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

Louisiana Expands,
But Lower Gas Prices
Temper Growth

L ouisiana's economy started 1998 at a good pace, largely because of a boost in income from the oil and gas industries. In these industries, technological innovation has lowered production costs, spurring a surge in higher-paying jobs in all aspects of energy extraction throughout the 1990s. During the early part of 1998, however, world oil prices fell, making further exploration and development less financially attractive. With drilling in decline, the overall pace of economic growth for the state slowed through the third quarter of 1998.

Looking forward, though, the state is still in reasonably good shape. If energy prices rebound, the outlook for the state is bright. Even absent that turnaround, there is still reason to be hopeful. One difficulty Louisiana's employers must overcome is the serious shortage of skilled workers, especially in the state's expanding marine construction industry, where the shortage has been most severe.

The state's service sector, which is larger than energy, continues to expand at a rapid clip. This sector is being pushed forward by the tourism-related businesses of hotel and motel, amusement and recreation, and gaming as well as health care businesses.

Service Sector Continues Moderate Growth

Louisiana's service industries, narrowly defined as miscellaneous business services, health care, entertainment, and hotel and motel services, employ slightly more than 27 percent of the state's nonfarm workers. These industries added over 2.4 percent more employees, or 11,800 workers, from the third quarter of 1997 through the third quarter of 1998, a marginally slower pace than for the previous year. Employment in the state's amusement and recreation services increased by 2 percent in 1998 following 3.4 percent growth in 1997. During 1997 and 1998, job growth resumed in the casino and gaming industries after employment rolls shrank in 1996.

Health services — the largest service industry, accounting for 30 percent of the state's service employment — continued to post moderate growth of 0.8 percent during 1998. Employment in the somewhat smaller business services industry increased 3.5 percent during the year, while hotel and motel services employment increased by 2.7 percent as new hotels and motels came on line, chiefly in the New Orleans area.

Service industries should continue to experience moderate growth. Steady demand growth will keep health services growing despite restructurings of weaker firms. Business services should continue to expand but perhaps more slowly based on the predictions of slower growth in the energy sector. Employment in hotels and motels should continue to increase as the physical expansion of the industry continues.

Tourism, however, may begin to suffer if major improvements are not made to the New Orleans' airport to keep pace with expanding convention and hotel facilities. Several large conventions have reportedly bypassed New Orleans because of the low availability of direct flights to the city. At the same time, the expansion of New Orleans' Ernest N. Morial Convention Center — scheduled to open in early 1999 — has helped initiate a hotel building boom that will add thousands of rooms to the city; about 7,000 hotel rooms are reportedly under construction or on the drawing boards in New Orleans.

Cruise ship tourism in New Orleans is growing, thanks to expansion of the cruise ship terminal, and bringing tourists to downtown attractions. Alexandria's new riverfront convention center is expected to boost the number of conventions booked to that part of the state. Louisiana's 13 riverboat casinos took in $1.27 billion in gross revenues for fiscal year 1997–98, up 3.7 percent from the previous year, and there are plans to add a riverboat in Shreveport in 1999. According to Louisiana's Department of Tourism and Trade, the state is expected to attract almost 27 million visitors in 1999, based on inquiries from convention organizers, continuing a 3 percent growth rate in tourism begun in 1998.

Manufacturing Sends Mixed Signals

Although factories employ only about 10 percent of Louisiana's nonfarm workers, the state's manufacturing sector is important because many of its industries are capital intensive and thus high-value-added and high-wage.

Over 30 percent of Louisiana's nondurables employment is in the chemical industry. This industry typically is highly automated, producing a large volume that requires relatively few workers. Although chemical industry employment showed little growth during 1998, 1999 promises new expansion in that industry. Currently, the state's chemical industry is reaping the benefits of the low prices for oil and natural gas. Employment should grow in 1999 as four chemical companies plan to invest $639 million to build three new plants and add to an existing plant.

Employment growth in the energy extraction industry moderated from over 8 percent in 1996 and 1997 to 0.5 percent in 1998 as declining energy prices forced smaller firms to cut back operations. This trend should continue in 1999 unless there is a substantial reversal in world oil and gas markets, which is unlikely.

