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




Alabama's Economy Gains Strength in 2006

Related Links
On this site:
audio icon 2007 Alabama outlook in audio and video
On the Web:
Economic Development Partnership of Alabama
Alabama's economy performed well in 2006. The state experienced 1.5 percent growth in total employment, similar to the national average (see the chart). In addition, over the first three quarters of 2006 the state's unemployment rate averaged about 3.6 percent per quarter, the lowest level of the last 30 years and well below the national jobless rate.

Real per capita income grew by about 3.4 percent over the first half of the year, above the national rate of 2.7 percent. This solid growth has helped close the income gap between Alabama and the nation as a whole, putting Alabama's per capita income at 86 percent of the national average, the state's highest reading on record.

State Profiles

State tax revenues increased about 10 percent for the fiscal year ending in September, maintaining the strong growth from the previous year. Looking ahead, continued expansion of the transportation equipment industry as well as growth in the defense industry and related professional and technical services should boost the state's economy in 2007.

Manufacturing keeps building
Manufacturing plays a large role in the Alabama economy, with more than 15 percent of the state's total employment concentrated in the sector compared with just over 10 percent nationally. Alabama outperformed other Southeastern states in 2006, with manufacturing employment growth of 0.6 percent. Employment in the production of durable goods grew by almost 3 percent for the year (see the chart), led by the continued expansion associated with the Hyundai Motors plant in Montgomery and the computer and electronic products and aerospace industries in the Huntsville area. In addition, increased demand associated with the recovery from Hurricane Katrina boosted employment at wood product suppliers, with employment in this industry increasing by approximately 5 percent during 2006.

Alabama Gov Bob Riley with Jim McGean and Blake Messinger
Photo courtesy of the Alabama Press Office
In September, Verizon Wireless announced that it will build a headquarters in Huntsville, creating 1,300 new jobs. Delivering the news, Alabama Gov. Bob Riley presented Jim McGean (center) and Blake Messinger (right) of Verizon with the Alabama state seal.

However, weakness persisted in the nondurable goods manufacturing sector, with employment declining by more than 2 percent in 2006. Apparel mills were hit especially hard, with employment falling by over 10 percent over the year, continuing a pattern of large job losses as foreign competitive pressures led firms to shut plants or relocate them overseas.

The outlook for manufacturing in Alabama is cautiously optimistic. One key industry, automobile manufacturing, should perform well in 2007. As foreign-owned auto plants expand their presence in the Southeast, the number of parts suppliers will increase correspondingly. For instance, several parts suppliers have announced that they will locate plants in Alabama to service Georgia's new Kia Motors automobile assembly facility, which is under construction in West Point, near the Alabama border. In addition, new contracts from oil and gas producers as well as the military are stimulating the state's shipbuilding industry. However, the overall sluggishness of the housing sector could slow the wood products industry, and the textile and apparel industries are likely to shed more jobs.

Service sector continues modest growth
Employment in Alabama's service-providing industries remained solid in 2006, led by continued strong growth in the the professional and business services, health care, and leisure and hospitality industries. However, consolidation within the state's large banking industry led to modest employment declines in 2006. In addition, as in the nation, employment in the retail sector remained flat steady despite the growth in consumer spending.

Employment Growth in Alabama, 1997–2006
alabama chart
Source: Bureau of Labor Statistics

The outlook for Alabama's service sector in 2007 is generally encouraging. For instance, Verizon Wireless plans to build a state headquarters and customer service facility in Huntsville, bringing up to 1,300 jobs and an investment of more than $44 million to the area. This development will provide a boost to the state's telecommunications industry, which has failed to add jobs since the 2001 recession. Additionally, the expanding defense industry in northern Alabama will continue to attract new businesses to the state.

Real estate performance varies throughout state
Housing markets varied considerably across the state in 2006. Growth of single-family home sales continued strongly in Birmingham, with 11 percent year-to-date growth, and in Huntsville, with 19 percent growth. The Montgomery market appears to have maintained the high levels of sales achieved in 2005, whereas the Mobile-Baldwin County area experienced a 27 percent sales decline. Single-family housing growth in and around Huntsville should continue with the influx of new workers as a result of the U.S. military's Base Realignment and Closure program, which is sending almost 5,000 government jobs to the area.

For the state as a whole, single-family permit data indicate that the pace of construction was positive but moderated during the year. After a strong start to 2006, the number of single-family permits issued slowed to 4 percent year-to-date through the third quarter. Overall, the state's housing market should continue to hold up well in the coming year, with moderate growth on tap for most areas.

Reports from contacts indicated that commercial real estate markets in the state were generally steady during 2006. Birmingham's office market experienced modest improvements, with activity dominated by the midtown market, which enjoyed higher occupancy rates and new construction. After the boom that came in the aftermath of Hurricane Katrina, Mobile's office market has softened. Several projects scheduled for completion in Mobile during 2007 should put upward pressure on vacancy rates.

Huntsville is continuing to benefit from the state's growing defense industry. For example, Lockheed Martin Corp. is expanding its Huntsville operations with a new $30 million, 166,000-square-foot office building.