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Economic Research

REIN

bullet imageRegional Update: Southeastern Housing Continues to Suffer
bullet imageData Corner: Unemployment Insurance
bullet imageUniversity Studies: Schools' Research Shows Persistent Recession
bullet imageEcon 101: What's in a Name?
bullet imageOn the Ground: An Interview with Chris Oakley
bullet imageThe D6 Factor


Regional Update

Southeastern Housing Continues to Suffer

Recent data on the Southeast's housing markets point to persistent weakness, mirroring national housing trends. In an informal Atlanta Fed survey, Southeastern homebuilders and real estate agents reported that housing demand remained soft during December and that sales of high-end homes were particularly weak. Many contacts said that tighter credit conditions were restraining sales. Survey respondents noted a surge in refinancing activity across much of the region as mortgage rates declined to record lows. But contacts in Florida reported that refinancing remained challenging as appraisals often fell below loan values. Home prices continued to decline on a year-over-year basis throughout the region while inventories remained high. Construction levels remained low across the region.

Image of FloridaIn December, home sales declined further through much of the region compared with a year earlier. Increased sales were noted, however, in markets where prices had depreciated most. Notably, in Florida markets, sales rose significantly over weak year-earlier levels as foreclosed properties sold at deeply discounted prices. Sales of real estate–owned homes in some Florida markets account for 40 to 60 percent of sales. The Florida Realtors Association reported that existing single-family home sales rose 27 percent in December compared with weak year-earlier levels while the median home price fell further, down 27 percent year over year. Atlanta also saw a modest rise in home sales as prices declined significantly year over year.

In most other parts of the region, both home sales and prices fell on a year-over-year basis, but price declines were more muted. The Alabama Center for Real Estate reported that statewide existing home sales in December declined 27 percent and the median home price slumped 6.2 percent. The Greater Nashville Association of Realtors reported that single-family home sales in December dropped 29 percent compared with a year earlier while the median home price declined 13 percent. During December, home sales declined 9 percent in Baton Rouge and New Orleans on a year-over-year basis, according to their local Realtor associations.

The region's real estate agents all noted that home inventories increased. In much of the region, contacts reported that foreclosures were still increasing, exerting downward pressure on new and existing home prices. But the outlook among real estate agents improved significantly in early January. Several noted a pickup in traffic and calls early in the month, and some were encouraged by declines in mortgage rates and were hopeful that the federal fiscal stimulus package would benefit the housing market.

Builders reported a significant drop in new home sales and construction activity in December compared with a year earlier. They also said that acquiring financing was challenging for both builders and buyers across the region. Inventory levels contracted among Florida and Georgia contacts but were trending upward in the remainder of the Southeast. Most builders noted growing frustration, and several expected to be out of business soon.

Home construction remains at a record low, as regional builders noted. Single-family permits in the region remained weak through the end of 2008, dropping 46 percent in December compared with a year earlier. The weakness was most pronounced in Georgia, where permits fell more than 50 percent. No area in the region, though, was immune to the construction downturn.

Multifamily housing markets also suffered weak conditions through year-end similar to single-family housing trends. According to the Florida Realtors Association, condominium sales rose sharply statewide in December, up 12 percent compared with a year earlier, as the median home price fell 32 percent. In other parts of the Southeast, meanwhile, condominium sales declined sharply year over year, and home prices fell notably. The Greater Nashville Realtors Association reported a 42 percent year-over-year drop in condominium sales in December and a 21 percent decline in the median price. Across the Southeast, the number of condominium units under construction continued to decline while more units were deferred or abandoned.

Apartment markets softened somewhat as well. Occupancy levels declined slightly as renters doubled and tripled up on the number of people living in a unit. Also, for many renters, the large supply of single-family homes available for rent was an attractive option. Apartment construction was steady through year-end, but units in the final planning phase tapered off. Some contacts noted that financing for even affordable housing was very difficult to obtain.

Multifamily permits continued to decline across the Southeast, dropping 34.2 percent in December compared with a year earlier. Year-over-year declines were most pronounced in Georgia, Louisiana, and Mississippi.

Data Corner

Unemployment Insurance

Analysts trying to get a handle on the health of the labor market typically examine initial unemployment insurance claims and continuing unemployment insurance claims. These two data series from the U.S. Department of Labor are available on a weekly and monthly basis for the nation and by state. The weekly data tend to be volatile, so the data are also often reported as a four-week moving average (see the chart).

Initial Unemployment Claims in the Southeast
Chart of Initial Unemployment claims in the Southeast
Source: Source: U.S. Department of Labor

Initial claims, which count the number of workers who have filed to receive unemployment insurance for the first time, measure emerging unemployment. Continuing claims, which tally the total number of persons claiming unemployment benefits, measure ongoing unemployment.

