EconSouth (First Quarter 2009)

Photo courtesy of Baton Rouge Area Chamber

Baton Rouge is blessed with a sturdy foundation of state government jobs, two universities, and five dozen petrochemical plants that appear to be weathering the downturn reasonably well. Public sector workers, including more than 40,000 state employees, account for 20 percent of the Baton Rouge metro area's employment compared with 16 percent for the United States as a whole, according to Moody's Economy.com and the U.S. Bureau of Labor Statistics (BLS).

Thanks in part to that preponderance of public sector jobs, nonfarm employment in the Baton Rouge metro area grew in the fourth quarter of 2008—albeit only by an estimated 356 jobs—even as the national economy shrank 6.2 percent, its worst performance in 26 years, according to the U.S. Commerce Department. However, two important categories, business and professional services and information, shed jobs in the last few months of 2008 in Baton Rouge.

That contraction, and the end of a post–Hurricane Katrina population surge, led Moody's to conclude that the Baton Rouge metro area fell into recession during the fourth quarter of 2008. In fact, after rising during October, the city's employment decreased slightly in November and December, according to the BLS.

Still, Baton Rouge is better off than most of the rest of the nation, with an unemployment rate estimated at 5.3 percent in December 2008 compared with 7.2 percent for the nation at that time.

"If you were to look around the city, you would not see any of what you would anticipate to be signs of a serious economic downturn," said James Richardson, professor of economics and director of the Public Administration Institute at Louisiana State University's E.J. Ourso College of Business in Baton Rouge. "People are eating out, people are going to the movies, people are still shopping in the malls. And we don't have any major unemployment problems compared to Ohio or Detroit, places like that."

Baton Rouge, La. Population 224,555 East Baton Rouge Parish population 424,597 Households (city) 89,468 Median household income $34,506 Sources: U.S. Census Bureau's 2005–07 American Community Survey

A threefold explanation for stability
In addition to the relatively secure jobs in government and petrochemicals, three factors have helped insulate Baton Rouge from the worst of the downturn, Richardson said. For one, the area, like Louisiana generally, does not rely on durable goods manufacturing, which has been battered by the recession.

Second, the area was never overly dependent on growth in the housing sector and thus did not experience a bubble. In 2005, amid the nation's housing boom, housing and related industries accounted for only 9.4 percent of Louisiana's gross state product, the lowest percentage for any state, according to the National Association of Home Builders (NAHB). By comparison, the Southeastern states in which the housing sector makes up the largest portion of their economies are Florida (24.1 percent) and Georgia (15.3 percent), NAHB data show.

If anything, Baton Rouge went the other way. In contrast to overbuilt markets in south Florida and metro Atlanta, Baton Rouge had too few houses in the wake of Hurricane Katrina. "Overnight everything in Baton Rouge virtually sold out," said Wayne Pugh, owner of Wayne Pugh & Co., a real estate appraisal firm in Baton Rouge and immediate past president of the Appraisal Institute, a national trade association for real estate appraisers.

Third, Baton Rouge is not a financial center, so the banking crisis has not been as damaging there as in some other places, Richardson pointed out.

"Baton Rouge didn't get away from the basics," explained Christel Slaughter, partner in the management consultancy SSA Consultants in Baton Rouge and a director of the New Orleans Branch of the Federal Reserve Bank of Atlanta.

Katrina's effects linger
Historically stable if unspectacular, Baton Rouge suddenly became a boom town after Hurricane Katrina struck in late August 2005. Evacuees flocked to the city when floodwaters inundated New Orleans, 80 miles to the southeast. In 2006, more than 30,000 people moved into Baton Rouge to stay, according to the U.S. Census Bureau. Along with them came the iconic, 104-year-old New Orleans restaurant Galatoire's, which opened its second location in Baton Rouge in November 2005, a culturally significant development in south Louisiana.

The post-Katrina influx came after modest net in-migration of 2,584 people in 2004 and 479 in 2005, according to the U.S. Census Bureau. In 2007, in-migration returned to a more typical 1,069 people.

As devastating as Katrina was to south Louisiana, it has in some ways sparked Baton Rouge's economy. In addition to benefiting from the population surge that spurred retail and home sales, many companies have taken advantage of special financing for recovery work. By the estimate of Loren Scott, a local economist and the former head of Louisiana State University's economics department, as much as $6.5 billion in construction was under way or planned in late 2008, compared with $750 million in a typical year. While some of that work could, of course, be postponed or canceled, extensive road projects and petrochemical plant expansions are either under way or likely to be completed, Richardson said. For example, Exxon Mobil Corp. is investing $500 million to expand its Baton Rouge refinery to increase output of cleaner-burning diesel. According to The Advocate, Baton Rouge's daily newspaper, the project would create as many as 700 construction jobs but no new permanent jobs when it opens in the middle of 2010.

Meanwhile, some of the mixed-use commercial and residential projects slated for Baton Rouge could face less certain prospects because of the recession, Richardson said.

Petroleum's prospects hold a key to future growth
Longer term, the state's petrochemical producers, which together employ more than 10,000 in the Baton Rouge area, will continue to prosper once the economy recovers. But, Richardson said, they could suffer if weakening global demand reduces their exports. And as state revenues are pinched—including oil and gas severance taxes and royalties that fall with oil prices—public sector jobs could be vulnerable. Construction payrolls, which grew during every month of 2008, are also likely to start declining in 2009 as the post-Katrina boom fades, according to Moody's.

Compared with the rest of the nation, though, Baton Rouge appears well positioned. In October 2008, BusinessWeek magazine named the city one of the nation's 20 best places to ride out the recession, and residents—both long-term ones and storm-tossed newcomers—hope that designation is borne out.

This article was written by Charles Davidson, a staff writer for EconSouth.