EconSouth (Fourth Quarter 1999)
EconSouth (Fourth Quarter 1999)
THE ARRIVAL OF THE YEAR 2000 IS CAUSING ANXIETY FOR MILLIONS OF PEOPLE, BUT IN ECONOMIC TERMS THE YEAR PROMISES TO BE MORE OF THE SAME FOR THE NATION AND THE SOUTHEAST. THE NATIONAL EXPANSION IS EXPECTED TO CONTINUE AND REMAIN BALANCED, BUT THE ECONOMY WILL PROBABLY SLOW DOWN SOMEWHAT BECAUSE OF CONSTRAINTS SUCH AS TIGHT LABOR SUPPLIES AND MATURE REAL ESTATE MARKETS. IN THE SOUTHEAST, WHICH ENTERED THE EXPANSION EARLIER AND HAS ADDED JOBS AT A FASTER PACE THAN THE NATION, THESE ISSUES WILL BE MAGNIFIED. FACING THE SAME RESTRAINTS AND THE SAME GENERAL RESOURCE DEMANDS AS THE NATION, THE SOUTHEAST SHOULD ENJOY A SIMILAR PERFORMANCE — SLOWER BUT HEALTHY OVERALL.
Alabama continued to perform at a respectable level overall in 1999. While 2000 will feature slower growth in some sectors, such as services and manufacturing, the fundamentals of the state's economy should support modest growth.
Services to remain steady in the year ahead
The state's service sector, with about 24 percent of the state's total nonfarm employment, enjoyed moderate growth in 1999. Service employment growth slowed from 4.6 percent in 1998 to 1.9 percent from the third quarter of 1998 through the third quarter of 1999.
Representing nearly 10 percent of the state's service sector employment, hospital employment declined modestly during the year as the result of a general consolidation within the health care industry. The decline has been significant to the Birmingham area, where a number of health care facilities are concentrated. While the deceleration in the national economy may cause a cutback in business service growth, health care should provide a moderating influence to the service sector. Demand from the aging population will support Alabama's health care component despite slowing economic growth.
The success of Vision Land, Alabama's first theme park, has led to park expansions that should help boost the visitor count in 2000. This development may help balance the overall slowdown in hotel and lodging growth in the state during 1999.
Overall, Alabama's service industry should grow at about the same rate as in 1999, continuing on the sector's basic long-term growth path.
Mixed performance expected in manufacturing
Alabama's manufacturing employment fell by 3.1 percent from the third quarter of 1998 through the third quarter of 1999; the nation's manufacturing employment dropped 2.2 percent. This decline was significant for Alabama since the factory sector accounts for 19 percent of the state's payroll employment compared with 13 percent across the Southeast.
As in the past, the employment falloff was concentrated in the nondurable goods industries although durable goods employment also fell. Weakness in nondurables was due mainly to a decline in the beleaguered apparel industry, which lost about 5,400 jobs — more than 15 percent — in 1999. Over the past three years Alabama has lost nearly 13,000 apparel jobs, mostly to low-wage foreign competition. Although many of Alabama's apparel plants continue to be shuttered, about 30,000 workers are still employed in the state's apparel sector.
In contrast with apparel, employment in Alabama's high-tech industries remained nearly unchanged over the year. But other major manufacturing employers such as paper, textiles, machinery and primary metals suffered declining employment. Primary metals such as steel were hit particularly hard by competition from cheap foreign imports; one major producer, in fact, went bankrupt. The pulp and paper industry has also been hurt by both international competition and a falloff in international demand. Industries linked to the remarkably strong national housing industry, such as lumber and wood, however, expanded and added jobs.
But if housing markets nationwide slow further, as expected, these industries linked to housing will obviously contract as a result. Certain segments of the state's textile industry will be expanding, though. A large producer of household textiles is building a new manufacturing facility near Montgomery.
The likely flagging of national consumer spending may slow the impressive gains in the transportation equipment sector, where auto and auto parts production has been expanding. This slowing would be especially evident among the parts suppliers for the Mercedes plant in Vance.
The most positive news for Alabama's auto industry is that Honda Motor Co. has announced plans to build a new plant in Lincoln, between Birmingham and Atlanta. The $400 million plant will eventually hire about 1,500 workers and produce sport utility vehicles or minivans, depending on market conditions.
New trade protection laws will limit further deterioration in the primary metals sector, and improving overseas economies may stimulate exports. The contraction of the apparel sector may slow as fewer weak firms remain.
Construction to decline
The single-family home market got off to a strong start during the first quarter of 1999 with a year-over-year growth rate of 15.2 percent. Activity slowed somewhat in the second quarter. The pace of single-family construction permits declined sharply in August but rebounded strongly during September, resulting in another quarter of strong growth. Year over year, growth was 12.2 percent in the third quarter compared to the region's rate of 3.1 percent.
