Regional Update (October-December 1998)


Cover Story - Financial Crises Abroad Pose Many Uncertainties for Southeast in 1999

Economic Outlook for Alabama Varies by Region

Florida Growth to Slow but Remain Strong

Georgia's Strong Performance Continues to Move the State Forward

Louisiana Expands, but Lower Gas Prices Temper Growth

Although Gambling Boom Ends, Mississippi's Economy Is Stable

National Slowing Will Affect Tennessee's Growth Prospects

Southeastern Economic Indicators

Economic Outlook for
Alabama Varies by Region

F or the last few years economic development in Alabama has been best characterized by location. The northern part of the state, dominated by the auto, aerospace and other heavy industries and services, has performed reasonably well. Likewise, the Gulf Coast has prospered. In contrast, the southern and central parts of the state have languished, losing apparel assembly jobs and experiencing increased competition in these areas' key industries. These areas have also encountered pressures with international demand for forest and poultry products. In 1999 the economic division within Alabama.

The auto and aerospace industries in the north and shipbuilding in the Mobile area are expanding and creating some relatively high-income jobs, but only a portion of these will spill into the south and central parts of the state. Even with the national economy slowing, the new production facilities in the state's northern and Gulf Coast areas will still add jobs and income in the coming year. In contrast, the rest of the state should experience slowing demand for production from their main industries.

The net outlook for Alabama depends heavily on national developments and the state's ability to further stimulate job creation in the north and enhance demand for products from the central parts of the state. In 1997 job gains in the north were enough to more than offset losses elsewhere, but overall the state's growth rate in 1998 was lower than the average of the other southeastern states.

Developments in Services Mixed for 1999

Even though Alabama is a manufacturing-intensive state, the broadly defined services sector — including trade, utilities, finance, health care, recreation and business services — represents a growing majority of the state's jobs and is a significant source of employment growth for the state. Representing nearly one in four of Alabama's total nonfarm employees, the narrowly defined services sector — which excludes trade, utilities and finance — plays an important role in the state's overall economy. Job growth in Alabama in this sector, however, slowed from a robust 5 percent rate in the third quarter of 1997 as measured against the previous year to 1.9 percent in the third quarter of 1998.

Hotel and lodging employment growth was little changed during 1998. Hospital job rolls declined moderately — a significant development since 9.5 percent of Birmingham's nonfarm employment is concentrated in health services. While health services should be fairly well insulated from a slowing national economy in 1999, Alabama's business services may begin to contract as larger companies cut back their demand on services that are generally provided by relatively small firms.

Improvements made to Birmingham International Airport could help influence business location decisions in the future, and recreational services should get an ongoing boost from Vision Land, Alabama's first amusement park, which opened in May 1998. Local officials expect additions to the facility in 1999.

Manufacturing Has Ups and Downs

Alabama's manufacturing employment fell by 1.5 percent from the third quarter of 1997 through the third quarter of 1998, following declines of 0.3 percent during 1997 and 2.9 percent in 1996. As in the previous years, most of the recent decline was in nondurable goods industries. Of the nondurables, the labor-intensive apparel industry experienced a nearly 9 percent drop in employment — a loss of over 3,000 workers — remaining the weakest factory business. This decline was, at least, less than the declines of 9.5 percent in 1997 and over 19 percent in 1996. Employment in Alabama's apparel industry has fallen by nearly 17,000 workers since 1995.

Employment in the state's lumber and wood sector slumped after posting good growth in 1996 and 1997. Primary metals employment was also down moderately from 1997, but transportation equipment employment rose in 1998 thanks to job increases in auto parts production and shipbuilding.

The 1999 outlook is mixed for Alabama's factory businesses. Apparel companies should continue to downsize and restructure to survive in this competitive industry. Announcements of further cutbacks at the Russell Company's 13 Alabama sewing mills ensure more weakness in the sector in the coming year.

Employment Growth
Alabama vs. Southeast and United States


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

Job losses in manufacturing employment continue to hold down Alabama's employment growth.

