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•»1 t if Economic Review FEDERAL RESERVE BANK OF ATLANTA A • • • • • • • • • FEBRUARY 1983 Tracking the Recovery THE SOUTHEAST IN 1983 a n r Economic Review ^ w FEDERAL RESERVE BANK OF ATLANTA President: William F. Ford Sr. Vice President and Director of Research: Donald L. Koch Vice President and Associate Director of Research: William N. Cox Financial Structure: B. Frank King, Research Officer David D. Whitehead Larry D. Wall National Economics: Robert E. Keleher, Research Officer Mary S. Rosenbaum Regional Economics: Gene D. Sullivan, Research Officer Charlie Carter William J. Kahley Database Management: Delores W. Steinhauser Payments Research: Paul F. Metzker Visiting Scholars: James R. Barth George Washington University James T. Bennett George Mason University George J. Benston University of Rochester Gerald P. Dwyer Emory University Robert A. Eisenbeis University of North Carolina John Hekman University of North Carolina Paul M. Horvitz University of Houston Peter Merrill Peter Merrill Associates Communications Officer: Donald E. Bedwell Public Information Representative: Duane Kline Editing: Gary W. Tapp Graphics: Susan F. Taylor Eddie W. Lee, Jr. What sets a growth apart from the pack? A unique gathering of experts on growth, management and the future will meet for two days of lively exchange and analysis. Growth Industries in the 1980s A Conference Sponsored By The Federal Reserve Bank of Atlanta March 17-18, 1983 Atlanta Hilton Hotel® Atlanta, Georgia featuring: Alvin Toffler Arthur Levitt, Jr. Robert Waterman, Jr. plus CEOs of leading growth companies REGISTRATION FORM Name Title Firm Address City The E c o n o m i c R e v i e w seeks to inform the public about Federal Reserve policies and t h e e c o n o m i c environment and, in particular, to narrow t h e gap between specialists and concerned laymen. Views expressed in the E c o n o m i c Review aren't necessarily t h o s e of this Bank or the Federal Reserve System. Material may be reprinted or abstracted if the Review and author are credited. Please provide the Bank's Research Department with a copy of any publication containing reprinted material. Free subscriptions and additional c o p i e s are available from the Information Center, Federal Reserve Bank of Atlanta, P.O. Box 1731, Atlanta, G a 3 0 3 0 1 (404/586-8788). Also contact the Information Center to receive S o u t h e a s t e r n E c o n o m i c I n s i g h t a free newsletter on economic trends published by the Atlanta Fed twice a month. company State/ZIP FEE: Before Feb. 15 d $ 2 4 5 After Feb. 15 OS295 Payment must a c c o m p a n y registration form. All o t h e r s will be returned. M a k e c h e c k s payable t o G r o w t h I n d u s t r i e s C o n f e r e n c e and mail to: C a r o l y n H. Vincent, C o n f e r e n c e Coordinator, Federal Reserve B a n k of Atlanta, P.O. Box 1731, Atlanta GA 3 0 3 0 1 - 1 7 3 1 .(Telephone 404/586-8865). FEBRUARY 1983, E C O N O M I C REVIEW • I V O L U M E LXVIII, N O . 2 This special issue of the Economic Review is devoted to the 1983 outlook for the states of the Sixth Federal Reserve District In addition, this year we are including analyses of North Carolina and South Carolina in our outlook issue. While not in the Sixth District, these two states are almost always included when economists and business analysts generalize about "the Southeast" With the economic interactions among the Carolinas and the states of the Sixth District becoming more important, no discussion of the regional outlook would be complete without some mention of the Carolinas. The Southeast in 1983: An Overview Florida: Poised for a Surge. 4 6 ln-migration, the key to Florida's strength in recent years, dropped sharply in 1982, and the recession made for lackluster tourism. Will the national recovery refuel gas tanks for tourists and new residents? The region's strongest economy is ready for another spurt. Georgia: Rebuilding in 1983 20 Atlanta's glittering service-related industries kept many state economic indicators looking Petter than most of the region in 1982. But in a state with widely divergent regions, the outlook for recovery is not everywhere as bright as in Atlanta. Tennessee: Awaiting Recovery in the Industrial Heartland. 30 With many businesses crucially tied to the construction and auto industries, Tennessee's economy must await the expected nationwide recovery. Both industries show sparks of igniting in early 1983. If they bounce back strongly, Tennessee should benefit quickly. Louisiana: Thermostat Setting Lower 41 Louisiana's oil and gas industries powered the state through the 1973 and 1980 recessions, but not in 1982. If oil prices and exploration remain at low levels, the state could trail the nation's recovery in 1983. Alabama: A Slow Recovery 50 Caught with a heavy concentration in durable manufacturing, A l a b a m a suffered one of the nation's worst unemployment rates in 1982. When can workers look for signs of revival in the state's hard-hit factories? Mississippi: Construction and Consumer Spending Are Keys to Recovery 59 The Magnolia State felt the full impact of the recession, but improved construction activity nationally bodes well for the state. If consumer spending (especially on apparel) also picks up, Mississippi should blossom in 1983. North Carolina: Diversification Slowed by Recession Midway through a conscious effort to diversify, North Carolina resisted the recession's impact longer than the nation as a whole. Will its emerging industries help lead the way to a faster recovery? South Carolina: In Transition, But to What?.. 75 Because of its heavy d e p e n d e n c e on textiles, South Carolina's economy has been lackluster since 1979. Have the states efforts to diversify progressed e n o u g h to boost its recovery in 1983? Statistical Summary 83 The SouthAn Overview H o w fast will economic recovery come to the Southeast in 1983? The answer depends u p o n a n u m b e r of factors, but the most important is the vigor of a national economic rebound. Most of the Southeast's products d e p e n d upon national and even international markets, so d e m a n d at those levels must strengthen before the region in general can expect any significant upturn. Nevertheless, there is reason to believe the Southeast might be quick to profit from even a cautious recovery. In the new year it is likely that Florida, North Carolina and Georgia should continue to outperform the nation and other states in the region. The outlook for other states surveyed in this o u t l o o k is less certain. The Alabama, Mississippi and Tennessee economies will d e p e n d importantly on the strength of the 1983 rebound in the interest-sensitive auto and housing industries. South Carolina's recovery, meanwhile, will hinge on the strength of consumer spending. Louisiana, heavily d e p e n d e n t on the oil and gas industries, will recover slowly untiJ energy prices firm. 4 That national r e b o u n d remains heavily depend e n t u p o n stabilization of interest rates at levels that will encourage consumers to buy housing, autos, and various other goods. Merchants' new orders to restock shelves then should begin to spur idle manufacturing machinery into production. That chain reaction, though likely to be slow at first, should be moving along reasonably well by the second half of the year. It should take several months of recovery before businesses feel the need to hire additional employees t o expand output. For a while, producers are likely to rely on current workers to meet their growing demands. The w h o l e services-producing sector has held up well throughout the 1981-82 recession. As the national recovery gains m o m e n t u m , even more jobs in wholesale and retail trade, finance/insurance/real estate, and services should be created as the multiplier effect of higher workers' i n c o m e ripples through the economy. The single exception to e x p a n d i n g s e r v i c e s e c t o r e m p l o y m e n t i s in the government area. State and local governments are under severe budgetary constraints that may force continuing cutbacks in expenditures and e m p l o y m e n t in 1983. Construction activity began to strengthen in the second half of 1982, an encouraging sign for the southeastern economy. Residential building permits began to increase as mortgage interest rates declined, reversing a slump in residential building permits at midyear just as they were approaching the previous lows set during the 1973-75 recession. Actual construction, w h i c h had fallen about 26 percent from the previous year in measured units, began showing a slight upturn in the fall of 1982. Construction and related industries, major components of the southeastern economy, have been stimulated in the past by the Southeast's rapid in-migration and business growth. The upturn is being watched closely by southeastern lumber industries, w h i c h supply an important c h u n k o f the nation's requirements from the region's abundant forests. A construction revival typically is felt rather quickly in the Southeast, and the budding current recovery appears to be no exception. Although the upturn has been weak so far and activity has remained below normal, m o m e n t u m seemed to be growing at the threshold of the new year and should provide renewed strength to the southeastern economy by spring. Consumers are likely to begin spending more freely by spring, pushing sales of autos, furniture, FEBRUARY 1983, E C O N O M I C REVIEW " 1 f 4 ~< ' - ^ / A " ' * •> v „ V and appliances t o a m o r e robust pace by the ' second half. In response t o g r o w i n g d e m a n d , manufacturers should begin gearing up t o expand 4 production. These improvements, c o m b i n e d w i t h * anticipated g r o w t h in tourism, should m o v e the Southeast t o m o d e s t e c o n o m i c g r o w t h by the *y second half of 1983. Tourism activity will be led ^ by travelers headed for W a l t Disney W o r l d ' s n e w Experimental Prototype C o m m u n i t y of T o m o r r o w > (EPCOT) attraction in central Florida d u r i n g t h e c o m i n g s u m m e r season, b u t business should pick up t h r o u g h o u t t h e Southeast as incomes increase. The Southeast's financial institutions also are positioned rather w e l l t o j o i n in t h e recovery as it emerges. Mortgage loans o u t s t a n d i n g have declined since last February t o 8 percent b e l o w year-ago levels. A t the same time, total deposits grew rather briskly in 1982, reaching 10 p e r c e n t -. above year-earlier levels at banks a n d 5 percent above at thrift institutions. t Still, i f s a long road back t o solid e c o n o m i c expansion. The preliminary seasonally adjusted u n e m p l o y m e n t rate for the states in t h e Sixth Federal Reserve District reached 11 percent in •t ,» N o v e m b e r , up 3.6 percentage points f r o m July 1981, t h e official starting date of the current recession. It is also likely t o m o v e u p farther before significant n e w hiring begins. Total emp l o y m e n t has g r o w n slightly f r o m the year-ago level, b u t t h e g r o w t h has fallen far short of the jobs n e e d e d t o absorb n e w labor force entrants. Of course, just as the e m p l o y m e n t experiences V X of states in t h e region have d i f f e r e d over the course of t h e recession, so will advances in 1 9 8 3 . * Alabama and Tennessee e n t e r e d the recession w i t h u n e m p l o y m e n t rates of 8.5 a n d 8.1 percent, respectively, the highest rates in the District. By s> contrast, Florida, at 5.9 percent, a n d Georgia, at 5.7 percent, had u n e m p l o y m e n t rates in July 1981 substantially b e l o w the nation's 7.2 percent rates. Louisiana's 7.7 percent u n e m p l o y m e n t rate t h e n was slightly above t h e nation's, as was '» Mississippi's 7.8 p e r c e n t rate. K As the 1981-82 recession deepened, the spreading hardship was reflected in rising u n e m p l o y m e n t J By N o v e m b e r 1982, Alabama's u n e m p l o y m e n t rate had risen to 15.9 percent, seasonally adjusted, 4 or 5.2 percentage points higher t h a n the nation's « 10.7 percent rate. The rates for Louisiana, Mississippi, and Tennessee also w e r e above the nation's at 11.3, 12.7 a n d 12.5 percent respectively. Among District states, only Florida, at 9.5 percent, FEDERAL RESERVE B A N K O F A T L A N T A 5 and Georgia, at 8.3 percent, c o u l d boast une m p l o y m e n t rates b e t t e r than t h e nation's. In manufacturing, m u c h of t h e region's une m p l o y m e n t weakness has been in durable goods p r o d u c t i o n , although i m p o r t a n t regional n o n d u r a b l e industries such as f o o d a n d k i n d r e d products, textile a n d apparel, paper a n d chemicals also have fared poorly. In 1983, l u m b e r a n d w o o d p r o d u c t s will gain strength as will such d u r a b l e goods as t h e furniture, stone/clay/glass, primary a n d fabricated metal industries, a n d transportation e q u i p m e n t . H o w e v e r , their pace of recovery should be determined in large measure by consumers' willingness t o purchase housing a n d autos. Business i n v e s t m e n t will provide l i m i t e d support, a n d that i m p r o v e m e n t should show up as a slowing of t h e r e d u c t i o n of business inventories. Recovery of housing a n d auto dem a n d will stimulate the textile industry, an imp o r t a n t n o n d u r a b l e goods industry in the region. However, if the national recovery proves moderate, as a consensus of national forecasters suggests, t h e recovery of this industry a n d the related regional apparel industry also promises t o be moderate. Defense s p e n d i n g should stimulate the Southeast in 1983, since t h e region hosts b o t h large a n d small firms p r o d u c i n g for defense. As 1983 unfolds, defense-related p r o d u c t i o n j o b s will grow at a healthy clip, particularly in the electronics and transportation e q u i p m e n t industries. D o m e s t i c recovery will also a d d s u p p o r t t o the paper, transportation, and public utilities industries. Slov^growing European, Canadian, and Japanese e c o n o m i e s m a y limit the g r o w t h of southeastern industries that p r o d u c e for export. M i n i n g also should e x p a n d slowly as coal exports level off or d r o p slightly f r o m 1982. In fact, t h e entire Southeast will e x p e r i e n c e slow international trade growth through its ports because of the expected m o d e r a t e w o r l d w i d e recovery. The Southeast may even lose s o m e of its trade share because of e x t r e m e b e l t - t i g h t e n i n g by d e b t - b u r d e n e d dev e l o p i n g countries; southeastern ports are linked closely t o financially t r o u b l e d countries of Latin America. However, b e h i n d these generalized prospects for important industries in the region lie important differences a m o n g a n d w i t h i n individual states, despite the typical m e d i a characterization of t h e Southeast as " t h e b u r g e o n i n g Sunbelt." The o u t l o o k in specific southeastern states in 1983 varies w i d e l y because of the often vast differences in major e c o n o m i c activities. 5 1982 was a lull in a strong upward trendincreased population growth, housing starts and EPCOT-led tourism should boost Florida into recovery in 1983. Florida: Poised for a Surge Early signs of revitalized e c o n o m i c activity in Florida are dawning. Recent trends in b u i l d i n g permits suggest that the decline in residential construction has stopped. W h e t h e r g r o w t h can be sustained will d e p e n d on p o p u l a t i o n inmigration this year. The tourist industry is optimistic that t h e w i n t e r season will surpass last year's and that t h e o p e n i n g of EPCOT at Walt Disney World will stimulate tourism througho u t the state. A d v a n c e bookings on airlines and at hotels show a stronger season than last year. Retail sales have picked up slightly a n d c o u l d be boosted by a strong tourist season. Businessm e n a n d consumers are cautiously optimistic. Lefs look at some of the factors w h i c h will influence Florida's e c o n o m i c growth in 1983. Florida's e c o n o m y is affected by b o t h structural a n d cyclical factors. The strong long-term g r o w t h t r e n d since the early 1960s tends t o push the economy forward even in weak national economic periods. As a result the state's business cycle lags t h e national cycle by nearly six m o n t h s a n d serves t o d a m p e n long-term econ o m i c growth for brief periods of o n e - t o - t w o years at a time. Florida's 1982 weakness was a temporary lull in the upward trend; 1983 should be a year of stabilization and recovery beginning with increased population growth, housing starts a n d tourism. Florida's structural strengths and the national economic recovery should translate « into increased e c o n o m i c activity in Florida in 1983. But the b o o m i n g growth of 1979 a n d 1 9 8 0 may not be seen again until 1984 or 1985. Structural Strengths Florida is in a class by itself in the group of southeastern states w h i c h comprise the Sixth Federal Reserve District. It is the largest and fastest growing southeastern state in terms of population. The state gained an average 295,000 persons per year during the 1970s, equivalent to 34 p e o p l e each hour over the decade. 1 The annual p o p u l a t i o n increase, in actual numbers, is third highest in the nation b e h i n d t w o o t h e r large Sun Belt s t a t e s — C a l i f o r n i a (370,000) and Texas (303,000). Those n e w Florida residents require homes, jobs, financial services, entertainment, food, clothing, cars and utilities. Population increases alone are enough t o push the e c o n o m y ahead at rates far above the national average. W h a t attracts so many people t o the state? The natural attraction of Florida is the " q u a l i t y 'Population data reported by the U.S. B u r e a u of the Census. 1 9 7 0 Florida population equals 6,789,443. 1980 Florida population equals 9,746,324 6 FEBRUARY 1983, E C O N O M I C REVIEW of life" it offers. M u c h of Florida's initial p o p u lation g r o w t h was spurred by retirees seeking a warm climate. Indeed, the percentage of Florida's population over t h e age of 65 is n o w 17.3 percent c o m p a r e d t o t h e U. S. average of 11.3 percent But in actual numbers, Florida's working population has increased substantially more than its elderly p o p u l a t i o n . A b o u t 7 0 0 , 0 0 0 more retirees lived in t h e state in 1 9 8 0 t h a n in 1970. D u r i n g t h e same p e r i o d the w o r k i n g age population (age 25-65) grew by 1.6 million. While some of Florida's major cities are becoming crowded, the state's average density is 166 people per square mile, w h i c h compares w e l l with N e w J e r s e y — 9 4 0 p e o p l e per square mile, Massachusetts, 695, N e w York, 354, a n d Ohio, 262. The "pollution-free" environment is an attractive characteristic of t h e state. M a n u f a c t u r i n g represents only 12 percent of nonfarm employment c o m p a r e d w i t h 21 percent n a t i o n w i d e . And t h e m a n u f a c t u r i n g that does exist is generally in " c l e a n industries" such as electronics and f o o d processing. A n o t h e r attractive feature of Florida's living conditions is its relatively n e w infrastructure. M o s t highways, bridges, w a t e r and sewer systems, airports, hospitals, a n d schools have b e e n built in the past 2 0 years. M a n y n e w migrants find t h e cost of living lower in Florida. The state ranks seventh lowest among all states in terms of state a n d local taxes paid per $1,000 of personal income. A recent survey of major cities indicated a family of four in Florida pays a b o u t 4 percent of its income t o state a n d local governments, w h i l e nationwide, t h e average is over 8 percent. 2 Also, t h e average electric bill was o n l y $57.48 per 1,000 k w h in 1 9 8 0 c o m p a r e d w i t h $61.12 nationwide, $80.68 in N e w Jersey, $87.40 in N e w York, and $64.80 in Ohio. 3 H o u s i n g costs are still m o r e affordable in sections of Florida than in m a n y o t h e r p o p u l o u s areas of t h e country. In areas o t h e r t h a n major south Florida metropolitan cites, housing costs range f r o m 72 percent t o 98 percent of the national average.4 ' G o v e r n m e n t of the District of C o l u m b i a , D e p a r t m e n t of F i n a n c e a n d Revenue, Tax B u r d e n s in W a s h i n g t o n , D . C . C o m p a r e d W i t h T h o s e in the Nation's Thirty Largest Cities, 1979. 3 U.S. D e p a r t m e n t of Energy, Energy Information Administration, T y p i c a l Electric Bills, J a n u a r y 1, 1 9 8 1 . 'Federal Home L o a n Bank Board ' FEDERAL RESERVE B A N K O F A T L A N T A While the strong population increase provides an a m p l e labor force for business growth, t h e r e are o t h e r factors w h i c h attract industry t o t h e state. In 1981, Florida's business climate ranked first a m o n g all states. Florida's labor force was c o n s i d e r e d a plus since unions have a m i n o r influence a n d educational e x p e n d i t u r e s o n vocational skills are relatively high. Additionally, g o v e r n m e n t - i m p o s e d costs of d o i n g business are m u c h l o w e r than in o t h e r states. Factors Influencing The Florida Business Cycle Q u a l i t y of life, cost of living, a n d business climate have c o n t r i b u t e d t o Florida's rapid long-term p o p u l a t i o n growth, w h i c h in turn has carried the e c o n o m y t h r o u g h most national recessions unscathed. H o w e v e r , t h e longer a national recession persists, t h e greater the chances of Florida suffering a serious d o w n t u r n . The recession finally came t o Florida in 1 9 8 2 . But recession in Florida must be regarded in t h e p r o p e r c o n t e x t Economic activity in the state, even at its l o w point, is w e l l ahead of most states in t h e nation. Population g r o w t h d e c l i n e d f r o m a r o u n d 3 0 0 , 0 0 0 per year in 1978-81 t o 2 0 0 , 0 0 0 last year. W h i l e t h e d r o p is significant e n o u g h t o r e d u c e e c o n o m i c activity substantially, p o p u l a t i o n g r o w t h was strong e n o u g h t o s u p p o r t t h e construction of at least 1 0 0 , 0 0 0 h o m e s in 1982 a n d t o k e e p statewide e m p l o y m e n t f r o m declining. Migrants t o Florida c o m e in greater n u m b e r s w h e n t h e e c o n o m y is strong, b u t w h e n t h e national housing market sours a n d u n e m p l o y m e n t rises, in-migration drops sharply. The outlook for the Florida economy in 1983 depends largely o n p o p u l a t i o n growth, b u t several o t h e r factors will influence e c o n o m i c activity this year—tourism, international trade, and business development. The 4 0 million tourists w h o visit the state this year will p u m p a p p r o x i m a t e l y $20 billion i n t o t h e e c o n o m y . The nearly $1 billion in sales tax tourists pay each year has h e l p e d the state k e e p taxes o n residents t o a m i n i m u m . 5 The 5 Tourism d a t a r e p o r t e d by Florida Division of Tourism in F l o r i d a V i s i t o r Study, 1981. 7 state is o n e of f e w w i t h o u t a personal i n c o m e tax. W h i l e population growth has a strong cyclical effect o n the Florida e c o n o m y , tourism is a more stabilizing factor. Tourism generally slows only briefly during a national recession. W h i l e population growth and tourism historically have shaped Florida's economic growth, new outside forces have begun to impact the state's economy. International influences are permeating the state. Foreign visitors can make or break the tourist season. Foreign imports and exports buoy or restrict the growth of trade a n d t h e activity at the state's many ports that d e p e n d on the w o r l d economy. A c c o m p a n y i n g the influence of international trade is international banking. Eased banking restrictions have o p e n e d the doors for Miami, quickly b e c o m i n g recognized as a w o r l d banking center. A fourth influence on Florida is business development While new business growth helped delay the recession in Florida, n e w industrial plant openings d r o p p e d sharply in 1982, a n d new office construction is likely t o reach a saturation point in 1983. The manufacturing sector should benefit this year from federal defense spending. Florida boasts a disproportionately large share of military establishments and manufacturers of military related e q u i p m e n t The increases in the federal defense budget should help Florida in 1983. « Chart 1 Florida Personal Income Annual Percent Change 20 — 18 - / 1 Florida 16 14 12 - Va/ 10 W u.s. 8 « L V 70 y//\J - J — 1 — 1 72 l 74 i » 76 1 I 78 1 1 80 i 1 82 These external f a c t o r s — p o p u l a t i o n growth, tourism, international trade a n d finance, and business d e v e l o p m e n t — w i l l interact t o shape the Florida e c o n o m y in 1983. The net effect of these forces is likely t o be an u p t u r n w i t h modest i m p r o v e m e n t over 1982. The overall picture at the beginning of 1983 is an e c o n o m y resting on the b o t t o m of a business cycle trough w a i t i n g for forces t o push it u p w a r d a n d to supply some sustainable m o m e n t u m (Table 1). As t h e e c o n o m y recovers in 1983, Florida's underlying e c o n o m i c strengths will help carry the state forward. O u t s t a n d i n g g r o w t h is likely t o resume in 1984. O n e measure of overall activity is personal income growth. Florida i n c o m e was up a b o u t 9 percent in m i d - 1 9 8 2 over the previous year, c o m p a r e d t o 16-17 percent gains in 1979 a n d 1980. That 9 percent growth rate c o m p a r e d t o a 7 percent national average (Chart 1). But the state's lead is attributable more to unearned i n c o m e than t o stronger e c o n o m i c activity. Dividends, interest and rent income and transfer payments make up a larger share of total i n c o m e in Florida than elsewhere because of the state's large retiree population. 6 Z Z l l ^ J f 0 ™ da,a*rep0r,ed Bureau of Economic Analysis. by ,he U S - Department of Commerce. 8 FEBRUARY 1983, E C O N O M I C R E V I E W Table 1 . Florida Business Cycle 1 9 8 0 - 1 9 8 2 Recession 1 9 7 3 - 1 9 7 5 Recession Peak Trough % Decline Peak 476,200 4/1/73 125,800 4/1/76 -74% *366,000 12/31/81 19.4% 3Q/73 6.6% 3Q/75 Residential Construction Number of Units 12-Month Cum. Rate Year Ending 273,600 7/31/73 52,300 12/31/75 Single-family Permits 12-Month Cum. Rate Year Ending 87,100 7/31/73 Multi-family Permits 12-Month Cum. Rate Year Ending 230,000 6/30/73 Annual Population Growth Year Ending Personal Income Year-over-Year Change Date Nonresidential Construction Millions of dollars U...U Year Ending ' Trough % Decline 200,000 -45% 12/31/82 1Q/81 9% 2Q/82 -81% 196,000 10/31/79 101,439 8/31/82 -48% 37,100 8/31/75 -57% 100,100 10/31/79 49,647 7/31/82 -50% 11,500 2/28/76 -95% 92,100 5/31/81 49,482 9/30/82 —24% $3,860 — ocn 15.3% 10/31/74 10/31/76 Nonfarm Employment (000's) Date Year-over-Year Change 2,901 4/74 +5% 2,681 8/75 -5% Unemployment Rate Seasonally Adjusted Date 3.6% 10/73 11.8% 5/75 5.0% 12/80 12/82 N.A. -3.2% 10/75 20.9% 10/78 10/82 24.8 1973 24.2 1974 Taxable Sales Year-over-Year Change Tourist Arrivals Millions annually Date 11/82 -7.6% -2.4% 3,812 11/82 +0.9% 9.9% +1% 37.7 1982 N.A. - not available. ' I n c l u d e s 100,000 Cuban and Haitian refugee immigrants. Florida e n d e d 1982 with e m p l o y m e n t at about the same level as in 1 9 8 1 — 3 . 8 million (Charts 2 and 3). Modest declines were reported in southeast Florida primarily because of the depressed construction industry there. Businesses in Miami, Ft. Lauderdale, and West Palm Beach e m p l o y e d 1-4 percent fewer workers in 1982 than in 1981. Lakeland suffered the worst drop in e m p l o y m e n t , 7 percent for the year, primarily because of phosphate industry layoffs. About 17 percent of all phosphate workers were unemployed in late 1982; but the industry ' FEDERAL RESERVE B A N K O F A T L A N T A expects slow improvement this year. In November, 700 of the 3,200 laid-off workers were called back to their jobs. Tallahassee has also seen a decline in jobs, d o w n 1 percent, primarily as a result of reduced government revenues. Because revenues fell far b e l o w projections in 1982, the Governor called for a 4 1/2 percent across-the-board cut back in state government spending. At least one department, Health and Rehabilitative Services, was forced t o slice its payroll by 300 workers. A 3 percent decline in e m p l o y m e n t in 9 Chart 2. Florida Nonfarm Employment 4.0 - C h a r t 3. Florida Metro Area Nonfarm Employment (Annual Percent Change Nov. 82/Nov. 81) Mil. Percent 8 r 3.5 / 3.0 •I J 2.5 2.0 I 69 1 71 I I I 73 I l 75 I I 77 I £ £ 81 Gainesville reflects reduced availability of funds for students at the University of Florida as a result of harder-to-obtain federal grants and loans t o attend college. Daytona's 2.8 percent e m p l o y m e n t drop is almost entirely attributable to government layoffs. M e l b o u r n e has suffered from the s l o w d o w n in construction and manufacturing, despite its high technology base, causing e m p l o y m e n t t o fall 1.4 percent. Orlando, Pensacola and Ft. Myers each rec o r d e d e m p l o y m e n t growth of 1-2 percent for t h e year. O t h e r major cities held their own. The recent closing of W o o l c o discount d e p a r t m e n t stores put 3,000 people o u t of work throughout Florida. The u n e m p l o y m e n t rate m o v e d up sharply in the last f e w m o n t h s of 1 9 8 2 — f r o m 7.5 percent in September t o 9.9 percent in December. Improvement in employment should lag the rest of the economy, possibly gaining by t h e e n d of 1983. 7 Population Growth The Florida e c o n o m y appeared i m m u n e t o recession during 1 9 8 0 and 1981 w h e n t h e nation was experiencing e c o n o m i c difficulties. Florida sustained healthy g r o w t h right through those years primarily because p o p u l a t i o n increases remained high. Following that strong ' E m p l o y m e n t and u n e m p l o y m e n t data reported by Florida D e p a r t m e n t of Labor and Employment Security. Specific industry o r c o m p a n y figures verified by t e l e p h o n e c o n v e r s a t i o n s w i t h r e f e r e n c e d organization. / / # — r r - r <£r e> s- s* Ì * cT growth, the net increase d r o p p e d by one-third, to 200,000, in 1982 (Chart 4). 8 The p r o l o n g e d national recession m a d e it increasingly difficult for people t o move around the country. N o w that mortgage rates are d o w n t o m o r e tolerable levels, p e o p l e will begin t o reconsider relocating. But plans t o m o v e take at least six m o n t h s t o i m p l e m e n t and, as of yet, the national u n e m p l o y m e n t situation has n o t i m p r o v e d significantly. A c c o r d i n g t o state forecasters, p o p u l a t i o n growth may m o v e up t o the 2 2 5 , 0 0 0 - 2 5 0 , 0 0 0 range in 1983. The high e n d of that range may be optimistic if t h e national recovery does n o t materialize as fast as expected. Population growth is likely t o pick up m o r e substantially in 1984. M u c h of Florida's recovery will d e p e n d u p o n h o w soon n e w residents begin t o pour i n t o the state. The residential construction industry is one of the more obvious recipients of population growth. Construction p l u m m e t e d in 1982 as d e m a n d for n e w homes d r o p p e d off. Even prospective realtors were discouraged last year. O n l y 30,000 p e o p l e took the real estate exam in 1982 c o m p a r e d to 48,000 in 1981. 9 e « l i t—r b I 79 'In ' A n n u a l population growth derived from e s t i m a t e s p r e p a r e d by the University of Florida, Population Division, B u r e a u of E c o n o m i c a n d Business Research (1971 - 1 9 8 1 ) . 1982 and 1 9 8 3 e s t i m a t e s r e p o r t e d in T h e F l o r i d a O u t l o o k , University of Florida Bureau of E c o n o m i c & Business Research. The Bureau's 1 9 8 3 f o r e c a s t for 1 9 8 3 p o p u l a t i o n growth is 236,000. The authors place this estimate within a reasonable range based on previous accuracy of the forecasts. 10 FEBRUARY 1 9 8 3 , E C O N O M I C REVIEW C h a r t 5. Florida Residential Construction Chart 4 . Florida Annual Population Growth Thousands Thousands 300 72 73 7 4 75 76 7 7 78 79 8 0 81 82 83 * Includes 100,000 refugees 30 71 73 75 77 79 81 P - Projection N e w h o m e b u i l d i n g in Florida reached a cyclical l o w in t h e 12 m o n t h s e n d i n g in August: only 1 0 1 , 5 0 0 n e w single- a n d multi-family homes w e r e c o n s t r u c t e d (Chart 5). This level is still high compared to other southeastern states, but it is 48 percent b e l o w the peak of 1 9 6 , 0 0 0 homes built in t h e 12 m o n t h s e n d i n g O c t o b e r 1979. Both single-family a n d multi-family construction, currently a b o u t 50,000 units each o n an annual basis, w e r e halved f r o m their peaks. Single-family c o n s t r u c t i o n has b e e n d e c l i n i n g since late 1979, while multi-family construction did not start t o d e s c e n d until m i d - 1 9 8 1 . Yet t h e last half of 1982 brought an upturn in residential c o n s t r u c t i o n . In t h e 12 m o n t h s e n d i n g in N o v e m b e r , n e w h o m e b u i l d i n g e d g e d up t o 104,500 units f r o m August's l o w of 101,500. Sales of building supply materials were increasing by year e n d as l o w e r mortgage rates unleashed some p e n t - u p d e m a n d for single-family homes. Depressed c o n d o m i n i u m prices enticed buyers to take advantage of the market. 