Initial claims data provide insight into developing economic trends. For example, if a large number of people are filing for unemployment insurance for the first time, it's a sign that the labor market is weakening. A weakening labor market can affect consumer confidence and spending as well as business decisions regarding future investment.

Continuing claims provide a general sense of how long workers remain unemployed. One can reasonably assume that the longer someone remains on unemployment insurance, the harder it is for that person to find a new job.

A major advantage of claims data is their weekly frequency. Indications that labor markets are stabilizing should appear in the weekly series before they become apparent in the monthly numbers.

Recent data for both initial and continuing claims point to severely weakening labor markets in the Southeast. This pattern is consistent with information from Atlanta Fed business contacts and other monthly employment surveys.

University Studies

Schools' Research Shows Persistent Recession

As 2008 came to a close, apprehension for what the coming year would bring loomed large for many people. Forecasts by some of the members of our Local Economic Analysis and Research Network (LEARN) at academic institutions provide insight into their views on the economy's direction.

Recession's effects on Alabama muted
While the recession has affected Alabama, its impact should not be as pronounced there as in other parts of the Southeast, according to a forecast by the University of Alabama's Center for Business and Economic Research (CBER) presented at its 21st annual economic outlook conference in January in Montgomery. Sam Addy, CBER's director, expects the state to experience weak gross domestic product growth of around 0.3 percent during 2009. Employment is forecast to decrease by about 0.9 percent during the year, with most sectors outside of services and government posting losses. Addy also believes Alabama's unemployment rate will rise above 8 percent, with the worst of the job losses coming in the first quarter.

Contraction hits Georgia hard
Dean Robert T. Sumichrast, of the University of Georgia's Selig Center, offered a grim assessment of Georgia's economy at the 26th annual economic forecast luncheon held in December in Atlanta. Sumichrast predicted the recession will be "severe rather than mild and prolonged rather than short." Noting that recessionary periods historically average about 10 months, he anticipates this recession will last 18 months, with the trough occurring during the third quarter of 2009.

The Selig Center forecasts declining employment in Georgia through July 2009, which would mean a 17-month decline. Further, when hiring resumes (as the center forecasts) in the third quarter of 2009, job growth will not keep pace with the growth of Georgia's labor force. Consequently, the state's unemployment rate will continue to rise throughout the year. "[The unemployment rate] will peak at about 9 percent in early 2010," Sumichrast said. "That will be the highest unemployment rate since the current data series began in 1976."

The Selig Center also forecasts that the steep drop in single-family home sales will bottom out by April 2009, and new home construction should hit its low point two months later and then begin to rise. Conditions in nonresidential construction are expected to worsen dramatically in 2009, the center forecasts, and the state's yearly gross domestic product will shrink 1.4 percent.

Florida's housing woes will continue
Sean Snaith, director of the University of Central Florida's Institute of Economic Competiveness, released his state forecast at the end of 2008. He expects payroll employment to shrink 2.6 percent in 2009, with the construction sector continuing to shed jobs at a double-digit pace. The forecast indicates unemployment rates will rise to 8.4 percent through the first half of 2010. Snaith predicts Florida's housing construction sector will hit bottom in the second quarter of 2009, but the large inventory of houses and the credit freeze will likely cause further declines in home prices.

According to Snaith's report, growth in Florida's real gross state product will turn negative in 2009, contracting by 2.3 percent, while personal income growth continues its decline, falling to 1.7 percent for the year. He also foresees retail sales growth contracting from the third quarter of 2008 through the first quarter of 2009, with the second quarter of 2009 turning positive, partially in response to the federal stimulus plan.

Econ 101

What's in a Name?

The unemployment rate—a term reported by the U.S. Bureau of Labor Statistics (BLS) on the first Friday of every month—is designed to provide insight into the jobs picture. More specifically, the unemployment rate calculates the percent of the civilian labor force that doesn't have a job and is currently looking for work.

Image of a graduation capLately, the U.S. unemployment rate has increased considerably. During the past year, the rate rose more than in any other year since the mid-1970s. And in February 2009, the seasonally adjusted unemployment rate hit its highest level since the early 1980s.

As bad as the rate may seem now, many observers question whether the unemployment rate, as officially constructed, is capturing total joblessness in the U.S. economy. To be counted as unemployed, a person must not have a job and must be actively looking for work. In other words, anyone who has been furloughed, had hours reduced, or has stopped altogether looking for a job out of frustration is not part of the unemployment snapshot.