Alabama Manufacturing Employment
Source: Calculated by the Federal Reserve Bank of Atlanta using monthly data (not seasonally adjusted) from Regional Financial Associates. Data for 1999 are through the third quarter.
Around the state, permit growth in 1999 was strongest among the smaller municipalities such as Anniston, Dothan and Tuscaloosa while larger cities such as Birmingham, Huntsville and Mobile experienced anemic growth after enjoying relative strength in the last two years. Existing home sales were at historically strong levels in 1999, but growth began to moderate somewhat in the second quarter. The pace of construction in Alabama's single-family home market will continue to moderate as the overall economy expands more slowly.
Multifamily construction in 1999 was down significantly from 1998. Among the states in the region, Alabama experienced the sharpest decline in permit growth. In 2000, construction will probably stabilize but at low levels consistent with slower economic growth.
Commercial construction, as measured by square footage, dropped in 1999 from strong levels in 1998. Following an auto-related surge ending last year, construction activity in the state through the third quarter of 1999 was well below year-earlier levels. In the coming year, commercial construction activity will continue to decline but at a slower rate than in 1999 as activity stabilizes to more modest growth.
Agriculture faces challenges
Weather and international conditions are the main factors that will affect Alabama's farmers in 2000. Chicken broilers are Alabama's number one agricultural commodity based on total cash receipts of $1.8 billion in 1998, 55 percent of the state's agricultural commodity total. Total egg production and the number of broiler chicks hatched are forecast to increase slightly in Alabama and the nation as a whole compared to 1999's levels. While domestic demand should continue to grow moderately in 2000, international demand from Asia will rebound as that region recovers economically.
Cattle and calves represent Alabama's second-largest agricultural commodity, with receipts totaling $375 million in 1998. Drought and poor grazing conditions forced many farmers nationally to go to market early with cattle for slaughter in 1999, resulting in downward pressure on cattle prices. Because many farmers sent cattle to slaughter early, there should be lower growth in the commodity in 2000.
Florida, the region's largest economy, continued to pace the Southeast economically in 1999 with job growth of 3.6 percent compared with 2.3 percent regionally and 2.2 percent nationally. The diversity of Florida's economy provides stability to its overall outlook. For 2000, the state's economy is positioned to remain quite strong with continued strength in service employment associated with the state's sizable tourism and health care industries.
Services to remain healthy
With 2.5 million workers, about one-third of all workers in the state, the service sector represents Florida's largest job category. Service industries registered continued strong growth in 1999, up 5.5 percent, or 135,000 workers, from 1998.
Theme park expansions, along with associated hotel and motel additions, added to service employment over the year, but the main generators of jobs were business services and, to a lesser extent, health services. Employment in business services, such as computer services and personnel supply services, increased by 12 percent — 81,000 jobs — from the third quarter of 1998 through the third quarter of 1999. Business services continue to be very important to Florida's economy; in fact, since 1997 the business service category has been the state's largest service industry.
Florida's large health service sector posted moderate gains in 1999, surpassing gains from the previous year. Industry consolidations did not hit Florida as hard as they did Alabama in 1999 because Florida's health service sector underwent consolidations in earlier years.
The remarkable pace of Florida's service sector growth is likely to slow somewhat in 2000 as national and state demand slows, but services should continue to outperform other sectors. Ongoing expansions of central Florida theme parks will boost employment rolls. Additionally, health care industries will continue to expand because of demands from aging baby boomers and senior citizens, who make up a large share of Florida's population. The state's business services are unlikely to continue to grow as quickly as the national economy decelerates and product demand slows.
South Florida tourism suffered from weakness in Latin American economies, which reduced the number of visitors from abroad. Increases in domestic visitors, however, helped to make up for the shortfall. Strong consumer confidence bolstered by factors such as surging equity markets and low unemployment stimulated spending on vacations in 1999. Central Florida theme parks reported strong business throughout the year boosted by special promotions such as Disney's 15-month millennium celebration. The opening of several new parks in the state also attracted large numbers of vacationers.
Tourism officials said that precautionary coastal evacuations for hurricanes caused only short-lived, minor disruptions to Florida's tourism industry in 1999 although this cautionary stance did include the first-ever closing of some parks in the Orlando area. Cruise ships were filled with vacationers despite capacity additions.
In 2000, as the national economy cools, so should the state's tourism industry although the expected improvement in Latin America may take up the slack. In addition, the ongoing expansion of central Florida theme parks and special events should help to attract more visitors to the state. But there are some concerns about overbuilding, especially in the short run. The Orlando area now has seven major theme parks. Disney is adding and upgrading some attractions, and Sea World has announced plans for expansion. In Miami, a new $185 million arena for the Miami Heat and for special events should add appeal to the area when it opens in early 2000.
