EconSouth (Fourth Quarter 2000)
During 2000, Alabama's economic performance was mixed. The state's largest service industry, health care services, had little growth during the year, and overall factory employment fell. Nonetheless, the state did experience several positive developments with announcements of plant expansions and new plant construction from auto manufacturers and suppliers. Provided consumer spending levels remain healthy, the state should experience moderate growth in 2001.
Services to remain healthy
Employment in Alabama's service sector — excluding retail and wholesale trade, government, finance and utilities — grew just under 2 percent from the third quarter of 1999 through the third quarter of 2000. This growth is in line with the state's 1.8 percent service employment increase during 1999.
Nationally, the service sector accounts for around 30 percent of total nonfarm employment, and in 1998, the last year for which data are available, services represented 24 percent of the dollar value of national private industry output. But Alabama is less dependent on its service sector, which makes up approximately 24 percent of the state's nonfarm employment of nearly 2 million people and 20 percent of the dollar value of the state's private industry output.
Data through the third quarter of 2000 show that the state's large hospital service sector experienced stable employment levels in 2000. This stability represents a significant improvement over the almost 7 percent decline in jobs the industry experienced from 1998 to 1999. The strongest employment growth continued to be generated in business services.
Demand from aging baby boomers should help provide moderate growth for Alabama's health care services in 2001. Business services linked to vehicle production should grow along with the state's transportation equipment industry. Although Alabama is the Southeastern state least dependent on tourism, visitor attractions could be negatively impacted by a slower economy as consumers tighten purse strings.
Manufacturing performance mixed
In 1998, manufacturing accounted for 19 percent of the total dollar value of the nation's private sector output. In Alabama, however, manufacturing was comparatively more important, representing 24 percent of the dollar value of the state's private sector output.
A similar pattern exists in manufacturing employment shares. Currently, around 19 percent of Alabama's nonfarm payroll, or 360,000 workers, is employed in manufacturing. In contrast, manufacturing represents 14 percent of the nation's total nonfarm employment. Both in the state and nation, these shares have been declining for some time. Alabama's manufacturing payrolls continued to decline in 2000 but at a slower pace than in 1999. Average factory employment in Alabama over the first three quarters of 2000 was 1 percent lower than the 1999 average following a more than 2 percent decline from 1998 to 1999.
Firms producing durable goods currently employ just under 200,000 workers in Alabama, and employment levels in durable goods production were relatively flat in 2000 compared with 1999. Of the durable goods, transportation equipment registered the largest employment gains with an almost 4 percent increase from 1999 to 2000. Employment in the relatively large primary metals industry, however, declined for the third year after increasing slightly in 1997.
Employment in nondurable production in 2000 fell almost 2 percent below 1999's levels. Among nondurable producers, who employ approximately 170,000 workers in the state, weakness continued in the labor-intensive apparel industry, which lost an average of around 3,000 jobs, or more than 10 percent of its employment base, compared with 1999. Textile manufacturing, which relies more heavily on high-tech production techniques than apparel manufacturing, even registered a modest 2 percent employment gain in the first nine months of 2000, lifting the state's textile employment numbers to close to 40,000.
The 2001 outlook for the state's manufacturing sector is mixed. Long-term trends, particularly regional shifts in production, are favorable for the transportation equipment industry. As new production facilities open, expansion in vehicle production should boost employment and production. Mercedes-Benz announced that it will double its production capacity at its plant in Vance, Ala., with completion of the addition expected in 2003. Mercedes-Benz's investment will likely total $600 million, and total employment at the plant will more than double with the addition of 2,000 jobs. Industries associated with the plant will also add jobs. In addition, Honda Motor Co. has begun hiring the first workers for its $440 million minivan and engine plant in Lincoln, Ala. Company projections are for the plant to manufacture approximately 120,000 Odyssey minivans per year when the plant reaches full production in late 2001.
A Boeing Co. decision to move fabrication and manufacturing work on its Delta III rockets from plants in Huntington Beach, Calif., to its plant in Decatur, Ala., will result in additional work for the Decatur plant. The plant currently has approximately 525 employees, but the company estimates the facility will employ 2,000 people by 2004.
Bender Shipbuilding and Repair of Mobile, Ala., and Austal Limited of Perth, Australia, will develop a new shipyard on the Mobile River to produce aluminum ferries and other vessels. The shipyard could eventually employ as many as 1,000 workers.
