EconSouth (Fourth Quarter 2008)
EconSouth (Fourth Quarter 2008)
The Southeastern Economy in 2009
Mixed Messages for Manufacturing
The region's manufacturing sector experienced a weak performance in 2008 amid a slowdown in the broader economy. In particular, many manufacturers were hampered by a worsening housing market, declining automobile sales, and credit strains related to financial market turmoil. But manufacturers tied to the energy sector or that make goods for export fared better than others because of the surge in commodity prices and the weak dollar.
Weakness reflected in data
For 2007, the Southeast PMI reading averaged 53.1, while nationally the average was 51.1. Since January 2008, however, the Southeast and national PMIs have declined to average readings of 46.1 and 46.8, respectively. So while manufacturing across the country experienced contracting activity in 2008, the Southeast fell further than the national average.
The Federal Reserve Bank of Atlanta conducts its own regional manufacturing survey, which also showed sluggishness in the region throughout 2008. Survey contacts reported weakness in production, shipments, and new orders compared with a year earlier, and most continued to report cutbacks in employment and/or work hours. Price pressures on raw materials rose considerably in the first half of the year but then eased significantly beginning in August. Southeastern manufacturers also noted higher export orders relative to a year earlier although the number of such orders decelerated in the second half of the year as the dollar gained value and demand overseas weakened.
Aside from data on business activity, another crucial metric in analyzing manufacturing is employment. Manufacturing employment in the six Southeastern states was down 4.2 percent through September on a seasonally adjusted basis from a year earlier, according to data from the U.S. Bureau of Labor Statistics (BLS), and down 4 percent on a non-seasonally adjusted basis. (Unless otherwise noted, employment data are from the BLS and are not seasonally adjusted.) Within manufacturing, employment in durable goods industries declined 3.8 percent, while nondurable goods employment declined 4.2 percent (see chart 2).
Dragged down by weak housing and auto sales
As of September, wood product manufacturers in the Southeast saw their employment rolls decline by 4.8 percent from a year earlier. Alabama and Georgia, the two regional states with the largest share of wood manufacturing, saw employment in the industry fall 3.9 percent each.
Furniture manufacturers' payrolls were down 9.3 percent in the Southeast, hitting Mississippi and Tennessee (where the industry is primarily located) particularly hard with 7.4 and 10.9 percent declines, respectively.
Similarly, textile-related employment was down more than 7 percent through September in the region. In Georgia, with the region's largest share of textile firms, payrolls at textile mills and textile product manufacturers declined 8.7 and 6.1 percent, respectively. On a brighter note, however, in June Zagis USA broke ground on the first of two textile mills to be built in Louisiana's Jefferson Davis Parish. The two mills, to be completed in early 2009, should bring 160 additional jobs to that area.
Along with the declining housing market, the first half of 2008 saw a surge in the price of gasoline, slower consumer spending, and financing constraints for businesses. All of these factors dampened automobile sales and forced car makers to cut back on production, investment, and employment (see the sidebar).
Auto parts manufacturers suffered along with automakers. For every auto manufacturing job there are three jobs in related auto suppliers. In September employment in the region's fabricated metal and transportation equipment industries was 3.0 and 2.1 percent lower, respectively, than a year earlier. Tennessee and Florida were hit particularly hard; during the same period, Tennessee lost 2.4 percent of fabricated metal jobs and 2.0 percent of transportation equipment jobs, and Florida's transportation equipment payrolls declined by 3.2 percent.
The story was more upbeat in Alabama, which was the only state in the region to boast employment growth in transportation equipment manufacturing in October compared with a year earlier, driven by a 4.5 percent expansion in aerospace manufacturing. Alabama's auto producers also saw a 1.0 percent job increase during the same period, primarily supported by Mercedes production in Vance.
Strong commodities and a weak dollar boost some manufacturers
After consistently growing for much of 2007, employment in food product manufacturing in Florida held steady in September 2008, with payrolls unchanged from a year earlier.
Employment in the region's primary metals industry (mostly centered in Tennessee) rose about 1 percent in September Wrelative to a year earlier, in contrast to the payroll declines seen in other manufacturing industries.
Until mid-2008, the consistent depreciation of the U.S. dollar made U.S. exports relatively cheaper for foreign consumers and thus brought a surge of export orders for many manufactured goods in 2007 and early 2008. The new export orders component of the national PMI averaged 54.8 from January 2007 to November 2008, well above the average of 49.3 for all new orders. But as financial turmoil spread globally, the dollar started to appreciate, and new export orders began to fall in the summer of 2008, diminishing hopes for an export-led recovery in manufacturing.
Looking ahead to 2009
In spite of challenging credit conditions, some of the Southeast's manufacturing industries face a more promising future. Along with some positive developments in the auto industry (see the sidebar), another bright spot is the region's strong aerospace industry, which is set to expand even more in the coming years. Embraer, the world's third-largest aircraft manufacturer, based in Brazil, broke ground in December on its first U.S. factory, located at Melbourne International Airport in Florida. The $51 million facility is expected to create approximately 200 additional jobs by 2011. Florida also welcomed the announcement in May that Piper Aircraft will keep its headquarters in Vero Beach and expand its payroll by nearly 50 percent.
In November, Leading Edge Aviation, in Greenville, Miss., was awarded the contract to repaint Northwest Airline planes, which will be given a makeover as a result of Northwest's merger with Delta Air Lines. The contract will require a tripling of the company's workforce.
The strong auto and aerospace industries thus seem likely to provide significant ongoing support to economic activity in the region.