The Southeastern Economy in 2008
A Region in Flux
Some good economic news came to the Southeast in 2007: Tourism is strong, the area's ports are humming with import and export activity, and the race is on to open up new sources of oil and natural gas off the Gulf Coast. Except for pockets of weakness, overall employment levels remain healthy, and consumer spending is strong as consumers demonstrate their resilience to economic shocks.
But the Southeast also experienced less welcome developments during the year. Automobile manufacturing—for years, one of the region's largest manufacturing employers—slowed as wary consumers deferred new car purchases. The persistent and severe drought hurt agricultural producers in ways that may be felt for years to come although some industries, such as cotton and poultry, enjoyed healthy growth in demand, pushing up revenues for the year. Led by dramatic declines in Florida, the housing sector (and related industries) suffered considerably. Housing prices had steadily and reliably appreciated in the Southeast for years, so when appreciation faltered, many consumers felt the effects. The fallout from the subprime mortgage shakeout continues to reverberate regionally, as well as across the country and, indirectly, around the world.
So what is on tap for 2008? Like much of the country, Southern states will continue to adjust to high energy costs and relatively flat (and, in some cases, falling) home values. But the region's residents will benefit from growth in key sectors such as service employment and some agricultural and manufacturing industries. Amid rising foreclosure rates throughout the region, Southeastern home owners will hope for a stabilized housing market in 2008, even as some forecasters predict further repercussions from the subprime mortgage market. In the following pages, EconSouth examines several key aspects of the regional economy, using recent data to arrive at a picture of where the Southeast's economy is and where it might head in the coming months.
The Southeast in 2008 at a Glance
In 2008 Alabama should benefit from continued growing demand for its aerospace products and auto parts manufactured there. However, the state's vehicle production industry will continue to be challenged by subdued new car sales. Alabama's housing markets are likely to experience mixed performance in 2008, yet its exposure to subprime mortgages that will reset in 2008 is among the region's lowest. Poultry production should benefit from rising world demand and a relatively weak dollar.
The watchword in Florida is housing. The state's declining housing market has affected consumer incomes, spending, and employment. As a result, Florida's government finances are likely to be under pressure in 2008. However, robust demand for the state's aerospace products and booming tourism could prove to be silver linings in the coming year.
Expansion in Georgia's services employment is so far offsetting the current deceleration in construction employment and the ongoing decline in manufacturing jobs. The state's housing market began declining early in the year, adding to banking pressures from rising foreclosure rates. Increasing global demand for cotton and poultry, along with rapidly expanding seaports, should help support Georgia's economy in the coming year.
Louisiana continues to struggle as it recovers from Hurricane Katrina. Insurance availability and higher costs are putting a damper on redevelopment efforts. However, relatively low exposure to subprime adjustable rate mortgages, the expectation that rising oil prices will boost profits for the state's oil and gas industry, and the rapidly improving tourism industry should make 2008 a year of significant progress for the state.
The housing decline has not been good news for wood products manufacturing in Mississippi. However, the expansion of deepwater oil extraction off the state's coastline will mean more jobs and profits in the state's oil and gas industry in 2008 and beyond. This development will also serve to invigorate state revenues. The gaming industry, which has come back strong after being virtually destroyed along the Gulf Coast during Hurricane Katrina, is contributing to the state's coffers. The state's poultry production should continue to benefit from growing world demand and increased exports.
The housing slump has proved to be a double-edged sword for Tennessee. On one hand, furniture makers have seen a significant decline in demand. However, the state's tourism industry, which depends heavily on day and weekend visitors who live in the region, should benefit in 2008 from homeowners who choose to save money by vacationing locally. Unfortunately, Tennessee's auto industry took a significant hit in 2007 when the Saturn plant in Spring Hill temporarily shut down production in the spring. While General Motors may use the facility in some capacity, the outlook for the auto industry in Tennessee remains uncertain.