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




Georgia Mirrors the Nation

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Georgia's Web site
Georgia's economy performed reasonably well in 2006. In the third quarter of the year, the state's employment was about 2 percent higher than a year earlier, compared with around a 1.4 percent increase for the nation. The state's pace of job growth was not as strong as the 2.5 percent growth experienced in 2005 (see the chart). However, the unemployment rate continued to improve over last year, with a rate of 4.6 percent in the third quarter—close to the national rate.

Other measures of economic performance also indicated moderate growth in 2006. For instance, real per capita income increased by around 2.3 percent for the first two quarters of the year, slightly less than the nation as a whole. In addition, the growth in state sales tax receipts was 7 percent through October, lower than in 2005.

State Profiles

For 2007, it appears that moderate economic growth is on tap. However, the drag associated with Delta Air Line's ongoing restructuring, the impact of auto assembly plant closings, and lower employment growth in housing-related industries are likely to be sources of risk for the state's outlook.

Real estate cools, but modestly
Georgia's housing markets have experienced weaker sales and rising inventories, although Georgia has slowed less than the nation as a whole. For example, existing home sales in Atlanta declined by around 1 percent in the third quarter of 2006 from a year earlier, whereas U.S. sales where down almost 13 percent for the same period. Also, new home sales in Atlanta were down 9 percent in the third quarter relative to a year ago compared with a 22 percent decline for the nation as a whole.

Slowing sales also affected single-family construction activity. Single-family permits for the state declined almost 5 percent year-to-date. Also, lower demand caused builders to delay the start of some new projects. Despite concerns with overbuilding and weaker pricing, more multifamily permits were issued in 2006, and the construction of condominiums in the Atlanta market was robust.

Ford Motor Plant
Photo by Brad Newton
Ford Motor Co.'s closing of its auto assembly plant in metro Atlanta in 2006 is an example of the struggles of the state's manufacturing sector.

Single-family home construction should continue to proceed at a slower pace in 2007 until the inventory of unsold homes moderates. In addition, builders will likely begin fewer condominium projects because the strong construction levels in 2006 added significantly to existing capacity, particularly in Atlanta. Analysts expect that some developers will likely turn their attention toward apartment rental projects in 2007.

The overall pace of nonresidential construction cooled across the state during 2006 despite an increase in office development in Atlanta. According to CB Richard Ellis, a real estate services firm, vacancies in the Atlanta area declined slightly but continued to be among the highest in the nation. Most analysts believe that development will be subdued in 2007 until absorption significantly lowers the vacancy rates.

Service sector enjoys good growth
Employment in most segments of Georgia's service sector increased in 2006. Overall growth was about 2 percent for the year, a performance that exceeded the pace of job growth for the nation.

Overall, growth in the service sector should remain moderate in 2007. For instance, Automatic Data Processing Inc. has announced plans to open a business solution center in Augusta in March 2007, creating around 1,000 jobs. Also, Delta has begun rehiring some of the staff laid off in the wake of its bankruptcy filing, which could be an important turning point for the state's beleaguered transportation service industry.

Another bright spot is the leisure and hospitality industry, which enjoyed almost 3 percent job growth in 2006. The arts, entertainment, and recreation component was especially strong, with an almost 7 percent employment increase. This increase likely reflects employment boosts tied to both the Georgia Aquarium and events previously scheduled for New Orleans that moved to Atlanta during 2006.

Employment Growth in Georgia, 1997–2006
Georgia employment growth chart
Source: Bureau of Labor Statistics

The outlook for the tourism and hospitality industry is positive. The Georgia Aquarium, which averages 10,000 daily visitors, has succeeded well beyond its projections and has already begun expansion plans. In addition, the renovated High Museum of Art's exhibition of hundreds of pieces of art from the Louvre in Paris should attract more visitors, as will the expanded World of Coca-Cola museum slated to open in May 2007. One challenge for Georgia's travel and tourism industry in the coming year will be sustaining the convention business that was initially diverted from New Orleans following the 2005 hurricanes.

Manufacturing holds firm
After several years of significant declines, manufacturing employment in Georgia has remained relatively stable for the last three years. Producers of durable goods such as wood products increased payrolls as high levels of residential construction boosted demand (see the chart). The transportation equipment sector, however, declined with the closing of the Ford plant in Hapeville.

A mixture of positive and negative developments will shape Georgia's manufacturing sector in 2007. On the positive side, a new U.S. Department of Defense order for jet fighters produced at Marietta's Lockheed-Martin plant ensures employment for thousands of workers there. Also, the Kia plant in West Point is under construction and should be producing cars by 2009. The company says the plant will employ 2,500 workers, and analysts predict the parts suppliers that move to the area to support the plant will add another 2,000 jobs.

But some negative changes also loom on the horizon. For example, the General Motors plant in the Atlanta suburb of Doraville has begun shuttering its doors, eventually taking more than 3,000 assembly jobs with it. Also, declines in residential construction across the country will lower demand for producers of building materials and flooring products. (For more on Georgia's large and important flooring products industry, see "Carpeting on a Roll in Georgia.") This lower demand will likely result in reduced production and some payroll reductions at some of Georgia's housing-related manufacturers.