The Southeastern Economy in 2013
Tom Heintjes: Thank you for joining us for another EconSouth Now podcast. I'm Tom Heintjes, managing editor of the Atlanta Fed's EconSouth magazine, and today we'll be speaking with Mike Chriszt, a vice president in the Atlanta Fed's public affairs department. He is here to speak with us about the regional economy during the past year and what we might expect in the near term. Mike, thanks for joining me today.
Mike Chriszt: Tom, thank you for having me.
Heintjes: Mike, I wanted to start off by asking you, how you would characterize the southeastern economy in 2013, especially compared with the year or two preceding it?
Chriszt: Our economists in the research department and our regional executives throughout the Southeast have really done a great job in tracking not only the data, but what businesses have been telling us, and it's been clear throughout the year that 2013 was very similar to 2012. There were periods of strength, but it wasn't consistent throughout the year, and as we went into the fall period, despite the fact that we saw a pretty good national GDP [gross domestic product] number for the third-quarter, what we were seeing in some of the data and what our business contacts were telling us was that things were growing very modestly; there wasn't a sustainable increase in a number of areas. But slow growth was the story for 2013, just like it was for 2012.
Heintjes: Let's compare that with the national level. In the past couple of years, we saw the economy start out strong but then flag somewhat later in the year. Did we break out of that pattern in 2013?
Chriszt: No, not really, Tom. We were very similar in that regard. What really affected the region, as well as the nation, were periods of fiscal uncertainty. We started off the year not knowing exactly how the sequester was going to affect the economy, and since so many of the cuts were in defense and there's a lot of bases and defense contractors here in the Southeast, that was a big uncertainty as the year started. And then as the year went on that issue came up again—fiscal uncertainty—would there be budget deal, the idea of hitting the debt ceiling was out there. So businesses were very reticent to take on huge capital projects or to increase hiring significantly without having that clear, long-term picture. So I would say we were very similar to the U.S. in that regard.
Heintjes: Part of the story of the region's economy in 2013 is the resurgence of the housing market. Can you describe the significance of housing to the Southeast's economy, as well as its performance relative to the years following the trough of the recession?
Chriszt: You're exactly right. The story in the Southeast is driven, in large part, by the housing sector. It's the main reason why the recession here in the region was deeper than the rest of the country. We had a lot of overbuilding and significant price declines throughout the region, as far as home prices go. As time went on, in 2011 and 2012 we started to see some positive numbers. 2013 was actually a pretty good year for housing. We saw sustained price increases in most of the areas in the Southeast. We saw increases in construction. Inventory levels of new homes are still quite low, which leads us to believe that the ongoing rebound in construction is likely to continue, and those low inventories are having a positive impact on prices.
So we saw some deceleration in the rebound as the year went on. We think that might be tied to the fact that mortgage rates started to inch up in May, June, and into July, but they have been pretty level since then. And we are still growing; we are still recovering. Maybe took a baby step back as the year went on, but overall housing is one of the reasons why the Southeast is finally starting to catch up to the rest of country in terms of levels of activity.
Heintjes: Right. Another sector that is a big part of region's economy is travel and tourism. How did this sector fare in 2013? And since tourism is largely a discretionary expense, can we infer anything about consumer spending patterns from tourism's strength?
Chriszt: It's really been a dichotomy in this regard, Tom. We've seen some rather tepid overall consumer spending patterns, not only in 2013, but going back the last couple of years, but tourism has been an area of strength in the region. It was hit pretty hard in the recession, but here in the Southeast, especially in Florida, we have a lot of international visitors, and that helped keep the overall levels of activity growing at a pretty good clip.
In 2012 into 2013, and the expectations going forward into next year, are actually pretty good. Business travel picked up; it took up a lot of the slack for the decrease in government-related travel in 2013. Bookings going ahead for the next three to six months look pretty good. So, overall, it's been a bright spot in the region and it looks like it is going to continue to be that way.
Heintjes: During the recession and in its immediate aftermath, we heard a lot about "staycations"—people staying close to home and not traveling so much, but it doesn't seem like I hear that term as much as I used to. Is that your impression?
Chriszt: We still hear that in some areas that's what is going on, but overall, again, as the recovery picked up steam in 2012 and in 2013, not any huge boom in overall activity, but people were taking their vacations and they were spending money on those vacations. We saw the reliance on the international traveler slow down a little bit, where more and more domestic travel was starting to pick up the slack.
Heintjes: Mike, manufacturing has been interesting to watch, and when I say "interesting" I mean "occasionally frustrating." It seems that the indicators show manufacturing gaining traction, but then it sort of flattens out, and it is hard to get a sense of how entrenched manufacturing's growth is. What's your take on manufacturing in the Southeast?
