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

A Slower but Positive
Pace in Store for Georgia

By almost any reasonable standard of performance, 1997 will be a good year for Georgia in terms of economic growth. The one standard by which the state falls short is in comparison with the previous year, but the test is rigged against the state as there can be no repeat of the Olympics. While the Games dominated economic development discussions in 1996, they tended to mask the fundamental strength that was propelling the state forward. This basic strength will prevail during the coming year, driven by continued in-migration from around the United States and the world, although in combination with a slowing national economy and lack of a major event.

Services set for moderate growth

mployment in Georgia's service industries surged by 6.8 percent from the third quarter of 1995 through the third quarter of 1996. Currently, services account for more than 25 percent of the state's nonfarm employment. This year services posted especially strong gains in the amusement and recreation areas (up by nearly 15 percent) due primarily to the Olympics. Moderate levels of growth are forecast for 1997.

Business services, which include computer and temporary agencies, also increased at double-digit rates, as they have for the past three years. Health services (the second largest service industry following business) employment also rose moderately over the period and should maintain steady growth next year, particularly as population continues to migrate into the state. Growth in business and recreation services should ease to a more moderate rate in 1997, largely as a result of post-Games slowing.

Two positive developments will boost the state's economy in the new year: one of the nation's largest credit card processors will build a $100 million corporate campus in Columbus in 1997; and ValuJet is expected to rebuild operations, albeit with an Atlanta-area payroll around half the 2,500 employees on its job rolls when it suspended operations.

Tourism should see a better-than-average year

The Olympic and Paralympic Games gave an estimated $3 billion to $5 billion boost to the Georgia economy in 1996. The Games also resulted in infrastructure improvements and new construction throughout the state valued at billions of dollars. However, the Games caused many visitors (especially locals) to bypass the state's resorts, parks, and attractions not associated with the Games.

The anticipated surge in hotel and lodging activity throughout the state apparently did not materialize. However, hotels close to Olympic venues did well. In 1997, bookings should return to more normal levels. The roughly 60,000 people on the Olympic payroll who were laid off appear to have been quickly absorbed back into the region's employment rolls.

Although 1997 will not bring a repeat of the estimated 2 million Olympic visitors to Atlanta, residual interest from the Games, a return to normal levels of convention activity, and the recognition from the National League Champion Braves should help stimulate tourism. A better-than-average year for the tourism and hospitality industry is expected.

Manufacturing outlook mixed, exports robust

Georgia's manufacturing employment posted little growth from a year ago through the third quarter this year. Notable gains in durable goods employment were offset by losses in the nondurable sector, particularly apparel. Apparel employment in the state fell more than 10 percent in 1996 as plants shut down or moved production out of the country due to competitive pressures.

However, the outlook for Georgia's textile industry isn't all bad. For example, Shaw Industries, the Dalton-based carpet producer, plans to open a new manufacturing and distribution facility in 1997. This facility will eventually employ upwards of 800 workers.

The start-up of the retooled General Motors minivan plant in Doraville, coupled with the presence of automotive parts suppliers in the state, has helped boost jobs in the transportation equipment industry in 1996. However, since most of the expansion in the industry has already occurred, it is unlikely that 1997 growth will keep pace.

In addition, Lockheed-Martin's late-1996 Marietta plant staff reductions (due to delays in funding for the F-22 fighter and slow sales of the C-130 cargo plane) will likely keep aerospace employment at a relatively low level for Georgia's largest single manufacturing employer, unless new contracts can be attained. However, strong orders for Gulfstream Corporation's business jets will continue to boost the Savannah area in 1997.

The state's diversified economic base has recently fostered notable growth in international commerce. The state's exports share of gross state product rose from 4.2 percent in 1989 to 7.6 percent in 1995. Leading state exports are pulp and paper, primary metals, industrial machinery, transportation equipment, and textiles. In 1995, 40 percent of the value of Georgia exports went to Canada, Japan, the United Kingdom, and South Korea. Export growth looks likely to continue next year as major economies receiving Georgia goods continue to expand.

