Regional Update (October-December 1996)

Index Southeastern economic indicators

Cover Story - Southeast to Keep Pace with the Nation in 1997

Alabama is Poised for Improvement

Florida's Pace to Slow but Remain Strong

A Slower but Positive Pace in Store for Georiga

Resource Base Likely to Work in Louisiana's Favor

Mississippi Set to Emerge from Its Post-Boom Hangover

A Good but Unspectacular Year Ahead for Tennessee

Alabama Is Poised
for Improvement

Alabama's economy should pick up somewhat next year after a period of growth below that of the Southeast and the United States. Income gains from manufacturing and construction will spur growth in the northern portion of the state. This growth should largely offset the sluggishness resulting from job losses in the apparel industry, particularly in the central and southern portions of the state. These job losses, which have held back the state's economic expansion, should begin to slow in the coming year as the consolidation process winds itself down. The Mercedes plant coming on-line and an in-migration of parts producers to the area should further strengthen income gains as the year progresses.

Manufacturing growth set to carry on

labama manufacturing employment fell 3.2 percent, or slightly more than 12,000 workers, from the third quarter of 1995 through the third quarter of 1996. The apparel industry, the largest of the state's manufacturing industries (with roughly 11 percent of factory workers), lost 9,300 workers over the year. The reduction in worker numbers was mainly due to intense foreign and domestic competition, which forced closing or downsizing at many plants. Unfortunately, the outlook is for further shrinkage.

Other expanding industries, such as vehicle and vehicle parts, lumber and wood, and steel, should take up the slack. Indeed, announcements of new capital investment bode well for Alabama in the coming year. New suppliers to the Mercedes plant continue to locate in the state, and some already in place have announced intentions to expand. The opening of the $300 million, 1,200-worker Mercedes plant itself in 1997 is of course boosting economic activity, and spokesmen hint at the possibility of boosting production in the not too distant future.

The state's lumber and wood industry (the largest durable goods industry in terms of employment) is expected to maintain its moderate growth pattern. However, expansion may slow somewhat next year with a decline in the cyclical house-building industry.

Several steel companies and steel-producing equipment companies have announced expansions or new plants that will be operational in the state next year—for example, Trico Steel Company's building of a new $450 million minimill in Decatur, Birmingham Steel's modernization, and Tuscaloosa Steel's doubling of production capacity. Production of steel pipe by U.S. Steel's Fairfield works will continue to boom as long as the energy (oil and gas) industry remains healthy. With the announcement of several plant expansions on the Gulf Coast, the outlook for the state's chemical industry is also positive.

The Alabama economy is not particularly foreign-export driven, but exports' share of gross state product (GSP) increased from only 4.8 percent in 1989 to 6.9 percent in 1995 (the last year for which data were available). In 1995, state exports were concentrated in a few geographic areas and industries. About 56 percent of exports went to Canada, Japan, and Europe. The state has posted steady export gains in paper, chemical products, primary metals, electronic equipment, industrial machinery, and computer goods. These areas of export growth should carry over into the coming year as strength in the state's export markets persists.

Construction sector facing bright commercial prospects

The single-family home market in Alabama was buoyant during 1996. The number of permits issued reached its highest level during this national economic expansion in the first quarter, exceeding year-ago levels by almost 45 percent. Through the remainder of the year permit growth slowed, both on a year-over-year and quarter-to-quarter basis. However, building remained extremely strong in the third quarter as permits increased 22.5 percent over the previous year's level—compared with an increase of only 2.6 percent for the Southeast as a whole.

In contrast, the existing home market was not as strong as the new home market, peaking during the second quarter and then falling off to a rate of 1 percent growth in the third quarter. While healthy sales levels can be expected in Alabama's single-family home market in 1997, slowing will persist, making it unlikely that the state will experience the extremely strong growth rates seen in 1996.

Multifamily construction permits peaked during 1995, and this year's levels were well below those seen in that year. Alabama's largest market, Birmingham, experienced similar levels of deceleration. During 1997, multifamily construction will probably keep declining within the state, particularly in the Birmingham area.

Commercial construction, by contrast, carried on at a moderate pace during 1996. Speculative construction throughout the industry remains limited although more is anticipated next year. Falling vacancy rates in many areas of the state indicate ongoing tightening in the commercial markets. The 1997 outlook for Alabama's commercial construction industry remains bright, with moderate expansion expected.

Services outlook improving

Alabama's service industries posted moderate employment growth (2.7 percent) from the third quarter of 1995 through the third quarter of 1996. Employment at hotels and other lodging establishments increased over the period. Health employment also picked up following a time of downsizing and consolidation and will continue to expand. Expanding biotechnology industries in the Birmingham area will bring further diversity to central Alabama.

Olympic soccer matches and other related activities were popular in the Birmingham and Montgomery areas, respectively, and drew large crowds. These crowds helped to strongly stimulate retail and food service sales. However, no event of similar magnitude is on the horizon for 1997, so the boost provided by the retail and food service sectors to the state's economy in 1996 will not be repeated.

Retail prospects look modest

Overall, Alabama's retail growth slowed during 1996 as durable purchases stabilized or waned late in the year. Given generally modest statewide prospects for income growth, retail sales increases during 1997 will probably be limited and centered mostly in the northern sections of the state.

Agriculture set for a good 1997

Ranked by total state receipts, broilers are Alabama's number one agricultural commodity. Exports to Russia and Hong Kong (currently the two largest export destinations for U.S. poultry) helped the industry experience a robust year. Exports to China and Mexico registered increases as well. This rise occurred in spite of higher feed costs caused by grain price increases earlier in the year. Sustained growth in exports has caused forecasts for 1997 to be revised upward.

As in the rest of the country, cattle farmers in Alabama were hurt by high grain prices in 1996. Profit pressures are now easing as feed prices have begun to moderate. However, state extension agents feel that in the near term grain prices will hold to relatively high levels, even as acres planted increase, and cattle farmers will not feel relief until later in the year.

Cotton yields in Alabama for 1996 promise to exceed expectations of state extension agents. But average yields per acre were extremely low in 1995 (due to the effects of Hurricane Opal), and despite the expected increased yields per acre in 1996, total cotton acres planted fell from 590,000 acres in 1995 to approximately 556,000 acres in 1996. Cotton acres planted in 1997 should remain about the same, since the price of cotton is currently low relative to that of other crops.