1 0 N e w h o m e construction has been r u n n i n g parallel a n d slightly ahead of n e w h o u s e h o l d f o r m a t i o n f o r t h e past f o u r years. A n y increase in n e w h o u s e h o l d s in 1 9 8 3 s h o u l d translate i n t o a stronger construction sector. »Telephone c o n v e r s a t i o n w i t h Charles Hoeck, Department of Professional Regulations, State 1982. '"Construction d a t a r e p o r t e d by F.W. Dodge. breakdown derived f r o m building permit data Bureau of t h e Census. ' FEDERAL RESERVE B A N K O F A T L A N T A Division of Real Estate, of Florida, D e c e m b e r 13, Single and multi-family as r e p o r t e d by t h e U.S. But g r o w t h s h o u l d be m o d e s t at best. Based o n p o p u l a t i o n projections, a b o u t 1 2 6 , 0 0 0 n e w households will be f o r m e d this year. W i t h t h e current pace of construction and a large c o n d o m i n i u m inventory remaining in s o m e areas, it is difficult t o see substantial i m p r o v e m e n t in residential c o n s t r u c t i o n in 1983 even t h o u g h c o n s t r u c t i o n has started t o pick u p in central and north Florida's single-family markets. Table 2 shows t h e level of c o n s t r u c t i o n in major Florida cities at t h e recent peak a n d at the recent trough. M o s t cities had t u r n e d t h e corner o n recovery by N o v e m b e r . N o r t h e r n and central cities have m a d e t h e strongest s h o w i n g so far. Jacksonville, Tallahassee, Pensacola, a n d O r l a n d o have already surpassed their c o n s t r u c t i o n l o w points by at least 19 percent. The Orange C o u n t y ( O r l a n d o ) area is p r o d u c i n g m o r e h o m e s t h a n either M i a m i or Ft. Lauderdale a n d is b u i l d i n g at t h e same rate as W e s t Palm Beach. Residential construction o n t h e southeast coast of Florida has suffered t h e most. N e w h o m e c o n s t r u c t i o n sagged t o a b o u t o n e - t h i r d the rate at t h e 1 9 7 9 peak. Foreclosures in Dade rose 52 percent t h r o u g h N o v e m b e r c o m p a r e d t o 1981. Broward C o u n t y foreclosures j u m p e d 42 percent. In the t w o - c o u n t y area, 7,928 h o m e s w e r e foreclosed d u r i n g t h e 1 1 - m o n t h period. 1 1 C o n d o m i n i u m prices d r o p p e d 19 percent f r o m late 1981 t o late 1982. ' D a d e and B r o w a r d C o u n t i e s Circuit Courts. 11 T a b l e 2. Residential Construction by SMSA Number of Units (12 month Cumulative Rate) FLORIDA Jacksonville Tallahassee Pensacola Daytona Gainesville Melbourne Orlando Lakeland Tampa-St. Petersburg Sarasota Ft. Myers West Palm Beach Ft. Lauderdale Miami 1979-80 Peak 1982 Trough Decline from Peak November 1982 195,993 101,439 -48% 104,480 -35% -45% -36% -36% -70% -55% -37% -45% -48% -55% -53% -68% -73% -66% 5,336 2,101 3,301 4,075 1,042 3,332 9,475 2,318 15,943 3,149 4,595 9,808 7,062 8,438 6,608 2,808 3,469 6,123 3,433 7,159 12,504 3,904 30,212 6,899 9,652 29,844 24,355 22,475 4,331 1,549 2,234 3,934 1,032 3,204 7,896 2,130 15,943 3,149 4,485 9,471 6,692 7,695 Increase from Trough + 3% +23% +35% +47% + 3% + 0% + 3% +19% + 8% — — + + + + 2% 3% 5% 9% Note: Cyclical peaks and troughs for each city varied within the years shown. Source: McGraw-Hill Information Systems Company, D o d g e C o n s t r u c t i o n P o t e n t i a l s . H o m e sales began t o pick up late in 1982, indicating n e w construction should turn up early this year. The slight u p t u r n in south Florida h o m e b u i l d i n g is primarily a local phenomenon in the single-family market as residents take advantage of lower interest rates to upgrade their homes. C o n d o m i n i u m sales are resulting f r o m a slight p i c k u p in migrants from the Northeast. Foreigners have not reentered t h e market, and investors are lying low until the general e c o n o m y improves. As of O c t o b e r there w e r e 21,000 n e w h o m e s up for sale in M i a m i , Ft. Lauderdale and W e s t Palm Beach. That represents a b o u t one year of building at current rates. W i t h such an overhang of n e w h o m e s for sale, construction seems unlikely t o pick up substantially in 1983. Miami's residential construction industry may never fully recover, since Dade C o u n t y experie n c e d a net o u t f l o w of residents beginning in 1981. People appear to be leaving south Florida and m o v i n g up the coast. Tourism W h i l e tourism is no longer the d o m i n a n t industry in Florida, it still accounts for 17 percent of the state's employment. Nationwide, tourism jobs comprise less than 5 percent of employment. 12 Florida's tourist industry is significant n o t only because of its immediate economic impact but also because of its "spillover" effect on other southeastern states, particularly Georgia and Tennessee. These states increasingly have been able t o capitalize on pass-through traffic by increasing interest in local attractions. The n u m b e r of visitors t o Florida generally slows d o w n during a national recession w h e n working-class Americans cannot afford their annual Florida vacations. However, t h r o u g h the t w o worst recessions since W o r l d W a r II, the n u m b e r of tourists never d e c l i n e d m o r e than a few percentage points. Even more important, a p i c k u p in tourism usually precedes a Florida recovery. From 1973 t o 1 9 7 4 , tourists c o m i n g t o Florida d e c l i n e d o n l y 4 percent, while in 1975, at the b o t t o m of t h e recession, arrivals w e r e up 11 percent. W i t h the onset of national recessions in 1 9 8 0 and 1981, growth in the Florida tourist industry began t o suffer, but tourism never declined. The n u m b e r of arrivals rose slightly f r o m 35.8 million in 1980 t o 35.9 million in 1981. Final figures for 1982 are e x p e c t e d t o show a little growth over the previous year. Estimates of 1982 arrivals range anywhere from a 10 percent increase to a 5 percent decline. Official Florida Division of Tourism data show that tourists from the U. S. and Canada w e r e up 7.4 percent FEBRUARY 1983, E C O N O M I C REVIEW " through S e p t e m b e r c o m p a r e d t o JanuarySeptember 1981. This figure appears high since other indicators show a d e c l i n e in tourism. A t t e n d a n c e at a sample of t h e state's major attractions was off 5 percent during most of t h e year, 12 w h i l e hotel and m o t e l o c c u p a n c y d e c l i n e d 4 percent in Orlando and 8 percent in south Florida through September. 1 3 While the state does not monitor international tourism on a regular basis, M i a m i tourist officials estimate that foreign tourist arrivals in Dade County w e r e d o w n 11 percent for t h e year through September. 1 4 O n balance, it appears that the final figures for total tourist arrivals during 1982 will be a b o u t 5 percent a b o v e 1981. M a n y industry representatives believe the World's Fair in Knoxville had a siphon effect last year, d r a w i n g m i d d l e - i n c o m e a n d bluecollar tourists f r o m t h e M i d w e s t a n d Northeast to Tennessee rather than Florida. H o w e v e r , other factors such as t h e recession and t h e reduced value of t h e dollar ( w h i c h discourages foreign visitors) must also be b l a m e d for last yeaKs comparatively p o o r record. The w e a k s h o w i n g of tourism, along w i t h a depressed housing sector, translated into p o o r retail sales for Florida. By last year's t h i r d quarter, retail sales in Florida w e r e not m u c h better than in 1981, and, if figures were available for inflation-adjusted sales, retail trade w o u l d be reported several percentage points b e l o w the previous year. The worst p e r f o r m i n g area was M i a m i , w h e r e over 20 percent of Florida sales are made. Stronger sales g r o w t h in north and central Florida offset t h e weakness in south Florida. D u r i n g t h e third quarter, total retail sales in Florida w e r e 0.4 percent higher than in 1981. In M i a m i , sales w e r e off 15 percent for the same period. 1 5 The sharp d r o p in retail sales in M i a m i is linked particularly t o the decline in foreign visitors in 1982. A n d those foreigners w h o are c o m i n g are staying w i t h friends or relatives or in private c o n d o m i n iums m o r e o f t e n and s p e n d i n g less m o n e y than in t h e past. The last quarter of t h e year, for w h i c h official tourist figures aren't available as of publication, should be w e l l ahead of 1981. A t t e n d a n c e at EPCOT, w h i c h o p e n e d in O c t o b e r , was r u n n i n g a b o u t 30 p e r c e n t ahead of w h a t officials had e x p e c t e d . Airplane a n d hotel bookings for the holiday season w e r e u p from 1981. Florida's tourist industry representatives are optimistic that this strong fourth quarter showing will carry over t o 1983. O r l a n d o has p r o v e d t o be an attractive area for family vacations. Costs are still quite low. A recent study shows that average b e d and board for o n e day in O r l a n d o costs $69.75 c o m p a r e d t o $91.60 in M i a m i , $99.25 in N e w Orleans, $ 1 2 4 in San Francisco, and $ 1 6 3 . 8 0 in N e w York. 1 6 W a l t Disney W o r l d expects 20 million admissions in its fiscal year e n d i n g next S e p t e m b e r , up 60 percent f r o m 1982's 12.56 million. The 1982 figure was d o w n 5 percent f r o m 1981. Since t h e average visit t o Disney is e x p e c t e d t o last 3 1/2 days, t h e admissions p r o j e c t i o n translates into about 2 million additional tourists in Florida in 1983 as a result of EPCOT. The t h e m e park e m p l o y e d 3,500 n e w p e r m a n e n t employees to staff EPCOT, and seasonal demands should push that n u m b e r close t o 5,000 by spring. 17 16 R u n z h e i m e r a n d Co., M e a l - L o d g i n g Cost Index. " J o h n Dyer, Walt Disney World, t e l e p h o n e c o n v e r s a t i o n D e c e m b e r 9 1982. ''Florida A t t r a c t i o n s Association. ' 3 Orlando w e i g h t e d average based on Pannell, Kerr, Forster d a t a r e p o r t e d in T r e n d s i n t h e H o t e l I n d u s t r y , S e p t e m b e r 1 9 8 2 , and s o u t h Florida data reported by Laventhol & Horwath, S o u t h F l o r i d a T r e n d of Business L o d g i n g Industry, September 1982. ,4 "Dade C o u n t y Travel T r e n d s Third Q u a r t e r Report J a n u a r y - S e p t e m b e r 1982," D e p a r t m e n t of Tourism, M e t r o p o l i t a n Dade County. ,5 Retail sales d a t a f r o m U.S. D e p a r t m e n t of C o m m e r c e , B u r e a u of t h e Census, " C u r r e n t Business Reports M o n t h l y Retail Trade." ' FEDERAL RESERVE B A N K O F A T L A N T A 13 O t h e r major Florida attractions are a d d i n g features this year t o capitalize on the Disney visitors. A n e w attraction by M C A studios, called Universal City, is being constructed this year b u t will not o p e n until late 1984. By its t h i r d year, it is e x p e c t e d t o attract 4 million visitors annually. 1 8 W h i l e EPCOTs strength will not really be felt until summer, the family vacation season, south Florida is h o p i n g the attraction will also boost Florida's w i n t e r tourism. A fare war b e t w e e n major airlines d r o p p e d t h e price of a one-way ticket t o $99, attracting m a n y more vacationers from the Northeast and M i d w e s t this winter. Major airlines say their bookings o n Florida flights are extremely good, a n d t h e y are optimistic that the increased traffic will h o l d at least through March. Additionally, hotel and m o t e l occupancy rates began t o i m p r o v e late in 1982. 1 9 Several clouds loom on the horizon, however. Is the EPCOT-generated b o o m only a temporary p h e n o m e n o n that will settle d o w n after a f e w months? W i l l other areas of the state suffer as tourists flock to EPCOT and spend more money on longer stays there? W i l l M i a m i recover its reputation as a vacation and convention attraction? M i a m i is c o u n t i n g on an i m p r o v e d season this year. Both domestic and international travel w e r e d o w n 11 percent through September. A c o n v e n t i o n of the American Society of Travel Agents, held last O c t o b e r , is e x p e c t e d t o boost tourism in 1983. A n e w c o n v e n t i o n facility should also increase Miami's chances of attracting c o n v e n t i o n business. Miami's image, however, may still be a hindrance. Repeated signs of unrest, such as the Liberty City riots of 1980 and the recent incidents in O v e r t o w n , c o n t i n u e t o c l o u d Miami's reputation as a safe tourist destination. In a recent survey, 2 5 0 c o n v e n t i o n travel planners ranked M i a m i b e l o w the t o p 10 cities. 20 Also, as long as the dollar remains relatively strong, the European and Canadian travel market will remain soft. Latin A m e r i c a n visitors have been affected not " " P e r s p e c t i v e on Regional G r o w t h 1 9 8 2 - 1 9 8 6 , " East Central Florida Regional Planning Council, O c t o b e r , 1982, p. 15. " H o t e l & M o t e l Association, Rosemary Winslow, t e l e p h o n e conversation D e c e m b e r 9, 1982. ' " W i l l i a m Poundstone, " C o p i n g With The New Geography," A s s o c i a t i o n a n d S o c i e t y M a n a g e r , A p r i l / M a y 1982, pp. 1 8 - 2 3 . 1 4 only by a disadvantageous exchange rate, b u t also by political and financial troubles at home. In 1983 t h e general o u t l o o k for Florida's tourist industry seems contingent upon national, a n d even international, e c o n o m i c recovery. Probably O r l a n d o a n d o t h e r northern areas of the state will d o better t h a n south Florida Pentup d e m a n d for travel, the o p e n i n g of EPCOT, and the absence of a c o m p e t i n g attraction such as the Knoxville W o r l d ' s Fair augur w e l l for Florida's t o u r i s m in 1983; indeed, major forecasters e x p e c t an 8 percent rise in visitors. 21 Nonetheless, a return t o peak 1 9 7 9 levels seems t o d e p e n d o n an e c o n o m i c u p t u r n that reaches the industrial heartland's m i d d l e a n d working-class travelers, as well as foreigners, w h o comprise so large a p o r t i o n of Florida's market. International Trade and Finance Florida's geographic l o c a t i o n has natural advantages for encouraging international trade, Its 580 miles of coastline offer 16 seaports. Close p r o x i m i t y t o Latin A m e r i c a makes Florida a natural center of trade b e t w e e n the Americas. In fact, the emergence of the Latin countries as a growing export market in the 1970s encouraged Florida's d e v e l o p m e n t as a center of international activity. The M i a m i Customs District (south Florida ports) in 1 9 8 0 b e c a m e the 9 t h busiest U. S. e x p o r t district c o m p a r e d t o its 1 5 t h ranking in 1970, and the T a m p a Customs District (central and north Florida ports) advanced to 1 4 t h busiest c o m p a r e d t o 1 8 t h in 1970. 2 2 Altogether, exports through Florida Customs Districts n o w account for almost 5 percent of the total U.S. exports c o m p a r e d t o only 2.7 percent 10 years ago. Just as geography contributes t o Florida's advantage, so does the international nature of Miami's population. Foreign-born residents of Dade county w h o are of Hispanic origin account for over 36 percent of the population. Including their offspring born in t h e U n i t e d States, this figure will be m u c h higher in the future. The 2 ' U n i v e r s i t y cf Florida Bureau of Economic and B u s i n e s s Research; t h e Dick Pope, Sr. Institute for Tourism Studies at the University of Central Florida. " U . S . Department of Commerce, Bureau of the Census, W a t e r b o r n e E x p o r t s a n d G e n e r a l I m p o r t s , 1 9 7 0 & 1980. FEBRUARY 1 9 8 3 , E C O N O M I C R E V I E W " t' i > large Hispanic p o p u l a t i o n provides a natural labor force for m u l t i n a t i o n a l corporations that must operate across language a n d cultural borders. Following a d e c a d e of surging g r o w t h in Florida's international activity, 1982 was a weak year. Exports, w h i c h comprise m o r e than half of total foreign trade in Florida, d r o p p e d 10 percent in dollar value in January-September 1982. South Florida exports, which o u t n u m b e r imports by more t h a n t w o t o one, d r o p p e d 6.5 percent in the January-September p e r i o d f r o m the prior year. 23 Exports t o Latin A m e r i c a grew increasingly worse as the Latin countries suffered from financial, political a n d e c o n o m i c troubles. These conditions do not bode well for Florida international trade in 1983. Even if a strong U.S. recovery materializes, Latin e c o n o m i e s usually lag by at least six months. It is d o u b t f u l that exports to Latin A m e r i c a will s h o w any improvement in 1983. Trade t h r o u g h t h e T a m p a Customs District was depressed in 1982 because of w e a k w o r l d f " E x p o r t and import t r a d e d a t a r e p o r t e d in H i g h l i g h t s o f U . S . E x p o r t a n d I m p o r t T r a d e , U.S. D e p a r t m e n t of C o m m e r c e , B u r e a u of t h e Census, September 1982. FEDERAL RESERVE B A N K O F A T L A N T A 15 -N d e m a n d for phosphate. Total exports w e r e d o w n 19 percent for t h e first nine m o n t h s of t h e year. Some i m p r o v e m e n t was n o t e d late in the year as laid-off p h o s p h a t e workers w e r e recalled and closed mines and processing plants w e r e r e o p e n e d . Exports of rock are e x p e c t e d to be no b e t t e r in 1983 than in 1982, but exports of processed fertilizer should rise. Imports w e r e stronger t h a n exports in 1982 and c o n t i n u e t o look strong in 1983. In t h e M i a m i District, i m p o r t s rose 6.5 percent in 1982. South Florida should benefit from increased trade this year as imports are e x p e c t e d t o account for a b o u t 4 0 p e r c e n t of all trade, as o p p o s e d t o 30 percent in 1982. The rising significance of imports is particularly attributable t o n e w facilities at the M i a m i port w h i c h s p e e d cargo handling. Several n e w s h i p p i n g lines will be i m p o r t i n g t h r o u g h M i a m i in 1983. The port is in the midst of a $ 2 5 0 million, 225-acre expansion that will nearly d o u b l e its size. I m p o r t s t h r o u g h the T a m p a District fell 5 percent in 1982, although some sectors remained strong. The n u m b e r of i m p o r t entries a n d a m o u n t o f customs collections at the Port of Jacksonville each increased by m o r e than 15 percent in the fiscal year e n d i n g in September. I m p o r t s of foreign vehicles rose t o 373,000, ahead of fiscal year 1981 by a b o u t 1,600 units. Coffee, steel and lumber imports also increased. O r l a n d o prospered as a port of entry for fastg r o w i n g imports of high-duty Brazilian orange juice. Imports s h o u l d c o n t i n u e t o be a positive factor in Florida trade this year as south Florida gears up t o bring in m o r e goods, the value of the dollar remains relatively strong, a n d t h e U.S. recovery gets underway. Exports t o Latin countries are likely t o remain weak, a n d phosphate s h i p m e n t s may i m p r o v e o n l y slightly f r o m 1982. Some diversification in Florida's e x p o r t trade is e x p e c t e d as firms try t o o p e n European a n d African markets. Florida's increased international trade, as w e l l as i m p o r t a n t bank regulatory changes, have spurred the d e v e l o p m e n t of international finance. A significant financial infrastructure e v o l v e d over the past several years that will p r o m o t e international trade in years t o come. O v e r 2 0 0 international b a n k i n g offices operate in the state, m o s t in M i a m i . These entities include a growing number of Florida commercial banks w i t h strong international d e p a r t m e n t s , out-of-state U. S. c o m m e r c i a l banks o p e r a t i n g 5 internationally o r i e n t e d banking subsidiaries (Edge Act corporations), and foreign banks operating Edge Act corporations, foreign bank agencies or representative offices. W h i l e t h e introduction of Edge Act corporations facilitated international financial d e v e l o p m e n t over the past several years, several financial innovations will provide even greater opportunity for Florida t o benefit from international banking in 1983. Last year eligible banking organizations w e r e authorized, in effect, t o c o m p e t e w i t h the offshore Eurocurrency centers in the Caribbean and elsewhere. By establishing International Banking Facilities (IBFs), banking organizations can c o n d u c t deposit and loan business w i t h foreign residents, including banks, without being subject t o reserve requirements or interest rate ceilings. By September, 395 IBFs had been established in the U n i t e d States, 60 of t h e m in Florida and 180 in N e w York. In the first nine months, total IBF assets grew over $1 50 billion. IBFs in N e w York a c c o u n t e d for more than 75 percent of this total, those in Florida 2 percent. T w o o t h e r recent innovations in financial institutions are likely t o enhance Miami's status as an international financial center. The Insurance Exchange of the Americas o p e n e d in O c t o b e r , as a market for reinsurance and high-risk insurance similar t o Lloyd's of London. In that same m o n t h , President Reagan signed t h e Export Trading C o m p a n y Act, enabling t h e formation of e x p o r t trading companies (ETCs). ETCs are i n t e n d e d t o strengthen the U.S. export sector by c o m b i n i n g the skills and resources of several U.S. companies to enhance their e x p o r t capabilities. Despite these innovations, the o u t l o o k for international banking activity is c l o u d e d by d e b t a n d liquidity problems in several Latin American countries, from M e x i c o t o Argentina. F u r t h e r m o r e , t h e i m p a c t of t h e Insurance Exchange and ETCs in M i a m i is likely t o be m o d e r a t e in 1983. Eventually, though, Edge corporation subsidiaries of money center banks might benefit, in particular, f r o m the ETC legislation because of their membership in worldwide b a n k i n g organizations. Business Development N e w business d e v e l o p m e n t h e l p e d push the Florida e c o n o m y t o n e w heights through 1980 and 1981. But in 1982, new incorporations « T a b l e 3. Corporate Profits—Florida Companies Third Quarter, 1982 Banks, S&Ls Utilities Manufacturing Retailers Technology Financial Developers Transportation Profits in Millions % change from 1981 $ 70.0 $149.0 $ 23.0 $ 37.0 $ 19.5 $ 4.8 $ -2.8 $-40.0 +32.0% +22.3% -1.3% -4.4% -47.2% -50.5% N/M N/M N / M = not meaningful. were 9 percent lower than 198 1 2 4 and business b a n k r u p t c y filings rose 3 0 percent in the t h i r d quarter c o m p a r e d t o the previous year. 25 In 1982, corporate profits of Florida firms w e r e m i x e d (Table 3). 2 6 Third quarter results showed manufacturing profits 1.3 percent below the previous y e a r — a result of e x t r e m e l y strong profits by some a n d very w e a k profits or even losses by others. High-technology manufacturers recorded a 4 7 percent decline for the quarter. Real estate developers lost $2.8 million in the third quarter, a n d transportation companies recorded a $40 million loss. The latter loss was attributable almost entirely t o Eastern Airlines; other transportation firms increased profits in the third quarter. Retailers' profits declined 4.4 percent Profits of financial concerns other than banks and savings and loans d r o p p e d 50 percent, w h i l e the depository institutions increased profits by 32 percent. Utilities managed t o s h o w a profit gain of 22 percent. The profits picture translated directly into employm e n t gains and losses. W h i l e manufacturing d r o p p e d 4.2 percent in 1982, e m p l o y m e n t in other business sectors did well. E m p l o y m e n t in wholesale trade and retail trade rose 4.0 percent The financial industry posted a 2.6 percent gain, and the services sector w e n t unscathed as e m p l o y m e n t rose 6.1 percent. " D u n & Bradstreet Incorporations." Business Economics Division, "Monthly New " U n p u b l i s h e d d a t a from t h e administrative office of the U S C o u r t s Washington, D.C. ?6 Larry Birger, "Corporate profits on a sea of trouble," T h e M i a m i H e r a l d B u s i n e s s M o n d a y , N o v e m b e r 29, 1982, p. 1. 16 F E B R U A R Y 1 9 8 3 , E C O N O M I C REVIEW I As corporate profits d r o p p e d sharply in many i sectors b o t h in Florida a n d t h e rest of the * nation, expansion of existing businesses a n d entrance of n e w business t o Florida t o o k a t u r n 9 for the worse. The industrial sector, b u o y e d in the late 1970s a n d early 1980s, suffered in f 1982 because f e w e r firms relocated t o the 1J state. Additionally, the state's high-technology firms met increasing competition in 1982 w h i c h bit into profits. •> In the first six m o n t h s o f 1982, o n l y 35 n e w firms j o i n e d Florida industry c o m p a r e d t o 89 during t h e same p e r i o d of 1981, a 60 percent decline. E m p l o y m e n t generated by these firms totaled 6,755 c o m p a r e d t o 11,916 the previous M year. Capital i n v e s t m e n t resulting f r o m t h e new locations a m o u n t e d t o $158.3 m i l l i o n c o m p a r e d t o $430.9 million in 1981. Even the fast-growing electronics industry, the largest m a n u f a c t u r i n g sector in Florida, « decreased jobs in 1982 by 6.0 percent. The sluggish e c o n o m y a n d Japanese i m p o r t s have > cut into this heretofore vibrant part of t h e » state's e c o n o m y . S e m i c o n d u c t o r makers such as Western Electric in O r l a n d o a n d Harris < Corporation in M e l b o u r n e have spent aggressively o n capital expansion, resulting in some excess capacity. M o s t of the chipmakers' o u t p u t goes t o capital e q u i p m e n t markets, w h i c h have been stagnant lately because of t h e recession. Harris' operating earnings fell 18 percent for the fiscal year e n d e d last June 30. The firm expects a gradual return t o profitability in 1983 > for the s e m i c o n d u c t o r business. I ' A bright spot for industrial e m p l o y m e n t in 3 will be increased defense spending. 2 7 19g " S e e William J. Kahley, " S o u t h e r n Fireworks: Will D e f e n s e S p e n d i n g L i g h t Up the S o u t h ? " E c o n o m i c R e v i e w , Federal Reserve B a n k of A t l a n t a D e c e m b e r 1982. FEDERAL RESERVE B A N K O F A T L A N T A Florida is the f o u r t h largest recipient of Departm e n t of Defense personnel expenditures a n d ranks a m o n g t h e t o p five states in several major p r o c u r e m e n t programs. The state receives the second highest dollar v o l u m e of w e a p o n s contracts, the t h i r d highest of aircraft engines a n d the f o u r t h highest of military services. The Electronic Industries Association estimates that electronic c o m p o n e n t s as a share of the cost of all defense hardware will j u m p from 40.6 percent in 1981 t o 4 7 percent in 1991. M o s t high t e c h n o l o g y firms are still fulfilling defense contracts acquired during the Carter administration. The current administration's s p e n d i n g plans will begin t o i m p a c t Florida contractors in 1983. Increasing g o v e r n m e n t p r o c u r e m e n t contracts should also boost the recession-buffeted machinery and transportation e q u i p m e n t industries. These firms should benefit from an increase in missile p r o d u c t i o n (in the O r l a n d o area) and the expansion of the Space Shuttle program at K e n n e d y Space Center. A positive factor for c o m m e r c i a l i n v e s t m e n t in 1982 was a b o o m in office b u i l d i n g construction. I n v e s t m e n t in total nonresidential construction leveled off in 1982 at $3.8 billion, a b o u t t h e same as in 1 9 8 1 2 8 ( C h a r t 6). N e w office buildings in most major cities k e p t total investm e n t f r o m actually declining. It is feared, though, that t h e b o o m may lead t o a bust. Strong d e v e l o p m e n t of international trade and finance a n d the legal and a c c o u n t i n g 17 services associated w i t h the industry contributed t o t h e office b o o m in M i a m i . A t least 19 projects w e r e u n d e r w a y at o n e t i m e last year a n d o c c u p a n c y r e m a i n e d high at 93 p e r c e n t by year end. C o n t i n u e d g r o w t h of t h e financial sector is e x p e c t e d t o absorb n e w office space c o m i n g o n line in 1983 a n d 1984, b u t an u n a n t i c i p a t e d slack in n e w business d e v e l o p m e n t w o u l d leave t h e city w i t h u n o c c u p i e d real estate. The real c o n c e r n in M i a m i is t h a t office space in the suburbs, outside the financial district, may be only 85 p e r c e n t o c c u p i e d in 1983. Reports of office o c c u p a n c y in Palm Beach C o u n t y are rather dismal. Buildings that o p e n e d in 1982 f o u n d little demand. Companies needing space d e l a y e d t h e i r plans until t h e national e c o n o m y t u r n s a r o u n d . S o u t h Palm Beach c o u n t y has an abysmal o c c u p a n c y rate of 70 p e r c e n t ; W e s t Palm Beach is slightly b e t t e r w i t h 80 percent. 28 O t h e r m a j o r Florida cities also r e p o r t fairly low occupancy rates. Ft Lauderdale's occupancy rate is 84 p e r c e n t , Tampa's 85 p e r c e n t , St. Petersburg's 9 0 percent, O r l a n d o ' s 90 p e r c e n t a n d Jacksonville's 88 p e r c e n t 2 9 Overall, business d e v e l o p m e n t is not expected t o p i c k u p substantially this year. Housing, t o u r i s m a n d p o p u l a t i o n g r o w t h t e n d t o lead a Florida r e c o v e r y b e f o r e business g r o w t h responds. N a t i o n w i d e , c o r p o r a t e profits w e r e e x t r e m e l y w e a k across m o s t industries last year. A r e t u r n t o solid e x p a n s i o n i n t o Florida will likely lag a general e c o n o m i c recovery b y six m o n t h s or more. For m o s t corporations, this year s h o u l d b e o n e of r e b u i l d i n g t h e balance sheet a n d establishing greater liquidity. C o r p o r a t e expansion is likely t o hit Florida again in 1 9 8 4 , b u t c o m m e r c i a l c o n s t r u c t i o n may w a n e in 1 9 8 3 as n e w space is a b s o r b e d a n d resources shift b a c k t o t h e residential market. F.W. D o d g e " " F l o r i d a ' s Downtowns," a special section in T h e M i a m i H e r a l d B u s i n e s s M o n d a y , October 2 5 , 1 9 8 2 « a n d — D o n a l d L. K o c h W . Steinhauser De|ores 18 F E B R U A R Y 1 9 8 3 , E C O N O M I C REVIEW Summary Florida s h o u l d e n j o y a n u p t u r n in e c o n o m i c activity t h a t w i l l lay t h e f o u n d a t i o n f o r s t r o n Mq e c o n o m i c g r o w t h in 1 9 8 4 . Positive Factors Negative Factors 1. Population growth in 1983 should be stronger than 1982's 200,000 new residents because of a more active national housing market and an improved national economy. But the initial upturn should be modest It generally takes six t o nine months of improvement in the national economy to generate renewed movement across the country. 2. Housing starts have already begun to turn up. The increased sales are coming primarily from pent-up demand of local residents in the single-family market w h o are anxious to take advantage of lower interest rates In-migration from the Northeast has picked up somewhat. But there have been few signs of renewed interest from the Midwest. Anticipated population growth for 1983 translates into about 126,000 new households this year. This level of demand warrants about a 2 5 % increase in new home construction. While the increase may be substantial, the level is still far below the peak construction level of 200,000 units per year. 3. Tourism should improve in 1983, particularly with Disney World's new EPCOT as a drawing card Strong airline and hotel bookings indicate the season will surpass last year's and reduced air fares will contribute to the health of this winter tourist season. Foreign tourists are not likely to provide a stimulus this year, as they have in years p a s t since the value of the dollar should remain strong, especially relative to South American currencies Miami's ability to shed its tainted image a n d attract convention business is still questionable. 