Georgia's ports have expanded capacity to handle the increasing flows of international commerce. According to Georgia Port Authority officials, tonnage volumes in 1996 were up for the sixth consecutive year. Exports of labor-intensive bulk cargo, such as wood pulp, liner board, paper products, and kaolin, led the way.

The port of Brunswick, initially designed to be a major import location for Hyundai, Saab, Mitsubishi, and Volkswagen automobiles, now serves as export gateway for right-hand drive Ford Taurus and Saturn cars bound for Japan and Taiwan. During the next 12 months, Brunswick port officials expect to ship about 12,000 Taurus units manufactured in Hapeville, Georgia.

Retail growth should maintain moderate rate

Retail growth in Georgia was healthy over the course of 1996 and generally kept pace with the nation. The Olympics appear to have had a mildly negative impact on retail sales in the state, with minimal growth observed in July. Durable sales growth was steady throughout the year while nondurable sales growth was minimal in the second and third quarters.

Within the durables category, home-related product sales growth was strong during the first half of the year and then declined somewhat in the third quarter, while nondurables accelerated. Auto sales growth remained weak in 1996, as sales in the second and third quarters dipped below year-ago levels. Retail sales during 1997 should maintain the current trend of moderate growth and will likely remain near national rates.

Some growth, some easing ahead for construction industry

Single-family construction activity in Georgia was strong during 1996. In terms of permits, the first and second quarters were extremely robust with growth rates nearing 30 percent. Growth declined significantly in the third quarter to 3.2 percent (measured year-over-year), slightly bettering the rate in the Southeast of 2.6 percent. However, activity remained at healthy levels.

Within the state, construction in Atlanta, Macon, Athens, Augusta, and Columbus declined during third quarter. However, most of these cities hosted Olympic events during July, which significantly slowed building activity for that month. Albany and Macon exceeded year-ago levels, with Albany posting the strongest permit growth rate (58 percent). During the coming year single-family construction will likely continue to slow to moderate levels throughout much of the state.

Multifamily construction in Georgia maintained its strength during 1996 and approached 1995's exceptionally robust level. Georgia's largest market, Atlanta, mirrored the state. Occupancy rates within the Atlanta market remain strong, although reports indicate that rent increases have flattened somewhat. Overall, both the state and Atlanta markets will likely remain healthy even as construction slows somewhat during 1997.

Commercial construction kept growing at a moderate pace during 1996 and continued to be dominated by build-to-suit projects. The same will likely hold true in 1997 although more speculative construction is anticipated. The industrial market is in good shape around the state.

In Atlanta the commercial market stabilized in 1996 as vacancy rates dropped slightly from 1995 levels. The office market in Atlanta remains extremely tight, particularly in the suburbs, although absorption has been strongest in the downtown area (which has resulted in significant declines in vacancy rates). This market will continue to grow next year as more suburban construction looks likely.

The retail market remains healthy although "big box, category killers" are not doing as well as they had earlier in this cycle. Grocery store strip centers have emerged as the strongest property type, and this trend looks set to carry through into next year. Overall, the market is in good shape and should grow moderately in 1997.

Prospects good for agriculture

Ranked by total state receipts, broilers are Georgia's number one agricultural commodity. Exports to Russia and the Pacific rim, in particular, helped the poultry industry to a very strong year in 1996. Although these strong gains in Georgia's food processing sector may slow some in 1997, consumers appear likely to keep substituting chicken for red meat, thereby boosting the north Georgia processing industry.

University of Georgia extension service economists estimate that 1996's cotton harvest will top 2 million 480-pound bales—perhaps the biggest crop in 75 years. Higher yields of 700 pounds per acre (625 pounds per acre last year) helped to offset a reduction in the total number of acres planted. Next year should be good too, although yields may not remain at these high levels.

Total production in the peanut industry for 1996 will be slightly off last year's levels. Despite unfavorable weather conditions in June and July, this year's 2,600 pounds per acre yield still managed to top 1995's anemic 2,390 pounds per acre. While 2,600 pounds per acre yield is better than extension agents expected, this figure is still below desired levels. Next year's outlook is for similar yield levels.