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

Moderate Growth
Pushes Georgia Past
Post-Olympic Slowdown

T he Georgia economy remains quite healthy going into 1998, having shrugged off the post-Olympic slowdown by early 1997. Georgia's relatively rapid growth over the last two decades has pushed the state's economy to look more and more like the rest of the nation — largely dominated by a collection of service industries but with a still significant share of jobs in manufacturing. No part of the state's economy is showing any serious imbalance, and growth, dominated again by services and propelled in notable measure by business activity from the rest of the country, should be the rule in 1998 on a par with the nation.

Services Set for Moderate Growth

Employment growth of 3.5 percent in Georgia's services sector from the third quarter of 1996 through the third quarter of 1997, while respectable, was less than half that of the previous year. The slowdown showed up in hotels and lodgings and especially in amusement and recreation facilities, which posted a 2.5 percent increase during this period in contrast to a double-digit surge tied to the 1996 Olympics. This slowdown is in line with the state's overall year-over-year job growth of about 2 percent, about the same as the Southeast and nation, both hovering around 2 percent.

Business services, which includes temporary services, is the largest service category for both the state and nation. In 1997 business services returned to a more moderate increase of 2.6 percent following an Olympic surge. Health and hospital services maintained a stable growth rate of around 2 percent. With stable income and demographics, health and hospital services will most likely continue to grow at a moderate pace. The hotel and lodging segment should experience a boost as more rooms come on line.

Convention and Tourism Sector Sends Mixed Signals

Hoteliers in Atlanta are concerned that supply may exceed demand in 1998 at least. Forty-seven hotels opened in the metro area in 1996. With another 38 planning to open in 1997, slumping occupancy rates are a distinct possibility in 1998. However, the expansion of the Georgia World Congress Center in Atlanta may help.

Because of the Georgia World Congress Center expansion, there are at least three new full-service hotels proposed for downtown, according to PKF Consulting. These hotels are reportedly necessary to accommodate the crowds expected for the larger conventions. A new sports arena and development around Centennial Olympic Park are also expected to attract visitors.

In 1997 Delta Airlines exceeded over 600 flights a day for the first time. Plans are being implemented for a fifth runway at Atlanta's Hartsfield International Airport to help ease congestion and increase capacity for more flights.

Manufacturing Prospects Are Good

The state's manufacturing sector experienced mixed performance in 1997. Growth in the sector was essentially flat and did not match growth at the national level, where manufacturing added about 0.5 percent to its payrolls. The anemic growth in Georgia's factory sector employment of 0.2 percent over the year was led by gains in durable goods employment. Industrial machinery and electrical and electronic equipment had especially good job gains compared with 1996. The state's transportation equipment industry posted job gains of 3.4 percent, adding 1,400 workers over the period. The lumber and wood component also registered job increases.

In contrast, nondurable goods posted losses in employment. The apparel industry lost more than 4,000 jobs, or 10.6 percent of its employment base, as firms closed plants in the face of fierce foreign and domestic competition. North Georgia carpet mills also posted modestly declining employment levels, as did knitting mills and fabric mills.

Although the outlook for labor-intensive apparel producers is not promising because of continued import penetration and lower-cost overseas production, other industries, especially those linked to high-tech industries and certain textiles, should continue to post new growth. The recent announcement of a Korean manufacturer's plan to build a $1.2 billion polyester fabric plant in Augusta, eventually employing 1,800 people, should give a boost to the economy in that area.

Employment Growth
Georiga vs. Southeast and United States

Employment Growth Georgia vs. Southeast and United States

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

While the post-Olympic slowdown continued in early 1997, overall employment growth in the latter part of the year rose in line with the Southeast and the nation.

Orders are strengthening for aerospace firms. For example, Savannah's Gulfstream Inc., a manufacturer of corporate jets, has received contracts to provide jets to the U.S. Air Force. The Pentagon's decision to buy 339 F-22 Stealth fighter planes ensures stable employment for workers at Lockheed Martin's Marietta, Ga., plant, where final assembly of the plane will take place.

Strong demand at both the national and international levels is also boosting employment rolls for telecommunications firms. Lucent Technologies plans to invest $300 million over the next two years to expand its fiber optics plant in Norcross near Atlanta, strengthening the metro area's position as an important center for telecommunications equipment manufacturing.

Auto parts plants continue to locate in the state as part of the larger process of the buildup of auto manufacturing capacity in the South. Nisshinbo Automotive will build a $100 million plant in Covington to manufacture brake pads and linings. The plant will be completed in early 1999. Atsugi Unisia plans to build a $100 million facility near Monroe, hiring as many as 500 workers to produce parts for automakers in the United States and Japan.

