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

Georgia's Strong
Performance Continues to
Move the State Forward

G eorgia's economy enjoyed quite a good year in 1998. Through the third quarter, the state systematically created jobs at a faster rate than both the nation and other southeastern states. This performance should continue in 1999.

Even with the uncertainty and potential for slowdown surrounding the national outlook, Georgia should still best the national average, although the state's growth may occur at a slower pace in 1999. Overall, the state's economic fundamentals remain strong.

Services Growth to Continue in 1999

The main strength of Georgia's economy comes from the broadly defined services sector — trade, utilities, finance and other services like health care, recreation and business services. Georgia's service sector employment increased by 4.5 percent from the third quarter of 1997 through the third quarter of 1998. Business services' growth was especially strong at 8 percent — representing an increase of approximately 22,000 workers in 1998 — while hotels and health services posted moderate gains.

Narrowly defined services — including miscellaneous business services, health care, entertainment and hotel and motel services — should continue to expand in 1999 and beyond. For example, a large insurer in Macon plans to add 2,500 jobs over the next five years. The state's convention business is also beginning a push in 1999 that should continue to bear fruit over the next several years. The Georgia General Assembly approved $10.5 million to design an expansion of the Georgia World Congress Center (GWCC). In 1999 officials hope to secure an estimated $200 million for the associated construction, which could take three years to complete. The GWCC has already expanded twice to stay ahead of industry growth. Additionally, a new state-of-the-art $250 million arena adjacent to the GWCC to house the NBA's Hawks and NHL's Thrashers should be completed by September 1999.

Atlanta's hospitality industry will also get a $40 million annual boost because of the decision to bring the telecommunications industry's largest trade show to the GWCC for the next five years. Georgia has become a major high-tech center, and high-tech trade shows are stimulating travel to Atlanta, with good prospects for 1999 and beyond.

Manufacturing Off Slightly but Better Than the Southeast's

Although Georgia's 1998 factory employment growth rate, a modest 0.3 percent, was little changed from the 0.1 percent rate the year before, Georgia was the only state in the region that posted factory employment growth through the third quarter of 1998.

Durable goods employment growth has been especially strong, registering over 2 percent for the past two years. Expansion in durables industries, which include electrical and electronic equipment, industrial machinery, fabricated metal and transportation equipment, helped counter continuing weakness in the state's large nondurables industries, dominated by textile and apparel. Nondurables, which account for 57 percent of the state's factory employment, lost 3,300 workers from the third quarter of 1997 through the third quarter of 1998. This drop was led by significant declines in apparel jobs. Apparel employment in the state has fallen by nearly 20,000 jobs in the last three years. In fact, North Georgia's carpet mills now employ more people than do the state's apparel producers.

In 1999 durables such as machinery and transportation equipment should continue to post good growth. These industries showed impressive gains during the past two years as companies added capital to become more efficient and companies like auto parts suppliers and aerospace firms expanded.

Strength in orders for Lockheed-Martin's C-130J Hercules military airplane, made at the company's Marietta plant, and business jets for Savannah's Gulfsteam Corporation will continue to bolster the aerospace sector while high-tech production should increase with Lucent Technologies' expansion in the Atlanta area.

Other durables, such as lumber and wood, and nondurables, such as carpet, that rely on the housing cycle will probably slow somewhat as the economy slows and the demand for housing moderates.

The outlook for the state's labor-intensive apparel industry is not optimistic. Foreign competition will continue to batter the industry in 1999, especially if weakness in Asian economies persists, resulting in cheaper foreign imports. The textile industry, which employs about 30 percent of Georgia's nondurables workers, is capital-intensive enough to successfully compete with foreign producers and should continue to provide stable employment for producers of household goods such as sheets, pillowcases and towels.

Employment Growth
Georiga vs. Southeast and United States


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

Georgia's overall employment growth, led by gains in the service sector, outperformed the nation's in 1998.

International Trade Outlook Is Mixed

Trade activity reinforced the state's recent economic expansion. Merchandise export values currently account for 7.4 percent of gross state product, up from 4.8 percent in 1991.