Chriszt: Overall, it's still positive. Areas of real strength are autos, anything energy-related. Of course that is not just because of the huge energy sector that we have here in the Southeast as far as extraction goes along the Gulf Coast, but all the shale production that is going on nationally has helped companies in the region that provide manufactured goods for the energy industry with regard to extraction and exploration. So that has been quite positive.
Other areas of strength have been more difficult to find. We've seen some increases here and there within some sectors of manufacturing, but nothing sustainable like autos and energy-related.
Heintjes: And I wanted to talk about employment, which has really struggled in the region in the wake of the recession, but it appears that hiring in the Southeast is gaining some momentum. How would you characterize the labor markets in 2013 on a regional basis?
Chriszt: Definitely improving. I think the way you put it is exactly right. We have seen some increase in momentum, and by "momentum," we mean the acceleration looks more and more sustainable. The unemployment rate in the region peaked at around 10.5 percent in 2010; we're down to 7.3 percent as of October of this year. So some real progress being made, as far as unemployment goes.
Initial claims for unemployment insurance—that's when people lose their jobs and sign-up for the first time to receive unemployment benefits—those levels are down significantly as well. We are seeing some steady growth in overall employment, but it's not region wide. I would say areas of Florida, Atlanta, southern Louisiana, middle Tennessee are a bit stronger than some other areas, but overall it's clear that we are definitely in a much, much better place than we were just a couple of years ago.
And one indicator, I think, is quite telling. If you look at total employment in the six states that make up our district and you subtract out construction and manufacturing—the two sectors that were hit the hardest—and take out government as well, so you would look at just private-sector service employment. The level of private-sector service employment is back to where it was before the recession started.
So it is really in the manufacturing sector and in construction and in government where we are still seeing some of the recovery being very slow. And if you think about those sectors, we don't expect much to happen in terms of government hiring. The fiscal situation being what it is, we don't see a huge increase in government employment down the road. Manufacturing, although we just got done discussing how it's been positive in the region, if you think about the kind of manufacturing jobs that are out there today, it's very capital intensive. We have new factories that opened that don't employ the number of workers that factories did just 10, 15, 20 years ago. So we don't expect, even though manufacturing is doing better, we don't expect to see a huge increase in manufacturing employment. And construction employment during the housing boom, we think, clearly it was at levels that were not sustainable, and so we are seeing an increase in construction, but not bringing back the level of employment that we saw before the recession began. So, overall, if you take a step back and think of employment levels in those different sectors, I think we are actually in a pretty good spot.
Heintjes: Right. Mike, when you discussed manufacturing you touched on energy and I wanted to get you to elaborate on energy a bit. Energy, of course, is an important sector in the South as you mentioned, especially in the Gulf of Mexico and south Louisiana. What do the Atlanta Fed's contacts tell you about energy in general and what are their expectations for the short term?
Chriszt: They are very positive for not only the short term, but the long term as well. I alluded to this a moment ago, it has a lot to do with the fact that these shale discoveries continue to be exploited, and any time we see that increase it helps the companies in the region that focus on either exploration, extraction, and also transportation and refining. So as more and more energy is discovered and tapped into, it needs to be taken out of the ground, it needs to be brought to market, and there are a number of firms, not only those that produce goods that make that happen, but a lot of services that companies here in the Southeast are expert at that provide to the energy sector. So, overall, I think it is very positive going forward.
Heintjes: During the course of this conversation, you mentioned that the Atlanta Fed gathers information and talks to its contacts. Can you briefly elaborate on that process, and how the Atlanta Fed gathers information and what we do with that information?
Chriszt: Sure, Tom. It's really a complex and systematic process where we not only look at the data, of course, we are economists and we are going to look at data, and cut and slice and dice it in a number of different ways to help us understand what is happening in the economy, but sometimes that data is backwards looking. You are reporting on things that have already happened. And so what we do is we go out and we talk to businesses about what they are experiencing now and, more importantly, what their plans for the future are. So that really helps us define a picture of where we have been with some really good data—where we are at and where we are going—by getting out there and talking to businesses in the Southeast. We have staff in all of our branches that focus on that, that bring that real-time intelligence and analysis to the table for our president, Dennis Lockhart, to assess. He determines his view of the economy. It's not just about what the models tell us, it's not just about what the data is. It's about what is happening on Main Street. And he takes all that information with him to the FOMC meeting in Washington.
Heintjes: That's great. I think that's a kind of opaque process to a lot people, so it's good to have it sort of broken out like that.
Mike, I wanted to thank you for sharing all that information with us, and thanks for taking the time to talk with me.
Chriszt: Anytime, Tom.
Heintjes: Again, we've been speaking today with Mike Chriszt of the Atlanta Fed's public affairs department. This concludes our EconSouth Now podcast on the regional economy in 2013. To read the article about this topic, please see the fourth quarter 2013 edition of EconSouth magazine. On our website, frbatlanta.org, you can read the full article about this topic or subscribe to EconSouth in print.
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