4. International trade, particularly with Latin countries, is shifting away from other U.S. ports to Florida ports. This shift and the new financial entities to support international trade bode well for Florida in 1983. Additionally, Miami's new port facilities will enable more imported goods t o flow through. Several new shipping lines have signed up to import through Miami in 1983. The volume of exports to Latin countries will continue to be weak in 1983 as those nations battle political, economic and financial instability. Phosphate shipments should improve, but only slightly. 5. Federal spending on defense should stimulate the Florida manufacturing sector, and an improved national economy should benefit Florida companies in general. ' FEDERAL RESERVE B A N K O F A T L A N T A But industrial relocations are likely to be postponed until 1984 when higher corporate profits and more liquidity have been restored to corporate balance sheets. Furthermore, the office building boom of 1981-82 will not provide strength in 1983. 19 Atlanta's domination of state statistics belies the recession's impact on the state's other regions, which face a period of adjusting to the needs of an emerging "higher-tech" economy. Georgia: Rebuilding in 1983 W i t h m e t r o p o l i t a n Atlanta supplying m u c h of the m o m e n t u m , Georgia's e c o n o m y as a w h o l e is in better shape t h a n most of the Southeast going into 1983. As of N o v e m b e r , t h e state's u n e m p l o y m e n t rate (SA) was 8.3 percent c o m p a r e d t o 11 percent and 10.7 percent for the Southeast and U n i t e d States, respectively. Georgia entered 1983 w i t h almost the same u n e m p l o y m e n t rate as at t h e start of t h e year while t h e Southeast and nation began w i t h significantly higher rates. A l t h o u g h aggregate figures paint a picture of " b e t t e r than elsewhere," various regions within the state have fared differently. Atlanta d o m i nates state statistics and is o r i e n t e d t o w a r d recession-resistant service industries, while the rest of the state d e p e n d s m o r e heavily on manufacturing and on recession-sensitive textile and apparel manufacturing. O u t s i d e of t h e m e t r o p o l i t a n Atlanta area, Georgia has weathered t h e recession a b o u t the same as the rest of the nation. The Georgia a n d U.S. economies are remarkably alike in e m p l o y m e n t structure, w i t h their respective shares of t h e manufacturing, construction, mining, and t h e finance, insurance, and real estate sectors w i t h i n 2 percent of each other. Georgia does have a s o m e w h a t smaller services sector a n d a larger g o v e r n m e n t sector (see Charts 1 and 2). Georgia also has a considerably smaller p r o p o r t i o n of manufacturing e m p l o y m e n t in d u r a b l e s — o n l y 35 p e r c e n t c o m p a r e d t o 60 percent for the nation. That smaller share makes the state less vulnerable t o recession, since buyers t e n d t o p o s t p o n e purchasing durables during a slowdown. Because « durables last longer, purchases can be postponed. Higher financing charges also inhibit purchases d u r i n g recessions. O t h e r factors favor Georgia's e c o n o m i c performance relative t o t h e U n i t e d States. Lower labor costs in manufacturing a n d m a n y o t h e r sectors reduce t h e likelihood of layoffs in Georgia. Furthermore, plant e q u i p m e n t t e n d s t o be n e w e r and m o r e efficient than in m a n y parts of t h e nation, and so plants t e n d t o be closed last. O f course, w h i l e lower labor costs encourage e m p l o y m e n t , i n c o m e g r o w t h is not greatly stimulated by g r o w t h in lower paying jobs. As a result, Georgia's per capita personal i n c o m e (by residence) in 1 9 8 0 was $8,041 — just 84.5 percent of the U.S. figure. M e a n w h i l e , A t l a n t a — w h i c h has a larger share of e m p l o y m e n t in higher paying service-related i n d u s t r i e s boasted a per capita personal i n c o m e of $9,997, some 5 percent above the national average of $9,511. Future problems do loom ahead. Job markets are changing t o w a r d " h i g h e r t e c h " industries. A u t o m a t i o n is requiring a m o r e skilled labor force not plentiful yet in some areas of the state. Some workers w i t h specialized skills for industries such as textiles a n d apparel face challenges adapting t o n e w industries a n d will find j o b s harder t o keep a n d harder t o get as j o b markets change. M a n y jobs in the data processing a n d i n f o r m a t i o n industries are filled by people moving in from outside the Southeast 1 'William J. Kahley, "Migration: Changing Faces of the South," E c o n o m i c Review, Federal Reserve Bank of Atlanta, 1982, Vo. LXVII, No.6 20 F E B R U A R Y 1 9 8 3 , E C O N O M I C REVIEW The Atlanta Region Chart 1 . U.S. N o n f a r m E m p l o y m e n t by Sector Annual Average Employment for 1981, U.S. Department of Labor Transportation/ Construction Public Utilities 4 7 % Nondurables 5.6% 8.8% Government 17.5% Mining 1.2% Services 20.3% Chart 2. G e o r g i a N o n f a r m E m p l o y m e n t by S e c t o r Construction IPublic ^ m Utilities*, S - ' 6.6% x 4 7% i Nondurables 1 Mining 0.4% The n e w year promises t o be a t i m e of rebuilding and rethinking, particularly in smaller businesses in smaller cities a n d t o w n s across the state. T h e industries a n d locations i n v o l v e d are diverse a n d i n c l u d e textiles t h r o u g h o u t t h e Highlands, P i e d m o n t , a n d o t h e r regions; transportation e q u i p m e n t in m e t r o Atlanta; t i m b e r and paper t h r o u g h o u t the state; a n d agriculture on t h e Coastal Plains. Georgia is a state of d i s t i n c t diversity, w h o s e geography varies f r o m m o u n t a i n s t o t h e coast. Though some industries can be f o u n d scattered t h r o u g h o u t t h e state, t h e e c o n o m i e s of t h e five major e c o n o m i c regions 2 d e p e n d o n d i f f e r e n t mixes. An e x a m i n a t i o n of these regions offers insight i n t o h o w Georgia will fare d u r i n g t h e c o m i n g year. ? The three major physiographic regions of the s t a t e — t h e Highlands, Piedmont, and Coastal P l a i n s — d o possess internal similarities. In addition, the Atlanta region's e c o n o m y differs significantly from the rest of the Piedmont as does the Coastal region from the Coastal Plains. See Georgia D e v e l o p m e n t P o l i c i e s Plan, Volume 2, 1978, published for internal use by the State of Georgia. ' FEDERAL RESERVE B A N K O F A T L A N T A Atlanta is different. It has t h e most diversified regional e c o n o m y in t h e state. M a n u f a c t u r i n g is less i m p o r t a n t than in t h e o t h e r regions. T h e " c i t y " relies more on stable e m p l o y m e n t sectors such as services, finance, insurance, retail a n d wholesale trade, a n d g o v e r n m e n t Furthermore, t h e A t l a n t a area e c o n o m y plays a large role in t h e state. Close t o half of t h e state's personal i n c o m e ( b y place of residence) c o m e s f r o m m e t r o Atlanta, w h i c h in 1 9 8 0 c o n t a i n e d 37 p e r c e n t of t h e state's p o p u l a t i o n . T h e health of t h e A t l a n t a region v e r y m u c h affects t h e state's e c o n o m y as a w h o l e . Atlanta's p o p u l a t i o n has g r o w n rapidly d u r i n g t h e 1970s, o u t s t r i p p i n g g r o w t h rates in b o t h Georgia a n d t h e U n i t e d States d u e t o m i g r a t i o n a n d high fertility. N e t m i g r a t i o n a d d e d as m a n y as 4 4 0 , 0 0 0 p e o p l e to a c c o u n t for half of t h e overall g r o w t h of t h e state. A m a j o r i t y of these migrants m o v e d t o Atlanta.This m o v e m e n t of p e o p l e a n d j o b s helps t o explain Atlanta's healthy economic performance during the d e c a d e . Even so, a l o n g s t a n d i n g p r o b l e m p e r s i s t s — a g r o w i n g share of n e w j o b s c r e a t e d are in w h i t e - c o l l a r o c c u p a t i o n s for w h i c h m a n y Atlantans are u n q u a l i f i e d . R e d u c i n g t h e mism a t c h b e t w e e n j o b o p p o r t u n i t i e s a n d t h e skill levels of a large segment of t h e area's p o p u l a t i o n base is the most i m p o r t a n t e c o n o m i c challenge A t l a n t a faces. T h e m i s m a t c h helps e x p l a i n w h y i n c o m e p e r p e r s o n in Atlanta, t h o u g h h i g h e r t h a n t h e nation or state, grew less than either t h e nation o r state in t h e 1970s. The service and trade sectors provide w e l c o m e stability. As a group, these e m p l o y m e n t categories 3 c o n t r i b u t e t h r e e - f o u r t h s of Atlanta's personal i n c o m e . T h e y have b e e n relatively stable d u r i n g 1 9 8 2 a n d m a n y s h o u l d s h o w m o d e s t r e c o v e r y d u r i n g 1 9 8 3 . In fact, t h e t r a d e a n d service sectors saw increased e m p l o y m e n t d u r i n g 1 9 8 2 . H o w e v e r , Atlanta's g o v e r n m e n t sector has b e e n hit b y state a n d local b u d g e t c r u n c h e s n o t likely t o reverse in 1983. The t r a n s p o r t a t i o n a n d p u b l i c utilities sector in m e t r o A t l a n t a plays an i m p o r t a n t role. T h e largest c o m p o n e n t is related to t r a n s p o r t a t i o n Atlanta's Hartsfield Airport. Hartsfield p r o v i d e s 3 The service and trade sectors include: services, transportation and public utilities, wholesale trade, retail trade, government, and the finance, insurance, and real estate sector 21 Physiographic Regions of Georgia 29,000 jobs, m o r e than any single e m p l o y e r in Atlanta. M o s t of the 29,000 workers fall in t h e transportation sector, w h e r e workers average $30,000 per year. The a i r p o r t — t h e nation's s e c o n d busiest b e h i n d Chicago's O ' H a r e — p r o v i d e s an econ o m i c catalyst for b o t h Atlanta and the state. Manufacturers and corporate headquarters are attracted by access. Warehousing and servicing facilities follow. Hotels, entertainment facilities, conventions, and tourism are further benefits. The airport e m p l o y m e n t o u t l o o k d e p e n d s largely o n passenger traffic. T h o u g h air traffic is d o w n statewide, Atlanta's activity looks brighter. Passenger arrivals at the state's five airports w i t h s c h e d u l e d service w e r e b e l o w levels of 1981 and even 1980. Yet i m p r o v e m e n t may be o n the horizon at Hartsfield. Delta and Eastern— b o t h of w h i c h use Atlanta as a h u b c i t y — h a d a better N o v e m b e r in 1982 than in 1981. Tourism is an i m p o r t a n t industry in Georgia. In Atlanta alone tourism provides 81,000 jobs, according t o the Atlanta Convention and Visitors 22 Bureau. M a n y of these are lower paid, semiskilled entry level jobs. Consequently, tourism's share of personal i n c o m e is smaller than its share of e m p l o y m e n t . Even t h o u g h recession has r e d u c e d business and c o n v e n t i o n travel, t h e c o n v e n t i o n bureau estimates that Atlanta's total n u m b e r of delegates in 1982 was 1.3 million, 15 percent ahead o f 1 9 8 1 . T w o n e w hotels are s c h e d u l e d t o be c o m p l e t e d this year, a n d t h r e e m o r e by 1984-85, nearly d o u b l i n g hotel rooms in Atlanta. The e x p a n d e d W o r l d Congress Center will boost d e m a n d for rooms a n d enable Atlanta t o host t h e largest meetings. Some components of manufacturing in Atlanta have fared even worse than in o t h e r areas of the state. A saving grace is that a relatively small portion of the Atlanta area's e m p l o y m e n t and i n c o m e (about 16 percent of the i n c o m e by place of residence) comes from manufacturing. O n l y f o o d processing s h o w e d any strength in n o n d u r a b l e e m p l o y m e n t d u r i n g 1982. Paper and textile e m p l o y m e n t d e c l i n e d at a greater rate than elsewhere in t h e state. Overall, nondurables in the Atlanta region d i d as poorly last year as in t h e rest of the state. Furthermore, Atlanta's t h r e e a u t o assembly plants have b e e n hit w i t h layoffs d u r i n g t h e current slump. Lower interest rates will aid e m p l o y m e n t this year. Lockheed's C5-B contract will have only minimal i m p a c t in 1983, since most p r o d u c t i o n workers will not be hired until late 1984. Construction activity remained relatively stable in Atlanta during the recession. The housing component certainly is poised to provide greater stimulus t o the region's e c o n o m y than nonresidential construction. In m e t r o Atlanta, singlefamily b u i l d i n g permits were up 31 p e r c e n t during t h e first 11 m o n t h s of 1982 and multifamily permits w e r e showing similar strength t o w a r d yearend (Table 1). Overall, housing has held up better in Atlanta than in t h e rest of the state. In-migration during the recession k e p t housing a r o u n d Atlanta stronger than in most of the U.S. Mortgage rate declines, in-migration and overall recovery should strengthen t h e region's housing recovery this year. Nonresidential construction apparently will add little t o the m e t r o area's construction recovery in 1983. An oversupply of office space is likely t o keep nonresidential contracts at low levels. In terms of square feet, nonresidential contracts had a slight surge at the e n d of the year t o bring N o v e m b e r c u m u l a t i v e FEBRUARY 1 9 8 3 , E C O N O M I C R E V I E W " T a b l e 1 . Selected Construction Indicators for Metro Atlanta and Georgia November Year t o Date 1981 1982 Percent Change 641 1,038 1,609 2,424 151.0 133.5 12,110 19,826 15,853 23,919 30.9 20.6 484 588 361 576 -25.4 -2.0 4,827 7,655 5,953 10,868 23.3 42.0 1,572 2,443 3,072 1,767 95.4 -27.7 26,045 30,169 29.290 23.291 12.5 -22.8 1981 1982 Percent Change Single-Family Building Permits (units) Atlanta Georgia Multifamily Building Permits (units) Atlanta Georgia Nonresidential Construction Contracts (square feet, 000) Atlanta Georgia Sources: U.S. Department of C o m m e r c e and McGraw-Hill Information S y s t e m s Company, D o d g e C o n s t r u c t i o n P o t e n t i a l s . levels to a 12.5 percent increase over the previous year. This c o m p a r e d t o a 23 percent drop for the state as a whole. Yet because of Atlanta's office space oversupply, 4 the rest of the state will probably be stronger for this year as a whole. Debate still continues on w h e t h e r the Atlanta office absorption rate will recover quickly enough this year to encourage further building. In short, Atlanta has weathered the recession well because of its e c o n o m i c mix. The service industries have held steady. In-migration provided some support for housing while office construction merely declined slowly. The manufacturing s e c t o r — w i t h interest rate-sensitive inventories—plays a small role in the region's e m p l o y m e n t In the c o m i n g year, these same factors for the most part will aid recovery. Housing, retail sales, services, and convention business should pick up w i t h the overall economy. Even durable manufacturing promises t o improve later in the year. The biggest negative factor for 1983 appears t o be a glut in office space. In-migration in 1983 may help prevent u n e m p l o y m e n t f r o m declining faster but will stimulate i n c o m e g r o w t h — s i x months after recovery if past patterns r e p e a t "Various experts e s t i m a t e Atlanta's office vacancy rate at 15 to 20 percent. FEDERAL RESERVE B A N K O F A T L A N T A 23 T a b l e 2. Population and Personal Income by Place of Residence in Georgia and Sub-State Regions in Georgia Region Highlands Atlanta Piedmont Costal Plains Coast State Population in 1980 Percent of State Region's Total Personal Income in 1980 651,100 2,034,800 1,229,900 11.9 37.1 22.5 22.3 6.2 100.0 $ 4,518,870,000 $20,340,365,000 $ 8,757,236,000 $ 7,680,641,000 $ 2,753,613,000 $44,043,727,000 1,220,000 342,000 5,477,400 Percent of State 10.3 46.2 19.9 17.4 6.3 100.0 Per Capita Personal Income $6,940 $9,997 $7,120 $6,296 $8,052 $8,041 Source: Local Area Personal Income, Southeast Region (Vol 6), Released June, 1 9 8 2 , Bureau of Economic Analysis, U.S. Department of Commerce. Data is a g g r e g a t e d by c o u n t i e s — d i s c l o s u r e regulations prevent subtotals from equaling totals. Highlands The H i g h l a n d s is o n e of t h e least p o p u l a t e d regions, b u t most of t h a t p o p u l a t i o n is urbanized (Table 2). This region d e p e n d s o n manufacturing for a greater share of personal i n c o m e — 4 5 p e r c e n t — m o r e t h a n a n y o t h e r part of Georgia. T w o - t h i r d s of t h e s e j o b s are in textiles a n d apparel. T e x t i l e plants are c o n c e n t r a t e d in t h e D a l t o n area a n d a l o n g m a j o r highways in t h e western half of t h e Highlands. Their proliferation enhanced local economies in t h e postwar period b u t n o w has left t h e m v u l n e r a b l e t o recession a n d t o i m p o r t c o m p e t i t i o n . In t h e U n i t e d States, 1 9 8 2 was n o t a b a n n e r year for textiles. T h e recession drastically r e d u c e d d e m a n d for c a r p e t in h o u s i n g a n d a u t o m o b i l e s . Foreign c o m p e t i t i o n a n d t h e strength of t h e dollar overseas (raising t h e price of o u r exports) f u r t h e r d a m a g e d textiles' profits—American i m p o r t s in t h e first n i n e m o n t h s of 1 9 8 2 rose 8 p e r c e n t t o $8.4 b i l l i o n f r o m $7.8 b i l l i o n t h e year b e f o r e w h i l e U.S. e x p o r t s d e c l i n e d 21 p e r c e n t f r o m $2.8 b i l l i o n t o $2.2 billion. 5 N o r t h Georgia's c a r p e t mills are n o t suffering as m u c h f r o m i m p o r t s as are t h e a p p a r e l producers, b u t t h e y are suffering m o r e f r o m t h e recession in h o u s i n g a n d a u t o m o b i l e markets. M u c h of t h e industry's o u t p u t goes t o carpeting for n e w h o m e s a n d autos. O u t p u t was sustained 5 W a l l s t r e e t J o u r n a l , Nov. 23, 1982, p. 7. 24 t o a large d e g r e e in 1 9 8 2 by r e p l a c e m e n t d e m a n d in offices. Fortunately, a housing recovery n a t i o n w i d e b o d e s w e l l for textiles a n d a r e b o u n d in car sales will a d d t o t h e i m p r o v e m e n t T h e a p p a r e l i n d u s t r y w i l l p i c k u p o n l y after c o n s u m e r c o n f i d e n c e returns w i t h a g r o w i n g e c o n o m y . Both industries still face t h e t h r e a t of i m p o r t c o m p e t i t i o n , w h i c h should intensify in t h e mid-1980s. Poultry is also i m p o r t a n t in t h e Highlands, a n d t h e i n d u s t r y has b e e n h u r t i n g f r o m several factors. M u c h of t h e region's p o u l t r y p r o d u c t i o n is e x p o r t e d . A strong dollar, a w o r l d w i d e recession, a n d e x p o r t subsidies b y t h e C o m m o n M a r k e t significantly r e d u c e d p o u l t r y e x p o r t s in 1 9 8 2 . W h i l e t h e first t w o c o n d i t i o n s s h o u l d be m o r e favorable in 1 9 8 3 , C o m m o n M a r k e t subsidies w i l l c o n t i n u e t o h u r t t h e f o o d processing and p o u l t r y industries. Poultry, m u c h of w h i c h c o m e s f r o m t h e Highlands, p r o d u c e s s o m e 3 0 p e r c e n t of t h e state's farm receipts. A b o u t half of the state's "broilers" are grown in t h e Highlands. The Piedmont The P i e d m o n t r e g i o n — t h e " f o o t h i l l s " w h e r e t h e a n c i e n t coast of t h e area o n c e b e g a n — contains a varied e c o n o m i c base. M a n y resid e n t s w o r k in m a n u f a c t u r i n g , retailing, government, and education. Though the economic base is diverse, areas w i t h i n t h e region are o f t e n specialized. For example, trade a n d manuf a c t u r i n g are c o n c e n t r a t e d in t h e m e t r o p o l i t a n areas a n d t h e u r b a n i z i n g areas a l o n g m a j o r interstate highways: Interstate 2 0 east a n d FEBRUARY 1 9 8 3 , E C O N O M I C R E V I E W " west of Atlanta, Interstate 75 b e t w e e n Atlanta and M a c o n , a n d 1-85 t o w a r d t h e Carolinas. Access t o t h e financial and marketing center of Atlanta affects d e v e l o p m e n t in t h e Piedmont. The textile a n d apparel industries p r o v i d e the greatest share of the region's manufacturing e m p l o y m e n t — a r o u n d 45 percent During 1982, e m p l o y m e n t in these sectors felt m a n y of the same pains t h a t w e r e felt in the Highlands, b u t the decline varied in degree. Areas such as Columbus a n d Griffin w e r e hard hit w h i l e Macon's textile and apparel employment suffered only modest declines. Recovery in general will be slow, but textiles should get a boost f r o m increased housing activity during 1983. Lumber manufacturing has b e e n hit hard in t h e region during t h e recession b u t i m p r o v e m e n t also will come slowly as housing improves. O n e of the stronger manufacturing c o m p o n e n t s has b e e n food processing, w h e r e e m p l o y m e n t has held fairly stable. Unfortunately, e m p l o y m e n t also promises t o be fairly stable d u r i n g recovery. Local personal i n c o m e seems unlikely t o get a boost from f o o d manufacturing. Overall, the manufacturing sector has b e e n weak d u r i n g the current recession and recovery will be slow during 1983. The g o o d news is that manufacturing does not provide a b u r d e n s o m e share of the Piedmont's personal i n c o m e — a b o u t onefourth of t h e total. The g o v e r n m e n t sector p r o v i d e s a large e m p l o y m e n t base and is a source of strength and stability for t h e P i e d m o n t region. Thirty percent of Piedmont's i n c o m e c o m e s from government jobs (Chart 3). M i l i t a r y bases near Columbus, M a c o n , and Augusta provide a large infusion of military and civilian jobs and income to each of t h e m e t r o p o l i t a n areas. The M a c o n a r e a — w i t h huge W a r n e r Robins Air Force Base south of the c i t y — b o a s t s o n e of the nation's highest percentages of civilian g o v e r n m e n t employees—27 percent as of November. Augusta and C o l u m b u s are not far b e h i n d , w i t h their government shares b e i n g 23 and 22 percent, respectively. (The g o v e r n m e n t share in U.S. total nonagricultural e m p l o y m e n t was 18 percent last November.) The Reagan administration's military b u i l d u p will have some i m p a c t on area i n c o m e a n d e m p l o y m e n t . But these changes will come slowly. As t h r o u g h o u t Georgia, state a n d local government e m p l o y m e n t in the P i e d m o n t region has been s q u e e z e d d u r i n g the recession a n d a FEDERAL RESERVE B A N K O F A T L A N T A 1 60 i 80 i I Total Manufacturing Nondurables Percent of State's Total* Transportation and Public Utilities Wholesale Trade Retail Trade Services Government Percent of Highland's Total For all regions, not all subtotals equal totals as a result of rounding and disclosure regulations. Percent of Metro Atlanta's Total 28.2 Percent of Piedmont's Total 16.4 5.2 2.6 9.1 11.0 30.7 Percent of Coastal Plain's Total Chart 3. Labor and Proprietors' Income by Place of Work by Industry (1980 Data Released June, 1982, U.S. Department of Commerce) t u r n a r o u n d will not c o m e quickly. Yet, the government sector represents a stabilizing factor o n area i n c o m e a n d e m p l o y m e n t . Levels d r o p very little in recession; in fact, g o v e r n m e n t e m p l o y m e n t in Georgia c o n t i n u e d t o grow during 1982. O n the o t h e r hand, neither does e m p l o y m e n t increase m u c h d u r i n g recovery. 25 Retailing is c o n c e n t r a t e d in the "fall line" cities of Columbus, M a c o n , and Augusta. 6 Activity in these sectors is scheduled to pick up as the overall economy recovers. Still, the improvement will be modest because increases in i n c o m e will be modest. N o t only government, b u t f o o d m a n u f a c t u r i n g a n d e d u c a t i o n have stable e m p l o y m e n t during b o o m times as well as during declines. Sectors such as textiles, apparel, a n d l u m b e r are either low-wage industries or sectors that will recover slowly. Though manufacturing is creeping into rural areas, rural counties still c o u n t o n agriculture for m u c h of their income. T w o of the largest farm products are poultry and soybeans. Farmers in the Piedmont face m a n y of the same market problems as those in the Highlands a n d the Coastal Plains. The m i n i n g of kaolin (a white, chalky clay used primarily as a paper coating for glossy magazines) provides the region a unique source of e m p l o y m e n t Kaolin, the most m i n e d mineral product in Georgia, is f o u n d almost exclusively in the Piedmont region. O v e r 90 percent of the world's kaolin comes f r o m Georgia. Approxim a t e l y 5 , 0 0 0 - 6 , 0 0 0 P i e d m o n t w o r k e r s are e m p l o y e d in m i n i n g w h i l e another 5 , 0 0 0 — 6,000 are e m p l o y e d indirectly in related jobs. Expectations for kaolin mining activity (which typically lags the e c o n o m y by six t o eight months) appear s o m e w h a t optimistic in 1983. At least four firms are currently e x p a n d i n g production facilities as they anticipate increased d e m a n d from paper manufacturers. Kaolin producers remain highly c o m p e t i t i v e in trying t o d e v e l o p m o r e efficient purification m e t h o d s a n d in t u r n increase the final p r o d u c t value. t o w n s such as Albany (the o n l y SMSA in t h e area), Tifton, Valdosta, Vidalia, and Hazelhurst. A l o n g Interstates 75 and 16, d e v e l o p m e n t is not as extensive as in the Piedmont. A l t h o u g h t h e Coastal Plains is generally d e p e n d e n t on agriculture, manufacturing provides t h e largest share (31 percent) of the region's personal income. For Georgia farmers, 1982 was a good year and a b a d year. C r o p yields in t h e state w e r e basically g o o d — b u t unfortunately for the state's farmers, so w e r e yields t h r o u g h o u t the U n i t e d States. W h i l e p r o d u c t i o n costs rose, prices fell as a result of a b u n d a n t harvests. I n c o m e for Georgia f a r m e r s — i n c l u d i n g those in the Coastal Plains—was low b u t generally a d e q u a t e t o cover o p e r a t i n g expenses for t h e year. Nationw i d e surpluses for some crops carried over i n t o 1983 and threaten to depress prices and income for this year. The farm o u t l o o k does vary by crop. Soybeans are a major crop in Georgia, w i t h fields c o n c e n t r a t e d in the lower t w o - t h i r d s of t h e state. A b o u t 2.6 million acres w e r e p l a n t e d in Georgia last year, p r o d u c i n g some 70 million bushels of s o y b e a n s — u p a b o u t 75 percent f r o m the previous year. The U n i t e d States e x p e r i e n c e d a record c r o p — s o y b e a n prices were low, ranging f r o m $4.80 t o $5.25 per bushel. A surplus of over 4 0 0 million bushels is likely t o k e e p prices l o w in 1983. Furthermore, the feed grain and the cotton-reduction program could push m o r e acreage into soybeans. The Coastal Plains The Coastal Plains region is Georgia's agricultural heartland, growing major crops including soybeans, corn, wheat, c o t t o n a n d peanuts. In a d d i t i o n t o p r o d u c i n g most of its crops a n d livestock, t h e region also produces most of its c o m m e r c i a l timber. This region is t h e farthest from major urban centers. Population and manufacturing are scattered a m o n g small cities a n d « 6 The fall line refers to the imaginary dividing line between the Piedmont and Coastal Plains. The line is also defined by connecting points on "parallel" rivers w h e r e navigability upriver c e a s e s — o r w h e r e the falls in these rivers begin (hence the term, "fall line"). 26 F E B R U A R Y 1 9 8 3 , E C O N O M I C REVIEW Corn a n d w h e a t are g r o w n t h r o u g h o u t t h e state, b u t most corn is g r o w n in t h e Coastal Plains a n d w h e a t acreage is e x p a n d i n g there. Grain prices t o o k a beating in 1 9 8 2 a n d a carryover surplus a n d acreage-reduction programs should ensure smaller harvests in 1983. High yields per acre s h o u l d help boost income. T w o crops e x p e c t e d t o make profits are cotton and peanuts. The c o t t o n yield last year was t h e highest since the Georgia Extension Service began k e e p i n g records in t h e 1800s. Although 1 8 0 , 0 0 0 acres w e r e p l a n t e d last year, the c r o p - r e d u c t i o n program is e x p e c t e d t o bring a b o u t a 25 percent reduction. Peanuts provide the state's biggest cash crop. A b o u t 4 0 percent of t h e nation's crop is g r o w n in t h e s t a t e — m o s t l y in t h e western half of the Coastal Plains. Last year's p e a n u t crop was generally profitable and carry-over is not b u r d e n s o m e . This year's crop should provide a m o d e s t p r o f i t For the overall Coastal Plains farm e c o n o m y , finances are i m p r o v i n g slowly. However, threefourths of the farmers are experiencing financial problems as a result of carry-over debt, primarily because of droughts d u r i n g 1 9 7 7 a n d 1 9 8 0 and as a result of l o w p r o d u c e prices d u r i n g some of the " g o o d " years. Though most farmers covered o p e r a t i n g expenses last year, overall debt remains high. 7 Manufacturing provides a r o u n d 31 percent of the region's personal income. The t o p four manufacturing industries a r e — i n order of e m p l o y ment s i z e — a p p a r e l , food, textiles, and lumber. As t h r o u g h o u t the rest of Georgia, apparel a n d textiles make up a large p r o p o r t i o n of t h e region's manufacturing e m p l o y m e n t — a b o u t 30 percent for apparel a n d a b o u t 10 t o 1 5 percent for textiles. The relatively stable f o o d c o m p o n e n t is the region's second largest e m p l o y e r w i t h 1 5 percent of the m a n u f a c t u r i n g labor force; t h e lumber industry accounts for a b o u t 10 percent of the jobs. Except for f o o d processing, major manufacturing industries have had a rough t i m e d u r i n g the current recession. Textiles a n d apparel both lost jobs last year. I m p r o v e m e n t will come slowly as elsewhere. Paper manufacturing and l u m b e r p r o d u c t i o n , c o n c e n t r a t e d in t h e 'Gene D. Sullivan and Gene Wilson, "Farm Credit in the Southeast: Shakeout and Survival," E c o n o m i c Review, Federal Reserve Bank of Atlanta, January 1983, p.4. ' FEDERAL RESERVE B A N K O F A T L A N T A eastern p o r t i o n of t h e Coastal Plains, also have been in a slump. These t w o industries will only r e v i v e — a n d t h e n only m o d e s t l y — a f t e r d e m a n d increases and after housing starts reduce 1982's inventories of lumber. Food p r o c e s s i n g — t h e second largest m a n u f a c t u r i n g industry in the Coastal Plains—provides a relatively stable base for e m p l o y m e n t T h o u g h e m p l o y m e n t does vary according t o the size of harvests, e m p l o y m e n t and income are affected less by c o m m o d i t y prices. Directly and indirectly, agriculture affects t h e region's e m p l o y m e n t . Food p r o c e s s i n g e m p l o y m e n t was fairly stable in 1982 a n d should remain m u c h the same in 1 9 8 3 . The Coast Except for the shore itself, t h e coast physically is m u c h like t h e Coastal Plains. However, t i m b e r p r o d u c t i o n is c o n c e n t r a t e d in a 1 0 0 - m i l e w i d e strip of land w e s t of t h e coastline, f o r m i n g o n e of t h e major paper a n d t i m b e r belts in t h e state. M a j o r manufacturing employers include paper, food, a diverse assortment of chemicals, transportation e q u i p m e n t fabricated metals, lumber, and apparel. Jobs and income also are generated by port a c t i v i t y — i n c l u d i n g fishing and t o u r i s m — a n d f r o m military activity. In t h e m a n u f a c t u r i n g sector, paper provides a b o u t 30 p e r c e n t of t h e e m p l o y m e n t . This sector, along w i t h lumber, has been in a steep decline. I m p r o v e m e n t will c o m e slowly. The c h e m i c a l industry also is suffering. Some firms have shut d o w n at least temporarily. As in m a n y sections of the state, f o o d processing e m p l o y m e n t has h e l d fairly steady in t h e region. Sectors such as transportation e q u i p m e n t a n d fabricated metals will lag t h e overall recovery during 1983. Shipping activity was d o w n in Savannah b u t up in Brunswick for t h e first t h r e e m o n t h s of t h e 1983 state fiscal year c o m p a r e d t o t h e previous year. In the fiscal year that e n d e d in June, the v o l u m e of trade through the Savannah customs district was up 9.8 percent The Savannah customs district was t h e strongest p e r f o r m e r in the Southeast in 1982, largely because of increased capacity at the Brunswick seaport. H o w e v e r , t h e i m p o r t a n t p u l p a n d paper, clay, and t e x t i l e markets are soft because of w e a k markets abroad. In 1983, exports of these goods should i m p r o v e as the year proceeds. Coal exports, while modest, are likely to expand. The c o m p l e t i o n of an ultra-high t e m p e r a t u r e 27 milk plant and expansion of cold storage facilities at the Savannah terminal brighten the port's short-term outlook. M a j o r products e x p o r t e d f r o m Georgia ports are also p r o d u c e d in the state. W o o d pulp a n d paper products, clay, textiles a n d apparel, f o o d products, transportation e q u i p m e n t , and miscellaneous manufacturers are major industries that also e m p l o y an above-national-average share of workers in export-related production. (One out of eight Georgia manufacturing workers, or 65,000, p r o d u c e for export.) Port trade is t r e n d i n g upward, but this year's o u t l o o k for expansion in Georgia is cloudy, as it was in 1982. Georgia fishermen have reason t o look back u p o n 1982 w i t h favor. N o t o n l y was the shrimp harvest substantial but prices w e r e good as t h e Gulf Coast harvest was b e l o w average. Indeed, the fishing industry generally f o u n d 1982 a beneficial year as the q u a n t i t y and value of the catch e x c e e d e d 1981. Tourism along the Coast fared moderately well d u r i n g 1982. The e c o n o m i c d o w n t u r n significantly increased local tourism as m a n y families t o o k shorter trips. The Georgia coast attracted many state and regional residents. Savannah e n j o y e d a good s u m m e r w i t h hotel/ m o t e l tax receipts up 20 percent through August (some of this gain resulted from increased rates). The future of tourism along the Coast looks promising. For example, the Jekyll Island A u t h o r i t y has several developers potentially interested in renovating the Millionaires' Village and transforming the Jekyll Island C l u b i n t o a hotel. The latter could begin in 1983. Savannah's C o n v e n t i o n and Visitors Bureau is h o p e f u l that its location and t h e city's role as the birthplace of Georgia will increase tourism in 1983, the state's 2 5 0 t h birthday. The region hopes t o attract tourists as t h e y travel 1-95 to EPCOT in central Florida. Perhaps the biggest d e v e l o p m e n t in the Coastal region for the next d e c a d e will be the Navy's King's Bay Submarine Base. In 1980, the submarine s u p p o r t base was chosen t o be the East Coast housing port for Trident nuclear submarines. Initial construction is underway o n the project whose ultimate cost is estimated at $1.5 billion. As the largest p e a c e t i m e project in Navy history, King's Bay will absorb approximately o n e - t e n t h of the Navy's construction b u d g e t for the next decade. M o s t of the construction will be c o m p l e t e d by 1990. 