EconSouth (Fourth Quarter 2006)

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Volume 8, Number 4
Fourth Quarter 2006


Housing, Energy Loom Large in '07

Southeastern Economy to Grow Modestly in 2007

Global Outlook Generally Bright in '07

Carpeting on a Roll in Georgia


Fed @ Issue

Q & A

Research Notes & News

Southeastern Economic Indicators




Southeastern Economy to Grow Modestly in 2007

Just as housing and energy concerns could dampen national economic growth in 2007, these issues are likely to have a similar effect in the Southeast. Regionally, the economic slowdown will probably be most pronounced in Florida because of the state's high concentration of housing-related employment.

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Nationally, home construction and sales have been important drivers of economic growth in recent years, but some areas are seeing housing activity shift into a lower gear. So far, declines have been most prevalent in markets where speculation helped drive prices and supply significantly higher. Fortunately, most of the Southeast appears to be at relatively low risk of experiencing a major housing downturn.

In coastal Louisiana and Mississippi, the main problem will remain the shortage of housing caused by the 2005 hurricanes. However, sharply higher insurance costs, which are a drag on housing demand, will continue to confront Florida and other coastal areas of the Southeast in 2007.

State Profiles

A decline in housing demand affects more than just home construction. It also affects housing-related manufacturing industries concentrated in the Southeast. These industries include lumber, wallboard, furniture, home appliances, and flooring. A further pullback in home construction in the United States in 2007 would negatively affect these manufacturers.

Car production driving changes
The rapidly changing face of U.S. auto production will continue to affect the region. Ford Motor Co.'s plant in Hapeville, Ga., closed in fall 2006, and the General Motors plant in Doraville, Ga., has begun the shuttering process. These closings will result in several thousand job losses at both the assembly plants and their parts suppliers.

However, Korean automaker Kia Motors began constructing its first U.S. assembly plant in West Point, Ga., in 2006, and foreign-owned auto manufacturers continued to expand their presence in Alabama.

Reconstruction, energy build momentum
The economies of Mississippi and Louisiana will continue to benefit from Gulf Coast reconstruction efforts (see Q&A for a discussion of the long-term rebuilding plan).

Also, energy will remain an important factor in the region's economic performance. The prospect of relatively high oil and gas prices over the longer term has intensified exploration activities in the Gulf of Mexico. This exploration will provide an additional economic boost in 2007 and has already yielded benefits: A successful test well at a deepwater field 270 miles southwest of New Orleans indicated that the area may hold between 3 billion and 15 billion barrels of oil—increasing proven U.S. reserves by 50 percent if the higher estimate holds.

How the Southeastern states cope with the changes their economies are experiencing will determine how the region fares in 2007. The following profiles discuss economic conditions in each state during 2006 and what the future might hold.

Agriculture Sector Weathers Challenges

peanutsThe Southeast's top agriculture industries delivered mixed performances in 2006. Following the ongoing recovery from 2005's hurricanes, most sectors hope to regain some normalcy in 2007.

Poultry rules the roost
Poultry remains the largest agricultural industry in the Southeast. In 2006, domestic demand accounted for about 75 percent of the regional poultry industry's income and was the largest driver of growth in the industry. Fear of bird flu led to lower overseas demand in 2006, taking prices down as well. Lower prices in early 2006 resulted in an uptick in exports to key markets such as Canada, China, Russia, and Mexico. But prices improved late in 2006, perhaps indicating that bird flu fears are subsiding. Barring unforeseen problems, the poultry industry should regain some stability in 2007.

Greenhouses, nurseries held their own
Florida is the nation's second-largest producer of greenhouse and nursery plants. Cash receipts reached $1.9 billion in 2006, nearly two-thirds of the Southeast's sales of those products. Despite bad weather and higher energy costs, Southeastern crops were stable in 2006. Sales rose for crops in Florida and Georgia but fell in Louisiana and Mississippi as 2005's storms put a severe dent in production. High energy costs and slower economic growth could slow the industry in 2007.

Livestock harnessed by uncertainty
Although prices for livestock were flat for most of 2006, the price outlook is uncertain. Increases in the price of feed—partly related to higher demand for corn for ethanol production—and lower hay supplies led some farmers to place their cattle with slaughterhouses early. However, the lifting of trade restrictions in some major export markets, such as Japan and South Korea, will brighten livestock's prospects in 2007.

Cotton market rides global demand
U.S. cotton markets in 2006 weakened as larger U.S. and global production and stock curbed cotton price trends at year-end. About 75 percent of U.S. cotton is exported, and when global prices are down, U.S. growers suffer. The domestic cotton market's vitality depends heavily on the level of China's production of cotton-intensive goods.

Citrus gets squeezed
Florida leads the nation in citrus production, but the state endured another disappointing year in 2006. The 2006–07 orange crop, which represents about two-thirds of Florida's total citrus crop, will be 9 percent lower than a year ago because of lingering effects from past hurricanes, horticultural diseases, and the conversion of farmland to other purposes. As a result, growers and processors will likely receive higher prices in 2007.