Lockheed Martin's Huntsville operation will get a large portion of the development work on the U.S. Army's $4 billion contract for a battlefield anti-missile system. The state's primary metals industry will be stimulated by new activity in energy extraction. Slowing residential construction, however, will adversely affect the state's large lumber and wood segment. Labor-intensive apparel jobs will continue to be eliminated as companies close down or shift operations offshore.
Pace of construction to contract
During 1999 Alabama experienced low rates of single-family construction growth compared to the rest of the Southeast. Permit issuance rebounded strongly, however, during the first quarter of 2000.
Construction activity slowed during 2000. In the third quarter of the year permits fell to almost 2 percent below the level in the third quarter of 1999, in contrast with an 8 percent decline in the rest of the Southeast over the same period. Somewhat surprisingly, permits have been softer in the state's metropolitan areas as third-quarter permits also fell below the previous year's level in Birmingham, Huntsville and Mobile. As the economy grows at a more moderate pace in 2001, the pace of residential construction and home sales will likely remain subdued but still at relatively high levels.
After a first-quarter rebound in terms of square footage, nonresidential construction expansion waned in the remainder of 2000, falling below comparable levels in 1999. In 2001, the slower pace of consumer spending and business activity will probably lead to some moderation in the growth of commercial construction in Alabama.
Florida's economy continues to be strong and diversified. In 2000, the state's economy, following the nation's, remained on a course of expansion, though growth was slower than in previous years. For 2001, Florida will continue its expansion based on the vitality of its service sector, including the state's strong health services and tourism industries.
Service industry key to Florida's economy
Florida's already large service sector expanded rapidly in 2000. Compared with an average employment level of 2.5 million in 1999, service employment grew by almost 7 percent during the first three quarters of 2000. In six out of the last eight years, service employment growth rates have annually averaged over 6 percent.
The importance of Florida's service sector is reflected by its number of employees, who represent 38 percent of the state's total nonfarm workforce. The sector also accounts for nearly 28 percent of the dollar value of private industry output in the state. Both the labor share and the output value share for Florida's service industries are higher than the national service sector's labor and output value shares.
Business services, such as computer services and personnel services, continued to post double-digit gains in 2000, up more than 13 percent from 1999 average levels. Employment growth for the hotel and motel industry as well as the amusement and recreation industry also accelerated from 1999, with growth rates in excess of 2 and 4 percent, respectively. The state's large health service industries, with over half a million workers, registered employment growth of almost 2 percent during 2000 after remaining flat during most of 1999.
Tourism and hospitality indicators were mostly positive for Florida in 2000. Hotel and resort operators in south Florida indicated that the summer months generated better revenues and occupancies than in 1999 and that fall bookings were ahead of 1999's pace. Domestic passenger traffic in 2000 was above 1999 levels for Orlando International Airport, and international traffic at the airport set a record. Overall hotel and motel occupancy rates in Orlando were up nearly 5 percent from 1999 despite added capacity. Through the third quarter of 2000, Orlando Convention Center attendance was 10 percent above the previous year's attendance for the same period.
Services should continue to be Florida's leading growth industry in 2001. The business service component, however, is likely to slow somewhat. The outlook for Florida's tourism and hospitality industry remains mostly upbeat, but growth rates in 2001 will probably not equal those for 1999 and 2000. Expansions of theme parks, including Universal Studios' and Disney's parks in Orlando, along with the possible development of a new theme park in northeast Florida, are in the works.
About 7,900 new hotel rooms, valued at $1.4 billion, are being planned for the Miami area. In addition, thousands of new hotel and motel rooms are planned or under construction in the Orlando and Tampa areas. West Palm Beach plans to add a new $55 million convention center, and Orlando plans to double the size of its existing convention center by 2003.
Overall cruise line bookings out of Miami and Port Canaveral were at record levels in 2000. With a substantial increase in its cruise ship passenger volume, Port Canaveral, the second-busiest cruise port in Florida after Miami, may construct another terminal to handle the largest ships. The Jacksonville Port Authority also plans to build a cruise terminal. Potential overcapacity in the cruise industry and higher energy prices remain concerns for 2001.
Manufacturing to remain steady
Although factory employment accounts for less than 10 percent of the state's total employment, Florida's almost 500,000 manufacturing workers still make up over 20 percent of the Southeast's total factory employment. Overall factory employment in Florida was largely stable in 2000, reflecting continued demand for high-tech products and fabricated metal products, after declining 1 percent in 1999.