The BLS calculates six different measures of U.S. joblessness and has assigned them the names of U1 through U6 (see the sidebar); U3 is the official unemployment rate. Measures beyond U3 include people who would like to work, or work more hours, if given the chance. The broadest measure, U6, includes everyone working part time for economic reasons (for example, their employers reduced their hours) and all potential workers who have given up seeking employment for various reasons but are willing and able to take a job if offered one. Seen through U6, the seasonally adjusted jobless rate was 14.8 percent in February 2009, considerably higher than the official unemployment rate of 8.1 percent reported for the same month. So the unemployment rate could be worse—or better. It just depends on how you define it.

Definitions of Joblessness
U1   Proportion of the civilian labor force unemployed for 15 weeks or longer.
U2   Proportion of the civilian labor force classified as job losers (involuntary fired or laid off) and people who have completed temporary jobs.
U3   Proportion of the civilian labor force unemployed but actively seeking employment (the official unemployment rate).
U4   Proportion of the civilian labor force (plus discouraged workers) discouraged or unemployed but actively seeking employment (essentially the official unemployment rate, adjusted for discouraged workers).
U5   Total unemployed plus all marginally attached workers (defined as potential workers who have given up seeking employment for various reasons).
U6   Total unemployed plus marginally attached workers and part-time workers.

On the Ground

An Interview With Chris Oakley, Regional Executive at the Atlanta Fed's Jacksonville Branch

Photo of Chris OakleyWhat is your new role at the Jacksonville Branch? As the regional executive in the Jacksonville office, I am responsible for the Bank's Regional Economic Information Network (REIN) activities in my zone. REIN works at the grassroots level to gather data about business and economic activity in the region. In this role, I recruit, coordinate, and analyze the input of the branch's board members, who provide insight regarding the economy of central and northern Florida. This information is provided to the bank's research team and adds insight to the data it evaluates.

What are some of the data-gathering methods you use in your zone? In addition to the work with our branch boards, each regional executive is charged with developing advisory councils focused on particular drivers of the Southeast economy. I've worked to establish a Trade and Transportation Advisory Council. While Jacksonville calls itself America's logistics center, this trade and transportation group has representatives from all parts of the region. The council meets twice per year, with ongoing communication between meetings, to provide detailed information on their industry. This intelligence provides insight for policymaking and provides Atlanta Fed President Dennis Lockhart with current on-the-ground information he can share with his colleagues on the Federal Open Market Committee.

Do you focus on other industries as well? Yes. The regional executives are also aggressively recruiting new participants for the Atlanta Fed's monthly surveys of realtors, home builders, and manufacturers. Expanding input into these surveys is key to growing the network of contacts and improving the relevancy of survey results. Throughout the Jacksonville branch zone, I've developed relationships with trade associations and hosted meetings to discuss the survey process and provide a venue for direct feedback on industry developments.

Another focus of REIN for the regional executive is to expand the Atlanta Fed's reach into cities beyond those where we have branches. For me, this effort has resulted in new relationships in cities like Orlando and Tampa, cities that are economic drivers in my zone. During the past six months, we coordinated several business leader meetings to discuss the state of the economy and the Federal Reserve's actions.

Why is outreach a part of REIN's efforts? A goal of the Atlanta Fed during the first quarter of 2009 is to engage our research economists and senior officers in speaking opportunities to discuss the recent economic turmoil and the Fed's responses to it. The Jacksonville REIN team has taken advantage of our established network of business contacts in our area, such as current and past directors. Our office has also been successful in leveraging the contacts made within the Trade and Transportation Advisory Council. Recently, for example, I had the opportunity to both speak and engage with over 200 executives from all over the country at a short line railroad conference, arranged by one of our council members.

How do you envision your efforts in the coming year? As 2009 progresses, I will continue seeking opportunities to build REIN in southeast Georgia and to focus on other key areas of my zone, including Tallahassee and the Space Coast. I view my role as "REIN-maker," contributing to the quality of the bank's policy formulation by creating partnerships with people with diverse perspectives and insights.

D6 Factor

Since late 2006, the D6 Factor has declined significantly, ending the October–December 2008 period at –6.8. This value is the lowest on record since the start of the series in May 1991. A negative value indicates that economic conditions are weak.

The D6 Factor
D6 Factor chart
Note: The growth rate is normalized to zero.
Source: Federal Reserve Bank of Atlanta
About the D6 Factor
The D6 Factor is an estimate of the trend common to 25 distinct monthly series of economic data for the six states of the Sixth Federal Reserve District. It provides a broad measure of Southeastern economic conditions that is available more frequently than estimates of gross domestic product (GDP) for the six states. Also, unlike an average of state-level GDPs or other factors, the D6 Factor can filter out idiosyncratic shocks that disproportionately affect individual states. For detailed information on the D6 Factor's construction, see "When More Is Better: Assessing the Southeastern Economy with Lots of Data," by Pedro Silos and Diego Vilán (Economic Review, Third Quarter 2007).