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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.


May 1, 2014

Will 2014 Be a Tipping Point for Logistics?

The Atlanta Fed’s Trade and Transportation Advisory Council convened in early April in Jacksonville, Florida. Overall, the tone was encouraging compared with last year’s September meeting, when members reported decelerating activity during the summer. This time, a majority reported expanding activity during the fourth quarter and into 2014, despite the impact of unseasonably harsh winter weather. Additionally, the expectation for demand over the short term is for continued growth at a slightly higher pace.

District port contacts were upbeat, citing a rise in energy exports, steel imports, and higher container volumes. Trucking companies reported very strong freight volumes, which appears to them as real demand and not just a rebound from severe winter weather. It is important to note that the industry continues to operate with about 20 percent less capacity than prerecession levels, and capacity constraints are beginning to limit the movement of goods on highways.

Similar to past years, the railroad industry continues to see modest gains in intermodal traffic and shipments of grain and industrial equipment. Construction products were down slightly, along with significant declines in export coal. In air cargo, revenues are reportedly back to 2007 levels, albeit with only slightly higher air freight volumes boosted by international activity and sharp declines in domestic cargo.

Employment and pricing
Council members indicated employment levels remained stable, with no anticipated increase in staffing levels over the short term. In trucking, struggles to find drivers continue, and regulations have eliminated between 2 percent and 4 percent of drivers and have also reduced the number of hours and miles allowed for drivers. Hiring diesel mechanics has also become a challenge.

Besides the trucking industry, which has steadily been increasing driver pay, council members generally reported no significant upward pressure on labor costs, outside of cost increases for health insurance. As a result of capacity constraints, however, trucking companies project carrier rate increases of between 4 percent and 6 percent, on average, in both the near and longer term as supply and demand dictate. These capacity constraints are creating opportunities for rail carriers, who are seeing more pricing power as well.

International trade
In terms of growth rates of the value of air cargo, regions that should drive demand for U.S. exports include the Middle East, driven by Gulf countries, the United Arab Emirates, Saudi Arabia, and Israel; Asia (specifically China, Hong Kong, and Singapore); Europe, concentrated in areas in Western and Eastern Europe recovering from or not affected by euro zone issues; and Latin America and the Caribbean (and mostly Brazil). Air trade activity should remain flat.

District ports expect cargo volumes in 2014 to grow by up to 5 percent with strong increases in imports while exports will grow more slowly. Asia will remain a primary market for food exports from the United States, and some regions of Africa (chiefly in the western and southern areas) will be target markets for U.S. exporters as the demand for oil, gas, and food products increases.

Geopolitical concerns present potential downside risks for trade flows, and labor issues at West Coast ports could interrupt trans-Pacific trade. Congested and outdated highways, combined with a shortage of truckers, will eventually hamper the inland movement of goods. For example, the lack of funding for dredging or for antiquated lock systems at District inland ports and seaports could stunt growth.

In the near future
Overall, our Trade and Transportation Advisory Council members were upbeat and see two related tipping points approaching. First, prices are on the verge of increasing more rapidly as businesses are forced to pay more as freight charges, especially for trucking and rail, increase. Second, capacity constraints might suppress growth as demand-side bottlenecks in the movement of goods become more frequent.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch


March 3, 2014

Tennessee’s Auto Industry: Pitfalls and Potholes

The automotive industry in Tennessee is one of the big drivers of the state’s economy. Nissan established its first U.S. manufacturing facility in Smyrna in the early 1980s, and auto-related investments have grown in the state ever since. General Motors opened a plant in Spring Hill in 1990, and Volkswagen opened its Chattanooga plant in 2011. These three facilities collectively employ more than 12,000 workers, a total that doesn’t include the vast amount of automotive suppliers that call Tennessee home. Currently, Tennessee is the largest employer of auto-industry workers in the South.

Coming out of the Great Recession, Tennessee is now well positioned to continue its standing as a competitive destination for the automotive industry. In October 2013, the Brookings Institute produced a report titled “Drive! Moving Tennessee’s Automotive Sector Up the Value Chain.” The report pointed out the Volunteer State’s various advantages in the auto industry, which included its geographic location, strong transportation infrastructure, and favorable cost structure.

The report also shared some interesting employment numbers. For example, Tennessee’s share of auto-manufacturing employment in North America increased to an all-time high of 3.3 percent by the end of 2012. Also, more than 12 percent of all jobs created in Tennessee since the recession are related to the auto industry. Needless to say, carmaking is important to the state’s economic health.