Almost 300,000 workers are involved in durable goods production
in Florida. Durable goods manufacturing jobs increased slightly during 2000. The strongest growth occurred in fabricated metals and electronic equipment production firms as businesses expanded or added productivity-enhancing equipment to remain competitive. The lumber and wood industries trimmed employment rolls by an average of 2 percent in 2000 in response to slowing single-family residential construction.
Nondurable industries, such as apparel and textiles, also continued to contract over the year because of fierce foreign competition. The paper, printing and publishing industries, however, began to revive following a downturn in 1998 and 1999. Printing and publishing establishments represent the single largest factory employer group in Florida with a workforce of almost 65,000.
Florida's factory sector is expected to expand less rapidly in 2001. The lumber and building products industry will continue to be adversely affected by slowing single-family residential construction. As the national economy slows, businesses will have less need for new equipment and fabricated metals. Growth in Florida's recreational boat production, which has been booming as a result of the nation's strong economy, will slow in 2001 as consumers adjust spending plans. The state's large printing and publishing industry, however, should provide a stabilizing influence for Florida's manufacturing sector because of continuing strong demand for printed materials.
U.S. Navy aircraft contracts will help stabilize employment at St. Augustine's Northrop Grumman plant, which had previously been slated for downsizing. Orlando and Ocala will reap benefits from a $1.2 billion U.S. Army contract to manufacture an antitank weapons system for Raytheon and Lockheed Martin. Florida's high-tech future seems bright with the creation of two network access points in south Florida to help ease Internet congestion, particularly from Latin America.
Construction to slow somewhat
In 2000 the single-family home construction industry remained healthy despite a slowdown in permit growth. During the third quarter of 2000, new permit issuance declined 3 percent from the previous year's level. This decline was still less than the almost 8 percent decline experienced across the Southeast as a whole.
Within the state, major metropolitan areas generally experienced declines in permit growth during 2000 with the notable exceptions of Fort Myers, Lakeland and Sarasota. Existing and new home sales followed similar patterns. Florida's housing market should remain strong during 2001 with a continued modest slowdown in home sales and construction in line with the slower growth anticipated for the national economy.
From its remarkable high in 1998, the pace of nonresidential construction in Florida has slowly declined during the past two years. First-quarter activity in 2000 was strong but fell below previous-year levels in both the second and third quarters. Consequently, through the third quarter of 2000, total nonresidential construction was slightly below the total for the first three quarters of 1999, especially in major markets, including Jacksonville, Miami, Orlando, Pensacola and Tampa-St. Petersburg. Average vacancy rates through the third quarter of 2000 were at low levels across most of the state, but there has been increasing evidence that in the latter part of 2000 space has not been leasing as quickly as earlier in the year. While Florida's new nonresidential construction in 2000 has been down compared with building activity in 1999, Florida has performed better than the Southeast overall.
In 2001, nonresidential construction should continue to slow across the state, though not dramatically, since most Florida markets appear to be generally well balanced and diversified.
Southeastern Trade Outlook for 2001 Shows Promise
Import growth continued to outstrip exports in the United States during 2000. Nonetheless, as imports have flooded U.S. regional ports in the last two years they have also revitalized many port communities and trade-related businesses. In 2001, the prospects for regional exports are brighter after the granting of normal trade status to China, a development that provides the Southeast's exporters potential access to a consumer market of more than 1 billion people.
International trade in 2000
A key development for exporters in 2000 was the decision by the U.S. Congress to grant permanent normal trade relation status to China. This decision should lower tariffs and eliminate other trade barriers for a number of regional exports to China starting in 2001. Currently, Southeastern trade with China is primarily in intermediate industrial and agricultural commodities.
Optimistic outlook for trade in 2001
Georgia's economy continues to grow, though at a slower pace than in 1999. A balanced economy, with healthy service and manufacturing sectors, was key to Georgia's economic success throughout the last decade. During 2001 the fundamentals of Georgia's economy should again steer the state toward respectable growth, but, like the rest of the region and the nation, Georgia will see some slowing versus recent years.
Services and tourism strong
Georgia's service sector employs around 1.1 million workers, approximately 28 percent of the state's total nonfarm employment. Average employment in Georgia's service sector increased 3.5 percent during the first nine months of 2000 compared with the average level in 1999, but this figure is down considerably from the growth rate of almost 7 percent in 1999. Most of this slowdown occurred in business services, which is the largest portion of the service sector with over 320,000 jobs, as companies shed some employees following the resolution of the Y2K issue. The next-largest service industry, health services, generated employment gains of over 3 percent in 2000, nearly matching 1999's growth.