Manufacturing to remain steady overall
Although it represents only about 7 percent of the state's total nonfarm employment, Florida's manufacturing sector, with nearly 500,000 workers, is larger in absolute terms than that of Alabama, Louisiana or Mississippi. About 60 percent of Florida's factory workers are employed in durable goods production, such as lumber, machinery, electrical and electronic equipment, and transportation equipment.
Florida Services Employment
Source: Calculated by the Federal Reserve Bank of Atlanta using monthly data (not seasonally adjusted) from Regional Financial Associates. Data for 1999 are through the third quarter.
Florida's factory sector posted few changes in its overall employment in 1999. Most of the job gains in durables industries were registered in those aligned with construction. Lumber and wood employment grew by more than 2.2 percent during the year; stone, clay and glass employment was also up notably. In addition, the transportation equipment sector posted job increases in part because of employment increases in the aircraft parts and engines and aerospace industry. Machinery and electrical and electronic equipment employment declined slightly. Among the nondurables industries, employment in the state's large printing and publishing industry held steady.
Florida's factory sector may weaken slightly in the new year. If housing growth stalls nationally as anticipated, the lumber and wood industry will contract. Recent announcements of cutbacks by south Florida's airplane parts producers also do not bode well for 2000. Thousands of aircraft jobs are slated to be eliminated in the Palm Beach area as two major producers leave. Additionally, a slower-growing national economy will mean less demand for machinery as companies increase spending for capital equipment at a much slower pace. Strong recreational boat production in the state may falter as consumers retrench in the decelerating economy.
Printing and publishing will likely remain a bright spot, however, because of continued strong national consumer demand for printed materials. The high-tech sector should also continue to grow, especially on Florida's Gulf Coast. For instance, a high-tech firm, IMRglobal Corp., plans to open a new facility employing 1,000 in Clearwater in early 2000.
Strength to continue in construction sector
In 1999, single-family construction permits started strong in the first quarter, but growth moderated throughout the remainder of the year, largely in line with national trends. Permit growth year-to-date in the third quarter of 1999 was 7.4 percent, above the region's 6.2 percent and the nation's 4.9 percent rates. Year-to-date permit growth in the third quarter of 1999 was strong in Miami, Orlando and Tampa while permit numbers declined in the Pensacola area. Conversely, as construction slowed, existing home sales experienced even stronger growth rates in 1999. In the third quarter, existing home sales were up 24.6 percent compared to the previous year, well above the region's rate of 13.5 percent. In 2000, Florida's single-family home sales and construction will remain at strong levels but will likely moderate somewhat in line with the state economy.
Multifamily construction in Florida was extremely strong during the first three quarters of 1999 despite moderating growth. Permit growth exceeded 1998 levels by a healthy margin. Strong gains in Miami and Orlando were sufficient to overcome declines in the Jacksonville, Pensacola and Tampa-St. Petersburg markets. In 2000, multifamily construction in Florida is likely to taper slightly from its current torrid pace but remain at robust levels overall because of the continued strong demand of a healthy economy that brings in new workers.
Commercial construction in Florida accounts for the largest portion of the region's construction activity — a little over 40 percent — somewhat more than the state's overall share of the Southeastern economy. The construction growth rate in terms of square footage declined somewhat from 1998 but remained healthy and continued to be above both the regional and national rate. In 2000, construction activity will slow in line with the overall economy.
Agriculture to hold steady
Oranges, which brought in over $1.3 billion in Florida in 1998, are the state's number one agricultural commodity in terms of cash receipts. The initial forecast of 1999's Florida orange crop is for 211 million boxes — 14 percent higher than 1998's total. Nationally, the crop is forecast to increase 22 percent, which should put some downward pressure on prices. Florida is forecast to produce 75 percent of the national crop.
While the total number of sugarcane acres harvested in Florida increased slightly in 1999, the yield fell, resulting in very little change compared to 1998's total production of 17.8 million tons. Florida's output is forecast to represent 48 percent of the national sugarcane crop in 1999.
Along with Florida, Georgia remains a solid driver of the region's economy. The state's growth during the current expansion has been impressive and has consistently outdistanced the national pace. While growth in 2000 may be slightly slower than in 1999, Georgia should again have a strong showing in the coming year.
Services success to continue
Georgia's service sector employment increased by 5.1 percent from the third quarter of 1998 through the third quarter of 1999. Of the region's states, only Florida's service sector grew faster than Georgia's. Business service growth posted a strong 6.7 percent growth rate by adding nearly 20,000 jobs over the period. Georgia's large health service industries also added jobs but at a more moderate rate. According to the Georgia Department of Industry, Trade and Tourism, Atlanta's convention activity was especially strong in 1999, stimulated by the strong national economy.