The Brookings report also pointed out some competitive challenges and pitfalls the state will need to navigate in the coming years:

  • Cost pressures: Input costs continue to rise, as does the consumer’s demand for greater value. Production increases in low-wage countries will continue to add pressure, even though the labor-cost gap between U.S. locations and low-cost countries is closing.
  • Demographics and workforce: Technology advances have made the automotive-manufacturing workplace much more sophisticated. The challenges to find an adequately trained workforce will be a constant challenge.
  • Technology: The entire automobile production system and product line will require constant technological upgrades to keep pace with changing regulatory requirements. For innovations to be effective, they will need to reach far into the automaking supply chain.

The Brookings report also suggested that the state lacks a strategic approach to maintaining a business-friendly environment for advanced industries. For example, Tennessee ranks in the bottom fifth of states in terms of tax competitiveness for new research-and-development firms and labor-intensive manufacturing.

The report also indicated that holes exist in Tennessee’s workforce-development programs. The state falls short in literacy, numeracy, and educational attainment, gaps that complicate the state’s ability to ensure the availability of an educated workforce for the auto industry. Also pointed out in the report was the state’s lack of research and development activity in the auto sector. The state also lacks a fertile technology network that caters to auto-sector suppliers, particularly the smaller ones.

Despite all these factors, the future for Tennessee’s auto industry looks bright. The state has momentum and the necessary resources to adapt to future challenges. Tennessee has the continent’s broadest automaking supply chain, a huge advantage in today’s auto-manufacturing environment. Past success does not guarantee future performance, but hopefully Tennessee can avoid the potholes on the road ahead.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch


November 5, 2013

Energy Industry Keeps on Track

The Atlanta Fed’s Energy Advisory Council met at the New Orleans Branch on October 21 for its semiannual meeting to discuss current economic issues in the energy industry. Members were largely optimistic when sharing their views about demand, productivity, and pricing, which correlates to the ongoing “energy boom” we have discussed previously in SouthPoint. That said, some council members expressed concern about longer-term labor trends and noted ongoing uncertainty surrounding fiscal and regulatory policy issues.

We’ve heard for quite some time about the increase in oil and natural gas production, particularly related to shale resource production, processing, and transportation. With regard to the latter, council members discussed the importance of rail industry investment, which has been substantial recently. Increased use of rail transport has helped resolve transportation bottleneck issues that arose with rising production from shale resources. In fact, the American Association of Railroads reported that the U.S. rail industry has seen an unprecedented surge in crude shipments from less than 9,500 carloads in 2008 to more than 234,000 carloads in 2012. The numbers continue to increase in 2013. There were 97,135 carloads in the first quarter, up 166 percent from the first quarter of 2012.

With regard to pricing, council members generally agreed that natural gas prices will eventually rise. Factors behind the increase will likely be twofold: first (and probably most importantly in the near-term), once exports of liquefied natural gas begin, the supply glut in the United States is expected to alleviate, aligning U.S. pricing more closely with world prices. Second, the abundance of natural gas is prompting investment in technology dependent on it (for example, transportation, utilities, and manufacturing). As more projects that consume natural gas come online, higher demand is likely to push up market prices.

Some council members reported some concern about employment in the energy sector, because demand for skilled workers has outweighed the supply and led to labor shortages. One member pointed to an age gap in staff educated in engineering and possessing specialized skills. This appears to be tied to the decline in geology and energy-related education programs in colleges and universities following the oil price crash in the 1980s. Although these programs have regained popularity in recent years, and the supply of recent graduates with the desired degrees is growing, there is likely to be an experience gap that could be difficult to fill as current, more tenured workers retire.

Finally, though the Energy Advisory Council was generally upbeat about current industry conditions, members agreed that issues such as uncertainty surrounding fiscal policy, regulations, and ambiguity in the tax code are weighing on their confidence in the outlook. However, despite these concerns, members were unanimous in their belief that the policy and economic environment in the United States remained more attractive than most other energy-producing regions around the globe.

Photo of Rebekah DurhamRebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch


October 17, 2013

Transportation Keeps On Truckin'

On September 24, the Atlanta Fed’s Advisory Council on Trade and Transportation met, as it does twice a year, to discuss current economic conditions in the various industries represented by transportation executives from across the Sixth Federal Reserve District. Dave Altig, the Atlanta Fed’s executive vice president and director of research, provided an economic overview and outlook, and the Jacksonville Branch’s Regional Executive Chris Oakley and Atlanta Fed President Dennis Lockhart facilitated the discussion.