The tourism and convention businesses remain solid performers in Georgia. A new convention center opened in Savannah. The $100 million funding for the center, located on Hutchinson Island on Savannah's riverfront, came from federal, state and local governments and includes development of the island's infrastructure and ferries to take visitors to the city's historic district across the Savannah River.
The occupancy rates at Atlanta hotels posted little growth in 2000 because of a decrease in the number of large conventions being held in the city. The decline in the city's convention business was blamed mostly on competition from expanded convention centers in Orlando and New Orleans. Despite the slowdown in 2000, the Atlanta Convention and Visitors Bureau expects 2001 to be a record year for large conventions based on current bookings.
Manufacturing mixed but steady
Manufacturing firms accounted for almost 20 percent of the dollar value of Georgia's private sector output in 1998, about the same as the U.S. manufacturing sector's share of the national economy. The value of Georgia's manufacturing output, however, was weighted considerably more toward nondurable good production than the nation's — 55 percent in Georgia versus 42 percent nationally. Similar trends exist in manufacturing employment. Currently, manufacturing establishments account for around 15 percent of Georgia's nonfarm payroll, about the same as the national average share. In Georgia, though, 57 percent of the state's manufacturing employment is in nondurable goods production, primarily textiles and food processing. This figure is 17 percentage points more than the average nondurable share of manufacturing employment for the nation as a whole.
Compared with 1999, Georgia's factory employment through the third quarter of 2000 grew by just under 1 percent, matching the average rate of increase of the last two years. The state's nondurable component led manufacturing job growth. Although employment in the apparel industry declined more than 7 percent, employment in the carpet and rug industry was up more than 4 percent for 2000. The apparel industry has lost over 15,000 jobs since 1996 while the carpet and rug industry has added more than 5,000 jobs. Paper, machinery and electronic equipment industries added to employment rolls during that period while employment in the transportation equipment industry declined moderately.
Similar to last year, the outlook for Georgia's factory sector is mixed. Slowing housing markets will adversely affect those industries tied to construction activity, such as lumber and wood and carpets. The apparel industry will continue to trim employment rolls because of lower-cost foreign competition. Slowing auto sales may affect employment in the state's vehicle assembly plants, such as the Ford and General Motors plants in the Atlanta area.
High-tech and communications equipment production, however, should continue to give the manufacturing sector a boost in 2001. For instance, Lucent Technologies Inc. and Motorola Corp. are making significant investments in plants just north of Atlanta. Lucent will invest an additional $150 million in its Norcross, Ga., optical fiber plant, while Motorola Corp. will build a new corporate campus in Suwanee, Ga., creating new high-paying technology jobs. Strong orders continue to boost the bottom line for Norcross-based Scientific Atlanta, which is the second largest manufacturer of television set-top boxes for cable. The company is ramping up production because of expected strong demand.
U.S. military contracts will also help stabilize the state's manufacturing employment rolls. In particular, Lockheed Martin's decision not to transfer final assembly of its F-22 stealth fighter to Texas from its plant in Marietta, Ga., and new contracts for the C-130 produced at the Marietta plant will help maintain employment levels.
Construction to slow modestly
Georgia continued to experience a slowdown in its housing market during 2000, but activity was nonetheless at strong levels. State permit activity closely mirrored the overall slowdown exhibited in the region and the nation. Third-quarter permits for 2000 fell just over 10 percent below the levels of a year earlier.
Atlanta, which accounts for more than two-thirds of the state's single-family construction activity, experienced new permit levels that were similar to year-earlier levels during the first half of 2000. But Atlanta's permit issuance during the third quarter of 2000 declined 7 percent below the previous year's level. For the first three quarters of 2000, permit growth was positive in Macon while permits declined in Albany, Augusta, Columbus and Savannah.
Both existing and new home sales have experienced some slowing in 2000. The Georgia housing market will remain subdued in 2001 while home sales and residential construction continue to decelerate modestly.
After slowing somewhat during 1999, the state's nonresidential construction rebounded during the early part of 2000 but subsequently slowed again in the third quarter, although less sharply than in the region as a whole. Overall, the Atlanta commercial real estate market remains strong, with good absorption and relatively low vacancy rates. Construction should continue at a slower pace in 2001.