Georgia Services Employment
Source: Calculated by the Federal Reserve Bank of Atlanta using monthly data (not seasonally adjusted) from Regional Financial Associates. Data for 1999 are through the third quarter.
In the year 2000 the pace of Georgia's service industry growth may slow. As the national economy decelerates, businesses will be less aggressive on convention-oriented travel, possibly contracting the growth of convention attendance. In fact, following a record year for convention attendance in 1999, bookings are down for 2000 because of competition from other cities. Expansion of the Georgia World Congress Center is ultimately expected to lure back some of the lost convention business.
As business activity retrenches somewhat in 2000, expansion of the typically small firms that provide business services such as personnel supply and computer services will slow. But this slowing will be at least partly offset by high-tech Internet-related companies, which are becoming significant employers in the state. For example, an Internet stock brokerage has said that it will add about 2,000 jobs in Alpharetta in the next few years, and Amazon.com announced a new warehouse facility in McDonough, just south of Atlanta, that will eventually employ 2,000 people. Georgia's health service industries, which have already completed a consolidation phase, should also continue to be a relative source of strength in the coming year because of continued demand.
A new wildlife park and related facilities in the works for the Brunswick area are expected to eventually employ 1,700 workers. Savannah will benefit from a new $80 million Georgia Trade and Convention Center linked to a new luxury hotel and riverfront walkway as development continues in the Hutchinson Island area. In the hospitality sector, the city of Atlanta will host the Super Bowl as well as baseball's 2000 All-Star Game. Both these events should bring city businesses significant tourism-related dollars.
Manufacturing mixed for 2000
Georgia's factory employment growth rate declined 0.4 percent in 1999 from a positive 0.8 percent growth rate in 1998 based on third quarter over third quarter results. Of the six states in the region, only Georgia and Florida registered manufacturing employment declines less than 0.5 percent over that period.
Durable goods, making up only about 43 percent of the state's total manufacturing employment, posted most of the job gains. Sectors linked to construction, such as lumber and wood and stone, clay and glass, fared especially well because of the national building boom. Industrial machinery, electrical equipment and transportation equipment also added to job rolls in 1999.
Georgia's nondurables manufacturers did not fare as well, with weakness especially pronounced in the troubled apparel sector. Apparel employment fell by nearly 12 percent from third quarter 1998 through third quarter 1999 as foreign competition forced firms to either move production to other countries to take advantage of cheap labor or go out of business. Textile employment also weakened moderately. Northeast Georgia's large carpet component actually added to job rolls mostly because of strong national demand from new residential housing and refurbishing of older houses.
The outlook for Georgia's factory sector in 2000 is mixed at best. The labor-intensive apparel sector will continue to contract because of its inability to compete with foreign producers. Slowing housing and commercial construction markets will adversely impact carpet, carpet tile, lumber and wood, and household textile producers. The aerospace industry will take a hit as Marietta's Lockheed Martin cuts 2,000 jobs from its payrolls because of lagging sales of its C-130J transport and pressures to hold down costs of the F-22 jet fighter program. More positively, a new initiative to make Georgia a leader in microchip design is attracting high-tech firms to the state.
Construction to continue at a healthy pace
In 1999, single-family residential construction permits were strong in the first quarter, but growth slowed from that point through the rest of the year in line with national trends. Existing home sales in Georgia remain at historically high levels. Growth was strong and steady during the first half of the year but faltered in the third quarter. As in the nation, Georgia's single-family home sales and construction in 2000 will likely continue to moderate somewhat during the year along with the state economy.
Through the third quarter of 1999, multifamily construction in Georgia was down from a year ago despite a pickup in activity late during the second quarter. The decline in Georgia's multifamily permits can be attributed in large part to a decline in the Atlanta metro area after several years of heavy construction that has resulted in rising vacancy rates. In the coming year, permits in the state will stabilize but remain at historically healthy levels as Atlanta's growth stabilizes along with the economy.
Commercial construction slowed in 1999 as compared to 1998. In the coming year, construction will likely continue to slow to a more usual rate of growth, especially in light of the completion of two megamalls constructed in metro Atlanta.
Chickens lead Georgia agriculture
Chicken broilers are Georgia's number one agricultural commodity based on total cash receipts of $2.4 billion in 1998, 44 percent of the state's agricultural total. The number of broiler chicks hatched in 1999 should increase slightly in Georgia and the nation as a whole compared to 1998's levels to meet domestic demand, which should continue to grow moderately. International demand from Asia should rebound as that region continues its economic recovery.