The general tone of the conversation was one of cautious optimism, though some slowing in growth was reported since the last meeting in April 2013. Half of the council members reported higher year-over-year demand, and the other half indicated that activity was flat. The outlook for the next three to six months was split evenly as well, with some expecting higher levels of activity based on recent trends and the upcoming peak season for holiday shipping. Regarding inventory levels, council members indicated that supply chains remain lean and that these conditions will likely become a long-term strategy. Frustration with the regulatory environment and current fiscal issues that were raised in the several past meetings continue to be expressed.

At Sixth District seaports, activity was reported as mixed, with minimal cargo growth and a slowing of exports at one port; the export of chemicals and energy products was characterized as “off the charts” by another council member, who also claimed higher levels of container trade and imports of steel, coffee, rubber, and plywood.  

There was not much new news regarding labor markets. Compared with the same time last year, three council members reported higher workforce levels, three reported the same, and two reported lower levels of staffing. The employment outlook over the short term is the same as it was in April, with half of the council members anticipating higher levels and only one member expecting lower. The proportion of part-time or temporary workers was described as the same across the board.

Hiring challenges remain in trucking. Diesel mechanics and drivers are hard to find for various reasons, including the inability of the industry to attract the younger generation. Additionally, the industry faces a wave of vacancies over the coming years as a result of pending retirements. Hours of service regulations that went into effect in July 2013 are affecting the utilization of trucking equipment between 2 percent and 10 percent and overall capacity by approximately 25 percent.

Fuel price increases earlier this year have had no discernible effect on current or projected cargo volumes at Sixth District ports; marine fuel prices, although high, have been relatively stable for an extended period. Because of declines in freight, decreased demand, and a sagging global economy, air freight carrier revenue has not been buoyed by a recent 9 percent decrease in global jet fuel prices. For those motor carriers that are not hedged on fuel, higher prices have had a material effect on business.

The majority of council members indicated that they have already or will be initiating slight near-term price increases through annual rate adjustments, at a minimum, to cover rising input costs including driver wages and health care costs. Longer term, most anticipate more aggressive pricing as market conditions allow, compensating for increases in equipment and regulatory costs.

Council members’ outlook for growth over the next three to six months mirrors the responses from April: 75 percent expect higher growth, and the remaining 25 percent anticipate the same level of growth. In the medium term, two-thirds of the council members expect higher rates of growth, with the remaining anticipating the same rate of growth. Much like our conversations with other business leaders throughout the region, however, economic and policy uncertainty clouds the council’s outlook.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed’s Jacksonville Branch

May 1, 2014

Will 2014 Be a Tipping Point for Logistics?

The Atlanta Fed’s Trade and Transportation Advisory Council convened in early April in Jacksonville, Florida. Overall, the tone was encouraging compared with last year’s September meeting, when members reported decelerating activity during the summer. This time, a majority reported expanding activity during the fourth quarter and into 2014, despite the impact of unseasonably harsh winter weather. Additionally, the expectation for demand over the short term is for continued growth at a slightly higher pace.

District port contacts were upbeat, citing a rise in energy exports, steel imports, and higher container volumes. Trucking companies reported very strong freight volumes, which appears to them as real demand and not just a rebound from severe winter weather. It is important to note that the industry continues to operate with about 20 percent less capacity than prerecession levels, and capacity constraints are beginning to limit the movement of goods on highways.

Similar to past years, the railroad industry continues to see modest gains in intermodal traffic and shipments of grain and industrial equipment. Construction products were down slightly, along with significant declines in export coal. In air cargo, revenues are reportedly back to 2007 levels, albeit with only slightly higher air freight volumes boosted by international activity and sharp declines in domestic cargo.

Employment and pricing
Council members indicated employment levels remained stable, with no anticipated increase in staffing levels over the short term. In trucking, struggles to find drivers continue, and regulations have eliminated between 2 percent and 4 percent of drivers and have also reduced the number of hours and miles allowed for drivers. Hiring diesel mechanics has also become a challenge.

Besides the trucking industry, which has steadily been increasing driver pay, council members generally reported no significant upward pressure on labor costs, outside of cost increases for health insurance. As a result of capacity constraints, however, trucking companies project carrier rate increases of between 4 percent and 6 percent, on average, in both the near and longer term as supply and demand dictate. These capacity constraints are creating opportunities for rail carriers, who are seeing more pricing power as well.

International trade
In terms of growth rates of the value of air cargo, regions that should drive demand for U.S. exports include the Middle East, driven by Gulf countries, the United Arab Emirates, Saudi Arabia, and Israel; Asia (specifically China, Hong Kong, and Singapore); Europe, concentrated in areas in Western and Eastern Europe recovering from or not affected by euro zone issues; and Latin America and the Caribbean (and mostly Brazil). Air trade activity should remain flat.

