Regional Update (October-December 1997)


Cover Story - Southeast to Mirror Nation's Overall Balance in 1998

Alabama to Reap Benefits of New Industry

Florida Continues to Drive Southeast Economy

Moderate Growth Pushes Georgia Past Post-Olympic Slowdown

Louisiana Economy Sends Mixed Signals

Some Bright Signs to Emerge for Mississippi

A Good but Not Great Year Ahead for Tennessee

Southeastern Economic Indicators

Alabama to Reap
Benefits of New

I n 1998 Alabama should see the benefits of its recent successes in attracting industry, although the acceleration in growth will be occurring in the northern part of the state, while portions of the southern and central parts of the state will continue to struggle. Alabama has long been more heavily reliant on manufacturing than the rest of the nation. This situation persists, but the state has experienced a shift out of low-wage, low-skill apparel production into higher-wage, higher-skill jobs, such as transportation equipment manufacturing. This transition process has been difficult, but the state will begin to see the benefits of the shift in the coming year even though overall growth will remain slower than the Southeast's.

Manufacturing Base Declines, New Industries to Help Offset Losses

Alabama's manufacturing employment fell by 1 percent from the third quarter of 1996 through the third quarter of 1997. These figures represent a slowdown in the rate of job growth, bringing the state's manufacturing sector about in line with the region's. Although more than 3,900 of the state's factory workers lost their jobs during the period, this number is considerably less than the previous year's loss of 11,000 jobs. Both the state and region are well below national third-quarter performance growth of about 0.5 percent. Approximately one in five Alabama workers is employed in the factory sector, which is almost equally divided between durable and nondurable goods production. While durables industries posted a slight decline in factory payrolls, nondurables registered the bulk of the job losses.

Increases in industrial machinery employment helped prop up the durables sector despite slow growth in the state's large lumber and wood and primary metals sectors and falling employment in the transportation equipment industry. Of the state's nondurables industries, employment levels were little changed for textiles as manufacturers' investment in high-tech equipment succeeded in enhancing productivity to stave off foreign competition.

In contrast, the state's largest nondurables industry, apparel production, with a large number of small labor-intensive mills, continued to downsize and close inefficient plants. Apparel employment fell by over 8 percent, or 3,700 workers, from the third quarter of 1996 through the third quarter of 1997. The falloff in apparel employment, although continuing into the new year, will slow as most of the less efficient mills are closed. And the state's lumber and wood industry will likely post moderate growth unless the national housing market takes a larger-than-expected downturn.

Other industries have real potential to expand throughout the year. Transportation equipment, which includes ships, vehicles, and missiles and rockets, is expected to lead factory growth in 1998. Despite the likelihood of tapering demand for autos nationally, the recent grand opening of the new Mercedes-Benz plant in Vance assures increasing economic activity in this area as the plant ratchets up to full production. With the initial success of the new Mercedes sport utility vehicle the plant produces, plans for expansion to produce other vehicles are already on the table. Even without an expansion of product line, however, the success of the new Mercedes vehicle promises a good year in 1998 for the state's transportation equipment industry.

In the single largest project announced in the state in 1997, Boeing plans to employ as many as 3,000 highly skilled and compensated workers at a new $400 million rocket plant to be built in Decatur and completed in 1999. Boeing plans to build a booster core for the Delta IV rocket if the company is awarded a government contract; if not, the company will produce rocket parts for the commercial market. Some companies producing aircraft parts are already moving into vacant textile mills, stimulating high-tech production.

Employment Growth
Alabama vs. Southeast and United States

Employment Growth Alabama vs. Southeast and United States

Source: Calculated by the Federal Reserve Bank of Atlanta using data from Regional Financial Associates.

With continuing, but less severe, declines in manufacturing employment, Alabama's total employment grew less rapidly than the Southeast and national averages.

Contracts for Alabama shipyards to build four ships for the Chinese government and chemical tankers for a Danish company should boost shipyard activity. The construction of the Trico steel mill near Decatur began stimulating industrial growth in the surrounding area in 1997. A number of affiliated suppliers and end-users have announced intentions to locate in the area.