Southeast's Financial Sector Will Continue Modest Expansion in 2001
The overall performance of the banking industry in the Southeast in 2000 has been solid in the face of numerous challenges. Downward pressure on the margin between lending and deposit interest rates, along with sluggish overall deposit growth, has been the norm. But increased loan growth, fee income from nonlending services, and cost efficiencies emerging from previous acquisitions and consolidations have contributed to the overall growth observed in the banking industry in 2000.
In 2001 the Southeast's financial institutions will likely continue to perform well as the economy continues to expand at a modest pace. Mortgage demand and refinancing activity slowed in 2000 in line with the pace of single-family construction, and demand next year will continue to be subdued. The currently robust commercial loan demand is also expected to slow somewhat in 2001. Financial modernization and expansion should continue at a brisk pace in 2001 as the barriers that separate the banking, insurance and securities industries have been partially removed via recent federal legislation. The trend toward greater consolidation will continue as banks expand into trust services and seek strategic alliances in new markets.
Louisiana's economy improved considerably in 2000 over its performance in 1999, when employment levels were flat primarily because of its depressed energy industries. While performance was still mixed in 2000 in most sectors of Louisiana's economy, some industries, including the state's large oil and gas extraction business, found renewed strength. For 2001 the state appears to be positioned to continue the recovery process, particularly if the energy industry remains buoyed by strong demand and higher oil and natural gas prices.
Mixed performance is forecast for service industries
The service sector is an important source of employment and expenditures in Louisiana's economy, accounting for approximately 28 percent of the state's 1.9 million workers and 19 percent of the dollar value of the state's private industry output.
Through the third quarter of 2000, service employment was almost 2.5 percent above the 1999 average level of about 520,000 workers. Between 1998 and 1999, average service employment increased by slightly less than 3 percent. Business services, with almost 100,000 workers, generated solid growth, as did hotel and motel services. Amusement and recreation services posted employment gains of over 10 percent during 2000, topping the 1999 average increase of 8 percent. In addition to expansions at casinos during 2000, Jazzland, an amusement park, and the National D-Day Museum opened as new attractions in the New Orleans area.
Health care services, representing the largest overall service employer in Louisiana with more than 150,000 jobs, contracted slightly during 2000 after holding steady in 1999. Health care services are down considerably from their peak in 1997. Home health care agencies have been hit especially hard by the change in federal funding of these activities from an actual-cost basis to a fixed-cost approach.
The outlook for the state's service sector is for some slowing in reaction to the slowing national economy. However, business service industries that support energy extraction companies will see more activity as the energy industry continues to revive.
New Orleans tourism officials expressed some concern that convention bookings were down during the summer of 2000, but they are hopeful that the newly opened attractions will help to offset any possible future declines.
Prospects for the state's gambling industry are mixed. The good news is that Harrah's land-based casino in New Orleans, which employs about 3,000 of the state's 22,000 casino workers, recorded its best revenue month so far in September 2000. Harrah's also recently began chartering flights to bring in gamblers from across the country to help boost attendance. On a less positive note, the disproportionate taxation treatment of land-based versus water-based casinos continues to be a problem affecting Harrah's long-term prospects. New Orleans' hotel industry plans to add as many as 5,000 new rooms over the next few years, and a major addition to the downtown convention center is planned in an attempt to attract larger conventions.
In the state's large health care industry, further employment declines are anticipated in 2000, particularly in rural hospitals and home health care agencies, because of the pricing pressures placed on health care providers.
Manufacturing outlook brightens
Louisiana's factory sector employs slightly less than 10 percent of the state's total nonfarm workforce. Louisiana's 185,000 manufacturing employees represent the smallest total of manufacturing employees among the Southeastern states.
Despite the small workforce, Louisiana's manufacturing sector contains a number of high-value and relatively capital-intensive industries. In 1998, manufacturing accounted for 17 percent of the dollar value of Louisiana's total private sector output. This value was weighted mainly toward nondurable goods, representing 74 percent of the state's manufacturing output total. The state's primary industries in this sector are chemicals and petroleum products as well as paper and printing.
Through the third quarter of 2000, overall employment in the state's factory sector fell by about 1 percent for the second consecutive year. Declines persisted in capital-intensive chemicals, industrial equipment and transportation equipment manufacturing. In contrast, building material producers, such as lumber companies and stone, clay and glass producers, added slightly to payrolls over the year.