Louisiana's economy remained in good shape as business in the oil industry began to pick up in the Gulf Coast during 1999 after a slowdown in 1998 and early 1999. Statewide employment growth from the third quarter of 1998 through the third quarter of 1999 was 0.7 percent. While growth in the state's service sector should be slower during 2000, the manufacturing sector should hold steady. Overall, the state will perform at about the same level as 1999.
Slower but continued services growth
Louisiana's service sector employment grew by 2.2 percent, or more than 11,000 workers, from the third quarter of 1998 through the third quarter of 1999, slowing slightly from the previous year's growth. This sector accounts for more than 25 percent of all nonfarm employees in Louisiana. Business services grew by nearly 5 percent during 1999. Amusement and recreation services also added to employment rolls as casino gambling and gaming places expanded. Employment in health services, representing nearly 30 percent of the state's service workers, held steady after falling in 1998. Hotel and motel job growth slowed in 1999 following rapid expansion for the previous two years, when thousands of new hotel and motel rooms were added in the state, mostly in the New Orleans area.
The outlook for the state's service industry in 2000 is for slow growth. Hotel and motel service employment will moderate as the building spurt for those facilities plays out. The recent opening of Harrah's, the only land-based casino in New Orleans, should attract more visitors to the city, but there is concern about casino competition from Mississippi's Gulf Coast. The casino reportedly intends to employ 2,500 people.
The recent expansion of the Ernest Morial Convention Center will draw larger numbers of business travelers and larger conventions to New Orleans in 2000. Health service growth will remain stable because of continued basic demand.
In business services, the New Orleans area was especially hard hit with hundreds of job losses reported by Amoco following its merger with BP and by Mobil, which was purchased by Exxon, as well as by Shell and Texaco. There is general concern about the effects of industry consolidation on New Orleans as many office jobs supporting the oil business have been lost to consolidation or to relocation to Texas. The energy industries had posted strong gains in the previous two years. The firms that supply business services to the energy extraction industry will expand in 2000 if oil prices either stabilize near current levels or continue to rise.
Manufacturing outlook includes ups and downs
Louisiana's factory employment shrank by 0.5 percent from the third quarter of 1998 through the third quarter of 1999. The state employs fewer manufacturing workers than any other state in the region, but the value added by Louisiana's manufacturers is relatively high. The capital-intensive chemical and energy extraction industries illustrate this point. Chemical industry employment weakened, and employment in the energy extraction industries fell by about 9.5 percent, or nearly 5,500 workers, during 1999 as oil prices declined early in the period and oil companies consolidated and restructured. The transportation equipment industry, however, expanded on the strength of large shipbuilding contracts.
Louisiana Mining Employment
The new year holds little promise for much change in Louisiana's factory sector. While overall the energy sector is cutting back on capital investments, investment spending in the chemical industry continues to be a bright spot with announcements of new expansion plans in the state, although the chemical industry accounts for only a small percentage of the state's total manufacturing employment. Large long-term shipbuilding contracts will help buoy the transportation equipment sector, and the paper and pulp industry may revive somewhat as Asian economies continue to recover.
Construction to maintain pace of 1999
Single-family residential construction permits in 1999 declined during the second quarter after a strong start in the first quarter. Permit growth rates in the third quarter were 2.6 percent above the year-earlier level but below the regional rate of 3.1 percent. Year-to-date permit growth in 1999 was strong in both New Orleans and Baton Rouge. Existing home sales during the first half of 1999 were below year-ago figures but rebounded to a 7.2 percent growth rate in the third quarter. Permit growth in Louisiana during 2000 should moderate somewhat after last year's surge.
Multifamily construction in the state through the third quarter of 1999 was extremely strong, surpassing the weak levels of the previous year. In 2000, growth will moderate to a lower rate in the face of moderate employment gains and as previous investment meets demand.
Commercial construction growth, as measured by square footage, was slower during the first half of 1999 but rebounded somewhat in the third quarter to levels nearly equal to 1998's. In 2000, construction levels will remain nearly the same as 1999 levels, closely following the overall growth in the economy.
Agriculture production improves
Sugarcane is Louisiana's largest agricultural commodity based on total cash receipts in 1998 of $334 million, representing 18 percent of the state's total. A total of 465,000 acres of sugarcane is forecast to be harvested in Louisiana in 1999 compared to 435,000 acres in 1998. The state's average sugarcane yield for 1999 is forecast to increase slightly to 34 tons per acre, and total state production should increase 22 percent to 15.81 million tons, outperforming the nation's crop total, which should increase by 7 percent. Louisiana's output is forecast to represent 41 percent of the national crop.
With receipts of $265 million in 1998, rice ranks as Louisiana's second-largest cash crop. A total of 625,000 acres of rice should be harvested in 1999 compared to 620,000 acres in 1998. The state's average rice yield for 1999 is forecast to increase 10 percent to 5,000 pounds per acre while total state production should increase 11 percent. Worldwide competition for both crops should diminish if commodity prices increase around the world.