28 The project will have a d i r e c t i m p a c t o n a seven-county area. The Navy has a substantial n u m b e r of contracts w i t h small businesses in t h e c o m m u n i t y . Road construction valued at $20-21 million has begun or is u n d e r contract, improving the area's transportation capabilities. Residential construction should expect a strong year because of a shortage of housing in the area and t h e f u t u r e d e m a n d by crew members, their families, a n d o t h e r military personnel. The g r o w i n g p o p u l a t i o n will create n e w o p p o r tunities for retail and o t h e r businesses a n d services. Thus, expansion of t h e King's Bay base will have a t r e m e n d o u s positive i m p a c t o n t h e e c o n o m y of southeast Georgia. Summary Georgia's e c o n o m y was in relatively better shape than most neighboring states going i n t o 1983. The state's 8.3 percent u n e m p l o y m e n t rate in N o v e m b e r was the lowest of the District states. T h r o u g h o u t most of the state, strengths during the recession have been service-related industries including services, finance, insurance, and g o v e r n m e n t The service-related industries, especially healthy in Atlanta, will c o n t i n u e t o provide strength in t h e c o m i n g year. Other sectors within the state have weathered the recession differently and in turn will respond to recovery differently. Nonresidential construct i o n has held up better than housing, b u t in the c o m i n g year housing will be the trend-setter in construction. In-migration will continue to shape Atlanta's housing market. Textiles will i m p r o v e as the d e m a n d for carpeting picks up w i t h * increased h o m e and auto sales. The apparel industry is w a i t i n g for a general e c o n o m i c recovery but still faces stiff import competition. Other manufacturing industries such as lumber, chemicals, a n d transportation e q u i p m e n t will recover slowly while the f o o d industry will remain fairly stable. The state's farmers should gradually reduce the debt burdens accumulated » primarily during droughts in 1 9 7 7 and 1980. Still, Georgia farmers remain some of the most d e b t - r i d d e n in the Southeast. Georgia's subregions will have their o w n strengths a n d weaknesses. The Highlands will struggle to improve textile e m p l o y m e n t Atlanta should do fairly w e l l in housing a n d service- * related industries. The Piedmont's textile and FEBRUARY 1983, E C O N O M I C REVIEW « apparel industries will remain t r o u b l e d b u t it should benefit f r o m strong f o o d industries and a stable governmental sector. Farming will make some progress as will l u m b e r in t h e Coastal Plains. The Coast will get a slow recovery in paper a n d lumber, b u t a variety of light industries plus tourism will aid the e c o n o m y in t h e c o m i n g year. — W i l l i a m N. Cox and R. M a r k Rogers The authors would like to pay special thanks to Howard Shretter the Department of Geography at the University of Georgia for helpful insights and suggestions. I- FEDERAL RESERVE B A N K O F A T L A N T A 29 5 of his Tennessee: Awaiting Recovery in the Industrial Heartland Pent-up demand for new homes and cars should spark Tennessee's economy. Now that the 1982 World's Fair is history, the state will have to rely on a national upturn to fuel key state industries in 1983. The key t o i m p r o v e m e n t in Tennessee's econo m y lies in an e x p e c t e d nationwide recovery in construction. An u p t u r n in building w o u l d stimulate Tennessee's large manufacturing sector, where many businesses are tied t o construction. Transportation-related manufacturing may also show i m p r o v e m e n t By late 1982, car sales began rising nationally, and the increase in average age of U. S. cars f r o m 5.7 years in 1974 t o seven years today portends that sales should c o n t i n u e t o grow as long as interest rates decline or remain stable. O t h e r industrial a n d most n o n m a n u f a c t u r i n g sectors are likely t o remain weak in 1983. M o s t forecasters predict a softer-than-usual e c o n o m i c recovery in t h e nation. 1 W i t h capacity utilization rates in m a n y industries historically low, there is little stimulation t o capital expansion. 2 However, o n c e c o n s u m e r s p e n d i n g f o r durable goods does increase, Tennessee should outstrip most nonsouthern manufacturing states because its capital ' C h a s e Econometrics, e.g., predicts a 2.4 percent g r o w t h in real GNP, an average U.S. u n e m p l o y m e n t rate of 10.1 percent, but a 15.2 p e r c e n t rise in auto sales and a 4 0 percent j u m p in housing starts over 1982 levels; L a w r e n c e Chimerine, Executive S u m m a r y - U.S. Macro, N o v e m b e r 24, 1982. ' A c c o r d i n g to figures r e l e a s e d by t h e Board of G o v e r n o r s of t h e Federal Reserve S y s t e m on J a n u a r y 1 7 , 1 9 8 3 , m a n u f a c t u r i n g capacity utilization 30 stock is newer. 3 In addition, a recent Atlanta Fed survey f o u n d a majority of the large Tennessee employers c o n t a c t e d less pessimistic a b o u t t h e o u t l o o k for e m p l o y m e n t in the m o n t h s ahead than those in other southeastern states except Florida. 4 O n e of the weakest sectors in Tennessee's e c o n o m y is government. A state b u d g e t shortfall will exacerbate the effect of federal b u d g e t cuts. The state's tax structure responds poorly t o i n c o m e growth. Enactment of a m o r e responsive tax, such as an i n c o m e tax, w o u l d require a constitutional a m e n d m e n t , a n d tax hikes might deter potential industrial relocation t o t h e state. Lacking the stimulus of an international exposition, services and trade are likely t o d o less w e l l than in 1982. Deregulation is i n t r o d u c i n g uncertainty and c o m p e t i t i v e pressures i n t o transportation and finance. Changing patterns of energy use indicate a long-term deceleration of growth in the state's i m p o r t a n t energy industry. D e m a n d in D e c e m b e r 1 9 8 2 w a s 67.3 percent, a record low; a C o m m e r c e D e p a r t m e n t survey of U.S. businesses indicates that capital s p e n d i n g will fall in real t e r m s during t h e first half of this year. ' C i t i b a n k , R e g i o n a l a n d Real E s t a t e R e v i e w , O c t o b e r 1982, p. 22. ' " S o u t h e a s t E m p l o y m e n t : After the Recession," E c o n o m i c Review, D e c e m b e r 1982, pp. 5 3 - 6 4 . FEBRUARY 1 9 8 3 , E C O N O M I C R E V I E W " Tennessee's E c o n o m i c Z o n e s a n d S M S A s * Johnson City BristohKingsport 12.0% Nashville-Davidson 8.4% Memphis 9.7% Standard Metropolitan Statistical Areas (SMSAs) J? m Eastern Cumberland Highland Rim Plateau Gulf Coast Plain (Jackson Plain) v. , West Middle East Percen ages show November unemployment rates for S M S A s Counties (shaded) w h e r e more than o n ^ f i f t h of the civilian labor force is unemployed include Campbell, Cocke, Fayette, Henry, Houston, Humphreys, Lewis, Macon, Maury, Perry, Trousdale, Unicoi, Van Buren and Wayne. The unemployment rate in Stewart County is over 3 0 percent. All figures are preliminary and not seasonally adjusted. Source: ¿ ^ T e n n e s s e e Statistical A b s t r a c t pp. XIV, 4 3 2 ; CPS Labor Force Summary. T e n n e s s e e Department of Employment Security for tobacco, o n e of Tennessee's major cash crops, is likely t o be depressed by w o r l d w i d e recession and a 2 0 0 percent increase in t h e federal excise tax on cigarettes. International economic conditions also b o d e ill for most o t h e r crops, for other Tennessee exports such as chemicals, and for textiles and apparel products, sensitive to foreign c o m p e t i t i o n . The geographical implications of this prognosis are worst for east Tennessee, where manufacturing, energy, a n d g o v e r n m e n t p r o v i d e relatively m o r e jobs (see m a p a n d Chart 2). These trends are also inauspicious for m a n y rural counties, w h e r e t h e only alternative t o farming is o f t e n a single apparel or auto parts assembly factory. M e t r o politan areas, such as Nashville, where publishing, insurance, and tourism are leading industries, should fare better because of their diversified economies. The o u t l o o k is for a very m o d e s t pickup in 1983. p o p u l a t i o n ) grew 0.5 percent, m o r e slowly than t h e nation's 1.2 percent for t h e same period. This growth is also noticeably slower than Tennessee's 16.9 percent g r o w t h rate f r o m 1970-1980. This slowing of p o p u l a t i o n g r o w t h augurs less rapid expansion in construction t h a n d u r i n g the 1970s (see Construction). 5 Through N o v e m b e r , t h e state's labor force averaged 2.1 million, s h o w i n g almost no g r o w t h f r o m the first 11 m o n t h s o f 1981. D u r i n g 1982, e m p l o y m e n t d e c l i n e d 1-4 percent relative t o c o r r e s p o n d i n g m o n t h s of 1981 a n d r e m a i n e d b e l o w peak levels of 1979-80. U n e m p l o y m e n t grew m u c h m o r e rapidly t h a n e m p l o y m e n t By N o v e m b e r 2 5 5 , 0 0 0 Tennesseans w e r e u n e m ployed, over o n e - t h i r d m o r e t h a n in N o v e m b e r 1981. At 12.5 percent, Tennessee's preliminary, seasonally-adjusted u n e m p l o y m e n t rate in Nov e m b e r was m u c h higher than the District's 11.0 percent a n d the nation's 10.8 percent (see Chart 1). Profile Between April 1980 a n d July 1981, Tennessee's population (4.6 million, 2 percent of t h e U.S. ' FEDERAL RESERVE B A N K O F A T L A N T A " " P o p u l a t i o n Characteristics," Series P - 2 0 , No. 3 7 4 , U.S. D e p a r t m e n t of C o m m e r c e , S e p t e m b e r 1 9 8 2 , p. 10. 31 C h a r t 2. 1 9 8 2 Nonfarm E m p l o y m e n t Distribution* C h a r t 1. T e n n e s s e e U n e m p l o y m e n t Rate Tennessee Construction 4.8% \ Percent Chattanooga Nondurable 15.7% 3.4% 16.2% 11.8% 28.6% Government 17.2% Memphis 27.3% 3.9% 9.1% 6.7% J 1977 1978 I 1979 I 1980 35.2% L 1981 1982 13.5% The state's jobless f u n d is p r e d i c t e d t o be d e p l e t e d this year a n d will have t o b o r r o w f r o m the federal government, especially if t h e u n e m p l o y m e n t rate remains high. Of t h e state's five standard m e t r o p o l i t a n statistical areas (SMSAs), t h e manufacturing cities of east Tennessee had the highest u n e m p l o y m e n t rates; Tri-Cities' preliminary unadjusted rate was 12.0 in N o v e m b e r , and Chattanooga's was 11.2. The more diversified economies of M e m p h i s and Nashville and t h e W o r l d ' s Fair in Knoxville (Chart 2) h e l p e d keep the rates of those cities comparatively low. Fifteen of Tennessee's 95 counties had u n e m p l o y m e n t rates of 20 percent or m o r e in N o v e m b e r (see map). N o m i n a l personal i n c o m e grew only 6.2 percent in t h e year e n d i n g June 30, o n e percentage point less than the nation's and 1.4 b e l o w the District's. Corporate bankruptcy filings grew over 50 percent in the same period, m u c h faster than t h e 24 percent increase in the Southeast and t h e 17 percent g r o w t h in t h e U n i t e d States. State forecasters predict m o d e s t g r o w t h in gross state product and personal income and a reversal of the d o w n w a r d t r e n d in e m p l o y m e n t , b u t t h e e x p e c t e d margins of increase pale in comparison with rates of previous recovery periods. For example, by t h e f o u r t h quarter after t h e nadir of the 1973-75 recession, e m p l o y m e n t had grown 6.4 p e r c e n t The 1983 u n e m p l o y m e n t rate is not likely t o d r o p m u c h b e l o w double-digit levels. U n e m p l o y m e n t is a lagging indicator as recovery progresses, formerly discouraged workers reenter 32 ' 34.0% 15.9% 21.8% ' F i g u r e s , based on 11-month average, were c o m p u t e d by Federal Reserve Bank of Atlanta from monthly data published by T e n n e s s e e Department of Employment Security. Because of rounding totals may not add to 100%. " T e n n e s s e e Portion. the labor force, b u t employers o p e r a t i n g at levels w e l l b e l o w capacity usually increase hours of currently e m p l o y e d workers before hiring new employees. Manufacturing M a n u f a c t u r i n g is by far t h e largest e c o n o m i c sector in Tennessee. A b u n d a n t , cheap energy from t h e TVA, natural resources, a n d u n i q u e historical factors brought industry t o Tennessee m u c h earlier than t o most of t h e Southeast. Tennessee b e c a m e the southeastern publishing center in the nineteenth century w h e n evangelical churches established religious publishing houses in Nashville a n d Kingsport because of their central location t o frontier m e m b e r s a n d their distance f r o m established churches east of t h e Appalachians. After the Civil War, East Tennessee, a stronghold of p r o - U n i o n sentiment, actively recruited industrial firms a n d workers f r o m the North. After W o r l d W a r I, Tennessee Eastman, a division of Eastman Kodak and t o d a y the largest e m p l o y e r in east Tennessee, began using w o o d FEBRUARY 1983, E C O N O M I C REVIEW " by-products t o manufacture chemicals for photographic processes. A f t e r W o r l d W a r II, l o w e r wage, n o n - u n i o n labor b e c a m e an a d d i t i o n a l factor w h i c h i n d u c e d m a n y small firms t o relocate in the state a n d larger ones t o establish b r a n c h plants there. D e s p i t e c u r r e n t industrialization, less than 18 p e r c e n t of Tennessee's w o r k e r s b e l o n g to unions; this share is greater t h a n in less industrialized states such as Florida, Louisiana, Mississippi, a n d Georgia b u t less t h a n t h e 23.6 percent of w o r k e r s u n i o n i z e d nationally. 6 M a n u f a c t u r i n g accounts f o r m o r e t h a n 28 percent of Tennessee's j o b s b u t o n l y a b o u t 22 p e r c e n t of t h e nation's. S o m e east Tennessee cities have an e v e n higher p e r c e n t a g e (Chart 2). Machinery, apparel, chemicals, a n d l u m b e r are the four largest industrial e m p l o y e r s . D u r a b l e manufacturing j o b s comprise a c o m p a r a b l e share in Tennessee a n d t h e U n i t e d States, b u t nondurables are relatively m o r e i m p o r t a n t in Tennessee t h a n in t h e nation. T h r o u g h N o v e m b e r 1982 over 15 p e r c e n t of Tennessee's e m p l o y e e s produced n o n d u r a b l e goods such as food, apparel, and chemicals, w h e r e a s o n l y 9 p e r c e n t of U.S. workers p r o d u c e d n o n d u r a b l e s . This d i f f e r e n c e helps explain t r e n d s in t h e state's personal income. During the first half of 1982 m a n u f a c t u r i n g i n c o m e d e c l i n e d 1.3 percent f r o m t h e s e c o n d half of 1 9 8 1 ; t h e nation's income f r o m m a n u f a c t u r i n g fell o n l y 0.5 p e r c e n t during t h e period. Durables d e c l i n e d only slightly; most of t h e d r o p o c c u r r e d in n o n d u r a b l e s . N o n durable manufacturing contributes a smaller share of personal i n c o m e t h a n of e m p l o y m e n t ( C h a r t 3). M a n y n o n d u r a b l e j o b s are routine assembly processes i n v o l v i n g m i n i m a l skill a n d a d d i n g little value t o t h e finished p r o d u c t Partly because m u c h of Tennessee's p o s t w a r m a n u f a c t u r i n g growth has b e e n c o n c e n t r a t e d in n o n d u r a b l e s , the state has n o t b e e n able t o raise per capita personal i n c o m e t o m o r e than 80.5 percent of t h e national average. 7 Another limitation of Tennessee m a n u f a c t u r i n g is its concentration in industry structure, geography, and p r o d u c t line. Six firms a c c o u n t for m o r e t h a n 40 p e r c e n t of e m p l o y m e n t in p r i n t i n g a n d p u b - C h a r t 3 . Personal I n c o m e versus E m p l o y m e n t by Sector* Percent 25 20 W.P.A. Federal Writers' Project, T e n n e s s e e : A G u i d e t o t h e S t a t e , (New York: Viking, 1939), pp. 6 5 - 7 3 , 1 1 1 - 1 1 9 ; Ronald E. Carrier a n d William R. Schriver, P l a n t L o c a t i o n A n a l y s i s : A n I n v e s t i g a t i o n of P l a n t L o c a t i o n s in T e n n e s s e e ( M e m p h i s , T e n n e s s e e : M e m p h i s State University, 1969), pp. vi, 3 6 , 1 6 2 ; Bureau of L a b o r Statistics, H a n d b o o k of L a b o r S t a t i s t i c s (December 1980), p. 4 1 3 . ' C o m p u t e d f r o m d a t a in S u r v e y o f C u r r e n t B u s i n e s s (August 1982), p. 57. ' FEDERAL RESERVE B A N K O F A T L A N T A Personal Income Employment 15 10 5 0 •b9 • P e r c e n t a g e s were c o m p u t e d from 1981 d a t a obtained from S u r v e y of C u r r e n t B u s i n e s s (August 1982) and the T e n n e s s e e Department of Employment Security. lishing; five firms, f o r o n e - f o u r t h of all a p p a r e l jobs. C h e m i c a l s m a n u f a c t u r i n g is c o n c e n t r a t e d in east Tennessee near Knoxville. A l t h o u g h apparel m a n u f a c t u r i n g is w i d e l y d i s t r i b u t e d , m a n y plants in rural c o u n t i e s are t h e largest single e m p l o y e r s . A l m o s t sixty p e r c e n t of t h e state's a p p a r e l w o r k e r s m a k e m e n ' s a n d boys' clothes. T w o - t h i r d s of t h e t e x t i l e p r o d u c e r s m a n u f a c t u r e o n l y t w o p r o d u c t lines, knits a n d synthetics. A l m o s t t w o - t h i r d s of t h e t r a n s p o r t a t i o n e q u i p m e n t m a n u f a c t u r i n g involves t r u c k a s s e m b l y a n d p r o d u c t i o n of parts. M o s t i m p o r t a n t l y , Tennessee m a n u f a c t u r i n g is o r i e n t e d t o w a r d c o n s t r u c t i o n . M o r e t h a n 11 p e r c e n t of m a n u f a c t u r i n g e m p l o y m e n t is related t o c o n s t r u c t i o n . D i r e c t c o n s t r u c t i o n jobs, TVA construction, and construction-linked manufact u r i n g c o n t r i b u t e o v e r 10 p e r c e n t of Tennessee's nonfarm jobs. Lumber is t h e fourth largest industry. M o r e t h a n 4 0 p e r c e n t of fabricated metal e m p l o y m e n t is in structural steel for building. O n e - t h i r d of t h e electrical a n d e l e c t r o n i c m a c h i n e r y m a n u facturers p r o d u c e h o u s e h o l d appliances. 8 8 6 B N i l e s C. S c h o e n i n g , " A l t e r n a t i v e Estimates of the Size a n d I m p o r t a n c e of the Agribusiness, M o t o r Vehicle, a n d C o n s t r u c t i o n Industries," Issue Paper No. 1, C u r r e n t I s s u e s i n t h e T e n n e s s e e E c o n o m y (Knoxville, T e n n e s s e e : C e n t e r for B u s i n e s s a n d E c o n o m i c Research, University of T e n n e s s e e , M a y 1982); Patricia D. Postma, " D i v e r s i t y and C o n c e n t r a t i o n in the T e n n e s s e e E c o n o m y , " Issue Paper No. 2 , C u r r e n t I s s u e s in t h e T e n n e s s e e E c o n o m y (Knoxville, T e n n e s s e e : C e n t e r for B u s i n e s s a n d E c o n o m i c Research, University of T e n n e s s e e , July 1982); figures are based on analysis of d a t a at t h e 3 - d i g i t SIC level f r o m t h e 1 9 7 7 e c o n o m i c census. 33 T a b l e 1. Tennessee Employment Change (Peak to Trough) in 1 9 7 3 - 7 5 and Current Recessions* 1973-75 1981-82 Construction Peak Trough Percent Change Feb. '75 Sept. '75 7 months 91.5 74.0 -19.0 Feb. '82 Aug. '82 6 months Trans., Comm., & Pub. Util. Peak Trough Percent Change Mar. ' 7 4 Apr. '75 13 months 75.1 69.7 -7.2 Jan.-Mar. '81 Nov. '82 8 months -6.8 Finance Peak Trough Percent Change Sept.'74 Dec. '75 15 months 70.0 68.3 -2.4 Jan.'81 Sept. '82 2 0 months 79.3 75.6 -4.7 Trade Peak Trough Percent Change Aug.'74 Apr.'75 8 months 324.1 313.6 -3.2 Jan.'81 Nov.'82 22 months 379.7 358.5 P -5.6 Services Peak Trough Percent Change Mar. ' 7 5 June ' 7 5 3 months 227.4 226.8 -0.3 July '82 Sept. '82 2 months 327.2 320.4 Government** Trough Peak Percent Change Jan.'74 Dec. '75 23 months 250.9 280.0 11.6 Mar.'81 Aug. '82 17 months 318.1 290.3 -8.7 Manufacturing Peak Trough Percent Change Jan. '74 Apr. '75 15 months 526.2 447.6 -14.9 Sept. '81 Nov. '82 14 months 517.0 467.4 P -9.6 90.6 76.5 -15.6 86.4 80.5 P -2.1 -Figures (in thousands) are derived from B L S data, seasonally adjusted by the Atlanta F e d using the X-11 Program. Preliminary " G o v e r n m e n t employment rose during the 1 9 7 3 - 7 5 recession. Tennessee's manufacturing sector is " o p e n " : its industries p r o d u c e many unfinished goods, and an estimated 80 percent of manufacturing jobs d e p e n d o n d e m a n d outside the state. 9 M a n y of t h e state's factories are branches of national or multinational corporations w i t h headquarters elsewhere. Despite Tennessee's large manufacturing base, in 1982 Fortune ranked only 10 manufacturers headquartered in the state a m o n g the nation's 1,000 leading industrial 9 T o n g H u n Lee, J o h n R. Moore, and David P. Lewis, R e g i o n a l a n d I n t e r r e g i o n a l S e c t o r a l F l o w Analysis: T h e M e t h o d a n d A n A p p l i c a t i o n t o t h e T e n n e s s e e E c o n o m y (Knoxville, Tennessee: University of Tennessee, 1973), pp. 4 4 - 4 5 . 34 corporations; this figure represents a net loss over the decade. A l t h o u g h Nissan's interest in contracting w i t h local suppliers for its Smyrna t r u c k plant should increase t h e manufacturing sector's integration, t h e health of Tennessee's manufacturing sector this year will c o n t i n u e t o d e p e n d o n that of the nation. I m p r o v e m e n t in manufacturing, hard-hit by t h e current recession (Table 1), will d e p e n d on national e c o n o m i c recovery in construction, consumer durables, a n d capital spending. H o w e v e r , the o u t l o o k for capital spending nationally looks bleak through the first half of 1983. A C o m m e r c e D e p a r t m e n t survey of American companies last fall f o u n d that businesses plan t o increase capital FEBRUARY 1983, E C O N O M I C REVIEW " spending o n l y 0.4 percent in the first quarter a n d 1.1 percent in the second. A d j u s t e d for inflation, these figures represent declines of 0.4 a n d 0.2 percent in t h e respective quarters. 1 0 Capital s p e n d i n g plans in Tennessee are m o r e optimistic. Through the t h i r d quarter of 1982, a total of 118 n e w projects a n d expansions valued at almost $ 5 0 0 million w i t h 5,800 potential j o b s had been a n n o u n c e d ; d u r i n g t h e same p e r i o d of 1981 only 91 projects valued at $262 million with 4,320 j o b opportunities had been announced, according t o preliminary reports f r o m t h e Tennessee Department of Economic and C o m m u n i t y D e v e l o p m e n t . Officials e x p e c t final revisions t o show j o b creations a b o u t 2 0 p e r c e n t b e h i n d 1981 even t h o u g h capital s p e n d i n g may be higher. These projections i m p l y that recovery in manufacturing e m p l o y m e n t in 1983 will fall short of t h e 9.5 percent increase that occurred the year after the trough of the 1973-75 recession. International e c o n o m i c c o n d i t i o n s offer little hope for Tennessee manufacturing. Some industries, such as apparel a n d a l u m i n u m , face possible long-term declines as a result of competition from developing countries. Recessionary conditions abroad as w e l l as foreign c o m p e t i t i o n in domestic markets may m e a n c o n t i n u e d hard times for the chemical industry, the t h i r d largest manufacturing sector. C. F. Industries closed its Chattanooga facility indefinitely in D e c e m b e r because of d w i n d l i n g d e m a n d for fertilizer a n d competition from subsidized foreign production. 1 1 Fortunately, t h e r e are bright spots in t h e outlook for Tennessee manufacturing. The incipient national recovery in housing should be of particular benefit t o Tennessee because of t h e state's concentration in construction. A n a t i o n w i d e increase in a u t o sales, w h i c h began in late 1982, should stimulate Tennessee's transportation equipment industry. In addition, t h e o p e n i n g of t h e Nissan plant near Nashville should have a farreaching economic i m p a c t The plant is expected to create 2 2 0 0 n e w jobs, increase payroll and other personal i n c o m e by $77 million per year, increase d e m a n d for local supplies, attract n e w businesses, boost retail sales by $60 million annually, and add $10 million to state tax revenues. '"Wall S t r e e t J o u r n a l , D e c e m b e r 10, 1 9 8 2 , p. 3. " C h a t t a n o o g a T i m e s , N o v e m b e r 23, 1982, pp. A 1 - 2 . D e m a n d for o t h e r derivatives of p h o s p h o r u s has b e e n on the w a n e since 1 9 6 9 w h e n environmental r e g u l a t i o n s w e r e e n a c t e d to r e d u c e their d e l e t e r i o u s effects in detergents. T e n n e s s e has 4 2 p e r c e n t of t h e U.S. p h o s p h o r u s capacity, a larger s h a r e t h a n any state e x c e p t Idaho. E c o n o m i c O u t l o o k (Knoxville, T e n n e s s e e : TVA, J u l y 1982), p. 129. ' FEDERAL RESERVE B A N K O F A T L A N T A The Japanese-owned f i r m is helping t o s p o n s o r a robotics degree at a technical institute t o develop local service and technical m a n p o w e r for t h e extensive applications of c o m p u t e r s a n d robots in the facility. The Nissan factory, with its spillover into services a n d high-technology, typifies t h e kind of manufacturing investment that Tennessee needs if it is t o increase personal income in concert w i t h e m p l o y m e n t and if it is t o reduce its vulnerability t o recessions a n d imports. Tennessee is w e l l suited t o d e v e l o p t h e sort of agglomeration of a d v a n c e d scientific a n d technical research a n d m a n u f a c t u r i n g that exists in California's "Silicon Valley," along Route 128 near Boston, a n d in Research Triangle, N o r t h Carolina Oak Ridge National Laboratories (ORNL), the TVA, a n d t h e University of Tennessee c o u l d p r o v i d e a firm research foundation. Tennessee already ranks f i f t e e n t h in t h e a m o u n t spent o n research a n d d e v e l o p m e n t ( R & D ) . Businessg o v e r n m e n t c o o p e r a t i o n has been e n h a n c e d in the past t w o years by the o p e n i n g of O R N L t o private sector, proprietary research. 12 In terms of quality of life, another factor important in attracting such industry, Tennessee is similarly well-positioned. Knoxville ranked e l e v e n t h a n d Nashville t w e l f t h in a recent Rand M c N a l l y survey of t h e q u a l i t y of life in 277 U.S. cities. The o n l y o t h e r District city t o place a m o n g the t o p d o z e n was first-ranked Atlanta. State officials, in c o o p e r a t i o n w i t h a private f o u n d a t i o n , have begun t o f o r m u l a t e organizational plans for a " t e c h n o l o g y corridor" along t h e Pellissippi Parkway b e t w e e n Oak Ridge a n d t h e M c C h e e Tyson airport. The c o n c e p t should begin to b e c o m e reality d u r i n g 1983, b u t t h e e c o n o m i c i m p a c t is likely t o be less this year than in 1 9 8 4 and thereafter. Construction After a year of uncertainty, Tennessee's residential sector should experience slow b u t consist e n t recovery in 1983. A rapid d r o p in mortgage rates triggered an u p t u r n in t h e housing market beginning in July. Prospects for spring and summer are hopeful; builders are m a k i n g preparations. Between July a n d N o v e m b e r 1982, 832 singlefamily b u i l d i n g permits w e r e issued, a j u m p of 65 " H e r m a n Postma, " F e d e r a l l y F u n d e d R&D: N e w O p p o r t u n i t i e s Tennessee," S u r v e y o f B u s i n e s s , ( S u m m e r 1982), pp. 1 2 - 1 3 . in 35 percent (Chart 4). 1 3 The housing market in Nashville has been particularly resilient, but o t h e r SMSAs are also showing improvement. However, multifamily building has n o t y e t begun t o recover (Chart 4). Savings a n d loan associations also w e r e slow t o benefit d u r i n g t h e turnaround. Total loans closed by thrifts c o n t i n u e d t o fall t o $35 million in S e p t e m b e r — a d r o p of 22 percent since the "mini-peak" of late 1981 and early 1982. Caution a m o n g potential h o m e buyers and c o m p e t i t i o n f r o m seller financing and mortgage companies retarded loan v o l u m e g r o w t h by S&Ls, although by N o v e m b e r closings passed the previous high. Nonresidential construction is still declining. Because of an earlier building b o o m , the soft market for office space has reduced contract awards a n d building activity. The n u m b e r of square feet a w a r d e d in contracts e d g e d steadily d o w n w a r d b y 4 4 percent, to $1.6 million, between December 1981 and N o v e m b e r 1982. Moreover, congressional t i g h t e n i n g of eligibility requirements for state a n d local g o v e r n m e n t industrial revenue bonds, effective in January, may further d a m p e n commercial construction. Nonetheless, many projects should c o n t i n u e w e l l into 1983. The TVA is building a $158-million office complex in Chattanooga. W h e n c o m p l e t e d in September 1984, the project should help revitalize t h e central business district. 1 4 In Nashville, several " E x c e p t w h e r e o t h e r w i s e indicated, c o n s t r u c t i o n d a t a are t h r e e - m o n t h m o v i n g averages, seasonally adjusted. " C h a t t a n o o g a T i m e s , O c t o b e r 22, 1982, p. B - 3 . 36 projects have been a n n o u n c e d : a c o n v e n t i o n center, a $25-million renovation of several historic buildings in Riverfront Park, the expansion of Baptist Hospital, and the d e v e l o p m e n t of a n e w office park. A l t h o u g h t h e i m p r o v e m e n t in construction in 1983 is likely t o be m o d e s t in comparison w i t h past recovery periods, it should mark the beginning of e x t e n d e d gains d u r i n g the r e m a i n d e r of t h e decade. Both t h e Census Bureau and t h e Bureau of Economic Analysis (BEA) project that Tennessee's p o p u l a t i o n g r o w t h f r o m 1 9 8 0 t o 1 9 9 0 will exceed that of the nation and several neighboring states although t h e difference may be small. 