Trade Continues to Increase

Alabama's export share of gross state product increased from 5 percent in 1993 to 6.7 percent in 1996. In 1996 more than half of the state's exports were concentrated in five industries: electrical and electronic equipment, industrial machinery and computers, paper, transportation equipment and chemical products.

Despite the stronger dollar, Alabama's overseas shipments soared in 1997 to a record $5 billion, led by strong gains in electrical and electronic equipment and chemical products. More than half of the state's exports went to Canada, Japan, Mexico and the United Kingdom. Nearly one-third of Alabama's exports go to Canada, while the state sends Mexico less than one-tenth of its shipments. The state's exports to these countries under the North American Free Trade Agreement have almost doubled since 1993, with increased trade concentrated in electrical and electronic equipment, transportation equipment and industrial machinery.

Service Sector to Show Moderate Increase

Alabama's service sector, with 23 percent of the state's nonfarm employment, registered a moderate 2.6 percent employment growth rate from the third quarter of 1996 through the third quarter of 1997.

Although hotel and lodging growth was essentially flat over the period, employment growth for hospitals increased. Continued growth in health services is expected, especially for the Birmingham area, where a core of research hospitals and biotechnology companies has located. Amusement and recreation services may get a boost from Visionland, a new theme park near Bessemer scheduled to open in May 1998. The theme park will be reminiscent of a county fair but with water rides and other attractions.

Business services are also likely to continue expanding to support the increasing number of small and medium-sized firms supplying the larger plants in the state.

Construction Growth to Continue

The single-family home market remained healthy during 1997 albeit somewhat weaker than during the prior year. The state's permit growth closely mirrored the Southeast's and the nation's, falling below the previous year's levels during the first three quarters of 1997. Within the state, permits fell noticeably in Birmingham and Tuscaloosa during the first half of the year but grew significantly in Huntsville and Mobile. Existing home sales started the year strong during the first quarter but waned from that point. As industrial expansion steadies the pace of business activity and job growth, Alabama's single-family home market will likely stabilize in the coming year, achieving moderate growth rates.

The multifamily construction market in Alabama achieved moderate growth levels during 1997. In Birmingham demand finally caught up with the strong construction levels of the previous two years as occupancy rates began to rise once again in 1997. Overall, the city's market has returned to normal, and rental incentives have largely disappeared. Activity across the state should remain at moderately healthy levels in 1998.

Nonresidential construction maintained its steady pace during 1997, similar to 1996 levels. Birmingham's nonresidential construction performed similarly to the state's. The office market in Birmingham remains healthy as rents are finally moving upward, and a limited amount of speculative construction took place during 1997. Developers remain cautious and development plans remain subdued, so office development in Birmingham is expected to continue at a steady pace in 1998. The industrial sector continues to benefit from the new Mercedes plant, and the Boeing facility should only add strength. Statewide, nonresidential construction should experience continued moderate growth in 1998.

A Good Year for Agriculture

Chicken broilers are Alabama's number one agricultural commodity, based on total state cash receipts of $1.4 billion in 1995 (the last year hard data are available), and chicken eggs brought in a total of $216 million in cash receipts in 1995. As of the beginning fourth quarter 1997, the number of broiler-type chicks hatched was about 4 percent greater than the previous year, and total egg production in Alabama was 1.4 percent above last year's levels. Exports have helped the poultry industry have a very strong year. In 1998 exports should remain strong, particularly to markets in China and Mexico.

The outlook for the cattle and calf sectors is directly related to the supply of feed corn. Domestic corn producers should expect to have larger production, but corn stocks should be smaller in the 1997-98 season than in the previous season. These smaller stocks could lead to greater price volatility and thus to greater risks for cattle and calf farmers.

Alabama Manufacturing Employment
vs. Total State Employment

Alabama Manufacturing Employment vs. Total State Employment

Source: Calculated by the Federal Reserve Bank of Atlanta using data from Regional Financial Associates.

Increases in industrial machinery employment helped offset losses in the apparel industry and slow growth in the lumber and wood industry, but factory payrolls still shrank.