The outlook for the state's manufacturing sector is quite positive for industries associated with energy extraction. While orders for rig fabrication, machinery, transportation equipment and primary metals contracted as a result of the slowdown in the oil and gas extraction industries in 1999 and into 2000, the recent pickup in oil field activity has spurred new activity in these associated industries. These industries anticipate busier times in 2001 provided that oil and gas prices remain at the comparatively higher levels seen in 2000. Already, fabricators that build drilling rigs, production platforms and other equipment for oil and gas wells, such as Petrex Inc. located near New Orleans and UNIFAB International of New Iberia and Lake Charles, have started to see more bid inquiries.
The transportation equipment industry should also get a boost from shipbuilding contracts and the $700 million expansion of a General Motors' auto plant near Shreveport. General Motors will add its own stamping plant and a new assembly plant and body shop. Industries dependent on residential construction, including building product and lumber producers, may experience some slowdown in activity next year because of less demand for housing.
A continuation of higher oil and gas prices will raise costs for the state's chemical and plastics producers, which use natural gas and petrochemicals as inputs. Some plans for expansion in the plastics industry, however, have been announced in response to somewhat higher domestic prices. Environmental concerns remain one of the major impediments to further expansion in the chemicals industry.
Single-family construction activity continued to slow during 2000. The decline in permits was more pronounced in Louisiana than in the Southeast as a whole. During the third quarter of 2000, permit issuance for Louisiana was 12 percent lower than at the same time in 1999. Housing construction activity was generally slower in New Orleans and Baton Rouge than in 1999. Home sales declined as well. In 2001, construction and sales activity will continue to slow, but the declines are not expected to be as significant as those experienced during the latter part of 2000.
Nonresidential construction in Louisiana was strong early in 2000 but also slowed noticeably in the third quarter. Both the New Orleans and Baton Rouge markets were generally healthy, however. Hotel construction, including the conversion of unused office space, was extremely strong in and around New Orleans. Commercial construction will likely continue to soften somewhat in 2001, following the general slowing in economic activity. However, hotel construction activity is likely to continue, and refueled interest in Gulf of Mexico oil and gas prospects will offset some of the overall slowing. Expansion plans in the chemicals industry will likely boost industrial construction as well.
Southeastern Agriculture Plows Ahead to a Better Year in 2001
Agricultural production in the Southeast, which accounts for around 1.5 percent of the dollar value of the gross product of the Southeastern states, was hit hard by drought in 2000. In fact, many parts of the region were declared federal agricultural disaster areas. Stronger economic growth abroad, particularly in Asia and Latin America, should give a slight boost to national and regional agricultural exports and farm incomes in 2001.
Poultry rules the roost
In response to expanding demand, egg production and the number of broiler chicks hatched are likely to increase by 1 to 2 percent in the Southeast and the nation in 2000. Poultry producers have been plagued by increased costs and falling prices resulting from reduced export demand and some overproduction. The situation has improved in 2000 as production and inventories continued to moderate and international demand from Asia, and Russia has made an impressive rebound. These trends are expected to continue well into 2001.
Cotton production holds steady
Mississippi's cotton receipts were $474 million in 1999. Production in 2000 is likely to be down slightly from 1999 levels at around at around 1.7 million bales, with increased acreage being offset by lower yields. Cotton is also a significant commodity in Alabama, with receipts of $163 million in 1999. However, drought significantly affected Alabama's cotton production in 2000 and led to considerable crop abandonment. A harvest of 540,000 acres is expected in 2000 compared to 561,000 acres in 1999, and the average yield per acre for 2000 is expected to be 9 percent lower. Higher yields nationally are likely to keep cotton prices in check for the foreseeable future.
Cattle producers hang tough through drought
Citrus growers squeeze past problems
Sugarcane outlook is semisweet in 2001
In recent years, Mississippi's economy has been rejuvenated by the strong performance of tourist attractions and construction along the state's Gulf Coast. During 1999, much of this construction was completed and growth in the state's gambling industry leveled off. As a result, the state's economy experienced a slowdown in associated construction and new service employment in 2000. The state's manufacturing sector also slowed some in 2000, but some positive developments are on the horizon for Mississippi's manufacturing sector. Nissan Motor Co. announced plans to build a plant in Mississippi that is scheduled to open in 2003. In addition, shipbuilders in the state are in line for several new projects.
