years. On the downside, flooding in 2010 devastated tourism in Nashville during the traditionally busy summer months."
By Michael Chriszt
Assistant vice president in the Atlanta Fed research department
January 5, 2011 in Alabama, Florida, Georgia, Louisiana, Mississippi, Outlook, Southeast, Tennessee | Permalink
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01/06/2010
Looking ahead to 2010
January is the month for outlooks. The Atlanta Fed's 2010 Outlook for the region starts by noting that:
"The region, like the rest of the United States, weathered a difficult year in 2009, but indications of a turnaround in the economy suggest a less rocky 2010. However, daunting challenges remain before Southeasterners can be confident of a full and lasting recovery."
The outlook goes on to describe current and expected performance in several sectors. Here are a few of the highlights:
Employment
The decline in initial unemployment claims suggests that job losses will continue to ease into the next year. In 2008, when employment losses accelerated, the big question was, When would job losses subside? In 2009, as job losses eased in parts of the Southeast and the nation as a whole, the question turned to, When would employment expand and labor markets recover?
Two factors should support employment growth in 2010. As of Oct. 31, 2009, Southeastern states received less than 35 percent of the federal stimulus funds they were awarded, and this influx of funding should continue to fortify the jobs picture in 2010. Additionally, after four quarters of contraction, the U.S. economy expanded in the third quarter of 2009, which should encourage hiring.
On the other hand, a number of factors could dampen employment recovery. Before hiring, firms will likely rely on current workers for increased productivity. Several Atlanta Fed regional business contacts across the Southeast have indicated that they want to see a few months of sustained growth before they consider increasing hours for current workers or recalling laid-off workers, suggesting that employers may require even longer sustained growth before they hire new workers.
Once firms begin to hire, the rate of hiring may be weak compared with previous expansions. Some business contacts indicated that they have not only reduced their work forces but have structurally changed their firms so they might need fewer workers in the future. Furthermore, the large number of firms closing across the Southeast produced permanent layoffs. For example, the region's auto parts manufacturers will continue to feel the pinch from auto plant closings. Despite some recent improvements in the economy and easing of job losses, Southeastern labor markets are far from recovered.
Auto production and manufacturing
The outlook for Southeastern auto production in 2010 is mixed. Factors such as imbalances among vehicle production and consumer demand, tight credit markets, and low consumer confidence will continue to limit discretionary spending on autos and thus production flows.
On the positive side, foreign automakers are investing heavily in the region, and the economic ripple effects will be felt for years to come. Volkswagen is opening a $1 billion facility in Chattanooga, Tenn., in late 2010 or early 2011 and plans to employ 2,000 workers. Parts suppliers for the new plant will create more than 11,000 additional jobs, according to a University of Tennessee study. Kia Motors also opened its West Point, Ga., plant in the third quarter of 2009 to manufacture its Sorento model, a move that will bring 1,200 jobs to the area and have economic effects felt fully in 2010.
Manufacturers other than automakers are also putting down Southeastern roots. Mitsubishi's Pooler, Ga., plant producing advanced steam and gas turbines and servicing turbines used in power generation is expected to add 500 jobs to the region in early 2010. High-tech firm GS Yuasa is scheduled to open its doors, creating 100 jobs in Roswell, Ga., producing lithium-ion battery packs. NCR is already making ATMs in Columbus, Ga., and plans to employ 870 people during the next three years. Additionally, Huiheng Medical is opening a Baton Rouge, La., plant that will manufacture radiation treatment devices, creating 300 jobs in the area.
Real estate
In the coming year, Southeastern housing markets will continue their recovery, but activity will remain weak by historical standards. Bank-owned properties will continue to come to market, particularly in Florida and Georgia, and will continue to depress home prices and keep construction activity in check. Homebuilders have found it difficult to compete against bank-owned properties that have typically sold below replacement cost.
Southeast commercial real estate (CRE) markets will remain challenging in 2010 although activity should stabilize and slowly improve during the year. Construction backlogs are currently at very low levels across most of the region, and financing is likely to remain tight, particularly for CRE projects. Consequently, commercial development should remain at low levels, and projects will remain largely build-to-suit.
Take a look at the entire issue of EconSouth for more detail and reports on other sectors as well.
In addition to the Atlanta Fed's outlook, several university research centers produce economic outlooks for their regions. These centers are part of our Local Economic Analysis and Research Network (LEARN), and most produce updates to their outlooks throughout the year.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
January 6, 2010 in Automobiles, Employment, Manufacturing, Outlook, Real Estate | Permalink
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Sadly, this is a sign of the times. I don't expect any bullish recovery in the next decade, considering what real estate have dug themselves into.