15 Because p o p u l a t i o n g r o w t h stimulates demand for construction, Tennessee's construction sector should also grow faster than those of the nation and nearby states. H o w e v e r , M e m p h i s is unlikely t o s h a r e in this trend. From 1 9 7 0 t o 1 9 8 0 it grew at only 9.5 percent c o m p a r e d t o rates of more than 15 percent in other Tennessee SMSAs, and it e x p e r i e n c e d a net o u t m i g r a t i o n of residents in their " p r o d u c t i v e years" (20-55). 16 Moreover, t h e slowing of p o p u l a t i o n g r o w t h in the early 1980s t o less than 0.5 percent annually (see Profile) indicates that construction will not be as expansionary in the 1980s as in the 1970s. G o v e r n m e n t cutbacks, including TVA budget reductions, are depressing nonbuilding construction. N o n b u i l d i n g contracts in the state have been steadily declining for over t w o and a half years. In January 1 9 8 0 n o n b u i l d i n g contracts w e r e $616 million; in N o v e m b e r 1 9 8 2 o n l y $ 5 2 4 million ( 1 2 - m o n t h cumulative rates). However, sections of I-440 near Nashville are under construction. Airport expansions in several cities are also planned. The recent increase in t h e federal excise tax on gasoline may also stimulate nonb u i l d i n g construction since revenues f r o m this hike are earmarked for state infrastructural repair and d e v e l o p m e n t . Public Sector The d o w n t u r n in the p u b l i c sector is a primary reason for the severity of the recession in Tennessee. G o v e r n m e n t is usually countercylical especially in terms of e m p l o y m e n t , b u t a broad and d e e p recession and federal b u d g e t cuts " E c o n o m i c O u t l o o k , o p . c i t . , p. 136. 16 U.S. D e p a r t m e n t of C o m m e r c e , General Population C h a r a c t e r i s t i c s in Tennessee, Vol. I (August 1982), pp. 4 4 - 7 ; D o n a l d W. Hastings, a n d J a n C. Jacobsen, " T e n n e s s e e Net M i g r a t i o n Estimates: 1 9 7 0 - 1 9 8 0 , " S u r v e y of B u s i n e s s , 18, 2 (Fall 1982), p. 7. FEBRUARY 1983, E C O N O M I C REVIEW " have reversed that pattern (Table 1). In t h e 1973-75 recession seasonally a d j u s t e d government e m p l o y m e n t grew 11.6 percent, whereas it fell 8.7 percent d u r i n g t h e current recession. Job losses are a result of d i m i n i s h i n g revenues a n d cutbacks in TVA construction a n d operations. The TVA's w o r k force d e c l i n e d f r o m almost 51,000 in August 1 9 8 1 t o f e w e r t h a n 4 0 , 0 0 0 last August. The utility may furlough 7,000 m o r e over the next five years. Although government contributes only a slightly larger p o r t i o n of jobs t o Tennessee t h a n t o the nation, federal cutbacks in funds t o state a n d local governments may be having a greater impact on Tennessee than on its southeastern neighbors. Government e m p l o y m e n t in Tennessee declined m o r e in 1982 t h a n in the Southeast a n d in the U n i t e d States, w i t h respect t o c o m p a r a b l e months of 1 9 8 1 . Tennessee ranks 1 9 t h in t h e per capita a m o u n t of federal funds received, whereas other District states rank 2 5 t h or lower. 1 7 A b o u t $100 million in federal funds have b e e n slashed from Tennessee's b u d g e t of $4.5 billion. Federal support of local transportation systems, such as Chattanooga's CARTA, will be halved in 1983 and e l i m i n a t e d in 1984. Yet, C h a t t a n o o g a voters defeated a local o p t i o n , o n e cent per gallon gasoline tax t o offset t h e loss of $ 4 5 0 , 0 0 0 in federal monies. If such resistance t o increased taxes prevails statewide, a p r o j e c t e d b u d g e t shortfall of $80-145 m i l l i o n appears certain. Prolonged recession a n d an unresponsive tax system have severely curtailed Tennessee's revenue collections. Sales a n d m o t o r fuel taxes p r o v i d e almost 60 percent of all taxes collected. Tax receipts have been declining in real terms since 1979 (Table 2). Lower-than-anticipated collections resulted in a $34 million shortfall in t h e first four months of t h e present fiscal year. Revenues f r o m Tennessee's sales tax d o n o t e x p a n d in concert with e c o n o m i c growth. This leaves t h e state government strapped in recessionary periods, especially w h e n t h e y succeed o n e a n o t h e r as rapidly as in the 1980s. 1 8 Revenue has increased substantially only w h e n rates have been increased. Some legislators are suggesting an i n c o m e tax, but such a measure w o u l d necessitate a m e n d i n g " U n i v e r s i t y of Tennesse, C e n t e r for B u s i n e s s a n d E c o n o m i c Research, T e n n e s s e e S t a t i s t i c a l A b s t r a c t 1 9 8 0 , (5th ed.), Knoxville, T e n n e s s e e , 1980, p. 5 6 9 . 18 The state's s a l e s tax has an e s t i m a t e d i n c o m e elasticity of 0.9. C e n t e r for Business and Economic Research, University of Tennessee, A n E c o n o m i c R e p o r t t o t h e G o v e r n o r o f t h e S t a t e of T e n n e s s e e o n t h e S t a t e ' s E c o n o m i c O u t l o o k (Nashville, T e n n e s s e e : T e n n e s s e e State Planning Office, February 1 982), pp. 11,74. ' FEDERAL RESERVE B A N K O F A T L A N T A T a b l e 2. Value of Foreign Investment in Tennessee, 1978-81 (in millions of dollars) Japan West Germany Canada England Belgium Netherlands Subtotal Total Foreign Investment 585.8 41.7 29.9 26.9 26.7 26.3 737.3 793.7 Source: T e n n e s s e e Department of Economic and Community D e v e l o p m e n t (telephone interview). the constitution. This c u m b e r s o m e a n d rarely used p r o c e d u r e requires affirmation by t w o consecutive legislatures and subsequent approval by t h e electorate. Even t h e n the tax w o u l d be vulnerable t o challenge. A wage tax and an increase in c o n s u m p t i o n taxes are possible alternatives. W h a t e v e r measures t h e state undertakes t o increase revenues and decrease costs in t h e short run, t h e long-run o p p o r t u n i t y costs may be even greater. Infrastructure will deteriorate if n o t maintained a n d replaced in a t i m e l y fashion. Tennessee's future labor force may suffer. The state ranks comparatively high in the performance of its c o l l e g e - b o u n d students. In 1980-81 Tennessee's S.A.T. scores averaged 475 in verbal a n d 514 in math, c o m p a r e d t o 4 2 4 a n d 4 6 6 , respectively, for t h e U n i t e d States and 4 0 9 a n d 4 4 5 , respectively, for 10 southern states (the District, t h e Carolinas, Virginia, a n d Kentucky). H o w e v e r , a state Board of Education proposal t o raise tuition at state-supported colleges and universities p r o b a b l y will reduce enrollment. What's m o r e , T e n n e s s e e a p p r o p r i a t e d $1,825 per s t u d e n t for e l e m e n t a r y and secondary education, 4 3 r d in t h e nation. 1 9 If t h e state is t o attract a d v a n c e d t e c h n o l o g y firms and o t h e r industries that w o u l d help narrow the gap in per capita personal i n c o m e b e t w e e n it a n d the nation, it will have t o i m p r o v e the skills a n d training of its w o r k force at a variety of educational and skill levels. Current cutbacks b o d e ill for Tennessee's f u t u r e labor force. ,9 T h e B o o k o f S t a t e s , 1 9 8 2 - 8 3 (Lexington, K e n t u c k y : C o u n c i l of S t a t e G o v e r n m e n t s , 1982), p. 4 4 2 . 37 Energy Energy has b e e n a key factor in Tennessee's industrial g r o w t h since at least the 1930s, w h e n t h e TVA was established t o harness t h e p o w e r of the Tennessee River and help spur the developm e n t of an economically depressed region. For several decades cheap and a b u n d a n t hydroelectric p o w e r enhanced the state's o t h e r comparative a d v a n t a g e s — n a t u r a l resources and lowcost labor. Industries such as aluminum, chemicals, and p u l p and paper, intensive users of electrical energy, currently consume one-fifth of the agenc/s directly-sold energy. 20 During the 1970s, however, the TVA's pricing edge began t o erode. Cheap hydroelectric power came t o provide only 15 percent of the federal utility's o u t p u t . From 1973 t o 1 9 8 0 TVA rates grew at 11.4 percent a year, w h i l e the national n o r m was 6.8 percent. M o r e o v e r , since t h e oil crises of the 1970s, energy demand has increased more slowly because of alternative sources a n d conservation. Recently, d e m a n d has d r o p p e d even more because of the recession. Industrial kilowatt hours have fallen steadily since 1979. After d r o p p i n g m o r e than 3 percent in 1 9 8 0 a n d 1981, d e m a n d d i p p e d by over 15 percent in 1982. Despite greater consumption by residential and commercial users, total kilowatt hours fell almost 6 percent through the first eight m o n t h s of 1982. 2 1 Economic recovery will engender some imp r o v e m e n t , b u t reduced energy d e m a n d is b o t h cyclical and secular. A l t h o u g h the TVA expects rate increases t o taper off, remaining a b o u t even w i t h inflation and 10 percent b e l o w national levels, some businesses consider the cost difference negligible. Lastyear's cancellation of four nuclear reactors for w h i c h $1.85 billion had already been invested, probable congressional t e r m i n a t i o n of t h e Clinch River breeder reactor in 1983, a n d cost control will enable the TVA t o reduce rate increases scheduled t o go i n t o effect next October. H o w e v e r , these cutbacks are affecting o t h e r e c o n o m i c sectors. Still m o r e TVA workers probably will be f u r l o u g h e d (see Public Sector). C o m b u s t i o n Engineering, a TVA equipment supplier and Chattanooga's largest employer, had t o reduce its w o r k force further by laying off 550 workers in January. 22 The TVA's consumption " E c o n o m i c O u t l o o k , o p . cit., p. 118. U.S. D e p a r t m e n t of Energy, E l e c t r i c P o w e r M o n t h l y (August 1982), p. 67, a n d Federal Reserve B a n k of A t l a n t a d a t a base. " W a l l S t r e e t J o u r n a l , D e c e m b e r 6, 1982, p. 20. 21 38 of 28.8 million tons of coal in 1982, the lowest in 14 years, has r e d u c e d coal miningactivities since most of the state's reserves are sold t o the utility. 2 3 A l t h o u g h Tennessee's coal p r o d u c t i o n of 7.5-8 million tons is small c o m p a r e d t o that of Kentucky, t h e e c o n o m i c i m p a c t of r e d u c e d dem a n d has b e e n c o n c e n t r a t e d on a f e w counties in east Tennessee. In summary, b o t h the d e m a n d and supply side look bleak for energy. O n e harbinger of potential g r o w t h is the announcem e n t by t w o oil c o m p a n i e s of plans t o undertake exploratory oil a n d natural gas drilling in portions of the Eastern O v e r t h r u s t Belt in Tennessee. 24 Tourism Tourism is a significant source of e m p l o y m e n t in Tennessee. The 73,000 tourist-related jobs in 1981 represented 4.2 percent of the state's nonfarm e m p l o y m e n t , a slightly larger share t h a n construction. The travel industry a c c o u n t e d for 4.5 percent of state tax revenues a n d 2.9 percent of local revenues. Last year the W o r l d ' s Fair d r e w m o r e than 11 million visitors, generated an estimated $ 5 0 0 million in spendingand $25 million in tax revenues, created 6,700 jobs, a n d h e l p e d keep Knoxville's u n e m p l o y m e n t rate w e l l b e l o w t h e state average (see map). It also stimulated $ 2 5 0 million in highway i m p r o v e m e n t s , construction of several n e w hotels a n d parking garages, and plans for r e d e v e l o p m e n t of d o w n t o w n Knoxville. M o r e over, t h e Fair's success had a c o m p l e m e n t a r y effect o n tourist attractions t h r o u g h o u t t h e state. A l m o s t all indicators of tourist activity increased over 1981 levels. H o w e v e r , the Fair itself was less profitable than h o p e d largely because of higherthan-anticipated interest payments ($9.6 million) on its $30 million loan. At closing the Fair's net revenues w e r e only $1 million rather than the $8.5 million expected. 2 5 The o u t l o o k for tourism in 1983 is less positive than in 1982, although there are some encouraging factors. In Knoxville four new hotels have o p e n e d w h e r e previously there was only one, and, o n J uly 1, t h e city will have a n e w c o n v e n t i o n center. Knoxville is w i t h i n a day's drive of 70 million people. Consequently, it expects t o attract nu- " K n o x v i l l e N e w s S e n t i n e l , N o v e m b e r 18, 1982, pp. A 1 - 2 . " C h a t t a n o o g a T i m e s , O c t o b e r 20, 1982, p. B - 5 . " K n o x v i l l e N e w s S e n t i n e l , N o v e m b e r 20, 1982, p. 1-A. FEBRUARY 1983, E C O N O M I C R E V I E W " merous convention visitors, particularly members of smaller associations. In 1983, t o u r i s m is likely t o be strongest at established attractions a r o u n d Nashville a n d Memphis. However, i m p r o v e m e n t of tourism in Tennessee d e p e n d s o n national e c o n o m i c recovery. A large p o r t i o n of Tennessee's out-ofstate visitors are blue-collar workers f r o m t h e industrial heartland. If u n e m p l o y m e n t in this region does not fall, tourism in Tennessee c o u l d decline this year. The most i m p o r t a n t influence is likely t o be EPCOT, w h i c h should boost passthrough traffic along 1-75. However, since vacations t o the e x p a n d e d W a l t Disney W o r l d n o w command more t i m e a n d discretionary i n c o m e (primarily for lodgings), less will remain for sightseeing en route. Tennessee is likely t o suffer t h e sort of " s i p h o n e f f e c t " f r o m EPCOT t h a t m u c h of t h e Southeast felt f r o m the W o r l d ' s Fair in 1982. Finance From July 1, 1981, t o June 30, 1982, bank deposits g r e w 8 . 8 p e r c e n t t o $ 2 1 . 7 million, w h i l e loans grew 8.3 percent t o $13.7 million. Tennessee's loan-to-deposit ratio of 63.1 percent is second o n l y t o Georgia in the Southeast. Employment in Tennessee's financial sector ( i n c l u d i n g insurance a n d real estate) has n o t k e p t pace, however. Indeed, j o b attrition has been more severe than in 1 9 7 3 - 7 5 ( T a b l e 1). C o n s t r u c t i o n and consumer s p e n d i n g d o w n t u r n s , w h i c h reduced t h e d e m a n d for credit, offer partial explanations; a n o t h e r factor is deregulation. Increased competition is forcing financial institutions to be m o r e cost-conscious. These pressures c o m b i n e d w i t h technological advances, such as computerization, make labor a p r i m e target for cost-cutting. However, in o t h e r states finance e m p l o y m e n t has c o n t i n u e d t o grow. O n e probable factor distinguishing Tennessee's financial sector from its counterparts in Florida and Georgia is the general e c o n o m i c malaise that has characterized the state almost continuously since 1979. W i t h o u t e c o n o m i c growth, finance is unlikely t o be an e x p a n d i n g sector, especially in terms of "employment. In the shorter t e r m the o u t l o o k is promising. In early a u t u m n e m p l o y m e n t in finance began t o rise. Several parties are p e t i t i o n i n g t o establish a new bank in H o h e n w a l d t o replace o n e that failed last September. A revival in construction a n d general e c o n o m i c recovery should stimulate b o t h finance a n d real estate. Still, c o m p e t i t i v e pressures of a deregulated e n v i r o n m e n t may hold back j o b g r o w t h until labor p r o d u c t i v i t y in t h e financial sector improves. Trade Retail sales in Tennessee in 1982 h e l d fairly firm despite weak i n c o m e growth. S a l e s — b u o y e d by W o r l d ' s Fair t o u r i s t s — w e r e up 4.7 percent through t h e first 11 m o n t h s of 1982 f r o m yearearlier levels, w e l l ahead of t h e nation's 2.6 perc e n t rise. A u t o sales in late 1982 w e r e far ahead of 1981 as a result of lower cost financing a n d manufacturers' prices rollbacks. H o w e v e r , emp l o y m e n t in wholesale a n d retail trade remained relatively weak. Trade jobs c o n t i n u e d t o e x p a n d n a t i o n w i d e during most of the recession, yet in Tennessee trade e m p l o y m e n t d e c l i n e d m o r e sharply than in the 1973-75 d o w n t u r n (5.2 versus 3.2 percent respectively). W i t h o u t t h e stimulus of the W o r l d ' s Fair in 1983, retail sales will d e p e n d o n i m p r o v e m e n t i n t h e nation's a n d state's economies. Declining or even stable interest rates should spur c o n s u m e r spending, especially for goods usually purchased on credit. Lower real rates should boost o u t p u t , e m p l o y m e n t , and i n c o m e in the state's m a n y credit-sensitive industries a n d thus indirectly stimulate retail sales. However, the comparatively low growth rate in real personal income expected by state forecasters for 1983 implies very m o d e s t retail growth since personal income and consumer s p e n d i n g are closely linked. Agriculture Farming is a m o r e i m p o r t a n t e m p l o y e r in Tennessee than in most District states. Tennessee ' FEDERAL RESERVE B A N K O F A T L A N T A 39 has a larger p o r t i o n (5.5 percent) of its laborforce e m p l o y e d in agriculture than t h e Southeast (3.5 percent). 2 6 Farmers in Tennessee, like those throughout the nation, experienced another year of low i n c o m e in 1982. W e a k d e m a n d and high yields sharply l o w e r e d prices for c o m m o d i t i e s f r o m year-ago levels. Because of the regional distribution of agriculture, adverse conditions had t h e greatest impact on west Tennessee a n d t h e least on m i d d l e Tennessee. For m i d d l e Tennesee's many livestock farmers, 1982 was a year of m i x e d results. H o g producers i m p r o v e d profit margins, b u t returns for cattlem e n w e r e essentially low. A b u n d a n t supplies of soybeans, the state's leading cash crop, depressed prices a n d profits for many farmers, especially in west Tennessee. Wholesale trade, revolving largely around agriculture, is more i m p o r t a n t t o t h e economy of Memphis than of any other Tennessee SMSA (Chart 2). Last year's comparatively poor agricultural conditions help account for that city's relatively high u n e m p l o y m e n t rate (see map).Tobacco was the most profitable crop in 1982, but severe rains in late s u m m e r damaged some harvests and forced affected growers t o accept lower prices. M a n y o t h e r crops failed t o provide sufficient revenue t o cover costs. Forestry provides only o n e percent of farm cash receipts, b u t primary and secondary w o o d using industries e m p l o y a p p r o x i m a t e l y 61,000 workers w h o generate products w i t h a gross value in excess of $2 billion, according t o a state Forestry D e p a r t m e n t survey. W i t h prices d o w n and many mill operations closed or w o r k i n g only part-time, the industry is undergoing a serious downturn. I m p r o v e m e n t in agriculture in 1983 will probably be slight t o moderate. Lower f e e d costs in 1982 b o d e w e l l for livestock profit margins in 1983, and t h e d e m a n d for livestock should improve with e c o n o m i c recovery. Crop surpluses should w o r k d o w n slowly over t h e next t w o years. Tobacco faces a d o u b l i n g of the cigarette tax and a reduction of six cents per p o u n d in price supports. The most optimistic o u t l o o k is for forest products, w h i c h should be stimulated by a n a t i o n w i d e u p t u r n in construction. J6 27 F a r m L a b o r , F e b r u a r y 1 9 8 1 , p. 5. U.S. D e p a r t m e n t of C o m m e r c e , 1 9 8 0 A n n u a l S u r v e y o f M a n u f a c t u r e s ( J a n u a r y 1 9 8 2 ) , pp. 16, 28. 40 International International trade has b e c o m e increasingly i m p o r t a n t t o Tennessee's e c o n o m y . From 1 9 7 7 t o 1 9 8 0 t h e v o l u m e of foreign trade grew by 24 percent per year t o $5.2 billion. Tennessee n o w ranks second in t h e District and 1 5 t h in t h e nation in the proportion of the value of shipments a t t r i b u t a b l e t o exports. W i t h 14.5 p e r c e n t of its m a n u f a c t u r i n g s h i p m e n t s b o u n d f o r f o r e i g n markets, Tennessee ranks higher than the nation's average share of 14.1 p e r c e n t Chemicals, w i t h a 1 9 8 0 value of $1.4 billion, remain t h e leading export. Even t h o u g h exports c o n t r i b u t e d a smaller share of manufacturing j o b s t o Tennessee than t o the nation (11.4 vs. 13.7 percent, respectively), at least t w o i n d u s t r i e s — t o b a c c o and c h e m i c a l s — . a c c o u n t for a larger p o r t i o n of jobs. M o r e t h a n one-quarter of t o b a c c o workers, c o n c e n t r a t e d in m i d d l e a n d east Tennessee, rely on exports. The Tri-Cities area, w h e r e m o r e than 8 percent of the workers p r o d u c e goods for export, leads t h e state's SMSAs in its d e p e n d e n c e o n foreign trade. 2 7 Direct foreign i n v e s t m e n t is a n o t h e r i m p o r t a n t international segment of Tennessee's e c o n o m y . The state has succeeded in attracting considerable "reverse" investment. Between 1978 a n d 1981 foreign countries invested almost $ 8 0 0 million (see Table 2). Foreign i n v e s t m e n t in Tennessee landholdings is a m o n g the highest in t h e nation, although it represents only a b o u t 2.4 percent of the state's total area. By far t h e biggest foreign i n v e s t m e n t is Nissan's half-billion-dollar t r u c k assembly plant. State officials expect Japan t o c o n t i n u e t o be t h e primary foreign investor in 1983. If the dollar continues the decline against foreign currencies that began in late 1982, foreign direct investment in manufacturing and agriculture in Tennessee as w e l l as d e m a n d for the state's exports should accelerate. However, depressed conditions abroad p o r t e n d little i m p r o v e m e n t for Tennessee's e x p o r t - o r i e n t e d industries in 1983. — Bobbie H. McCrackin (Sandra L Davis contributed valuable research assistance to this project) FEBRUARY 1983, E C O N O M I C REVIEW " Louisiana: Thermostat Setting Lower Good prospects for construction and retail sales brighten Louisiana's outlook. But lackluster growth in oil, gas, petrochemicals and port activity could make for a modest recovery in 1983. Louisiana's oil a n d gas industries generated rapid state e c o n o m i c g r o w t h in t h e 1970s. The Pelican State's e c o n o m y also was b u o y e d by the growth of international trade t h r o u g h t h e state's ports. As a consequence, t h e state virtually bypassed the s t o r m y 1973-75 national recession and sailed t h r o u g h 1 9 8 0 u n m a r k e d by that e c o n o m i c squall. By contrast, in 1982 Louisiana's economic boiler c o o l e d dramatically; in 1983 its temperature is likely t o rise slowly. A spreading w o r l d w i d e oil a n d gas surplus swamped Louisiana's e c o n o m y in 1982, m u c h like the spring floods that periodically breach Mississippi River levees. Virtually all indicators of economic prosperity in Louisiana stalled in 1982. However, by yearend at least o n e i m p o r t a n t indicator of p e n d i n g r e c o v e r y — c o n s t r u c t i o n appeared to be gaining strength. There was also hope that c o n s u m e r s p e n d i n g w o u l d i m p r o v e t o help boost e c o n o m i c activity early in the state's recovery in 1983. As 1983 unfolds, e x p e c t e d gradual improvement in residential construction a n d c o n s u m e r spending will be bolstered as N e w Orleans prepares for t h e 1984 W o r l d Exposition. In addition, moderate expansion of the w o r l d econo m y should reverse, by yearend, the slowing of imports a n d exports t h r o u g h Louisiana's ports in ' FEDERAL RESERVE B A N K O F A T L A N T A 1982. The i m p o r t a n t oil, gas and p e t r o c h e m i c a l industries are e x p e c t e d t o show little improvem e n t until midyear. Thus, the course and pace of e c o n o m i c recovery in Louisiana in 1983 may be a m e a n d e r i n g o n e that gains m o m e n t u m late in the year. Labor Market Developments Louisiana's p o p u l a t i o n s p u r t e d t o 4 . 3 million in t h e 1 5 - m o n t h p e r i o d f o l l o w i n g the April 1 9 8 0 Census, a c c o r d i n g t o Census Bureau estimates. The state's 2.5 percent population growth d o u b l e d the g r o w t h registered by the nation in t h e same period; by contrast, d u r i n g t h e 1970s, Louisiana's p o p u l a t i o n g r o w t h equalled the nation's 1.5 percent rate. Expanding j o b o p p o r t u n i t i e s in the state's then-surging energy sector, its low tax burden and living costs u n d o u b t e d l y c o n t r i b u t e d t o t h e g r o w t h by attracting job-seekers f r o m outside the state. The recent energy bust is reflected in Louisiana's labor force a n d e m p l o y m e n t statistics (see Table 1). The state's e m p l o y m e n t in N o v e m b e r was 41,000 less than a year earlier. By comparison, t h e state's civilian labor force increased slightly from N o v e m b e r 1981 to N o v e m b e r 1982 despite a rise in the n u m b e r of d r o p o u t s f r o m the w o r k 41 T a b l e 1 . United States and Louisiana Labor Force* Area and Employment November 1982 November 1981 November 1 9 8 0 United States (000) Civilian Labor Force Employed Unemployed Rate 110,855 99,379 11,476 10.8 109,179 100,502 8,676 8.3 105,287 97,801 7,486 7.5 Louisiana (000) Civilian Labor Force Employed Unemployed Rate 1,877.2 1,676.2 201.0 10.7 1,872.0 1,716.8 155.2 8.3 1,755.2 1,635.3 119.9 6.8 73.7 65.9 7.8 10.5 72.9 65.7 7.2 9.9 69.1 62.8 6.3 9.1 Baton Rouge SMSA (000) Civilian Labor Force Employed Unemployed Rate 229.8 208.3 21.5 9.4 229.7 212.5 17.2 7.5 223.8 208.2 15.6 7.0 Lafayette SMSA (000) Civilian Labor Force Employed Unemployed Rate 100.0 93.6 6.4 6.4 94.4 90.5 3.9 4.2 81.8 78.8 3.0 3.7 Lake Charles SMSA (000) Civilian Labor Force Employed Unemployed Rate 76.0 65.2 10.8 14.2 82.5 75.0 7.5 9.1 74.2 69.2 5.0 6.8 Monroe SMSA (000) Civilian Labor Force Employed Unemployed Rate 55.4 48.6 6.8 12.3 56.4 50.6 5.8 10.2 54.6 49.8 4.8 8.8 New Orleans SMSA (000) Civilian Labor Force Employed Unemployed Rate 505.2 456.3 48.9 9.7 516.6 474.1 42.5 8.2 479.9 449.6 30.3 6.3 Shreveport SMSA (000) Civilian Labor Force Employed Unemployed Rate 159.8 142.2 17.6 11.0 163.1 150.3 12.8 7.8 155.7 144.6 11.1 7.1 Alexandria SMSA (000) Civilian Labor Force Employed Unemployed Rate • D a t a not seasonally adjusted Source: Louisiana Department of Labor 42 FEBRUARY 1983, E C O N O M I C R E V I E W " force. As a consequence, t h e n u m b e r of unemployed was almost one-third higher in N o v e m b e r than a year earlier. At 11.3 p e r c e n t the state's seasonally adjusted unemployment rate in November e x c e e d e d t h e nation's rate of 10.7 p e r c e n t Of the seven standard metropolitan statistical areas in Louisiana, Lake Charles, at 14.2 percent, had the highest u n e m p l o y m e n t rate, w h i l e Lafayette's 6.4 percent u n e m p l o y m e n t rate was t h e lowest U n e m p l o y m e n t rates were also historically high, at 18-25 percent, in some rural agricultural parishes in north Louisiana at yearend. Income and Trade Louisiana's total personal i n c o m e rose by 8.2 percent from 1981, t o $43.7 billion, in t h e quarter e n d i n g last June. It had increased by 16 percent a year earlier. That g r o w t h o u t d i s t a n c e d every District state e x c e p t Florida. It ranked Louisiana twelfth nationally, and was one percent faster than the nation's personal i n c o m e growth. The fast g r o w t h caused Louisiana's per capita personal i n c o m e t o rise f r o m 88 percent of the nation's level in 1 9 8 0 t o almost 91 percent in mid-1981. Lingering effects of Louisiana's oilfired e c o n o m i c b o o m of 1979-81 a c c o u n t for this robust income increase. But that fire d i m m e d in late 1981 a n d nearly w e n t cold in t h e last half of 1982. The w e a k e n i n g of Louisiana's e c o n o m y is reflected in the 1.8 percent d e c l i n e in retail sales for the first eleven m o n t h s of 1982 c o m p a r e d t o the same period in 1981. By contrast, retail sales increased by 2.6 percent for t h e nation over t h e same period. In November, retail sales in Louisiana were up 3.5 percent f r o m a year earlier while retail sales rose 7.6 percent nationally. Thus, t h e state has trailed t h e nation's r e b o u n d in retail sales. But t h e retail sector was i m p r o v i n g at year-end. The n e w year-is likely s h o w c o n t i n u e d improvement in Louisiana's retail sector, particularly when t h e s c h e d u l e d midyear federal tax cut boosts spendable income. Nevertheless, income and sales g r o w t h in t h e state in 1983 will likely reverse its above-average p e r f o r m a n c e of recent years if t h e recovery in the oil/gas industries is delayed until midyear, as m a n y analysts expect. Nonfarm Employment Louisiana's three largest e m p l o y m e n t divisions are trade, g o v e r n m e n t and services (see chart). ' FEDERAL RESERVE B A N K O F A T L A N T A C h a r t 1 . Louisiana N o n f a r m E m p l o y m e n t November 1982 Trans/Public Utilities Trade 22.9% 8.0% Government 19.7% Finance 4,7% Services 18.4% Mining 6.0% Manufacturing 12 3% Construction 8.0% Source: Louisiana Department of Labor. H o w e v e r , t h e d i s t r i b u t i o n of Louisiana e m p l o y m e n t w o r k e d against t h e state in 1982. The small finance and large services divisions have registered (seasonally adjusted) gains in e m p l o y m e n t in Louisiana since t h e national recession began in July 1981, b u t those divisions account for a smaller p r o p o r t i o n of j o b s in Louisiana t h a n in the U n i t e d States or the District Employment in the usually g r o w i n g wholesale a n d retail trade division has fallen because 6f the severity of t h e d o w n t u r n in Louisiana's e c o n o m y over t h e past 18 months. O n t h e o t h e r hand, government, transportation, construction, and mining account for a larger p r o p o r t i o n of jobs in Louisiana t h a n in the nation or D i s t r i c t — a n d , e x c e p t for governm e n t , the state has lost jobs in each of these sectors in t h e current recession. Unfortunately, even t h e state's gain in governm e n t e m p l o y m e n t is likely t o be reversed in 1983. A state hiring freeze has been imposed a n d layoffs w e r e increasing going into the n e w year as a consequence of G o v e r n o r Treen's O c t o b e r order t o cut state agency s p e n d i n g by 4.4 p e r c e n t In general, e m p l o y m e n t has grown in t h e services-producing sector of the nation's econo m y — t r a n s p o r t a t i o n , trade, finance, services, and g o v e r n m e n t — e v e n during e c o n o m i c downturns. In the District, services, finance and trade jobs c o n t i n u e d t o grow t h r o u g h o u t m u c h of the recession, w h i l e transportation a n d g o v e r n m e n t e m p l o y m e n t held fairly steady. In Louisiana, a small gain in total services sector e m p l o y m e n t 43 was s w a m p e d by large declines in construction a n d manufacturing e m p l o y m e n t . The spreading weakness of Louisiana's econo m y that shows up in e m p l o y m e n t figures is painfully e v i d e n t in business bankruptcy data as well. Business b a n k r u p t c y filings in Louisiana increased by 75 percent, t o 496, in the t h i r d quarter of 1982 over the year-earlier level. According t o a bankruptcy court official, filings surged further in O c t o b e r and N o v e m b e r . W h i l e some filings are by firms closely related t o the energy s e c t o r — t u g b o a t and exploration companies, for e x a m p l e — s o m e unrelated firms also are e n c o u n t e r i n g problems. Trucking, warehousing, and industrial supply companies are a m o n g the firms seeking protection in b a n k r u p t c y court. Unfortunately, the u n e m p l o y m e n t plaguing Louisiana will probably decline o n l y slowly f r o m its post-World W a r II record level. O n e reason is that, in a recovery, e m p l o y m e n t gains lag prod u c t i o n increases. Firms operating well b e l o w capacity typically increase employees' hours before hiring new workers. M o r e o v e r , the shortt e r m e m p l o y m e n t o u t l o o k for i m p o r t a n t manufacturing industries remains gloomy. T a b l e 2 . Louisiana: M a n u f a c t u r i n g W a g e a n d Salary E m p l o y m e n t (in 0 0 0 ' s b y industry) Manufacturing Durable Goods Lumber & Wood Products Furniture & Fixtures Stone, Clay & Glass Products Primary Metals Industries Fabricated Metals Products Machinery, except Electrical Electric & Electronic Equipment Transportation Equipment Other Durable Goods Nondurable Goods Food & Kindred Products Apparel & Other Textile Products Paper & Allied Products Printing & Publishing Chemicals & Allied Products Petroleum & Coal Products Petroleum Refining Other Nondurable Goods Nov. 1982 198.0 91.8 12.0 0.9 7.8 4.8 16.8 14.2 9.4 23.4 2.5 106.2 28.9 8.8 10.9 