Some slowing in service employment
Mississippi's service sector employment growth slowed notably from 1999 to 2000. Services account for around 24 percent of Mississippi's current total nonfarm payroll of over 1.1 million employees. While this share has increased notably over the last decade, it is below the national average share of approximately 31 percent. Similarly, the dollar value of Mississippi's service sector output is below the national average at 20 percent of the state's total private sector output.
During the first nine months of 2000, average employment in Mississippi's service sector grew by less than 1 percent over average 1999 levels and represented the state's slowest employment growth since 1984. Service sector employment growth in 2000 was held back by a slowdown in job creation in the hotel and motel industry. As new casinos and resorts came on line in the state, hotel employment grew by an average 12 percent in 1998 and by almost 20 percent in 1999. After peaking at the beginning of 2000, hotel employment levels fell slightly during the remainder of the year, and average employment for the year is likely to be close to the 1999 average level of around 33,000 workers. Despite the stall in hotel employment growth, additional hotel rooms, expanded marketing and increased flights to the Gulfport-Biloxi Airport helped produce strong casino revenue growth for the first half of 2000.
The state's service sector should see some slowing in 2001 related in part to subdued consumer spending and less gaming industry development. Some new hotels are slated to come on line along the Gulf Coast in the near future, but overall the pace of development will continue to slow. A new $30 million to $40 million tourist attraction featuring Mississippi's technological achievements has been proposed for Hancock County, near the Stennis Space Center.
Outlook remains mixed for manufacturing
Manufacturing remains the bedrock of the Mississippi economy. After remaining largely unchanged during 1999, Mississippi's overall factory employment fell by 1 percent in 2000. In 1998, manufacturing accounted for 26 percent of the dollar value of Mississippi's private sector output. Over 21 percent of Mississippi's nonfarm payroll is currently involved in manufacturing. While this employment share has been declining over time, it still represents the largest proportion for manufacturing among the Southeastern states.
Most of Mississippi's manufacturing job losses during 2000 were in the nondurable segment although employment declined slightly in durable goods manufacturing as well. Apparel employment fell by almost 7 percent during 2000 following double-digit percentage declines in 1998 and 1999. Building materials manufacturers, such as lumber producers, and transportation equipment producers also experienced job losses during 2000 after expansions in 1999.
The state's factory outlook is mixed for 2001. Litton-Ingalls Shipbuilding in Pascagoula announced in 2000 the largest expansion of the shipyard since it was built in 1968. The company has an agreement in place to design, and likely build, at least two 1,000-passenger cruise ships. These ships would represent the largest pleasure boats ever built in the United States. As part of the expansion, the company's ship systems service center will employ 700 new workers.
Nissan Motor Co. has announced plans to construct a new $900 million plant near Canton that will manufacture pickup trucks, sport-utility vehicles and minivans. The plant, scheduled to open in 2003, will employ 3,300 workers initially and 4,400 workers when the plant expands to full capacity.
Some furniture producers in the state will be adversely affected as demand from the residential home market slows. With over 30,000 workers, furniture production is the largest single segment of Mississippi's manufacturing sector in terms of employment. In the manufactured home industry, Fleetwood Homes of Mississippi closed one of its manufacturing lines as a result of slowing demand in 2000. Some recent buildup in inventories could continue to affect the state's producers of manufactured housing in 2001.
Construction to continue sluggishness
After several years of permit growth, single-family construction activity slowed considerably during late 1999 and continued to slow into 2000. The overall decline in permits was more pronounced in Mississippi than in the Southeast as a whole. Third-quarter permits for new construction were down 18 percent from year-ago levels compared to the average decline of 8 percent across the Southeast. The slowdown is primarily the result of reduced activity along the Mississippi Gulf Coast and in Jackson, where construction had been particularly strong in recent years. Home sales also declined notably. In 2001, construction and home sales are anticipated to continue to slow, but the declines are not expected to be as significant as those experienced this year.
Nonresidential construction remains weak across the state as activity in hotel and motel services as well as the casino industry waned. During 2001 the state will probably experience continued low levels of commercial construction in line with only modest economic expansion in the state.
Tennessee's economy remained solid in 2000 as growth in individual sectors of the economy was in the slow to moderate range. The health care, auto and high-tech industries continue to be bright spots in Tennessee's economy. The tightness of the labor market is not as big an issue in Tennessee as it had been in the recent past, although the short supply of qualified labor is still a concern. For 2001, the state's economy should continue to grow although at a somewhat subdued pace relative to that experienced over recent years.