Southeastern Financial Sector to
The financial sector in the Southeast in 1999, like the national financial sector, continued to reap the benefits of the nation's longest peacetime expansion, to undergo consolidation and to search for ways to gain efficiencies. For 2000, the sector should continue to grow, though at a slightly slower pace, as the fundamentals of the nation's economy ease in the coming year.
Mortgage growth to slow slightly in 2000
Steady growth ahead
During 1999, financial sector employment essentially held steady in the Southeast with a slightly lower growth rate than in 1998. In the Southeast in 1999, Florida employed the largest share of workers in the financial sector while Georgia's financial sector witnessed the highest employment growth rate.
Buoyed by fee income and loan growth, a moderate economic expansion, and efficiencies generated by acquisitions and consolidations, financial institutions in the Southeast should generally continue to post strong profits in 2000. Strong consumer loan demand should continue well into next year, and commercial loan growth should continue.
Mississippi's Gulf Coast continues to flourish while the remainder of the state struggles to keep pace. Although casino construction is slowing from its previous fast pace, employment growth remains strong in the Gulf Coast area. For 2000, Mississippi should perform at a level similar to 1999's, but the reasons for this performance vary from those in 1999.
Service sector growth to slow
Employment in Mississippi's service sector was little changed from the third quarter of 1998 through the third quarter of 1999 following two years of solid growth. Health and hospital service employment declined moderately in 1999 following little change in 1998, and growth in hotel and lodging employment slowed after posting double-digit increases in 1997 and 1998.
But this slowing does not mean that overall growth in the casinos has stalled. In fact, 30 casinos in Mississippi employ about 33,000 people. Mississippi gambling tax revenues were up 12 percent for fiscal year 1998–99 over the previous fiscal year, and revenues should continue to increase as casinos that were previously announced come on line.
Mississippi Construction Employment
Biloxi's newest and largest casino is attracting large crowds, and there are plans for a new $270 million casino resort at a Biloxi site. Areas along the state's Gulf Coast will reportedly receive millions in federal funds through the Transportation Equity Act to improve features like boardwalks, which are important to tourism. Labor shortages, however, continue to plague the state's coastal casino operations. Growth in the state's gaming sector will slow in 2000 as the casino and lodging construction associated with the casino building boom declines.
Manufacturing heavily dependent on outside forces
Employment in Mississippi's manufacturing sector fell moderately from the third quarter of 1998 through the third quarter of 1999 even though the state's factory job rolls increased in the previous year. Both durables and nondurables industries lost jobs during 1999; the bulk of the job losses were in nondurables, particularly apparel. Apparel employment fell by over 14 percent, or 3,000 workers, during the year and has declined by about 30 percent in the past three years because of fierce, mostly foreign, competition. The paper industry also posted declining employment rolls because of weak export demand and resulting excess supplies. Industries tied to the housing cycle expanded. The state's large furniture sector especially benefited from the boom in residential construction.
The year 2000 may bring further slowing to Mississippi's factory sector. Industries linked to housing demand will weaken as national housing construction softens. Improvement in Asian markets, however, should help exports of lumber and wood products in the coming year because Mississippi generally exports a larger share of these products overseas than other Southeastern states. And declines in the apparel sector may at least slow as fewer noncompetitive firms remain. Large contracts will continue to provide stable employment in the shipbuilding industry. Ingalls Shipyard in Pascagoula recently signed a contract to build two 1,900-passenger cruise ships, with an option to build a third.
Construction to slow in 2000
Growth in single-family housing construction permits was extremely strong during the first quarter of 1999 but slowed dramatically in the second quarter. Still, permit growth rates through the third quarter of 1999 were well above year-ago rates and remain above regional and national rates. In 1999, single-family construction growth in the state remained strongest along the Gulf Coast but moderated significantly from the high levels earlier in the year. Existing home sales during the first three quarters of 1999 were moderately above year-earlier levels. Single-family permit growth in Mississippi during 2000 should slow somewhat coming off the previous year's boom but remain at a historically high rate largely because of demand from migration to the state's Gulf Coast.
Through the third quarter of 1999, multifamily permits declined from strong levels through the same period in 1998. In 2000, permits should continue to grow at a relatively slow pace similar to 1999's.
Commercial construction slowed in 1999 in terms of square footage after an extraordinary 1998. Construction activity in the coming year will likely stabilize at lower levels in the post–casino boom building environment.