9.3 29.7 14.4 13.4 4.2 % Change from Nov. 1981 -22.2 -14.6 +0.1 0 -0.5 -2.6 -2.1 -2.0 -1.9 -5.4 -0.2 -7.6 -0.1 -0.9 -1.4 -0.3 -2.7 -2.0 -2.0 -0.2 Source: Louisiana Department of Labor, L o u i s i a n a L a b o r I n f o r m a t i o n , various issues. Market Manufacturing Manufacturing e m p l o y m e n t in the third quarter of 1982 s l u m p e d t o levels not seen in Louisiana since mid-1977; the lumber and w o o d products industry was the only Louisiana's manufacturing industries w h i c h had higher e m p l o y m e n t in Nov e m b e r than a year earlier (see Table 2). Factory i n c o m e in the first half of 1982 fell 4.8 percent in t h e state c o m p a r e d t o t h e last half of 1981. In addition, the n u m b e r of n e w manufacturing facilities s l u m p e d by 4 0 percent for the first eight m o n t h s of 1982 w h e n c o m p a r e d to t h e same months of 1981, and industrial expansions declined b y 5 7 percent d u r i n g t h e same period. Itis clear from the statistics that manufacturing activity in the Pelican State has slowed considerably in a fairly short period of time, a n d prospects are not bright for a rapid t u r n a r o u n d . Louisiana's industries are closely linked t o d e m a n d for mineral resources in the state. The " o i l glut" and falling prices have p u t a d a m p e r on w h a t previously was a vigorously e x p a n d i n g industrial sector. Petroleum refineries a n d chemical plants along t h e Mississippi River have been especially hard hit and have been p r o d u c i n g at only 60 percent of capacity. In fact, e m p l o y m e n t in p e t r o l e u m refining fell by 2,000 workers f r o m 44 N o v e m b e r 1981 to N o v e m b e r 1982 while chemical and allied products e m p l o y m e n t lost 2,700 workers. The more labor-intensive oil a n d gas extraction industry saw e m p l o y m e n t s l u m p by 2,800 e m p l o y e e s t o 93,000 during t h e same period. Altogether, e m p l o y m e n t was off 7,500 in N o v e m b e r in t h e oil p r o d u c t i o n , refining and chemical industries w h i c h e m p l o y e d over 140,000 Louisiana workers in 1981. The s l o w d o w n also is affecting a cross-section of Louisiana's o t h e r employers. For example, d e m a n d for oil field supply e q u i p m e n t a n d machinery used in the oil production and retrieval process has p l u m m e t e d because of the s l o w d o w n in drilling. Oil field pipe suppliers have experienced large, u n w a n t e d inventory buildups. A slowdown in the metals industry is consistent w i t h n a t i o n a l t r e n d s . Kaiser A l u m i n u m a n d Chemical C o m p a n y in Baton Rouge has laid off m u c h of its labor force because of weak d e m a n d for a l u m i n u m a n d t h e high cost of electricity a n d natural gas needed t o run the p l a n t The fabricated metals industry is also s l u m p i n g f r o m r e d u c e d p r o d u c t d e m a n d . The Delta Southern Steel Fabricators Plant in Baton Rouge, for example, is shutting d o w n for good. A national recovery in FEBRUARY 1983, E C O N O M I C R E V I E W " Oil Slips in 1 9 8 3 The oil and gas industries are driving forces in Louisiana's economy, making Louisiana an important "oil-patch" state. In fact, Louisiana ranks with Texas as leading natural gas producing states and is third behind Texas and Alaska in crude oil production. Louisiana is also third in refining capacity. In 1981, Louisiana produced 4 4 9 million barrels of oil, or 14 percent of the nation's total; gas production totaled nearly 6.8 trillion cubic feet, more than one-third of the nation's output; and state oil refineries were capable of processing 2.5 million barrels per day, or more than one out of eight barrels nationally. (At 1981 production levels, Louisiana's 1981 proven reserves of oil and gas will run out in 6.6 and 7 years, respectively.) But in 1982, Louisiana's oil industry soured. What went wrong and what lies ahead? A rapidly rising price for U.S. crude oil has swelled the wellhead price of Louisiana oil in recent years. By 1981, the U.S. price climbed to $31.84 from an average price of $8.96 in 1978. In Louisiana, the wellhead price jumped from $19.38 to $ 3 4 in 1980-81 alone. Prices increased as a consequence of the lifting of federal price controls on domestically produced oil and of the tight world energy market. Inflation added to the staggering price increase. Meanwhile, the Natural Gas Policy Act of 1978 strengthened the price link between oil and unregulated new gas from extremely deep wells (those at depths greater than 15,000 feet). The high price of oil encouraged established firms and speculative new exploration companies t o accelerate drilling for both oil and gas. The 5,379 oil and gas wells drilled in Louisiana in 1981 represented a 6 0 percent increase from the level five years earlier. The total for 1981 also eclipsed the previous record of 5,344 wells drilled in 1964. As drilling increased, oil field supplier activity in tubular goods and other products, rig rentals and leases, tugboat and other services stepped up as well. Oil exploration budgets are established o n the basis of expected revenues and costs. Revenues and costs are influenced by many f a c t o r s — i n c l u d i n g changing demand for energy, availability of competing fuels, 1983 will help these durable goods industries get b a c k o n t h e i r f e e t , b u t c o n t i n u i n g h i g h e n e r g y prices w i l l l i m i t t h e state's g r o w t h p o t e n t i a l a n d may cause n e w industries t o l o o k e l s e w h e r e for p l a n t s i t e s in 1 9 8 3 . S h i p b u i l d i n g is a l s o t r o u b l e d ; e m p l o y e e s h a v e been laid o f f at A v o n d a l e Shipyards b e c a u s e of a d o w n t u r n in s h i p b u i l d i n g a n d r e p a i r . T h e d o w n t u r n s h o u l d b e b a l a n c e d in l a t e 1 9 8 3 b y n e w m i l i t a r y c o n t r a c t s . T h e N a v y has c o n t r a c t e d w i t h A v o n d a l e t o b u i l d n e w fast logistics vessels f o r t h e R a p i d D e p l o y m e n t F o r c e . T h e N a v y a l s o has selected a n o t h e r Louisiana shipyard to p r o d u c e workboats to transport shallow draft e q u i p m e n t offshore. ' FEDERAL RESERVE B A N K O F A T L A N T A and regulatory constraints. As the world recession deepened in 1982, the softening of world oil demand and prices invalidated the explorers' cost and revenue projections. The price of oil, instead of rising as many had expected in 1982, fell. In November spot oil prices were between $ 3 2 and $ 3 5 per barrel, down significantly from the $42 per barrel charged in 1981. Conservation efforts by consumers and industrial users faced with high energy costs also help explain the limited demand for energy in 1982; the price softening also reflects a slowing of inflation and the increased supplies from non-OPEC producers. In response t o the changing prospects, drillers curtailed sharply theirexploration of costly new oil and gas fields. Their cutback is reflected in the number of idle drilling rigs. By late 1982 the average number of drilling rigs in the state had dropped below 3 0 0 from more than 4 5 0 a year earlier. Drillers focused instead on developing less expensive established fields. This cutback spread throughout the oil/gas and related industries and then spilled over to the state's entire economy as unemployment increased and income growth in the state slowed. According t o the Louisiana Division of the Mid-Continental Oil and Gas Association, Louisiana's oil and gas industry in the early 1 9 8 0 s can be described as "an industry that has recently experienced phenomenal growth and is now going through a period of retrenchment and decline." Forecasts of developments in the oil and gas industries in 1 9 8 3 vary widely, but the consensus seems to point to modest recovery around midyear. If previous business cycle patterns offer a useful guide, drilling would follow the economy's recovery by three to five months. However, possibly strong underlying trends may alter the traditional course. Those include conservation efforts by energy users and the move to substitute stable domestic supplies of coal for volatile oil and gas fossil fuels. The strength of these movements will vie with the strength of economic recovery to determine this important Louisiana sector's prospects in 1983. It is d o u b t f u l w h e t h e r L o u i s i a n a ' s o i l - d r i v e n e c o n o m y will experience m u c h n e w manufacturing g r o w t h in 1 9 8 3 in t h e f a c e o f s l i p p i n g o i l p r i c e s a n d t h e s p i l l o v e r e f f e c t s in o i l - r e l a t e d i n d u s t r i e s . Any industrial expansion will be modest, w i t h an u p t u r n in t h e e n e r g y industries n o t e x p e c t e d until m i d y e a r (See Box). Government L o u i s i a n a ' s d e p e n d e n c e u p o n t h e o i l a n d gas i n d u s t r y is d r a m a t i c a l l y r e v e a l e d b y t h e s t a t e ' s c u r r e n t fiscal d i l e m m a . State r e v e n u e c o l l e c t i o n s in t h e 1 9 7 0 s a n d e a r l y 1 9 8 0 s h a v e b e e n c h a r a c t e r i z e d b y high g r o w t h rates d u e t o e i t h e r tax 45 hikes or oil-related windfalls f o l l o w e d by a perc e p t i b l e slowing of revenue growth. The deregulation of oil prices a n d a skyrocketing price for U.S. c r u d e oil, f r o m $12.64 in 1979 t o $31.84 in 1982, d o u b l e d Louisiana's severance taxes a n d lease and royalty income, to $1.6 billion, f r o m 1979 t o 1982. N o w , w i t h soft oil prices, the state faces a different revenue picture. O v e r one-third of t h e state's revenues are directly related t o oil a n d gas. Because b o t h the severance tax o n crude oil and the royalties on oil and gas are calculated on a percentage of value of the product, a falling price for p e t r o l e u m means less m o n e y in taxes and royalties. (For every dollar price change for a barrel of oil, state revenues change by $35 million at current prices and p r o d u c t i o n levels.) Even w i t h stable prices, the state's mineral wealth p r o d u c t i o n is d r o p p i n g 2-3 percent per year as resources are d e p l e t e d , thus reducing revenues. The state's Legislative Fiscal Office projects that, unless taxes are increased o n n e w oil windfalls, Louisiana will have t o cut back on t h e level of services it provides. Because of the weak state e c o n o m y and a shortfall in e x p e c t e d state tax revenues of $120$ 1 3 0 million for the state's fiscal year e n d i n g June 1983, GovernorTreen ordered state agencies in O c t o b e r t o cut spending. He ordered that spending be cut for the current fiscal year by 4.4 percent o n items comprising a b o u t half t h e general f u n d budget. Also, a t w o - w e e k special session of the legislature was called in January t o consider changes in the state's u n e m p l o y m e n t compensation. The state otherwise will have t o b o r r o w as m u c h as $110 million f r o m the federal government t o support its u n e m p l o y m e n t insurance trust f u n d through the m i d d l e of 1983. In a d d i t i o n t o c u t t i n g spending, there is an outside chance that the state's legislature will pass n e w taxes in a special session in 1983. O n e proposal, w h i c h d i e d in c o m m i t t e e last year, w o u l d be to raise or revise the natural gas levy. However, additional s p e n d i n g cuts appear likely, squeezing the state's public sector severely. Construction Louisiana's construction industry outperformed t h e nation's in 1982. Based on F.W. D o d g e construction contract data for the first 11 months, virtually all i n d i c a t o r s — n u m b e r of d w e l l i n g units, residential and nonresidential building and nonb u i l d i n g c o n s t r u c t i o n — s h o w less weakness in 46 Louisiana than in the nation. In fact, the value of total construction in the state was up nearly 50 percent f r o m 1981 b u t was flat for t h e nation in t h e first 11 m o n t h s of 1982. Nonresidential building, such as office a n d hotel construction in N e w Orleans, a c c o u n t e d for half t h e value of all construction in the state for t h e 11 m o n t h s — u p 82 percent in 1982. The value of n o n b u i l d i n g construction contracts was also up, by 60 percent. Expensive p o w e r plant and oil refinery projects account for the nonbuilding surge. The o u t l o o k for nonresidential and n o n b u i l d i n g in 1983 is mixed. O n e favorable factor is t h e $ 1 5 0 million in W o r l d Fair-related construction slated t o begin early this year. Like m a n y major U.S. cities, N e w Orleans has e x p e r i e n c e d an office b u i l d i n g b o o m in recent years. In fact, in terms of buildings u n d e r construction, N e w Orleans is one of the fastest-growing metropolitan areas in the country. In general, the t i m i n g and strength of e c o n o m i c recovery will strongly infuence office vacancy and rental rates. In 1983, continuing construction may o u t p a c e space a b s o r p t i o n t o p r o l o n g a degree of "softness" in the market that d e v e l o p e d in 1982. Some office space has been built speculatively by developers b e t t i n g that t h e oil b o o m w o u l d continue. Yet t h e potential major tenants for m u c h of t h e space, oil services industries a n d oil companies, have scaled back expansion plans. i * I| In N e w Orleans a n d elsewhere in the state, industrial construction may also slow in 1983. Engineering firms a n d p e t r o c h e m i c a l and o t h e r industries in Baton Rouge, for example, n o t e d weak markets as 1982 came t o an end. Continuing excess capacity in petrochemicals will limit construction in that industry t o alterations a i m e d at e c o n o m i z i n g o n industrial feedstock and conserving energy. Residential construction should fare w e l l in 1983. The nominal value of all residential con- .J struction contracts was off 4.3 percent, and t h e a m o u n t of space 11 percent, for t h e first 10 m o n t h s of 1982 from 1981 levels. In the same period, d w e l l i n g units w e r e off 8.2 percent. However, o n e i n d i c a t o r s h o w i n g s t r o n g improvem e n t is the n u m b e r of single-family permits issued. These permits w e r e up each m o n t h except July f r o m M a y t o N o v e m b e r over comparable m o n t h s in 1981. Altogether, permits increased 10.3 percent in the first 11 m o n t h s of 1982 over 1981. FEBRUARY 1983, E C O N O M I C REVIEW " ) M u l t i f a m i l y construction has also s h o w n evidence of recovery. C o m p a r e d t o 1981, t h e n u m ber of permits issued is 3.0 percent higher for January-November, 1982. However, builders and realtors are o p t i m i s t i c that m u l t i f a m i l y construction will i m p r o v e this spring a n d s u m m e r if the improved mortgage t e m s continue, as expected. Tourism Louisiana's tourist industry suffered a bad year in 1982. Even local a n d less expensive tourism was d o w n . Visitor days at U.S. Forest Service recreation sites in t h e state, for example, fell 14 percent in the year e n d i n g S e p t e m b e r 30 from the previous year; a t t e n d a n c e at state parks was down 11.1 percent d u r i n g t h e summer. Visitor center registrations from M a y through September fell by more t h a n 10 percent in almost every month. National Park Service visits w e r e a b o u t the same as last year. In more expensive segments of the tourist market, p e r f o r m a n c e was worse. A l t h o u g h yearto-date lodgings tax receipts rose 2.1 percent t o $8.3 million through O c t o b e r , m u c h of t h e increase was a t t r i b u t a b l e t o higher r o o m rates, according t o the a c c o u n t i n g firm of Laventhol & Horwath, w h i c h specializes in the h o t e l / m o t e l industry. Occupancy rates were down. Convention business also is r e p o r t e d t o be off, a n d oil-related business travel—especially from Texas—is down. Plane passenger arrivals data are mixed. Declining tourism has contributed t o the state's u n e m p l o y m e n t a n d revenue problems. In 1980, the industry a c c o u n t e d for 71,000 jobs, or 4.5 percent of Louisiana's n o n f a r m e m p l o y m e n t ; it contributed 4 percent and 5.1 percent of state and local tax revenues, respectively. A l t h o u g h only 2.5 percent of t h e state's personal i n c o m e comes f r o m tourism, t h e industry provides m a n y entry level jobs t o unskilled workers. The o u t l o o k for Louisiana's tourist industry in 1983 is uncertain. The 1984 W o r l d ' s Fair in N e w Orleans is e x p e c t e d t o generate 10,000 jobs, bring 11 million visitors t o N e w Orleans, a n d inspire five n e w hotels w i t h 25,000 first-class hotel rooms. M o r e o v e r , d e v e l o p m e n t of t h e 82acre site should renew d o w n t o w n areas and revive professional a n d c o m m e r c i a l interest in central business district locations. Hotel rooms in increased w i t h t h e 1,200) guest rooms C o m p l e t i o n of t w o N e w Orleans have already o p e n i n g of the first 500 (of in the Sheraton N e w Orleans. o t h e r hotels is s c h e d u l e d for ' FEDERAL RESERVE B A N K O F A T L A N T A late 1983, as is the N e w Orleans C o n v e n t i o n a n d Exposition Center, w h i c h will house the Louisiana Pavillion d u r i n g the 1 9 8 4 exposition. After the exposition, the center will be used for major national c o n v e n t i o n s and trade shows. Since a recent survey shows c o n v e n t i o n planners a n d visitors favor N e w Orleans over all o t h e r cities e x c e p t San Francisco, this expansion seems t o b o d e w e l l for t h e f u t u r e of t h e city's tourist industry. However, the full impact of these developments will not o c c u r until 1984; w h e t h e r tourism improves in 1983 d e p e n d s on the e c o n o m i c recovery. In fact, t o u r i s m t o N e w Orleans may be off in 1983 despite a recovery, as conventioneers and tourists postpone visits until the 1984 World's Fair. International The Mississippi River system i s a t r e m e n d o u s l y effective channel for moving w h e a t corn, soybean, andotheragricultural shipments to w o r l d markets. Four of the state's five d e e p w a t e r ports are along the stretch of t h e river f r o m Baton Rouge t o south of N e w Orleans. These ports handle over 4 0 p e r c e n t of the nation's grain exports, the fastest-growing category of U.S. exports since the 1960s. In a d d i t i o n , rapidly g r o w i n g coal s h i p m e n t s have j o i n e d the Mississippi River barge a n d ship traffic in grain a n d industrial supplies. In 1981 N e w Orleans became the leading U.S. port for the m o v e m e n t of steam coal, handling some 13 million of t h e 110 million tons e x p o r t e d nationally; the value of coal exports in t h e first nine m o n t h s of 1982 was up 39.2 percent over t h e same period of 1981. Mississippi River ports also serve a huge p e t r o c h e m i c a l c o m p l e x , i m p o r t i n g petroleum and exporting chemicals and fertilizers. The Lake Charles port, serving a large petrochemical c o m p l e x in s o u t h w e s t Louisiana, is t h e state's fifth d e e p w a t e r port. It is also a major e x p o r t e r of agricultural p r o d u c t s a n d ranks as the nation's leading e x p o r t e r of rice. During the 1970s, Louisiana seaports e x p a n d e d their share of t h e nation's imports and exports. In the 1981-82 recession, the N e w Orleans customs districts share of imports declined; imports through N e w Orleans d r o p p e d 14.9 percent in value in the first ten m o n t h s of 1982 c o m p a r e d to a year earlier, w h i l e U.S. imports fell 5.8 percent in the same period. O n t h e o t h e r hand, t h e value of U.S. exports fell 8 p e r c e n t in t h e first ten m o n t h s o f 47 1982 w h i l e N e w Orleans' exports fell by 6.8 percent. These comparative differences reflect the N e w Orleans district's concentration in agricultural exports and petroleum imports. The world energy glut sharply curtailed the value of U.S. oil imports and thus their f l o w through the N e w Orleans district. M e a n w h i l e , sluggish d e m a n d a n d abundant crops w o r l d w i d e w e a k e n e d grain prices, d r o p p i n g the value of exports f r o m N e w Orleans. (Despite falling prices in the U.S., the rising foreign exchange value of the dollar raised the real price of grain t o foreigners substantially.) But nonagricultural exports w e r e off even more, and, because N e w Orleans exports are c o n c e n t r a t e d in agricultural shipments, N e w Orleans has gained export market share. The o u t l o o k for Louisiana's ports this year is uncertain. As usual, w e a t h e r conditions will influence grain production and exports. In addition, it is hard to foresee the implications of a n e w Soviet leadership for U.S.-Soviet trade. President Reagan has offered the Soviet U n i o n 15 million metric tons of corn and w h e a t b e y o n d a m o u n t s already specified u n d e r t h e c u r r e n t a g r e e m e n t , a one-year extension of a previous accord. That accord calls for the Soviet U n i o n t o b u y at least six million tons of corn a n d / o r wheat, w i t h the o p t i o n of purchasing up t o eight million tons. Nevertheless, the o u t l o o k for U.S.-Soviet trade is cloudy. The strength of e c o n o m i c recovery here, in Europe and elsewhere, will also influence grain and other i m p o r t a n t exports a n d imports. As international markets strengthen, trade should resume the healthy g r o w t h of earlier years. Coal exports from N e w Orleans in 1983, however, may slow from the g r o w t h of the last f e w years. I n addition, the sustained strength of the dollar in 1981-82 practically ensures that U.S. manufactured exports will grow slowly, if at all, in 1983. The overall o u t l o o k for Louisiana's ports in 1983 is for weakness early in the year f o l l o w e d by gradual recovery. Agriculture For farmers in Louisiana, 1982 was not kind. Prices of Louisiana c o m m o d i t i e s not only failed t o rise b u t plunged even further. Soybeans, w h i c h provide a p p r o x i m a t e l y one-third of t h e state's farm income, w e r e p r o d u c e d in record a m o u n t s n a t i o n w i d e while d e m a n d w e a k e n e d 48 d u e t o t h e w o r l d w i d e recession and availability of foreign substitutes. As a result, the price of soybeans was 10 t o 15 percent lower than in 1981. Rice, a n o t h e r major Louisiana crop, suffered a worse price d e c l i n e despite a 10 percent cut in plantings. Prices fell 3 0 percent as a result of large carry-over stock f r o m 1981 a n d weak d e m a n d . For m a n y rice growers, 1982 represented a year of substantial losses as prices a n d yields failed t o cover even o p e r a t i n g costs. Louisiana cattlemen, w h o share 15 percent of farm cash receipts, saw generally w e a k prices in 1982 that l i m i t e d revenue increases despite their a t t e m p t s t o speed up cattle slaughter. Farm cash receipts are estimated t o have fallen slightly for the entire livestock sector, primarily because of w e a k prices. There is m i x e d news in related industries. The shrimp industry is suffering a r e d u c e d harvest this season w h i l e t h e d e m a n d for shrimp is strong. The catch is l i m i t e d in the Gulf, possibly reflecting the effects of unusually cold w e a t h e r in 1981. The forest industry has probably b o t t o m e d out f r o m the national recession in construction. Louisiana p r o d u c t i o n of saw-timber d e c l i n e d a p p r o x i m a t e l y 25 percent w i t h a similar slide in prices in the year e n d i n g in late summer. The good news is that yearend 1982 reports indicated a p i c k u p in this industry. While final figures for 1982 are not yet available, farm i n c o m e for the year is e x p e c t e d to be lower FEBRUARY 1983, E C O N O M I C REVIEW " than in 1981 because of the m a r k e d price declines for Louisiana's major crops. Farm cash receipts w e r e a b o u t 5 percent lower t h a n 1981 in 1982 because of t h e m a r k e d price declines for Louisiana's major crops. Farm cash receipts w e r e about 5 percent lower than in 1981 near yearend. C r o p farmers seem t o have fared the worst although livestock farmers also did poorly. What about 1983? The health of the agricultural sector is closely l i n k e d t o the national e c o n o m y . A moderate i m p r o v e m e n t in 1983 w o u l d help some agricultural products. The forest products industry w o u l d s h o w substantial i m p r o v e m e n t if construction continues t o rebound. D e m a n d for beef may also increase as e m p l o y m e n t rises a n d consumers begin t o s p e n d a little more. The i m p a c t of national e c o n o m i c recovery o n farmers will be m o r e indirect, but an i m p r o v i n g economic climate should help t h e m also. Increases in acreage r e d u c t i o n programs, negligible cost increases, a n d f i r m i n g crop prices are essential for a revival of t h e Louisiana farm e c o n o m y . Prospects appear favorable for most of those conditions in 1983. If w e a t h e r a n d o t h e r environmental factors are favorable, t h e n 1983 should be the year Louisiana's farm e c o n o m y begins its comeback. H o w e v e r , President Reagan's a n n o u n c e m e n t in D e c e m b e r that quotas o n foreign sugar will be relaxed offers m i x e d news for Louisiana. Sugar refiners will benefit, w i t h o n e analyst estimating that exports c o u l d e x p a n d by a b o u t 5 percent of the industry's current annual sales. Yet t h e news is unfavorable for Louisiana sugar growers, w h o face stiff w o r l d c o m p e t i t i o n . M a r k e t s for rice are also e x p e c t e d t o be sluggish in 1983. — W i l l i a m J. Kahley (Gustavo Uceda contributed article.) ' FEDERAL RESERVE B A N K O F A T L A N T A valuable research assistance in the preparation of this 49 Alabama: A Slow Recovery Alabama, loaded with heavy manufacturing industries and high unemployment will be slower to recover than most other states. Interest rates and import competition hold the key to how well the state revives in 1983. The e c o n o m i c crisis n o w facing m a n y communities around t h e Sunbelt refutes the p o p u lar m y t h that t h e Sunbelt e c o n o m y is i m m u n e to national economic downturns. At last reading, A l a b a m a — t h e " H e a r t of D i x i e " — h a d o n e of t h e nation's worst u n e m p l o y m e n t rates. Beset w i t h steel mill closings, layoffs at a u t o m o b i l e part plants (tires, batteries, carburetors), t o u g h times at M o b i l e ' s shipyards and a revenue shortfall at t h e state treasury, e m p l o y m e n t has been t r e n d i n g d o w n h i l l in the state t h r o u g h o u t 1982. By N o v e m b e r , the state's jobless rate had c l i m b e d t o 15.9 percent. U.S. Steel, o n c e t o u t e d as t h e state's largest employer, shut d o w n its large Fairfield facility last j u n e . W e a k d e m a n d for structural steel c o m b i n e d with antiquated equipment left many of the state's i m p o r t a n t industries vulnerable t o imports. Republic Steel, Gadsden's largest employer, has been operating at only 40 percent of capacity. Nearly half of Gadsden's steel workers are w i t h o u t jobs. M a n y o t h e r plants have closed in 1982 a n d thus w o n ' t provide j o b g r o w t h t o fuel the state's e c o n o m y in 1983. They i n c l u d e a n u m b e r of textile mills in Tallassee, Greenville, and elsewhere; a u t o m o b i l e parts plants in Sheffield a n d Tuscaloosa; a cigar 50 plant in Cullman, a cabinet p r o d u c i n g facility in Russellville, an Alcoa a l u m i n u m s m e l t i n g plant and a Teledyne aircraft engine facility in M o b i l e . A r o u n d t h e t u r n of t h e century, northern i n d u s t r y — a t t r a c t e d by rich deposits of coal, limestone, iron ore and access to world markets through Mobile's shipyards—located in Alabama Alabama's e c o n o m y flourished as it m o v e d f r o m low-wage farming a n d textile p r o d u c t i o n t o high-wage durable manufacturing. Nearly a third of t h e state's private n o n f a r m j o b s are in m a n u f a c t u r i n g — 5 . 