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The Federal Reserve

2008 Annual Report pdf logo PDF version

Tough Times: The Southeastern Economy in 2008

Manufacturing decline continues

Introduction
Employment
Real Estate
Banking and Consumer Spending
Energy, Tourism, and International Trade
Manufacturing and Agriculture
Little Good News
Economic Crisis Timeline

ThyssenKrupp can't arrive soon enough. The woeful housing market, tepid automobile sales, credit strains, and the effects of the recession spelled a difficult year for southeastern manufacturers. However, energy-related manufacturers and exporters generally fared better than others.

One measure of the decline is Kennesaw State University's monthly Southeast Purchasing Managers Index (PMI) (chart 6). A reading above 50 indicates growth in manufacturing; under 50 signals contraction. At the end of December, the regional PMI sank to 25.8. That reading slid as the year progressed: The average for 2008 was 44.4 versus 53.1 in 2007. The national average for 2008 was 45.5, so the Southeast underperformed the nation by this measure.

The Atlanta Fed's surveys of regional manufacturers painted a similar picture. Respondents reported weak production, shipments, and new orders compared to a year earlier. Most also continued to lay off workers and reduce hours.

Factory employment in the Southeast, as in the country at large, has fallen dramatically in the past few decades. In 1970 one in four workers in the region held a manufacturing job. By 2007 that share dwindled to one in ten.

Chart 6
National and Southeast Purchasing Managers Indexes
Chart 6: National and Southeast Purchasing Managers Indexes
Note: An index reading above 50 indicates expanding manufacturing activity, below 50, contracting activity.
Source: Institute for Supply Management (national PMI); Kennesaw State University (Southeast PMI)

By 2008 manufacturing employment for the year in the six southeastern states was down 8.1 percent from 2007, according to the U.S. Bureau of Labor Statistics. Employment in durable goods manufacturing declined 9.2 percent and dropped 6.4 percent in nondurable goods manufacturing.

As expected, manufacturers that fed the boom in real estate and construction suffered in 2008. In December, employment at wood product manufacturers declined 17 percent in Alabama, one of the leading wood products centers in the region; 15.4 percent in Tennessee; and 9.5 percent in Mississippi.

Furniture factory payrolls in Alabama, Mississippi, and Tennessee were hit hard in 2008, with payrolls down at least 10 percent in each state.

Even the Southeast's recently ascendant automotive manufacturing industry did not escape the recession in 2008. For every auto factory job there are three in related suppliers, and these suppliers also lost jobs in 2008. In December, employment in the Southeast's transportation equipment industry was 8 percent lower than the year before; Tennessee was particularly affected.

On the flip side, employment in aerospace manufacturing continued to expand in Alabama and Florida in 2008.

Agriculture battles drought and the economy
Like most other industries, agriculture in the Southeast confronted an array of challenges in 2008. Drought, rising costs, a weak economy, and the battered housing market hindered growers of poultry, cotton, citrus, cattle and livestock, and greenhouse nursery operators.

With revenues exceeding $9 billion, poultry is the Southeast's biggest cash crop. But in 2008 domestic demand slackened as consumers spent less on groceries and on eating out, while costs rose for feed and other inputs. Exports were steady to China and Mexico, but demand from the top importer of U.S. poultry, Russia, softened for various reasons, including import restrictions.

Cotton production in the Southeast is also declining. For cotton, worldwide demand is critical because 75 percent of U.S. cotton production is exported. Cotton prices fell alongside global demand in 2008. Revenues for southeastern growers, along with the amount of land planted in cotton, have decreased. In 2008, cotton acreage in the region dipped to a twenty-five-year low of 9.4 million acres, 40 percent lower than in 2006. Most farmers have switched to more profitable crops such as corn and soybeans.