Chickens and cotton figure large in Mississippi's agriculture
Chicken broilers are Mississippi's main agricultural commodity based on total state cash receipts of $1.4 billion in 1998, representing 40 percent of the state's total agricultural receipts. The number of broiler chicks hatched should increase slightly in Mississippi and the nation as a whole compared to last year's levels. Domestic demand should continue to grow moderately, and international demand from Asia should rebound as that region continues its economic recovery.
With receipts of $585 million in 1998, cotton ranks as Mississippi's second-largest cash crop. A total of 1.18 million acres of cotton should be harvested in 1999 compared to 940,000 acres in 1998. The average cotton yield for 1999 is forecast to decline 3 percent to 716 pounds per acre, while total state production should increase 22 percent to 1.76 million bales.
While Tennessee's employment growth slowed in services and contracted in manufacturing in 1999, the state continued to perform at a solid level of overall growth although behind district averages. Tennessee, like much of the Southeast, continues to find strength in the auto industry, including auto and auto parts production. The state is also luring other industries, including high-tech manufacturers, and these industries help lessen the state's dependence on a single industry. For 2000, Tennessee should continue its solid performance even though it may mimic the national economy and slow somewhat from the past few years' pace.
Tennessee Manufacturing Employment
Services remain stable
The service sector employs about 25 percent of Tennessee's workers. Service employment growth slowed from over 3 percent in 1997 and 1998 to about 2 percent from the third quarter of 1998 through the third quarter of 1999. Employment growth in business services in 1999 was about half of 1998 levels and a third of 1997 levels. Health service employment growth declined in 1999 compared to moderate increases for the previous two years as industry consolidations squeezed jobs. Hotel and motel employment growth remained stable at about 1 percent from the third quarter of 1998 through the third quarter of 1999.
Tourism numbers have slumped since the closing of Opryland theme park early in 1999, but new attractions are expected to eventually compensate for that void. The expansion of Nashville's airport will also make the area more attractive to visitors. A new $43 million conference center in Chattanooga should draw business from Atlanta and other nearby cities in the region. Overall, service sector performance in 2000 should maintain a solid, though not overwhelming, pace because of good tourism and a stable health care industry, but business service industries will continue to be constrained by labor shortages.
Manufacturing mixed but steady
Tennessee's factory employment contracted from the third quarter of 1998 through the third quarter of 1999. Manufacturing lost about 6,300 jobs, a drop of 1.2 percent, during that period compared to decreases of 0.6 percent and 0.3 percent for 1997 and 1998. Most of the recent job losses occurred in nondurables industries. Durable goods production, which is concentrated in autos, accounts for nearly 60 percent of the state's factory workers. Durable goods employment was virtually unchanged over 1999.
Weakness again appeared in the apparel sector, which declined at double-digit rates for the second year in a row as labor-intensive companies moved operations offshore or closed because of foreign competition. Paper producers in the state cut back operations because of weak foreign markets and excess capacity. Employment by chemical producers also declined. Employment growth was posted in the lumber and wood sector because of the national strength of residential housing markets. The important transportation equipment industry also added to job rolls.
Manufacturing activity in Tennessee will be mixed in the year 2000. The apparel sector will continue to contract as weaker firms succumb to foreign competition. The decelerating national economy and weaker consumer spending and housing markets will be bad news for suppliers of building materials, such as lumber and wood for housing, and for auto and auto part production, including the Nissan and Saturn assembly plants and many parts producers in the state. Other bad news for the auto sector is that at least one large Tennessee auto parts producer is moving production to Mexico to take advantage of low-priced labor.
Some good news balancing these developments is that the high-tech sector will get a boost from the new Dell computer plant near Nashville. The plant will eventually employ 3,000 people. Economic development officials have said that the new plant could be the beginning of Tennessee's new "auto industry." There are concerns, however, that a labor shortage could be a problem. The printing and publishing sectors are likely to expand because of increased demand for music and religious publications.
Construction to remain stable
Year-over-year growth was strong for single-family residential construction permits during the first quarter of 1999 but slowed significantly in the second quarter. Permit growth in the third quarter of 1999 was 3.3 percent above the year-earlier level, similar to that of the region. Growth remains strong in both Nashville and Knoxville. Existing home sales growth remained strong through the first three quarters of 1999, up 10.9 percent in the third quarter compared to the same period in 1998. As with the region, permit gains in Tennessee during 2000 should moderate somewhat based on slow labor force growth despite solid income gains.
Multifamily construction continued to decline in 1999 as the state experienced slower growth through the third quarter. In 2000, growth will continue to moderate, but only modestly, and permit levels are likely to be similar to 1999's, again because of the slow growth in the state's labor force.