Employment growth weakened during 1998 in the state's transportation equipment industry, which makes up about 28 percent of Louisiana's durables factory jobs. But the outlook is brighter in 1999 because large projects, particularly those that service the offshore energy extraction industry and the military, will be coming on line. Avondale Industries, a Louisiana shipbuilder, was recently awarded a contract to design an upgrade of U.S. Coast Guard cutters, aircraft, and command and control systems. In the long term, this contract will be quite beneficial to the state. A critical shortage of skilled workers has constrained growth in this industry, but transportation equipment manufacturers are addressing this problem. For example, a New Orleans shipyard is building a training center to provide itself with more skilled workers.

The outlook for the state's pulp and paper industry is less optimistic. Weaker foreign currencies and a decline in Asian orders continue to adversely affect the industry.

Looking ahead in 1999, manufacturing, especially capital-intensive industries, should perform well if labor problems can be solved.

Asian Crisis Affects Louisiana's Trade

Louisiana is the southeastern state most affected by the Asian financial crisis. The state's export exposure to Asia exists mostly in agricultural, chemical and other intermediate products. Other noticeable effects of the Asian crisis are the sharp boost of steel, lumber and rubber imports from Japan, Malaysia and Indonesia and a fall in exports of the state's farm and paper products. But port officials in New Orleans expect that the surge of import trade could be ending soon, particularly as domestic steel producers begin anti-dumping campaigns against steel imports from Japan, Russia and Brazil.

Agricultural and bulk products, exported by Louisiana's ports but produced in the Midwest, dominate the state's export market. The important Louisiana-based intermediate products that are exported are chemicals, petroleum, paper, lumber and primary metals. In 1998 state exports to the North American Free Trade Agreement countries of Canada and Mexico were up by 6 percent and more than 50 percent, respectively, from 1997 levels. These gains were led by increases in exports of chemicals, food and transportation equipment.

Because of the weakness in Asia, Louisiana's exports will likely be flat or drop in 1999, but lower exports to Asia will be partly offset by growing trade with Mexico and Latin America. There are some short-term concerns about Latin America's outlook, but for the long term the prospects are very good for continuing trade growth with this region.

Construction Should Remain Stable in 1999

After experiencing slightly less growth in building permits during 1997 than in 1996, the single-family housing market rebounded somewhat in 1998. Year-over-year single-family permit growth in the third quarter was 10.2 percent, slightly below the national rate. Existing home sales have been strong, but growth declined slightly in the second quarter. In 1999 single-family home construction should be similar to levels experienced during 1998.

Employment Growth
Louisiana vs. Southeast and United States


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

While continuing to trail both the nation's and the Southeast's rates, Louisiana's employment gains, led by the service sector, remained relatively strong in 1998.

Commercial construction in terms of square footage got off to a modest start in 1998 compared to 1997's performance but improved slightly through the third quarter. Louisiana's construction growth through the third quarter was the weakest among the southeastern states. Construction levels will likely moderate in 1999 as current demand is met for multifamily and commercial construction.

Agricultural Production Down Slightly

Cotton is Louisiana's largest agricultural commodity as measured by receipts. The crop garnered $328 million in 1997. In 1998 Louisiana's cotton acreage, at 540,000, was down 13.6 percent from 1997, and yields were down by about 15.5 percent. These two declines brought total production down by 27 percent, to 720,000 bales.

Louisiana's total acreage planted in sugarcane increased 2.4 percent to 420,000 acres in 1998. Yields dropped 4.3 percent to 27 tons per acre. Thus, total production decreased 2 percent from 1997 levels.

Another significant crop in Louisiana is rice. In 1998 the state's rice acreage rose to approximately 588,000 acres, an increase of 40,000 acres over 1997's total. Rice yields, however, dropped from 4,630 pounds per acre in 1997 to an estimated 4,450 pounds in 1998. The increase in total acreage, however, offset the decline in yields, netting a 3.2 percent increase in total production. Despite this increase in total production, Louisiana's rice prices should remain flat since nationally rice production should be up by only 1 percent from 1997 levels.

Louisiana Manufacturing Employment
vs. Total State Employment


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

Employment losses in Louisana's manufacturing base caused this sector to continue to perform below the state's total employment levels in 1998.