District ports expect cargo volumes in 2014 to grow by up to 5 percent with strong increases in imports while exports will grow more slowly. Asia will remain a primary market for food exports from the United States, and some regions of Africa (chiefly in the western and southern areas) will be target markets for U.S. exporters as the demand for oil, gas, and food products increases.

Geopolitical concerns present potential downside risks for trade flows, and labor issues at West Coast ports could interrupt trans-Pacific trade. Congested and outdated highways, combined with a shortage of truckers, will eventually hamper the inland movement of goods. For example, the lack of funding for dredging or for antiquated lock systems at District inland ports and seaports could stunt growth.

In the near future
Overall, our Trade and Transportation Advisory Council members were upbeat and see two related tipping points approaching. First, prices are on the verge of increasing more rapidly as businesses are forced to pay more as freight charges, especially for trucking and rail, increase. Second, capacity constraints might suppress growth as demand-side bottlenecks in the movement of goods become more frequent.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch


March 3, 2014

Tennessee’s Auto Industry: Pitfalls and Potholes

The automotive industry in Tennessee is one of the big drivers of the state’s economy. Nissan established its first U.S. manufacturing facility in Smyrna in the early 1980s, and auto-related investments have grown in the state ever since. General Motors opened a plant in Spring Hill in 1990, and Volkswagen opened its Chattanooga plant in 2011. These three facilities collectively employ more than 12,000 workers, a total that doesn’t include the vast amount of automotive suppliers that call Tennessee home. Currently, Tennessee is the largest employer of auto-industry workers in the South.

Coming out of the Great Recession, Tennessee is now well positioned to continue its standing as a competitive destination for the automotive industry. In October 2013, the Brookings Institute produced a report titled “Drive! Moving Tennessee’s Automotive Sector Up the Value Chain.” The report pointed out the Volunteer State’s various advantages in the auto industry, which included its geographic location, strong transportation infrastructure, and favorable cost structure.

The report also shared some interesting employment numbers. For example, Tennessee’s share of auto-manufacturing employment in North America increased to an all-time high of 3.3 percent by the end of 2012. Also, more than 12 percent of all jobs created in Tennessee since the recession are related to the auto industry. Needless to say, carmaking is important to the state’s economic health.

The Brookings report also pointed out some competitive challenges and pitfalls the state will need to navigate in the coming years:

  • Cost pressures: Input costs continue to rise, as does the consumer’s demand for greater value. Production increases in low-wage countries will continue to add pressure, even though the labor-cost gap between U.S. locations and low-cost countries is closing.
  • Demographics and workforce: Technology advances have made the automotive-manufacturing workplace much more sophisticated. The challenges to find an adequately trained workforce will be a constant challenge.
  • Technology: The entire automobile production system and product line will require constant technological upgrades to keep pace with changing regulatory requirements. For innovations to be effective, they will need to reach far into the automaking supply chain.

The Brookings report also suggested that the state lacks a strategic approach to maintaining a business-friendly environment for advanced industries. For example, Tennessee ranks in the bottom fifth of states in terms of tax competitiveness for new research-and-development firms and labor-intensive manufacturing.

The report also indicated that holes exist in Tennessee’s workforce-development programs. The state falls short in literacy, numeracy, and educational attainment, gaps that complicate the state’s ability to ensure the availability of an educated workforce for the auto industry. Also pointed out in the report was the state’s lack of research and development activity in the auto sector. The state also lacks a fertile technology network that caters to auto-sector suppliers, particularly the smaller ones.

Despite all these factors, the future for Tennessee’s auto industry looks bright. The state has momentum and the necessary resources to adapt to future challenges. Tennessee has the continent’s broadest automaking supply chain, a huge advantage in today’s auto-manufacturing environment. Past success does not guarantee future performance, but hopefully Tennessee can avoid the potholes on the road ahead.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch


November 5, 2013

Energy Industry Keeps on Track

The Atlanta Fed’s Energy Advisory Council met at the New Orleans Branch on October 21 for its semiannual meeting to discuss current economic issues in the energy industry. Members were largely optimistic when sharing their views about demand, productivity, and pricing, which correlates to the ongoing “energy boom” we have discussed previously in SouthPoint. That said, some council members expressed concern about longer-term labor trends and noted ongoing uncertainty surrounding fiscal and regulatory policy issues.

We’ve heard for quite some time about the increase in oil and natural gas production, particularly related to shale resource production, processing, and transportation. With regard to the latter, council members discussed the importance of rail industry investment, which has been substantial recently. Increased use of rail transport has helped resolve transportation bottleneck issues that arose with rising production from shale resources. In fact, the American Association of Railroads reported that the U.S. rail industry has seen an unprecedented surge in crude shipments from less than 9,500 carloads in 2008 to more than 234,000 carloads in 2012. The numbers continue to increase in 2013. There were 97,135 carloads in the first quarter, up 166 percent from the first quarter of 2012.