The state's lumber and wood industry and the North Georgia carpet industry, both with links to the cycle of the residential housing industry nationally, are likely to post moderate growth at best in the new year as single-family construction mildly slows nationwide.

Trade Sector to Continue Surge

Exports' share of gross state product advanced in 1996 to 6.9 percent from 5.0 in 1993. Over half the state's exports come from five industries: industrial machinery and computers, paper, electrical and electronic equipment, and food and chemical products.

Exports rose dramatically from 1993 to 1995 but were flat in 1996 as a result of difficulties in some export-destination economies. In 1997 exports made a good recovery. Georgia exports were driven by strong gains in food, apparel, chemicals, industrial machinery and computers, and electrical and electronic equipment. The top markets for these products were Canada, Japan, Mexico and the European Community.

North American Free Trade Agreement (NAFTA) member countries had a strong demand for the state's products. By 1996 exports to Mexico jumped nearly 60 percent from the pre-NAFTA level of 1993, and shipments to Canadian markets — which are nearly three times larger than to Mexico — jumped 30 percent during the same period. Apparently Georgia exports have not peaked since state shipments are on track to rise 8 percent in 1997.

Clearly, Georgia ports have benefited from the region's trade expansion, reporting an 11 percent gain in traffic volume in 1997 — the 10th consecutive year of growth. The port of Brunswick, initially designed to accommodate auto imports, is now being selected as the main gateway for the export to Japan and Taiwan of Ford Motor Company's right-hand-steered Taurus and the Windstar Minivan. In 1997 Brunswick handled 175,000 imported and exported vehicles, a record for the port and about 80 percent more than in the previous year.

Construction to Maintain Moderate Pace

Single-family construction continued to slow through 1997; however, activity remained at healthy levels. The most dramatic declines in permits were in Macon and Augusta. In Atlanta, permits dropped only slightly from a year ago. Overall, Georgia's single-family home market is expected to continue to perform well, achieving moderate growth rates in 1998, based on the state's continued income and job growth.

Multifamily construction growth was strong through the first half of 1997 but began to slow in the second half. With this slowing trend continuing into 1998 because of an overabundance of inventory, construction will not reach the strong levels seen in 1997 but will remain healthy in 1998.

In Georgia, nonresidential construction came back strongly in 1997 after a small dip in 1996 due to the completion of numerous Olympic-related projects in 1995. During 1997 Atlanta office construction was strong in the northern suburbs as the suburban vacancy rate stabilized around 7 percent. However, Atlanta's downtown vacancy rate rose as federal workers moved into the newly completed Federal Center and Olympic-related offices closed. This rate increase brought the Atlanta market's vacancy rate back in line with other major metropolitan downtown areas. In 1998 the Atlanta office market will become more competitive, and speculative construction will slow as will overall office construction. The industrial market in 1998 will likely remain subdued but healthy, featuring steady demand but without the added pressure of office-space shortages.

Retail construction remained strong in Atlanta during 1997. Growth in grocery store chains dominated. Several large retail stores were forced to close their doors as a result of stiff competition. Despite an overabundance of retail space, new development will continue because much of the available space is ill-suited to meet current retail needs. Most of the development will be in grocery-store-anchored centers.

Overall, Georgia will continue to experience moderate nonresidential construction growth during 1998 with a soft office market, moderate industrial strength and good retail growth.

Prospects Good for Agriculture

Ranked by total state cash receipts of $1.7 billion in 1995 (the last year for which data are available) chicken broilers are Georgia's number one agricultural commodity. As of 1997, the number of broiler-type chicks hatched was about 4 percent greater than it was last year. Exports have helped the poultry industry have a very strong year. Over the long run growing domestic and international demand bodes well for this commodity.

Cotton is Georgia's second most valuable crop with an estimated $767 million in cash receipts in 1995. An estimated 1.4 million acres of cotton will be harvested in 1997, up 7 percent over 1996. Yields are expected to decline from 747 pounds per acre to 702 pounds per acre. Total cotton production is expected to hold steady at about 2.1 million net-weight 480-pound bales.

Georgia Services Employment
vs. Total State Employment

Georgia Services Employment vs. Total State Employment

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

Although the rate of service employment growth has subsided substantially from the Olympic period, Georgia's service employment continued to outperform the nation's, a trend that is expected to continue in 1998.