Commercial construction in Tennessee, with the addition of new tourism-related projects, remained healthy in 1999 with a notably strong third quarter. Projects currently under way in Nashville will boost the state's totals. Upcoming improvements include the Center for Visual Arts, the Country Music Hall of Fame and a $20 million expansion of the city's zoo. Industrial construction markets are very tight in middle Tennessee. Bulk distribution has been the most active category, almost doubling last year's performance. At the same time, Nashville's office vacancy rate has been rising. For 2000, commercial construction should maintain a solid pace based on decent, but not spectacular, economic growth in the state.
Agriculture outlook mixed
Cattle and calves are Tennessee's largest agricultural commodity, with receipts totaling $376 million in 1998. Drought and poor grazing conditions forced many farmers to send their cattle to market early for slaughter in 1999, causing downward pressure on cattle prices. Because many cattle were sent to slaughter early, there will likely be lower growth in the commodity in 2000.
Chicken broilers are Tennessee's number two agricultural commodity, based on total state cash receipts of $282 million in 1998. Total egg production and the number of broiler chicks hatched are forecast to increase slightly in Tennessee and the nation as a whole compared to 1998's levels. While domestic demand should continue to expand moderately, international demand from Asia should rebound as that region continues its economic recovery in 2000.
Southeast's Trade Outlook
outheast exporters generally had a lackluster 1999, but as many international economies begin to recover, the region's international trade sector should see some improvement in 2000. Limited progress in key export markets, including Japan and Brazil, however, suggests that the region's exporters will see only a modest recovery during the year.
International trade in 1999
Although international trade has been growing in importance in Alabama, the state's export sector weakened in 1999. The value of state exports as a share of gross state product (GSP) dropped slightly to 6.2 percent in 1999 from nearly 6.4 percent in 1998. (Exports and GSP data are based on forecast estimates from Regional Financial Associates.) Three industries — transportation equipment, chemicals and paper — produced about half the state's exports in 1999.
The economic downturn in Latin America was clearly reflected in Florida's international trade patterns during 1999; exports were 7 percent below 1998 levels, while imports were up 14 percent in the first nine months of 1999 over the same period in 1998. Nearly half of Florida's exports in recent years have been to the five Latin American markets of Brazil, Venezuela, Argentina, Colombia and Chile. About half of Florida's exports are produced by three industries: industrial machinery and computers, electronic equipment and transportation equipment.
Exports accounted for about 5.7 percent of Georgia's GSP in 1999, a slight drop from the previous year. This decline was led by weakness in demand from Japan and other Asian countries. Together, the transportation equipment, industrial machinery and computers, and paper products industries account for about 40 percent of Georgia's exports. Nearly half the state's exports in 1999 were to four countries: Canada, Japan, Mexico and the United Kingdom.
The Asian crisis seriously affected Louisiana, through whose ports much of the Midwest's vast agricultural exports are shipped. The crisis prompted a sharp drop in prices and the volume of grains and intermediate products exported, and this drop, in turn, was accompanied by a surge in imports of key commodities such as steel. New Orleans handled nearly two-fifths of the foreign trade through Southeastern ports in 1999. Imports increased 5 percent and exports dropped 6 percent below 1998 levels. Exports as a share of Louisiana's GSP fell from 15.8 percent in 1997 to about 12.6 percent in 1999. Over 40 percent of the value of Louisiana's exports comes from three industries: chemicals, food, and petroleum and coal products.
In Mississippi, export values dropped 2 percent in 1998 and 10 percent in 1999. State exports as a share of GSP declined from 5 percent in 1996 to approximately 3.7 percent in 1999. Almost 40 percent of Mississippi's exports in 1999 went to Canada and Mexico. Canada has recently generated strong demand for the state's fabricated metals and electronic equipment, and exports to Mexico have also increased, led by paper products and industrial machinery and equipment. But exports to Japan and the rest of Asia have declined.
Foreign trade and investment have recently been a pillar of Tennessee's economy. Exports accounted for 6.6 percent of the state's GSP in 1999, down from 6.9 percent in 1998. Nearly 48 percent of the state's exports consists of transportation equipment, chemicals, and industrial machinery and computers. Canada, Mexico and Japan account for more than half the state's exports. The weakened Asian economies and the uncertainties in Latin markets have been detrimental to the state's recent export performance. Exports in 1999 did not increase from 1998 levels as gains in exports to Canada, New Zealand and some European countries were cancelled by declines in Japan, Mexico and Brazil.
Looking to 2000
In 2000, the region's trade sector should gradually recover as the economies of the Southeast's key export countries begin to improve. State economies should also continue to benefit from the growing liberalization of international trade. The continued expansion of the North American Free Trade Agreement should translate into increased trade with Mexico and Canada in 2000. And trade with China could open up if that country joins the World Trade Organization.
Editor's note: This article was written by Tom Cunningham, David Avery, Whitney Mancuso, Edgar Parker and Gustavo Uceda of the Atlanta Fed research department's regional research group.