The value of 1997 exports of merchandise added 1.3 percent to the growth of Georgia's gross state product. In that year, one-third of the state's exports came from three advanced manufacturing groups: industrial machinery and computers, electrical and electronic equipment, and transportation equipment. Traditional and intermediate industrial products such as textile, apparel, paper and chemical products accounted for another one-third of state exports.

As part of the North American Free Trade Agreement, Georgia industries are currently engaged in greater production sharing with Canada and Mexico, a fact that is now reflected in trade statistics. Recent export growth to Canada was brisk, led by rising exports of textile products, industrial machinery/computers and chemicals.

Mexico recently displaced Japan as Georgia's second-largest export market. Georgia's shipments of textiles, apparel and electrical and electronic equipment to Mexico skyrocketed in 1997 and 1998. Although uncertainty surrounds the Latin American outlook, these recent gains in trade with Mexico hold promise for future strength. Meanwhile, Georgia's export growth to Japan was mixed in 1997 and 1998. Weaker exports of food, lumber, paper, chemicals and clay were offset by a growing Japanese demand for tobacco, chemicals and transportation equipment. The outlook for Georgia-based exports is clouded by economic weaknesses in Japan and Canada, two of the state's top export markets.

Construction Expected
to Remain Healthy

After experiencing a decline in building permits in 1997, Georgia's single-family housing market rebounded in 1998. The state's year-over-year permit growth in the third quarter of 1998 exceeded both the Southeast's and nation's growth rates. The pace of construction has been steady and strong. Atlanta remains the most robust market in Georgia and accounts for roughly two-thirds of the state's permits. Existing home sales have been extremely brisk as well during 1998. In 1999 construction will slow but should remain at historically healthy levels as population continues to grow from in-migration to the state.

The state's multifamily construction market started strong during early 1998 but then declined to more moderate levels in large part as a result of the falloff in apartment construction in metro Atlanta. But permits rebounded strongly during the third quarter. In 1999 the multifamily construction market should return to its previous slowing trend as current construction comes on line, satisfying demand.

Commercial construction as measured by square footage got off to a modest start in early 1998 compared to the previous year but rebounded strongly during the third quarter. Year-to-date construction through the third quarter was moderately positive compared to 1997's levels. Once current demand is met, new 1999 commercial construction should moderate but still remain at healthy levels in line with the overall economy.

Agriculture Forecast Indicates
Moderate Growth

As ranked in terms of total cash receipts — an estimated $2.3 billion in 1998 — chicken broilers are Georgia's leading agricultural commodity. At the beginning of the fourth quarter of 1998, 1.4 percent more broiler-type chicks were hatched in the state than during the previous year. Steadily increasing domestic demand should help offset decreased broiler exports to Asia and Russia in 1999.

Cotton is Georgia's second most valuable agricultural product, bringing in an estimated $708 million in cash receipts in 1997. About 1.3 million acres of cotton should be harvested in 1998, down 8.8 percent over 1997 acreage. Yields are expected to decline from 646 pounds to 572 pounds per acre. Thus, Georgia's 1998 total cotton production is expected to drop from 1.9 million to 1.5 million net-weight 480-pound bales. Nationally, total cotton production will probably decline 30 percent, or 13.2 million bales, from 1997's levels. This drop is expected to put upward pressure on prices and thus boost Georgia's cotton revenues.

The state's total peanut acreage increased 2.7 percent to 533,000 acres in 1998. Yields rose slightly to 2,000 pounds per acre, leading to an increase of 5.2 percent in total production. Nearly matching Georgia's increase, total peanut production nationally was 5 percent above 1997's levels, leading to an expectation of flat prices and revenues in this sector. If the weather cooperates, 1999 should be a good year for peanut farmers in Georgia.

Georgia Services Employment
vs. Total State Employment


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

Georgia's service employment, which during the last five years has paralleled but exceeded the state's overall employment trend, continued its solid performance in 1998.