Services to remain steady
The service sector in Tennessee was on track to average more than 730,000 jobs in 2000, an increase of nearly 2.5 percent over the 1999 average level. About 25 percent of Tennessee's workers are employed in the service sector, and over half of these work in either health services or business services. In 1998 Tennessee's service sector represented 24 percent of the dollar value of the state's nonfarm private industry output, in line with the national average.
Health services employment, comprising the largest component of the state's service sector with around 200,000 jobs, should increase by a bit less than 2 percent in 2000, reversing the slight decline of the previous year. Somewhat lower demand has dampened employment growth in the second-largest segment, business services. Business service jobs grew at about a 2 percent annual pace in 2000 following over 5 percent annual growth in the previous three years. Other services, such as the amusement and recreation industry and hotel and motel services, added moderately to employment rolls in 2000.
The outlook for the state's service and tourism and hospitality industries is for some deceleration in line with slower national economic activity. As business activity slows, the business service sector may experience softer demand, particularly for employment agencies, advertising and computer services. Health services are likely to continue to post moderate employment growth because of the demands of the aging population. The tourism and convention business may get a boost from new attractions. A $45 million aquarium has recently opened in Gatlinburg, and the revamping of Nashville's Grand Ole Opry is likely to bring more visitors to the city.
Manufacturing remains well diversified
Tennessee's factory employment in 2000 is likely to be flat or to decline slightly compared with 1999 employment. With over 500,000 manufacturing jobs, Tennessee has the largest number of factory workers in the Southeastern states, slightly ahead of Florida. Approximately 19 percent of workers in Tennessee are employed in manufacturing. Tennessee's manufacturing payrolls are concentrated mainly in durable goods, with around 300,000 workers, primarily in the production of fabricated metals, industrial machinery, electronic equipment and automobiles.
Employment at industrial machinery firms and in the transportation equipment industry has fallen back to around average 1999 levels after having risen during the latter part of 1999 and early 2000. Weakness persisted in the apparel industry. Through the third quarter of 2000, apparel industry employment fell about 13 percent below 1999 levels, or by almost 4,000 jobs. Tennessee's apparel employment has shrunk by more than half since 1995. The chemicals industry also continued to post job losses during 2000 but at a slower rate than over the last two years. Production of heavy trucks, including tractor-trailers, fell substantially through the year as companies laid off employees in response to high fuel prices and flagging demand.
The outlook for Tennessee's manufacturers in 2001 varies considerably across industries. Declines in the apparel industry may continue but are likely to be less dramatic than over the last few years as the industry consolidates. Large new projects will give a substantial boost to the auto industry. Saturn Corp. announced plans to spend $1.5 billion for improvements at its Spring Hill plant. While the company did implement some job cuts as a result of slower sales of the Saturn cars produced at its Tennessee plant, employment should rebound as the plant begins production of a new sport-utility vehicle. Nissan Motor Co. announced its plans to spend $1 billion over the next four years, expanding its engine manufacturing plant in Decherd and increasing the output of its assembly plant in Smyrna. The company expects to hire 2,000 new workers as part of the expansion. Increasing production will also mean more work for Nissan's suppliers in middle Tennessee and elsewhere.
The high-tech sector will continue its rapid expansion in Tennessee. Dell Computer's new operation in Nashville, which builds notebook computers, is expanding and adding to employment rolls in the area. Companies that support Hewlett-Packard in middle Tennessee are increasing their activities. Also, strong demand for religious and music publications should continue to stimulate the state's printing and publishing industry.
Construction to continue slowing
Single-family construction in the state slowed notably in 2000, with permit issuance falling well below year-ago levels through the first three quarters of 2000. The slowdown has been somewhat more pronounced in Tennessee than in the Southeast as a whole. In the third quarter of 2000, permits were 20 percent lower than for the third quarter of 1999. Permit activity in Knoxville and Nashville generally mirrored that of the state as a whole. Home sales also experienced a decline as the year progressed. In 2001 there will continue to be less construction and home sales activity, but the declines should not be as large as those experienced in 2000.
Nonresidential construction also slowed in 2000 from the highs set during early 1999. During the third quarter of 2000, construction was down moderately from the level during the same quarter of 1999. Office vacancy rates in Nashville remained low while absorption rates slowed. The pace of nonresidential construction will continue to ease somewhat during 2001 as the national and regional economies grow at a more moderate pace.
This article was written by John Robertson, David Avery, Whitney Mancuso, Edgar Parker and Gustavo Uceda of the Atlanta Fed research department's regional research group.