Regional Update (October-December 1997)
Regional Update (October-December 1997)
Louisiana Economy Sends Mixed Signals
Sends Mixed Signals
ouisiana's economy promises to make 1998 a mixed, but interesting, year. Recent publicity has made much of the Bayou State's difficulties with gambling and the consequent downward revision of expectations of employment and tax revenue related to that business. All the while, however, a technological revolution in drilling has revitalized the state's critical, although small, mining sector. In addition to providing relatively high-paying jobs directly, state tax revenue also increases with gains from energy severance taxes. What's more, the state's shipbuilding industry is operating at essentially full capacity with orders from general commercial sources, energy exploration firms and the U.S. Navy. These two developments have created some significant shortages of skilled workers along the Gulf Coast and promise to spur overall economic growth for more than just the coming year. It may take some time, however, for the coastal strength to be felt throughout the rest of the state, and overall growth in 1998 will likely remain slower than in the nation.
Manufacturing Outlook Is Favorable
Louisiana's manufacturing sector posted little job growth on net for the third quarter of 1996 through the third quarter of 1997. But this aggregate result disguises a quite varied performance in the factory sector. The state's important chemical sector, accounting for nearly 30 percent of nondurable goods manufacturing employment, was flat over this period, although expansions are underway. During the same period, however, the state's largest durable goods industry, transportation equipment, increased employment by over 6 percent.
Increasing orders and large contracts will continue to provide new growth for some of the state's important factory sectors. A new U.S. Navy contract for amphibious assault ships is expected to boost the New Orleans economy for years to come. The approximately $9 billion contract calls for 12 ships to be built over the next decade. Louisiana's Avondale Industries is slated to build eight of the new ships. The remaining ships are to be built by a shipbuilder in Bath, Maine.
Demand for supply boats and equipment for the energy sector is also stimulating activity for Louisiana's manufacturers. And this demand is being driven by forces other than just the local surge in energy. A platform fabricator is adding to its employee rolls, and Avondale Industries also has a contract for the construction of two crude oil carriers and options for more ships. These contracts are reportedly to build sophisticated ships for the Alaskan crude oil trade. The contracts ensure the company will add 1,000 new jobs by the year 2000.
Expansion continues for the state's chemical and plastics firms. Exxon is starting work on a $190 million addition to its facility in Baton Rouge. Shell Chemical Co. plans to build two plants in Geismar next to its present facility there. Marathon Oil Co. is expected to build a $300 million plant in Garyville to produce plastics used for car parts, carpet and appliances, and furniture. Another plastics plant is proposed in Convent.
Aerospace companies are expanding too. Lockheed Martin was awarded a new contract to build commercial rocket components at the NASA assembly facility near New Orleans. Southern Louisiana will become the nation's largest producer of a high-grade form of iron after a Japanese company announced that it will build St. James Parish's third plant for direct-reduced iron, which is used to make steel. This product will be distributed to steel mills throughout the country.
In a less positive trend, the apparel industry continues to look for ways to improve efficiency. Fruit of the Loom announced that it was scaling back its sewing operations, resulting in significant job losses in a number of Louisiana parishes. The jobs are reportedly being moved to Honduras.
Trade Sector Is Steady
Louisiana, and particularly its river ports, will profit from the boom in world commodity trade. Louisiana is a major gateway for U.S. exports of grains, food, petrochemicals and forest products. The state's top export markets are highly concentrated — Japan, Canada and Taiwan receive 42 percent of the state's shipments.
Imports are also big business to the port of New Orleans. In 1997 the port showed double-digit increases for inbound cargoes of steel, copper and coffee, its leading commodities. Overall, Louisiana should have a good year in the trade sector in 1998, but growth could be less than expected if financial turmoil persists in large trading areas like Asia.
Services Sector to Grow
After several years of a run-up in service sector employment fueled by tourism and gambling, job growth in amusement and recreation services was little changed over the year in Louisiana as some stability returned to the gaming and casino business. Health services, now Louisiana's largest single service industry, added moderately to employment rolls following a downturn due to consolidations and reforms in the industry starting last year. Business services overall posted job gains of 1.6 percent over the period but may be stimulated further by renewed activity in the state's energy sector.
A development that is expected to transform the New Orleans economy is the arrival of the U.S. Navy's high-tech software development and personnel records center. The center will employ approximately 1,500 people. These high-paying jobs will give a boost to the local economy by next summer, when the first phase will open with jobs for 1,000 employees.
Tourism and Conventions Show Promise, but Concerns Exist
In New Orleans there is some concern about overbuilding in the hotel market, where added capacity is contributing to lower occupancy rates. Since 1995 developers have opened about 1,000 rooms and announced plans for approximately 2,700 more. Half a dozen older buildings in downtown New Orleans are being converted to hotels. Hotel building has been sparked by the expansion of the Ernest Morial Convention Center. The $247 million expansion, scheduled to add 1.3 million square feet of event space by January 1999, will help the center not only juggle simultaneous events but also attract the important megaconventions that fill hotel rooms.
Moderate Growth Expected in Construction
Single-family construction remained healthy during 1997. Permit growth for the state dropped during the first quarter but rebounded during the second quarter, turning slightly positive. Existing home sales were similar to year-ago conditions across the state. In 1998, Louisiana's single-family home market, driven by steady income growth, is likely to continue to perform near 1997's levels, achieving moderate growth. Multifamily construction growth was fairly strong through much of 1997, but it should become more moderate in 1998 as the surge subsides while remaining at generally healthy levels because of the state's good income and job growth.
The pace of nonresidential construction in Louisiana declined somewhat during 1997 from 1996, particularly in Baton Rouge and New Orleans. Much of the current construction activity across the state is attributable to the retail sector. In 1998, nonresidential construction will continue to remain subdued because adequate office space is still available in most markets.
Agriculture Is Mixed
Cotton is Louisiana's number one agricultural commodity as measured by receipts. The crop garnered $538 million in 1995, the last year for which data are available. Louisiana's cotton acreage is down 29 percent from last year at 625,000 acres. Yields are also down by about 7 percent. These two declines brought total production down by 34 percent to 850,000 bales.
Louisiana's total rice acreage was 533,000 acres in 1996. In 1997 the state's rice acreage rose to approximately 565,000 acres. Like cotton, rice yields dropped from 4,870 pounds per acre in 1996 to an estimated 4,650 pounds per acre in 1997. However, the increase in total acreage offset the decline in yields, leading to a 1 percent increase in total production.
Louisiana's total acreage planted in sugarcane increased 11 percent to 410,000 acres in 1997. Yields dropped slightly to 27 tons per acre. Total production increased 7 percent over 1996 levels.