5 percentage points above t h e national average and 13 points above its bordering states. Moreover, almost half of those factory jobs are in interest-sensitive durable manufacturing. M a n y of these are high-wage industries that have h e l p e d boost the state's per capita i n c o m e from 73 percent of the national average in 1956 t o 78 percent today. As interest rate ceilings are gradually phased out, such interest-rate sensitive sectors c o u l d be further affected. Alabama's economy is reeling from antiquated physical and h u m a n capital and c o n s e q u e n t j o b losses as the U.S. e c o n o m y shifts away f r o m smoke-stack manufacturing industries t o m o r e s e r v i c e - p r o d u c i n g a n d high-tech industries. FEBRUARY 1983, E C O N O M I C REVIEW " T a b l e 1 . Employment C h a n g e by Sector in Alabama (from November to November) Level (thousands) Nonfarm Employment Private Nonfarm Goods Producing Mining Construction Manufacturing Durables Nondurables Service Producing Trade Transportation Finance Services Government Absolute C h a n g e Percent C h a n g e 1981-82 1981-82 1981 1982 1353.4 1319.9 -33.5 -2.5 1060.4 1023.5 -36.9 -3.5 441.3 407.1 -34.2 -7.7 17.1 16.2 -0.9 -6.5 66.4 63.5 -2.9 -4.5 357.8 327.4 -30.4 -8.9 172.0 152.0 -20.0 -11.6 185.8 175.4 -10.4 -5.6 619.1 616.7 -2.4 -0.4 275.0 271.8 -3.2 -1.2 71.8 70.5 -1.3 -1.8 -0.2 -0.3 2.3 1.1 3.1 1.1 59.3 59.1 213.0 215.3 293.0 296.1 Source: Bureau of Labor Statistics, U.S. Department of Labor. Labor-intensive durable manufacturing is giving way t o m o r e capital intensive,high-tech industries. Lofty interest rates have simply s p e e d e d up the transition. Since A l a b a m a t e n d e d t o have an above-national c o n c e n t r a t i o n of those industries, it should n o t be entirely surprising that its e c o n o m y is suffering f r o m deindustrialization. Thus, m a n y of the a p p r o x i m a t e l y 2 6 3 , 0 0 0 jobless Alabamians may not return t o their f o r m e r jobs. The o u t l o o k for A l a b a m a in 1983 is for a moderate recovery b e g i n n i n g later than the national upturn. The state's interest-rate sensitive manufacturing industries, hit hard by the recession, will begin to revive if interest rates continue their recent decline. If t h e recovery becomes international, foreign d e m a n d for exports should pick up, b e n e f i t t i n g A l a b a m a products like coal, steel and industrial chemicals, and stimulating the state's oil and gas production. Despite these p o t e n t i a l l y positive influences, it is likely to be around midyear before Alabama's e c o n o m y begins t o revive. Employment and Unemployment As of July 1, 1 9 8 1 , Alabama's p o p u l a t i o n numbered 3.9 million, representing a 0.7 percent growth since t h e 1 9 8 0 Census. This g r o w t h is less than half t h e 1.3 percent average annual ' FEDERAL RESERVE B A N K O F A T L A N T A growth rate during the 1970s. Nearly 1.7 million p e o p l e in the state w e r e either w o r k i n g or seeking w o r k last year. W h i l e n o n f a r m e m p l o y m e n t c o n t r a c t e d by 3 percent last year, labor supply e x p a n d e d 1.5 percent. During most of 1982, t h e n u m b e r of jobless Alabamians was more than one-third higher than the year before. Of t h e six n o n m a n u f a c t u r i n g sectors, four (transportation, c o m m u n i c a t i o n , a n d p u b l i c utilities; trade; finance, insurance, a n d real estate; a n d services) essentially held steady or d e c l i n e d slightly (Table 1). These patterns w e r e similar t o national a n d regional trends e x c e p t that finance, trade, a n d services cont i n u e d t o grow m o d e s t l y in b o t h the Southeast a n d t h e U n i t e d States d u r i n g t h e same period. C o n s t r u c t i o n e m p l o y m e n t d e c l i n e d sharply as record high mortgage rates battered t h e state's b u i l d i n g industry. A l t h o u g h figures for governm e n t e m p l o y m e n t in t h e state indicate g r o w t h d u r i n g recent months, this picture is p r o b a b l y spurious; instead, g o v e r n m e n t agencies, particularly at t h e state level, appear t o be hiring students o n a temporary, part-time basis during the summer. This t r e n d is n e w a n d is n o t " f a c t o r e d o u t " by seasonal a d j u s t m e n t s based on 10 or m o r e years of data. Of t h e state's eight m e t r o p o l i t a n areas, une m p l o y m e n t was highest in Gadsden (22.3 percent in N o v e m b e r ) , w i t h Florence s e c o n d 51 at 16.9 percent. The Florence area has b e e n hurt by n u m e r o u s plant closings, b u t International T e l e p h o n e and Telegraph's electrical wiring facility and continuing layoffs at Reynolds M e t a l p r o b a b l y d i d m o r e harm than others. Huntsville's 13.0 rate is w o r r i s o m e because it is higher than the national average and because Huntsville is the focus of numerous high technology businesses, widely regarded as the source of future e c o n o m i c growth. M o n t g o m e r y a n d Tuscaloosa also had comparatively l o w rates, 12.6 a n d 11.4 percent, respectively, d u e t o t h e downsizing of state g o v e r n m e n t a n d t o a u t o parts plant closings. Income and Trade Alabamians' i n c o m e grew only 6 percent last year, t o $33.6 billion, trailing national g r o w t h of 7.2 percent and w e l l b e l o w the state's 11.6 percent growth in 1981. However, with inflation b e l o w 5 percent last year, even the meager rise in nominal i n c o m e was sufficient t o boost real living standards. Alabama's e c o n o m y — d i s p r o portionately concentrated in durable goods m a n u f a c t u r i n g — i s particularly vulnerable t o interest rates and the exchange value of the dollar. High interest rates reduce d e m a n d for durable goods disproportionately, and appreciation of t h e dollar against currencies of major trading countries has reduced d e m a n d for exports and increased d o m e s t i c d e m a n d for foreign goods. Both of these factors w o r k e d against Alabama's industrial sector in 1982. Despite slower j o b growth, post-war record unemployment, and below-normal income growth, consumer spending held up surprisingly well last year. Sales tax collections advanced 5.6 percent over t h e prior year and growth was nearly t h r e e times t h e national increase. The comparatively strong sales increase in 1982 must be i n t e r p r e t e d w i t h caution, however. It may be m o r e of a reflection of weakness in 1981 t h a n of strength in 1982. M o r e o v e r , income-in-kind—Social Security unemployment benefits, f o o d stamps, and aid for families w i t h d e p e n d e n t c h i l d r e n — c o n s t i t u t e d the fastest g r o w i n g c o m p o n e n t of personal i n c o m e last year. In September, value of total loans closed by savings and loans was $19.6 million, 57 percent higher than the previous l o w of N o v e m b e r 1981. The sharp increase in housing activity in 52 late 1982 is e x p e c t e d t o carry over i n t o spring and s u m m e r of this year a n d boost t h e state's b u i l d i n g material manufacturers. Predictably, high mortgage rates a n d j o b instability have e n c o u r a g e d a g r o w i n g percentage of Alabamians t o rent rather t h a n buy. M u l t i f a m i l y housing has b e e n affected less severely by t h e recession t h a n single family housing. Multifamily building permits currently are r u n n i n g above 1974-75 t r o u g h levels a n d gained strength after mortgage rates began declining in 1982. A l a b a m a c o m m e r c i a l construction has b e e n exceptionally w e a k since 1 9 7 9 . M a n u f a c t u r i n g plant closings a r o u n d the state are a d d i n g a t r e m e n d o u s a m o u n t of space t o the market. In contracted square feet, the nonresidential comp o n e n t registered a 10-year l o w in 1982. Some g l i m m e r of h o p e for 1983 surfaced in the latter part of 1 9 8 2 , as contracted square feet j u m p e d 27 percent f r o m June t o N o v e m b e r . During 1982, t h e n o n b u i l d i n g c o m p o n e n t — roads, recreation, a n d religious b u i l d i n g s — p r o v e d relatively stronger in A l a b a m a t h a n in o t h e r parts of t h e Southeast as a result of f u n d i n g f r o m oil lease revenue. N o n b u i l d i n g contracts rose by 48 percent f r o m August 1 9 8 1 t o reach N o v e m b e r 1982's level of $456 million. The Public Sector Perhaps t h e most critical aspect of Alabama's 1983 o u t l o o k is its p u b l i c sector. After three consecutive years of declining e m p l o y m e n t and consequent lost incomes, the annual growth of m o n e y f l o w i n g i n t o t h e state's coffers has been falling (Chart 1). The A l a b a m a legislature has less flexibility than o t h e r states in allocating revenues. Nearly 9 0 percent of its revenues are earmarked. Last spring, Governor Fob James projected that revenues earmarked for the Educational Fund w o u l d rise only 7 percent over the prior year, a n d monies for the General Fund w o u l d increase by 10 percent The Alabama legislature established b u d g e t appropriations based u p o n these projections, w h i c h assumed that the e c o n o m y w o u l d i m p r o v e beginning in the second half of last year. Instead of improving, however, t h e recession lingered, sending t h e jobless rate t o n e w highs and placing a considerable drain o n the U n e m p l o y m e n t C o m p e n s a t i o n Trust Fund. Governor FEBRUARY 1983, E C O N O M I C REVIEW " C h a r t 1 . C o m p a r i s o n of C h a n g e s in Total Tax C o l l e c t e d 20 r 16 llhl.. Percent Change 76-77 77-78 78-79 79-80 80-81 81-82 82-83* Fiscal Periods: 1 9 7 6 - 1 9 7 7 t h r o u g h 1 9 8 2 - 1 9 8 3 •Represents collections for first 2 months of fiscal year 82-83. James was not alone in his o p t i m i s m . Governors in other southern states—Louisiana, Mississippi, Tennessee, a n d G e o r g i a — i n i t i a l l y shared that optimism b u t later o r d e r e d d e p a r t m e n t s t o t r i m their budgets. G o v e r n o r James asked for a 10 percent r e d u c t i o n in t h e $1.4 billion e d u c a t i o n budget a n d 15 percent cutbacks in areas o t h e r than education. State g o v e r n m e n t e m p l o y m e n t has been declining for t w o y e a r s — i n sharp contrast to the c o n t i n u e d increases d u r i n g t h e 197475 recession. Budget officials e x p e c t t h e state's hiring problems t o w o r s e n in fiscal 1984. It is difficult t o imagine that t h e state g o v e r n m e n t will be a positive force for recovery in 1983. Coal Coal m i n i n g is an i m p o r t a n t industry in Alabama. Direct e m p l o y m e n t comes t o 11,500 miners; many m o r e workers are involved indirectly in transporting coal. T w e n t y nine u n d e r g r o u n d and 250 strip mines o p e r a t e d in t h e state last year. Alabama mines p r o d u c e d nearly 25 million short tons of coal for industrial p o w e r a n d exports. Alabama Power, the state's largest utility, depends on coal for almost t h r e e fourths of its p o w e r generation. A b o u t 10 million tons, or 85 percent of the coal purchased by the c o m p a n y in 1981, were low-sulfur and high-BTU coals from Alabama mines. The current recession and lagging electricity demand, however, have w e a k e n e d coal d e m a n d and resulted in large inventory accumulation. ' FEDERAL RESERVE B A N K O F A T L A N T A The state's industrial sector, hard hit by t h e recession, has c u r b e d b o t h its coal and electricity c o n s u m p t i o n . N o t o n l y is coal a major source of energy in t h e U n i t e d S t a t e s — a c c o u n t i n g for 52 percent of d o m e s t i c electricity s u p p l y — b u t it is even m o r e i m p o r t a n t in w o r l d w i d e markets. Yet exports of metallurgical coal that b o o m e d d u r i n g 1981-82 r e p o r t e d l y are slowing as a result of slower industrial g r o w t h in Japan a n d Italy, t h e state's major e x p o r t markets. The o u t l o o k for 1983 appears m o r e promising. Utilities' large inventories have discouraged some small producers, b u t an e x p e c t e d u p t i c k in d e m a n d is likely t o increase overall coal o u t p u t . The m i l d e c o n o m i c recovery e x p e c t e d in 1983 should stimulate electricity a n d coal d e m a n d f r o m t h e state's energy-intensive industries. Coal exports in 1983 also may be stimulated by M o b i l e ' s p r o j e c t e d m i d y e a r expansion of t h e M c D u f f i e coal t e r m i n a l t h a t will be able t o handle an a d d i t i o n a l seven m i l l i o n tons of coal shipments. But m u c h of this is p r e d i c a t e d o n h o w well industrial p r o d u c t i o n recovers in Japan and o t h e r major foreign markets. Energy Demand D u r i n g the last t w o decades, Alabama's energy d e m a n d increased nearly t h r e e t i m e s faster t h a n its p o p u l a t i o n growth. In 1980, coal represented 43 percent of the state's energy c o n s u m p t i o n , rising sharply in t h e last d e c a d e t o b e c o m e the leading energy source. Petroleum d e m a n d has also e x p a n d e d very rapidly in recent years w h i l e use of natural gas has d e c l i n e d steadily. Nuclear p o w e r a n d hydroelectricity are o t h e r i m p o r t a n t energy sources for p o w e r generation. A l a b a m a Power in 1981 o p e r a t e d t w o 8 6 0 megawatt nuclear plants p r o v i d i n g 18 p e r c e n t of t h e company's generation. In a d d i t i o n the c o m p a n y has 13 hydroelectric facilities t h a t because of scant rainfall p r o v i d e d o n l y 9 percent of its 1981 p o w e r generation. The state's rapid industrialization has required large plant i n v e s t m e n t t o a c c o m m o d a t e future energy d e m a n d . This t r e n d will likely c o n t i n u e given the state's vast energy resources, low-wage labor, a n d port facilities for international trade. Power plant expansion a n d higher rates are being hotly d e b a t e d by state regulators a n d t h e utility's management. The o u t l o o k for f u t u r e long-term p o w e r construction d e p e n d s on h o w well the parties can w o r k o u t their differences 53 a n d still preserve t h e state's low electricity bills a n d a reliable p o w e r supply in t h e future. Manufacturing M a n u f a c t u r i n g e m p l o y m e n t in Alabama fell precipitously in 1982, losing over 30,000 workers f r o m N o v e m b e r 1981 through N o v e m b e r last year. M o s t of the falloff occurred in the durable goods-producing sectors w h e r e nearly half of the state's factory workers are e m p l o y e d . Alabama, unlike many neighboring states, e m p l o y s nearly one in four workers in factory jobs. The recessionsensitive nature of the state's heavy industries makes a full recovery from depressed levels of o u t p u t and e m p l o y m e n t unlikely in 1983. O n l y after a national recovery is w e l l u n d e r w a y should the total manufacturing picture brighten considerably in Alabama. A n o t h e r i n d i c a t i o n of Alabama's battered industry, factory income, fell by 4.5 percent f r o m the last half of 1981 t h r o u g h the first half of 1982. The 37.2 average w e e k l y hours w o r k e d in N o v e m b e r of 1982 in primary metals industries were d o w n three a n d o n e half hours f r o m a year ago. A l t h o u g h the plight of the state's steel industry has been w i d e l y - n o t e d , t h e Alabama e c o n o m y is actually q u i t e diversified. In N o v e m b e r of 1982, less than 8 percent of the state's factory workers w e r e e m p l o y e d in t h e primary metals sector (Chart 2). Ten years ago, 14 percent w e r e emp l o y e d in that sector. The state is b e c o m i n g less d e p e n d e n t o n that recession-sensitive source of jobs and income. A prospective upturn in demand for heavy structural steel offers a ray of h o p e for the steel industry in 1983. M o r e o v e r , increased defense s p e n d i n g t o refurbish a n d build ships w o u l d increase steel plate d e m a n d , as will the public works project t o rebuild the nation's highways. Steel plate is used in bridge construction. The $4.4 billion federal infrastructure program should favorably i m p a c t steel-producing firms in the state by t h e e n d of 1983. A c c o r d i n g t o the D e p a r t m e n t of Transportation, o n e o u t of five bridges in the c o u n t r y needs major repairs. The life of a bridge is a b o u t 50 years, and 4 0 percent of the nation's bridges are already more than 4 0 years old. The manufacturing of products used in a u t o assembly is also i m p o r t a n t in the Alabama economy. Therefore, t h e o u t l o o k for domestic automobile production is critical t o Alabama's recovery. A rebound in auto sales late in 1982 has stimulated 54 C h a r t 2. Durable G o o d s E m p l o y m e n t as a Share of M a n u f a c t u r i n g E m p l o y m e n t Primary Metals 4 7 % Nation 1982 Building Material 3.1% Lumber 5.7% Machinery 22.4% Transportation Equipment 9.2% Alabama 1982 Primary Metals 7.7% ' Machinery 9.7% Building Material 7% Other 3.5% Ship Building 1.3% Transportation Equipment 6.6% state firms p r o d u c i n g steering gears, a l u m i n u m transmission cases, and especially tires. The state is a tire manufacturing center w i t h capacity t o p r o d u c e 14.5 percent of the national o u t p u t . Since tire plants are dispersed t h r o u g h o u t t h e state, any change in d e m a n d for tires w o u l d be felt in m a n y regions. Large tire plants i n c l u d e t h e Uniroyal facility in Opelika, the M i c h e l i n plant in Dothan, the D u n l o p factory in Huntsville, a n d t h e G o o d r i c h plant in Tuscaloosa. Goodyear's Gadsden plant e m p l o y s a b o u t 3,700 a n d has replaced U.S. Steel as the state's largest private employer. The plant can manufacture 4 0 , 0 0 0 auto tires and 12,500 o t h e r tires daily. For t h e first eight m o n t h s of 1982, the n u m b e r of n e w manufacturing facilities that w e r e over a half million dollars in cost was d o w n a b o u t 8 percent f r o m the same period last year. Table 2 lists selected firms announcing new plant locations or expansions in 1982. M a n y of t h e n e w plants are electronics or defense related. A distressing d e v e l o p m e n t was t h e delay of the largest n e w facility (in terms of announced capital investment) in the history of t h e state. G r o u n d was s c h e d u l e d FEBRUARY 1983, E C O N O M I C REVIEW " T a b l e 2 . Capital Spending Plans - Alabama* Company Name Location Investment ($ million) SCI Systems Arab 5 Electronics plant (Defense, aerospace) 500 Scott Paper Co. Mobile 80 Woodyard N/A Product Employment Mobile Oil Exploration and Producing, S.E. Bayou Labatre 1 billion Natural gas processing plant Hall Chemical Co. Theodore 40 Chemical reclamation 350 Hughes Aircraft Eufaula N/A Defense related 100 Army Huntsville 42.2 Classified electronics Teledyne Huntsville N/A Aviation-electronics Space shuttle Kimberly-Clark Coosa Pines 36.5 Newsprint, pulp Forest products — — Martin Marietta Huntsville 107 Space shuttle External fuel tanks United Space Boosters Huntsville 12.6 Rocket boosters Gold Star Co. Huntsville 10 Electronics, Television/microwave Buck Chemical Co. Childersburg N/A Munitions Spiralux Ltd. Boaz 2 Electronic p r o d u c t s Parker Hannifin Boaz 10 Fluid system c o m p o n e n t s Dresser Industries Eufaula Multimillion Product for e n h a n c e d oil-gas recovery — — plus 5 0 0 N/A 450/500 400 100-200 200 25 Listing represents spending plans of selected firms a n n o u n c e d in 1982; it is not all inclusive. Source: Alabama Development Office to be b r o k e n for General Electric's $1.5 billion Lexan Manufacturing Complex near M o n t g o m e r y in mid-1983. Flat industrial d e m a n d for plastic was b l a m e d for t h e delay of o n e t o t w o years. The Huntsville area is b e c o m i n g an i m p o r t a n t center for high-tech industries in the state. Some 200 of the 500 firms in the city's industrial directory are classified in the high-tech field, an area certain to continue growing in 1983 because of defense contracts. Over 50 percent of Alabama's n o n d u r a b l e e m p l o y m e n t is centered in apparel and textiles. These sectors have been t r e n d i n g d o w n for several years and lost 6,600 jobs last year. Apparel and textiles should respond favorably t o a possible consumer-led recovery in 1983, b u t foreign c o m p e t i t i o n c o u l d hold d o w n potential growth, especially for t h e labor-intensive shirt manufacturers in t h e state. A l t h o u g h industry wages remain low, d o m e s t i c firms will c o n t i n u e t o have ' FEDERAL RESERVE B A N K O F A T L A N T A a t o u g h t i m e c o m p e t i n g w i t h cheap foreign labor and products f r o m places like H o n g Kong a n d South Korea. The e n e r g y - p r o d u c i n g sector should p r o v i d e some good news for Alabama in terms of enhanced revenue collections for 1983. State records s h o w that $ 4 4 9 million in revenues have already b e e n a d d e d t o state collections f r o m leases covering 55,054 acres of M o b i l e Bay (signed March 1981). Also, t h e state will receive royalty payments as high as 28 percent from the sale of any petroleum products recovered in t h e bay. A large inland oil strike last July 30 miles north of M o b i l e should begin p r o d u c i n g by m i d - 1 9 8 3 — a d d i n g further t o state coffers. Banking The state's financial sector mirrors the economy's weakness. A l a b a m a bank deposits grew by 5.8 55 T a b l e 3 . Orders for Manufactured Products Plunged in 1982 (millions of dollars) January to November Machinery, except electrical Transportation equipment Fabricated metals Primary metals Stone, clay, & glass Total Percent C h a n g e 1980 1981 1982 164,867 184,995 105,761 121,963 41,603 185,591 188,204 113,194 1 24,093 45,549 153,383 175,843 99,487 89,051 41,538 619,189 656,631 559,308 1980-81 1981-82 12.6 1.7 7.0 1.8 9.5 -17.4 -6.6 -12.1 -28.2 -8.8 Source: U.S. Department of Commerce, Bureau of the Census, M a n u f a c t u r e r s ' S h i p m e n t s , Inventories, a n d Orders, November 1981 ana fNovGrnDcr, 1 y o ¿ . percent over the year, the slowest in the Southeast Alabama currently ranks fourth among southeastern states (Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee) in t h e n u m b e r of commercial banks and fifth in terms of deposits. As of last N o v e m b e r , total deposits o f large commercial banks had increased 6 percent over the same p e r i o d a year earlier. Like account holders elsewhere a r o u n d t h e country, A l a b a m a depositors shifted transaction accounts t o interestpaying checking accounts. Negotiable Orders of W i t h d r a w a l ( N O W accounts) w e r e up 35 percent over N o v e m b e r 1981, w h i l e d e m a n d deposits grew o n l y o n e percent. Reflecting j o b uncertainty, Alabamians stepped up their savings as t i m e deposits increased by 7 percent. Credit u n i o n deposits increased by 24 percent f r o m N o v e m b e r 1981 t h r o u g h N o v e m b e r 1982 w i t h t h e b u l k of t h e increase in t h e savings and t i m e d e p o s i t category. Savings a n d loan association deposits in A l a b a m a also increased 4 percent f r o m t h e same period a year ago w i t h the largest absolute change c o m i n g f r o m an increase in t i m e deposits. N O W accounts at Alabama S&Ls rose 74 percent f r o m N o v e m b e r 1981. Oil and Gas The surge in oil prices during the 1970s and gradual phase-out of price controls o n domestically p r o d u c e d oil have increased t h e market value of Alabama's p e t r o l e u m reserves. During 1981, some 212 exploratory wells w e r e drilled in 56 t h e state, almost t w i c e the n u m b e r drilled in 1975. There w e r e 54 million barrels of p r o v e n crude oil reserves in 1 9 8 1 , 1 7 percent b e l o w the level in 1970. Natural gas discoveries, however, have increased dramatically d u r i n g recent years. Natural gas reserves in t h e state are estimated at 636 billion c u b i c f e e t , a l m o s t f o u r t i m e s t h e 1 9 7 0 reserve level. M u c h of the drilling activity was in the Black Warrior Basin, but other large discoveries w e r e m a d e recently in t h e M o b i l e Bay area. Declining d e m a n d for energy in 1982 has also slowed the d e m a n d for natural gas. Drilling activity fell 13 percent in 1982, a decline expected t o persist this year. The o u t l o o k for 1983 is for r e d u c e d o u t p u t a n d declining exploratory wells. Tourism Tourism is less important to Alabama's economy than t o o t h e r states. Less than 5 percent of t h e state's nonfarm jobs are in this sector. The northern half of the state, particularly Birmingham, attracts a b o u t half of Alabama's dollars f r o m tourists, while the Gulf Coast garners o n l y onequarter. In 1981, a p p r o x i m a t e l y 25 million outof-state visitors traveled in A l a b a m a The largest n u m b e r came f r o m Florida. C o m p a r e d t o Florida and Louisiana, w h i c h rely o n destination tourism by out-of-state travelers, Alabama's tourist industry e n j o y e d a banner year. This record was d u e largely t o local travel a n d higher use of p u b l i c recreation facilities. The n u m b e r of visitor-days at U.S. Forest Service FEBRUARY 1983, E C O N O M I C REVIEW recreation sites rose 6 percent in 1982. Attendance at state parks was up 26.5 percent in August and 0.1 percent in S e p t e m b e r relative t o corresponding m o n t h s of 1981, a pattern typical of t h e entire summer. The Corps of Engineers estimates that use of Alabama recreation facilities in 1983 will run 5 percent ahead of last year's 23,693,000. Attendance at the state's major attractions rose from 1 6 9 , 4 7 0 in S e p t e m b e r 1981 t o 192,073 last September. Some of this 1 3.3 percent increase is attributable t o the addition of t w o new attractions, but state tourism officials estimate that attendance was up d u r i n g most of this season. Visitor center registrations rose in S e p t e m b e r f r o m 75,629 t o 78,797, or4.7 p e r c e n t Such increases were typical this s u m m e r in A l a b a m a b u t n o t in Louisiana a n d Florida, w h e r e f e w e r visitors registered t h a n in 1981. Yet recreational visits at National Park Service sites d e c l i n e d t o 676,588 t h r o u g h September, 4 percent b e l o w t h e same m o n t h s of 1981. The N a t c h e z Trace Parkway s h o w e d t h e greatest decline. farm i n c o m e w o u l d r e b o u n d and debts c o u l d be paid. Unfortunately, b u r g e o n i n g harvests in the face of w e a k d e m a n d sent prices for most crops tumbling. For most A l a b a m a crops, t h e returns failed t o cover costs unless substantial aboveaverage yields w e r e achieved. Alabama's livestock industry, w h i c h produces 60 percent of t h e state's farm cash receipts, fared better than the crop sector in 1982. Unfortunately, there was little in either sector t o p r o v i d e cheer. H o g farmers e n j o y e d substantial increases in pork prices t h a t should have i m p r o v e d profit margins a n d eased their cash-flow problems. Yet t h e p o r k - p r o d u c i n g sector, a c c o u n t i n g for just 5 percent of cash receipts, was t h e o n l y bright light in livestock. Cattle prices f l u c t u a t e d a r o u n d 1981 levels, s h o w i n g o n l y slight strength, w h i l e poultry prices were generally lower. Since poultry and egg enterprises comprise t h e largest single source of cash receipts, it is no surprise that overall livestock returns are estimated t o be less t h a n in 1981. In t h e m o r e expensive segments of the tourist market, p e r f o r m a n c e was relatively weak. Revenues f r o m t h e lodgings tax rose 47.1 percent from September 1981 t o $886,945 last September, but a state revenue officer cautions that 1981 was a particularly bad year. C o n v e n t i o n business was r e p o r t e d t o be off in M o b i l e , a n d business travel was d o w n in Birmingham. H o w e v e r , t h e Birmingham C o n v e n t i o n a n d Visitors Bureau reported that i m p r o v e d a t t e n d a n c e by local a n d regional organizations has b u o y e d c o n v e n t i o n attendance in Birmingham. The o u t l o o k for Alabama's tourist industry is uncertain. The W o r l d ' s Fair in N e w Orleans may generate a large " s p i l l o v e r " effect in 1984. Fairdestined travelers along I-20, I-65, I-59 a n d I-85 are e x p e c t e d t o boost business in t h e state. O n e new hotel o p e n e d in M o b i l e in D e c e m b e r a n d another is scheduled to open in June. In Birmingham, W e s t i n a n d M a r r i o t t are breaking ground for n e w facilities. The state has established a task force t o d e v e l o p plans t o exploit o p p o r t u n i t i e s afforded by the upcoming N e w Orleans exposition. In 1983 t h e livestock sector is in a position t o i m p r o v e its financial situation. W i t h higher prices providing an incentive for expanding production, t h e prospects for h o g producers look favorable t h r o u g h o u t most of the year. C a t t l e m e n may also find 1983 m o r e profitable as large crop harvests reduce t h e cost of f e e d a n d as o t h e r costs remain relatively stable. The p o u l t r y industry should benefit even m o r e f r o m lower f e e d costs. The entire meat-producing industry may find demand for meat rising this year as the e c o n o m y slowly regains its strength, inspiring consumers to spend m o r e a n d eat better. It seems unlikely t h a t t h e cost-price squeeze of 1981 will return t o bedevil the industry in t h e near future. Agriculture For many A l a b a m a farmers, 1983 offers n e w hope for a healthier farm e c o n o m y after still another year of d i s a p p o i n t m e n t . After suffering seasons of drought and depressed prices, farmers had h o p e d that 1982 w o u l d be t h e year w h e n ' FEDERAL RESERVE B A N K O F A T L A N T A Fortunately for some farmers, t h e crop w i t h t h e greatest potential for a net loss per acre, cotton, was blessed by exceedingly favorable g r o w i n g c o n d i t i o n s a n d p r o d u c e d o u t s t a n d i n g yields. The high yield, and f o r w a r d m a r k e t i n g by m a n y large growers, p r o d u c e d profitable returns for some Alabama c o t t o n farmers. M o s t o t h e r c r o p farmers w e r e less fortunate. Either large crops so depressed prices that losses w e r e incurred, or yields failed t o reach a break-even level. The o n l y profitable yields a p p e a r e d t o be peanuts. The prospects for crop farmers in 1983 seem o n l y slightly m o r e favorable. The 1983 acreage r e d u c t i o n program will lead t o m o r e idle acreage for field crops, but supplies appear t o o large for prices t o i m p r o v e significantly. A n i m p r o v i n g 57 economy should increase demand but, assuming a normal crop year, it will take some t i m e t o w o r k d o w n the large surplus. T w o o t h e r enterprises that failed t o benefit during 1982 were the forest and seafood industries. D e m a n d for l u m b e r f e l l in response t o the severe recession in the construction industry. By yearend, however, there was some indication that construct i o n was reviving and w i t h it l u m b e r production. A p o o r harvest of shrimp, the state's primary seafood p r o d u c t brought bad news to the coastal area. W h e t h e r 1983 will be better d e p e n d s t o a great extent o n external factors such as the severity of the winter. Alabama's farm e c o n o m y is entering 1983 w i t h a m i x e d outlook. The livestock sector, especially pork, has had a m o r e favorable year than t h e crop sector and the indication is that 1983 should be kind t o livestock farmers. M o r e stable costs, and lower feed costs, portend favorable profit margins w h e n c o m b i n e d w i t h stable or higher prices. C r o p farmers, on the o t h e r hand, e n t e r e d the 1982 farm season h o p i n g t o r e b o u n d f r o m the droughts, low yields, a n d depressed prices of recent years. Instead, t h e y f o u n d still lower prices because of excessive supplies. M a n y unk n o w n s c o u l d affect the c o m i n g farm season, but the prospect n o w is for r e d u c e d acreage of most crops with resulting smaller supplies. Farm income for Alabama crop farmers should i m p r o v e above 1982 w i t h greater potential for profit. There is little reason to believe, however, that a significant t u r n a r o u n d in the Alabama farm e c o n o m y will occur this year. International The port of M o b i l e handled a record 42.2 million tons of cargo d u r i n g the 1982 fiscal year, an increase of almost 20 percent over fiscal 1981; the previous high was reached in fiscal 1980, w h e n 41.6 million tons moved over Mobile's docks. The tonnage record was set despite sluggish e c o n o m i e s here a n d abroad that have caused b o t h U.S. exports a n d imports t o fall f r o m 1981 levels. The w e a k e n i n g of U.S. trade flows was reflected in lower tonnage through M o b i l e in the last t w o quarters of t h e latest fiscal year. This d o w n w a r d t r e n d is likely t o c o n t i n u e well into 1983. The large increase in tonnage s h i p p e d in t h e first half of the fiscal year was bolstered by the surge in coal exports w i t h the o p e n i n g of the n e w M c D u f f i e coal t e r m i n a l facility. The c o m p o s i t i o n of M o b i l e ' s exports and imports reflects Alabama's industrial, agricultural, and m i n i n g e c o n o m y . M a j o r o u t b o u n d commodities i n c l u d e coal, grain and forest products, w h i l e steel and iron ore are i m p o r t a n t i n b o u n d commodities (bauxite imports were also important before the plant s h u t d o w n at Alcoa). A variety of A l a b a m a - p r o d u c e d basic manufactures a n d machinery also c o n t r i b u t e t o export flows t h r o u g h Mobile. Alabama's employment related to manufactured exports mirrors the national experience. Overall, o n e o u t of 20 workers makes products for export; in manufacturing, the share is m o r e t h a n o n e o u t of 10. The most i m p o r t a n t Alabamap r o d u c e d m a n u f a c t u r e d exports are chemicals, primary metals and miscellaneous manufactures, while export production in the textile and apparel, chemical, a n d rubber industries also exceeds national averages. The o u t l o o k for m a n u f a c t u r e d exports in 1983 is n o t bright because of the c o n t i n u e d effects of high-priced d o l l a r - d e n o m i n a t e d goods. W h e a t , soybeans a n d corn exports should improve, however, particularly if the Soviet Union increases its purchases. Coal exports are likely t o c o n t i n u e e x p a n d i n g rapidly. Overall, t h e f l o w o f trade through M o b i l e seems likely t o pick up steam after midyear. Conclusion Alabama's heavy concentration of interestrate sensitive manufacturing is likely t o delay its recovery in 1983. A decline of t h e U.S. dollar against foreign currencies, however, w o u l d boost foreign demand for many of Alabama's p r o d u c t s coal, steel, farm products and industrial chemicals. M o r e o v e r , a m o d e r a t e national recovery will revive d e m a n d for energy a n d help Alabama's coal, oil and gas industries. W i t h revenues trailing projections in the 1982-83 fiscal year, state officials e x p e c t little i m p r o v e m e n t until fall of 1983. — C h a r l i e Carter and David Avery 58 FEBRUARY 1983, E C O N O M I C REVIEW " Mississippi: Construction and Consumer Spending Are Keys to Recovery Mississippi's key lumber industry looks forward to a rebound in home building. Weaknesses in farming and in the oil and gas industries, however, suggest that Mississippi probably will continue to fare worse than the nation in 1983. Mississippi's economy seems to be headed toward moderate growth in 1983. If the national e c o n o m y picks up briskly d u r i n g the year, the state c o u l d achieve strong growth by 1984. The initial recovery depends heavily on a r e b o u n d in the construction industry w h i c h appeared to be u n d e r w a y going into 1983. That is w e l c o m e news for industries such as l u m b e r a n d o t h e r w o o d products, household appliances, a n d textiles, w h i c h also should show i m p r o v e m e n t w i t h a strong recovery in home building. Such a recovery, in turn, remains largely d e p e n d e n t o n interest rates, w i t h lower rates t e n d i n g t o stimulate c o n s u m e r d e m a n d . W i t h a c o n t i n u a t i o n of t h e current t r e n d t o w a r d lower rates in 1 9 8 3 , a r e b o u n d appears in order. c o n s u m e r confidence. This c o u l d stimulate apparel a n d o t h e r c o n s u m e r goods industries. Yet, in spite of brighter prospects for housing and related industries, a full-scale recovery will be slow in coming. Mississippi's e c o n o m y seems likely t o resume slow, steady g r o w t h b e g i n n i n g this spring a n d perhaps speed u p by year-end. U n e m p l o y m e n t may remain frustratingly high as e m p l o y e r s k e e p p r o d u c t i o n closely aligned w i t h sales; t h e y will p r o b a b l y hire m o r e p e o p l e only w h e n a clear need exists. A l t h o u g h t h e unemp l o y m e n t rate was d r o p p i n g at the e n d of 1982, a return t o the lower rates c o m m o n in past years is n o t e x p e c t e d this year. The apparel industry, i m p o r t a n t t h r o u g h o u t the Magnolia State, should i m p r o v e as consumers once again begin t o spend money. The additional tax cut planned in July c o u l d w i e l d a stronger impact o n c o n s u m p t i o n t h a n 1982's r e d u c t i o n because it is likely t o c o i n c i d e w i t h an increase in Industry: Waiting for Recovery ' FEDERAL RESERVE B A N K O F