With regard to pricing, council members generally agreed that natural gas prices will eventually rise. Factors behind the increase will likely be twofold: first (and probably most importantly in the near-term), once exports of liquefied natural gas begin, the supply glut in the United States is expected to alleviate, aligning U.S. pricing more closely with world prices. Second, the abundance of natural gas is prompting investment in technology dependent on it (for example, transportation, utilities, and manufacturing). As more projects that consume natural gas come online, higher demand is likely to push up market prices.

Some council members reported some concern about employment in the energy sector, because demand for skilled workers has outweighed the supply and led to labor shortages. One member pointed to an age gap in staff educated in engineering and possessing specialized skills. This appears to be tied to the decline in geology and energy-related education programs in colleges and universities following the oil price crash in the 1980s. Although these programs have regained popularity in recent years, and the supply of recent graduates with the desired degrees is growing, there is likely to be an experience gap that could be difficult to fill as current, more tenured workers retire.

Finally, though the Energy Advisory Council was generally upbeat about current industry conditions, members agreed that issues such as uncertainty surrounding fiscal policy, regulations, and ambiguity in the tax code are weighing on their confidence in the outlook. However, despite these concerns, members were unanimous in their belief that the policy and economic environment in the United States remained more attractive than most other energy-producing regions around the globe.

Photo of Rebekah DurhamRebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch


October 17, 2013

Transportation Keeps On Truckin'

On September 24, the Atlanta Fed’s Advisory Council on Trade and Transportation met, as it does twice a year, to discuss current economic conditions in the various industries represented by transportation executives from across the Sixth Federal Reserve District. Dave Altig, the Atlanta Fed’s executive vice president and director of research, provided an economic overview and outlook, and the Jacksonville Branch’s Regional Executive Chris Oakley and Atlanta Fed President Dennis Lockhart facilitated the discussion.

The general tone of the conversation was one of cautious optimism, though some slowing in growth was reported since the last meeting in April 2013. Half of the council members reported higher year-over-year demand, and the other half indicated that activity was flat. The outlook for the next three to six months was split evenly as well, with some expecting higher levels of activity based on recent trends and the upcoming peak season for holiday shipping. Regarding inventory levels, council members indicated that supply chains remain lean and that these conditions will likely become a long-term strategy. Frustration with the regulatory environment and current fiscal issues that were raised in the several past meetings continue to be expressed.

At Sixth District seaports, activity was reported as mixed, with minimal cargo growth and a slowing of exports at one port; the export of chemicals and energy products was characterized as “off the charts” by another council member, who also claimed higher levels of container trade and imports of steel, coffee, rubber, and plywood.  

There was not much new news regarding labor markets. Compared with the same time last year, three council members reported higher workforce levels, three reported the same, and two reported lower levels of staffing. The employment outlook over the short term is the same as it was in April, with half of the council members anticipating higher levels and only one member expecting lower. The proportion of part-time or temporary workers was described as the same across the board.

Hiring challenges remain in trucking. Diesel mechanics and drivers are hard to find for various reasons, including the inability of the industry to attract the younger generation. Additionally, the industry faces a wave of vacancies over the coming years as a result of pending retirements. Hours of service regulations that went into effect in July 2013 are affecting the utilization of trucking equipment between 2 percent and 10 percent and overall capacity by approximately 25 percent.

Fuel price increases earlier this year have had no discernible effect on current or projected cargo volumes at Sixth District ports; marine fuel prices, although high, have been relatively stable for an extended period. Because of declines in freight, decreased demand, and a sagging global economy, air freight carrier revenue has not been buoyed by a recent 9 percent decrease in global jet fuel prices. For those motor carriers that are not hedged on fuel, higher prices have had a material effect on business.

The majority of council members indicated that they have already or will be initiating slight near-term price increases through annual rate adjustments, at a minimum, to cover rising input costs including driver wages and health care costs. Longer term, most anticipate more aggressive pricing as market conditions allow, compensating for increases in equipment and regulatory costs.

Council members’ outlook for growth over the next three to six months mirrors the responses from April: 75 percent expect higher growth, and the remaining 25 percent anticipate the same level of growth. In the medium term, two-thirds of the council members expect higher rates of growth, with the remaining anticipating the same rate of growth. Much like our conversations with other business leaders throughout the region, however, economic and policy uncertainty clouds the council’s outlook.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed’s Jacksonville Branch