The Asian financial crisis will continue to adversely affect Alabama's lumber and wood and primary metals industries as reduced demand from overseas markets stifles lumber exports and cheap steel imports hurt the state's producers.

More positively, expansion of Mercedes' production in Vance will boost the transportation equipment payroll as Mercedes' sales remain strong. Huntsville's aerospace industry should also add jobs in 1999. Although some work is ending on the International Space Station, construction continues in Decatur on the $400 million Delta IV plant, which will build boosters for the satellite launching rocket. Also, the new contract for a national missile defense system has great potential to stimulate new growth in the northern part of the state. In addition, high-tech companies that produce digital communications equipment and consumer products have announced some large expansion plans that could add to factory payrolls in Alabama in 1999.

International Developments to Affect Trade

Exports' share of Alabama's gross state product climbed to 7.6 percent in 1997, up from only 4.4 percent in 1991. Alabama's export growth has been remarkable in recent years, making it the nation's ninth fastest growing export state. Two important industrial export segments account for nearly two-fifths of the state's exports: electrical and electronic equipment and industrial machinery and computers. Strong demand for industrial products from Mexico and other Latin American economies has driven the state's export expansion.

But the growth of world demand for Alabama products next year may be curbed by weakening income expansion and financial uncertainties in Japan and Canada, Alabama's top trading partners. Financial weaknesses in Japan and other Asian markets have already restrained orders for Alabama's farm and intermediate products, such as coal and paper products. Latin America's outlook is also uncertain. However, Alabama exporters' hopes for 1999 are centered on continuing export growth in Latin America, particularly in Mexico, which has recently offset the state's losses in Asian markets.

Construction Market Improves but Remains Moderate

The state's single-family home market rebounded somewhat during 1998 from the previous year. Single-family construction growth measured year over year was negligible for the state during the first quarter of 1998 but rose to 7 percent during the second quarter. Permit growth improved slightly to 9 percent in the third quarter but still fell below the U.S. growth rate. In 1998 Birmingham and Montgomery exhibited the strongest permit growth while Huntsville, which was previously strong, was the weakest of the state's metropolitan areas. Overall, with decent job and income growth in the coming year, permits should remain near 1998 levels, and existing home sales, which were at historically moderate levels in 1998, will remain healthy.

The multifamily construction market was weak during the first half of 1998, with fewer permits issued than during the same period in 1997. But construction surged in the third quarter, making up for the earlier declines. With a slowing economy, the pace of construction should slow in 1999 to less than 1998 levels.

Commercial construction grew steadily during 1998. Most of the construction has been build-to-suit with very little speculative activity. In Birmingham both the class A office and industrial vacancy rates are low, but commercial construction should moderate somewhat during 1999 as construction currently under way drives up vacancy rates.

Agriculture Mostly up in Alabama

Chicken broilers are Alabama's number one agricultural commodity, based on total state cash receipts of $1.7 billion in 1997. As of the beginning of the fourth quarter of 1998, the number of broiler chicks hatched was approximately 4 percent greater than in the previous year, and total egg production in Alabama was 1.4 percent above the 1997 level.

Cattle and calves were Alabama's second-largest commodity, with receipts totaling $353 million in 1997. The drought in 1998 and poor grazing conditions throughout much of the state forced many farmers to flood the market with cattle for slaughter. Together with record slaughter weights, this situation has resulted in sharply lower cattle prices.

With receipts of $227 million in 1997, cotton is also a significant commodity for the state. A total of 455,000 acres of cotton is expected to be harvested in 1998 compared to 442,000 acres in 1997. The average yield of cotton for 1998 is forecast to be 600 pounds per acre compared to 550 pounds a year ago. Total 1998 cotton production is expected to be 569,000 bales, a 3.5 percent increase over 1997's harvest.

Alabama Manufacturing Employment
vs. Total State Employment


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

Alabama's manufacturing employment growth rate decreased by 1.5 percentage points from the third quarter of 1997 through the third quarter of 1998. Most of the declines were in the nondurable goods sector.