A T L A N T A The m a n u f a c t u r i n g industry is Mississippi's single most i m p o r t a n t employer. A l t h o u g h agriculture remains an i m p o r t a n t segment of the state's e c o n o m y , industrialization has long since 59 C h a r t 1 . S e c t o r s of E m p l o y m e n t in Mississippi 1950 7tL. Agriculture 43% y r % - X v - Government 8 Trade 14% ^ "^-t 22% Manufacturing 13% Agriculture 8% 1981 Trade. / \ 18% y t Manufacturing 25% ^ /^N. — ^ . Government Others 28% replaced farming as t h e primary c o m p o n e n t (Chart 1). Most of Mississippi industry is extremely sensitive t o changes in interest rates and consumer spending. The leading industrial e n t e r p r i s e s apparel, lumber, machinery, food, and transportation e q u i p m e n t — t e n d t o be affected directly by significant shifts in interest rates ( w h i c h affect housing and auto sales) and fluctuations in consumer s p e n d i n g (affecting apparel a n d f o o d sales). Although sensitive t o changes in economic conditions, t h e concentration of light industries does have advantages as well. For instance, the state is resistant t o the severe, longer lasting recession typical of heavy industries such as steel. Also, o n c e c o n s u m e r c o n f i d e n c e returns a n d interest rates stabilize at lower levels, light industry should r e b o u n d rather quickly. During 1982, however, the full impact of the recession w e i g h e d heavily on t h e state. Employm e n t in Mississippi's factories fell by 17,400 f r o m N o v e m b e r 1981 through N o v e m b e r 1982. N e w incorporations have been t r e n d i n g d o w n ward, indicating little if any n e w growth. N e w manufacturing facilities in the state fell by 14 60 percent in the first eight m o n t h s of 1 9 8 2 w h e n c o m p a r e d w i t h t h e previous year. M o r e bad news is that Mississippi's manufacturing i n c o m e fell by 3.1 percent in t h e first half of 1982 f r o m t h e last half of 1981. U.S. manufacturing i n c o m e fell only 0.5 percent d u r i n g t h e period, indicating the strain on Mississippi's manufacturing industries. The apparel industry, Mississippi's largest emp l o y m e n t sector, lost jobs steadily in 1 9 8 2 as a result of w e a k c o n s u m e r d e m a n d a n d the loss of a growing share of the market t o imports. A p p a r e l is highly labor intensive a n d the fast-changing fashion scene has m a d e i n v e s t m e n t in hight e c h n o l o g y capital e q u i p m e n t nearly p r o h i b i t i v e so far. Overseas competitors, w i t h t h e advantage of low-cost labor, c o u l d retard g r o w t h in t h e state's d o m e s t i c apparel sector even after an e c o n o m i c upturn. A bright spot in t h e state for 1983 should be those industries related t o housing construction. Businessmen in Mississippi's i m p o r t a n t l u m b e r a n d w o o d industry are m o r e o p t i m i s t i c t h a n t h e y have b e e n in t h e past year and a half. Falling mortgage interest rates have fueled expectations for a profitable spring season if housing starts surge. Lumber a n d w o o d producers and b u i l d i n g material suppliers are led by such names as Masonite Corporation, Georgia-Pacific, a n d Weyhauser Company, each having numerous locations in small c o m m u n i t i e s in t h e state. W h i l e these are t h e large employers, n u m e r o u s smaller operations are located in virtually every county. The pervasiveness of this industry accounts for its strong i m p a c t on t h e state's e c o n o m y . T w o o t h e r i m p o r t a n t sectors should benefit from a consumer-led recovery. Mississippi plants p r o d u c e m a n y h o u s e h o l d appliances, a sector sure t o expand d u r i n g a housing recovery. A u t o parts manufacturers should also c o m e o u t of their slump as car sales accelerate. A l t h o u g h no o n e industry is displaying notable strength as 1983 begins, the f o o d industry has s h o w n more resilience than others. Food p r o d u c t i o n , t h e state's f o u r t h largest e m p l o y m e n t category, adds a measure of stability t o t h e state's j o b picture. The sharp plunge in the energy sector is disturbing. Energy-related industries p r o v i d e d one of the f e w areas of Mississippi's strength early in 1982. Drilling activity has p l u m m e t e d f r o m near-record levels as a w o r l d oil glut has forced prices down. Although prices are expected t o stabilize and perhaps increase in 1983, several i n d e p e n d e n t drillers and producers of drilling e q u i p m e n t have already folded. FEBRUARY 1983, E C O N O M I C REVIEW " » Defense s p e n d i n g seems sure t o c o n t i n u e as an i m p o r t a n t factor in t h e Mississippi e c o n o m y . Ingalls Shipyard in Pascagoula has b e e n a w a r d e d some large contracts that will help offset the slump in oil rig manufacturing, a relatively n e w activity u n d e r t a k e n by the facility in an a t t e m p t to diversify operations. C o n t i n u e d flights of the Space Shuttle will also k e e p workers in Bay St. Louis busy at the Rockwell International plant where t h e shuttle's engines are tested. Construction: Essential to Recovery • i - S * 3 p j > J ^ il . , ' :<\ Perhaps t h e key t o an e c o n o m i c recovery in 1983 lies w i t h a resurgence of construction activity, especially residential construction. After a slow start in 1982, t h e residential sector should show modest gains this year. W h i l e t h e first half of 1982 was e x t r e m e l y weak, a slow i m p r o v e m e n t occurred during the latter m o n t h s of the year. Building permits (single- a n d multifamily) and construction contracts began t o i m p r o v e during late spring a n d a d v a n c e d slowly through the rest of 1982 as mortgage rates declined. The state's residential sector, t h o u g h i m p r o v e d since 1981, remains weak. All residential c o n s t r u c t i o n indicators are l o w compared to earlier peaks of the last 10 years. For example, the n u m b e r of single-family b u i l d i n g permits issued in N o v e m b e r 1 9 8 2 — 3 1 4 units o n a three-month moving average, seasonally adjusted basis—was only 37 p e r c e n t of t h e 1972 peak, 49 percent of the 1 9 7 7 high, a n d just 58 percent of even t h e 1 9 8 0 " m i n i - p e a k . " As the overall Mississippi e c o n o m y strengthens, housing sales a n d other residential indicators should c o n t i n u e their modest i m p r o v e m e n t . Even realtors and savings a n d loan officers are optimistic. D u r i n g the final m o n t h s of last year, mortgage rates fell b e l o w the " t e e n s " — i n November, FHA/VA rates had d e c l i n e d t o 12 percent. The flurry of activity t h a t began in t h e fall is expected t o help support h o m e sales d u r i n g t h e u p c o m i n g spring a n d summer. T h o u g h t h e loan activity of savings a n d loans in Mississippi is t h e weakest of any state in t h e region, loan officials have reason for hope. Total loans closed by thrifts increased by 24 p e r c e n t from $8.9 million in O c t o b e r t o $11 million in November. Mississippi was the first state in t h e region t o reverse t h e decline in total loans closed. Thrift officers expect pent-up d e m a n d a n d a c o n t i n u i n g d e c l i n e in FEDERAL RESERVE B A N K O F A T L A N T A mortgage rates t o nourish t h e increased loan activity in 1 9 8 3 . Nonresidential construction, in m a n y aspects, is w e a k e r t h a n the residential c o m p o n e n t . In real terms, nonresidential contract c o n s t r u c t i o n in Mississippi is lower c o m p a r e d t o 1974-75 recession levels t h a n is residential contract construction. Late 1982's nonresidential contracts, measured in square feet, s l u m p e d 24 percent b e l o w 1974's trough, whereas residential units contracted w e r e slightly above the low p o i n t set in 1975. A l t h o u g h o f f i c e a n d industrial b u i l d i n g i s e x p e c t e d t o pick up d u r i n g 1983, g r o w t h will be slow a n d will trail t h a t of housing. The n o n b u i l d i n g sector seems unlikely t o support m u c h construction activity. State and local g o v e r n m e n t budgets are at austerity levels. Even the Tennessee-Tombigbee W a t e r w a y project will be w i n d i n g d o w n considerably d u r i n g 1983. Last year, the waterway e m p l o y e d about 3,000 people, most of t h e m c o n s t r u c t i o n workers. W i t h the project m o r e than 80 percent c o m p l e t e , t h e w o r k force most likely will be r e d u c e d by at least 50 percent by midyear. T h o u g h t h e " T e n n - T o m " W a t e r w a y is not s c h e d u l e d t o be c o m p l e t e l y finished until S e p t e m b e r 1 9 8 5 , almost all will be navigable by t h e first part of 1984. Agriculture: Record Cotton Yields W h i l e agriculture e m p l o y s just 8 percent of t h e state's w o r k f o r c e t o d a y c o m p a r e d t o 4 3 percent in 1950, sales of farm products c o n t r i b u t e in excess of $2 billion annually to the state's economy. These products are the raw material base for m u c h of Mississippi's i m p o r t a n t f o o d and fiber m a n u f a c t u r i n g sectors. Clearly, w h e n agriculture is suffering financially, m u c h of Mississippi's e c o n o m y also feels the pain. The dominant feature of Mississippi's agriculture in 1983 may well be the financial distress afflicting the state's farmers. In fiscal 1982, t h e state a c c o u n t e d for half the total foreclosures a n d liquidations reported among debtors of the Farmers H o m e Administration across the six District states. Farm d e b t in Mississippi exceeds $3 billion a n d interest p a y m e n t s o n that d e b t in 1982 c u t d e e p l y into net farm income. In recent years, farm i n c o m e has also b e e n depressed by rising costs, drought, and, in 1982, severely depressed prices. Since 1980, net farm i n c o m e has averaged only a b o u t half the levels set in 1978 and 1979 61 C h a r t 2. Mississippi Net Farm Income $ MiL 111. 800 U 1978 1979 1980 1981 (Chart.?). In 1982 ideal growing c o n d i t i o n s led t o record crops during a period of slack d e m a n d . As a result, prices of most c o m m o d i t i e s have fallen. T w o crops, cotton and soybeans, earn 45 percent of total cash farm receipts and greatly affect t h e state's farm e c o n o m y . Prices of b o t h crops w e r e m u c h lower t h a n in 1981, b u t excellent yields last year may have m o v e d some farmers from red ink t o black. Even so, the majority of producers lost m o n e y in spite of better-than-average production. There was some good news for agriculture last year, although its primary i m p a c t may occur in the future. Construction began on the state's first ethanol plant, e x p e c t e d t o p r o d u c e 5 0 0 , 0 0 0 gallons for a u t o m o t i v e use annually. The ethanol will be distilled f r o m grain sorghum and corn, creating a n e w source of d e m a n d for those c o m m o d i t i e s . In addition, grain sorghum (also k n o w n as milo) became the state's newest export crop as a shipload left Pascagoula for Portugal last fall. Further shipments are anticipated in the future. The potential e x p o r t market, the low costs of p r o d u c t i o n a n d other positive features could bring substantial increases in acreage. In spite of farm financial problems, the o u t l o o k for 1983 appears more promising t h a n the last three years. M o r e acreage will be idled in response t o g o v e r n m e n t programs w h i l e t h e shift t o w a r d d o u b l e c r o p p i n g will gain m o m e n t u m . As a result, w h e a t plantings, w h i c h increased approximately 70 percent in 1982, will remain near that level in 62 1983. W h e a t also has t h e advantage of b e i n g a low-cost crop. C o t t o n growers may w e l l find a greater d e m a n d as the e c o n o m y picks up a n d t h e textile industry increases p r o d u c t i o n . The l u m b e r industry, w h i c h suffered a drastic slowd o w n in 1 9 8 2 , was beginning t o s h o w signs of recovery going i n t o t h e n e w year. It is in position t o show strong recovery w i t h c o n t i n u e d improvem e n t in construction. Expectations are r u n n i n g high a m o n g l u m b e r m e n for a g o o d year in 1 9 8 3 . Public Sector State and local b u d g e t officials in t h e M a g n o l i a State are c o n c e r n e d w i t h t h e same p r o b l e m s as their counterparts in neighboring states. Revenues f r o m sales a n d i n c o m e taxes are e x p e c t e d t o fall short of projections, requiring action o n t h e part of the state government. Early in 1982, the National Governors Association projected that Mississippi w o u l d e n d its 1983 fiscal year w i t h a $25 million deficit. Revenues w e r e trailing projections by as m u c h as $11 million in the first four m o n t h s of the 1983 fiscal year. This makes conditions especially severe for Mississippi since it was o n l y a year earlier that Governor W i n t e r s o r d e r e d a $76 m i l l i o n b u d g e t cut. State law prohibits operating deficits in excess of 2 percent of projections. Public sector e m p l o y m e n t has d e c l i n e d for t h r e e years in a row, in sharp contrast t o past recessions. Like o t h e r states, Mississippi is e x p l o r i n g ways of raising revenue. Early last year, t h e state w e n t t o m o n t h l y , as o p p o s e d t o quarterly, reporting of sales tax revenue. Second, it f o l l o w e d o t h e r states by raising t h e gasoline tax. Third, the p r o p o s e d 3 percent increase in the severance tax on natural gas is likely t o be r e i n t r o d u c e d this year. The funds w o u l d finance statewide kindergarten programs t o help raise educational a c h i e v e ment. As t h e recession lingers, it seems d o u b t f u l that several special a t t e m p t s t o raise revenue will succeed in avoiding additional cutbacks in state e m p l o y m e n t and s p e n d i n g in 1983. Trade: Potential for Growth Partially in response t o w e a k markets for commodities, trade flows t h r o u g h Mississippi ports in 1982 w e r e disappointing. Both exports and imports slowed substantially from t h e previous FEBRUARY 1983, E C O N O M I C REVIEW " ( yeaKs lackluster performance. This year should see modest i m p r o v e m e n t as economic recoveries in the U n i t e d States a n d industrialized countries of Western Europe gain m o m e n t u m . Pascagoula's t w o harbors account for a b o u t 90 percent of Mississippi's international trade volume, but the state's o t h e r major port, Gulfport, is an important entry p o i n t for tropical fruits f r o m Central America. The s l u m p in trade f l o w i n g through Mississippi's ports ranged f r o m 2 0 t o 30 percent in 1982. It was l i n k e d t o e c o n o m i c weakness abroad w h i c h has slowed fertilizer, grain, a n d w o o d and paper products exports. Further, the w o r l d oil glut has curtailed oil imports at Chevron's oil c o m p l e x on Pascagoula's Bayou Casotte harbor. Trade in Mississippi, and elsewhere, has b e e n affected by changing exchange rates. The dollar has strengthened greatly relative t o m a n y foreign currencies, making U.S. products more expensive for overseas buyers. Even w h e r e American commodities such as corn have experienced significant domestic price declines, t h e d o l l a r s increasing value has k e p t the price t o foreign buyers at a higher level. A t ports that handle large a m o u n t s of farm c o m m o d i t i e s such as Pascagoula, the result is a decline in activity. The i m p r o v e m e n t in Mississippi's trade foreseen for 1983 hinges o n several factors. Trade growth w i t h Central A m e r i c a and t h e Caribbean will be spurred by t h e Caribbean Basin Initiative. Congress has a p p r o v e d a $ 3 5 0 million foreign aid package and is considering trade concessions for products f r o m t h e area. The o p e n i n g of a n e w cold storage facility at Pascagoula last August * opened up the potential for increased poultry exports. Chevron's e x p a n d e d refinery facilities, possibly o p e n i n g late in 1983, will provide additional d e m a n d for oil imports. A n o t h e r sign of the s l o w d o w n in c o m m e r c i a l activity affecting b o t h Mississippi a n d the nation has been the sharp d r o p in traffic along t h e Mississippi River d u r i n g 1982. N u m e r o u s barges are idle a n d those in o p e r a t i o n f r e q u e n t l y have trouble f i n d i n g cargoes for a r o u n d t r i p b e t w e e n ports. There are reports of some failures occurring among carriers w i t h others near closure. Some observers c o n t e n d t h e d e c l i n e in business is the ( worst since t h e Great Depression. 1 I ( ' Tourism: Priming for 1984 W h i l e t o u r i s m is less i m p o r t a n t in Mississippi than in most Sixth District states, it still accounts FEDERAL RESERVE B A N K O F A T L A N T A for a b o u t 30,000 jobs, o r 3 . 6 percent of t h e state's n o n f a r m e m p l o y m e n t . Because m a n y tourist jobs are unskilled or entry-level positions, t h e c o n t r i b u t i o n t o personal i n c o m e is small. Yet tourist expenditures a m o u n t to nearly 10 percent of the state's retail sales tax collections. Expenditures are c o n c e n t r a t e d in the Jackson area a n d t h e Gulf Coast, w h i c h has hosted t h e Miss USA pageant for several years. Mississippi's tourist industry e n j o y e d a better s u m m e r in 1982 t h a n states such as Louisiana and Florida that rely o n " d e s t i n a t i o n " travel by out-of-state and foreign visitors. For example, despite a near d o u b l i n g of fees, visitor days at U.S. Forest Service recreation sites in Mississippi rose slightly f r o m 1981's level. Yet recreational usage of major lakes and state a n d national parks declined. Revenues f r o m t h e lodgings tax fell 2.6 percent in S e p t e m b e r c o m p a r e d t o S e p t e m b e r 1981. The c o u n t y r o o m tax in the Gulf Coast area, however, was 25-30 p e r c e n t ahead of last year, according t o a local Convention and Visitors Bureau spokesman. Air travel was also off except at Gulfport-Biloxi, w h i c h had nearly 25 percent m o r e arrivals this past N o v e m b e r t h a n in 1981. The o u t l o o k for Mississippi's tourist industry appears promising, although significant improvem e n t isn't likely until 1984. Industry representatives are o p t i m i s t i c a b o u t t h e u p c o m i n g N e w Orleans W o r l d ' s Fair. An e c o n o m i c i m p a c t study estimates that t h e 1 9 8 4 e x p o s i t i o n will bring m o r e than a million n e w visitors t o (or through) Mississippi and will generate m o r e than $ 1 2 0 million in tourist expenditures. Labor Force The Census Bureau's latest survey (July 1, 1981) estimated Mississippi's p o p u l a t i o n t o be 2,531,000. Between April, 1 9 8 0 a n d July, 1981, the, p o p u l a t i o n grew o n l y 0.4 percent, a d e c i d e d d e c l i n e f r o m the annual average rate of 1.4 percent d u r i n g t h e 1970s. E m p l o y m e n t of t h e state's labor force of slightly over o n e million d e c l i n e d d u r i n g 1982, despite a slight rise d u r i n g the spring. U n e m p l o y m e n t grew rapidly t o reach 12.7 p e r c e n t of t h e labor force in N o v e m b e r (Chart 3), second o n l y t o A l a b a m a in t h e District a n d w e l l a b o v e t h e nation's rate of 10.8 percent. Of t h e t h r e e standard m e t r o p o l i t a n statistical areas in Mississippi, Pascagoula-Moss Point suffered t h e highest u n e m p l o y m e n t rate (1 5.5 percent in N o v e m b e r ) . Jackson had t h e lowest rate 63 Finance C h a r t 3. Mississippi Unemployment Rate 14 12 10 I Percent : i rv 6 a 4 70 72 74 76 78 80 J 82 84 (8.3 percent in N o v e m b e r ) , w i t h the help of g o v e r n m e n t e m p l o y m e n t that helped stabilize its labor market. Mississippi's three largest n o n m a n u f a c t u r i n g e m p l o y m e n t sectors are g o v e r n m e n t (22.8 percent), trade (19.9 percent), and services (14.7 percent). G o v e r n m e n t accounts for a larger proportion of jobs in Mississippi than in t h e U n i t e d States, while services a n d trade account for a smaller share than in the nation. This distribution bodes ill for the state's e m p l o y m e n t since governm e n t e m p l o y m e n t appears t o be waning, w h i l e trade and services promise t o be primary sources of j o b growth. Moreover, even these " g r o w t h " sectors are faring worse in Mississippi than in the District or the nation. Of t h e six n o n m a n u f a c t u r i n g sectors, four—transportation, communication, and public utilities; trade; finance, insurance, and real estate; and s e r v i c e s — h e l d steady or d e c l i n e d less than 1.5 percent over the previous year. G o v e r n m e n t e m p l o y m e n t decreased by 2-4 percent, a n d construction e m p l o y m e n t d r o p p e d more than 10 percent during the summer. In a recent survey of large southeastern employers, most Mississippi respondents w e r e pessimistic a b o u t the o u t l o o k for e m p l o y m e n t in the m o n t h s ahead. Responses were almost evenly divided b e t w e e n those w h o expected no change and those w h o e x p e c t e d further layoffs. 64 G r o w t h in c o m m e r c i a l bank deposits in Missis sippi has b e e n only average, increasing at ai annual rate of 11 percent t o $10.5 billion durin: the first 11 m o n t h s of 1982. Vigorous g r o w t h if bank deposits is unlikely until economic condition improve. Loans have grown at an 8 percent rate fo for the same t i m e period, reaching $6.6 billion This represents substantially higher g r o w t h thar in recent years. In 1979-80, for instance, the growth rate was a m e r e 2 percent. A loan-deposi ratio of 63 percent leaves r o o m for a f u r t h e increase in loan activity, a n d t h e prospect o lower interest rates a n d a stronger e c o n o m y ir 1983 should increase loan d e m a n d . In a d d i t i o n the cost of funds t o financial institutions shoulc be lower t h a n in 1982, although the n e w deregulated accounts will certainly limit the gains in this area Profits are likely to i m p r o v e for most lenders, although loan delinquencies probably will remain above n o r m a l for m u c h of the year. Income Total personal i n c o m e in Mississippi grew by 6.5 percent in the fiscal year e n d i n g last June, c o m p a r e d t o 13.5 percent a year earlier. W e a k i n c o m e g r o w t h reflects t h e sensitivity of Mississippi's e c o n o m y to the recession, particularly the key lumber, w o o d products, and manufacturing industries. The economic weakness is also reflected in retail activity. N o v e m b e r s sales tax collections, a proxy for retail sales, trailed 2.3 percent b e h i n d N o v e m b e r 1981. O n balance, the o u t l o o k for personal i n c o m e and retail sales g r o w t h in Mississippi in 1983 is d i m m e r than for some o t h e r states in the Southeast a n d the nation. As the national e c o n o m y improves, Mississippi's e c o n o m y will also begin t o recover, but a p p a r e n t l y at a slower pace. Energy Though a source of e c o n o m i c strength in the short run, Mississippi's energy resources may represent a p r o b l e m for the future. D u r i n g the last t w o decades energy c o n s u m p t i o n in the i state grew five times faster than the state's 1 population. Increasing energy d e m a n d was built largely around t w o resources, oil and natural gas. H In recent years nearly half the state's energy (48 , percent) was supplied by p e t r o l e u m w h i l e gas met 33 percent of d e m a n d . Coal, a resource > FEBRUARY 1983, E C O N O M I C REVIEW plentiful in t h e U n i t e d States, composes only 9 percent of t h e state's energy needs. The sharp rise in cost of b o t h oil a n d natural gas has already i m p a c t e d utility rates. The potential for future cost increases t o g e t h e r w i t h the dependency on t h e t w o fuels bodes ill for utilities and consumers. O n e p o w e r c o m p a n y is ambitiously diversifying t o a d d coal and nuclear p o w e r to its f u t u r e generation capacity. The e c o n o m i c feasibility of such changes may be in d o u b t , however, because of falling electricity sales, excess plant capacity, a n d financial constraints. The f u t u r e role of oil a n d natural gas in the state's e c o n o m y remains clouded. The higher prices of t h e late 1970s d i d spur oil exploration. In 1981, oil c o m p a n i e s drilled 758 w e l l s — 5 4 percent of those in areas k n o w n t o be productive. Sixty-four percent of all wells drilled, however, turned o u t t o be u n p r o d u c t i v e or " d r y holes," illustrating t h e costliness of exploration. Of t h e wells that p r o v e d productive, nearly two-thirds were oil rather than gas wells. During t h e last t w o years, Mississippians have benefitted from strong drilling activity that spurred business e m p l o y m e n t and tax revenues throughout the state. In 1982 an average of 11,600 people w e r e involved in the extraction of oil a n d gas in the state, a net increase of 3,600 n e w jobs created by this sector since 1979. In addition, severance tax collections a c c o u n t e d for onet e n t h of t h e state's tax revenues generated in fiscal 1982, a 34 percent increase f r o m t h e previous year. just the same, the oil a n d gas industry fell u p o n hard times in 1 9 8 2 . C r u d e oil a n d natural gas production declined d u r i n g t h e f i r s t t e n months of the year by 5.2 and 5.7 percent, respectively, from 1981 levels. Growth in severance tax revenues slowed dramatically in the latter months, climbing only 3 p e r c e n t d u r i n g t h e j u l y - D e c e m b e r p e r i o d . A potential increase in the severance tax has dampened enthusiasm for n e w drilling. Prospective tax increases a n d lower oil prices have r e d u c e d t h e n u m b e r of active rigs in o p e r a t i o n in Mississippi t o a p p r o x i m a t e l y half the n u m b e r reported in N o v e m b e r 1981. The prospects for 1983 remain mixed. W h i l e an e c o n o m i c recovery should spur d e m a n d for energy resources, g r o w t h is likely t o be only m o d e r a t e and gradual as well. The negative factors may be sufficiently strong, however, t o keep the industry in the doldrums. The possibility for decontrol of shallow gas prices, the uncertainty surrounding oil prices, a n d industry concerns a b o u t the f u t u r e tax b u r d e n are likely t o prevent a robust t u r n a r o u n d in energy p r o d u c t i o n . E C O N O M I C C O N D I T I O N S IN M I S S I S S I P P I BY R E G I O N S Northeast Mississippi The economy of the northeast region is based on a diversity of manufacturing activity, government employment and agriculture. The Tupelo area is so well diversified in types of industry that it closely mirrors the nation. The area's unemployment is near the nation's rate of 10.8 and significantly below Mississippi's 12.7 percent rate. Major industries in the area manufacture electric motors, compressors, industrial conveyor belts and clothing, including blue jeans and military uniforms. The economic decline has affected most industrial activity, but apparel manufacturers have fared better than other types of industry. The construction of a nuclear powered electricity generating plant has provided employment for about 2,000. Work on the Tennessee-Tombigbee Waterway has been a stimulus to the area, but construction is winding d o w n as the project nears completion. The Columbus area depends heavily on Columbus Air Force Base, with its annual payroll of $ 5 0 million, and two nearby educational institutions These government-supported facilities have added stability to the area despite the recession. Area manufacturers of furniture, tires, wall and floor coverings, bathroom equipment, and electrical gear have all experienced decided downturns in business and resulting layoffs. One bright spot has been a plant manufacturing disposable hospital fabrics that has continued to operate at full capacity right through the recession. The region's agriculture is primarily soybean prohttp://fraser.stlouisfed.org/ low compared with other regions of Federalduction. ReserveYields Bank are of St. Louis the state, and low prices have severely depressed incomes for the farm sector. Prospects for recovery hinge largely on a rebound in construction, automobile manufacturing and agriculture. The industrial recovery is expected to begin by mid1983, but is likely to be rather slow. Agricultural conditions may not brighten significantly until demand for farm products strengthens in 1984. Northwest Mississippi Agricultural activity dominates the economy of the fertile Mississippi River Delta region along the northwest side of the state. Cotton, soybeans, and wheat, the majorfarm crops, have experienced weak demand for the abundant supplies produced in 1982. Many farmers carry heavy debts from the past 10 years. Bankruptcies and farm business failures are already numerous and may increase. Likewise, many nonfarm businesses servicing farm-related activity have failed and others are struggling t o survive. Products manufactured in the Clarksdale and Greenwood a r e a s including vehicle tires, conveyor rollers for heavy industry, door openers, automobile parts, blue jeans, picture frames, and p i a n o s — h a v e b e e n seriously affected by the downturn. A distribution center for automobile parts and a wholesale hardware business have helped keep the region afloat. Some cotton farmers suffered an additional blow at the end of 1982 w h e n a merchant to w h o m they had contracted to sell their crops suffered bankruptcy Checks received in payment for delivered cotton bounced and the cotton was held by the merchant's creditor as security for loans. Additional farm failures were expected t o result from farmers' apparent losses as the year ended. warehouse c o m p a n y is constructing a port facility expected to serve as a central distribution point for all nuclear energy facilities in the region. Southwest Mississippi Southeast Mississippi The U.S. Army Corps of Engineers is a mainstay for the economy of southwest Mississippi and especially for the Vicksburg area where 9,000 employees are located. Although the Corps reduced some operations in connection with national budgetary cutbacks, its activity was a major source of strength for the Vicksburg area during 1982. Agriculture also remains an important component of the Vicksburg trade area, and, just as elsewhere in the state, farmers are experiencing grave hardship. Families that have been solid components of the farming community for two and three generations are reported t o be suffering financially. A few investors have been able to purchase excellent land at bargain prices because of the scarcity of potential buyers for land forced onto the market. The Natchez area has a more diversified economy than the Vicksburg a r e a Paper manufacturing, oil drilling and tire manufacturing are important local business activities A plant specializing in radial truck tires is reported to be doing well through the recession. While oil drilling dropped into a severe slump early in the year and several new entrants failed, renewed activity in deep well drilling was noted in the closing weeks of 1982. Recession seemed to hit the pulpwood industry surrounding Natchez in late spring. Conditions are expected to gradually worsen early in 1 9 8 3 since recovery in pulpwood demand is expected to lag well behind recovery in other segments of the economy. A nuclear generating plant underconstruction north of Natchez has been stimulating economic activity and has increased activity at Natchez's river port. A Academic institutions, a large medical facility, as well as ship manufacturing and tourism along the coast are major contributors to southeast Mississippi's economic activity. All of these lent a stabilizing influence during 1982. In addition, new paper mills under construction are expected to employ up to 2,000 workers by midsummer. As a result the recession showed little evidence in the Hattiesburg area until last fall. A plant manufacturing turpentine and explosives recently laid off 3 0 percent of its work force, and the construction industry has also idled many workers. The Laurel area, heavily dependent upon oil and gas exploration, has been severely depressed since the second quarter of 1982. Lumber and other building materials industries have also been in the doldrums because of construction inactivity. A pickup is anticipated with renewed oil and gas exploration, which was showing signs of recovery in some areas late in 1982. The housing industry is also anticipated to improve a n d enliven lumber manufacturing w h e n interest rates reach lower levels Mortgage rates had dropped little in southeast Mississippi by December. Car sales were beginning to pick up at year-end in response to heavy promotional activity of dealers. On the whole, the economy of southeast Mississippi is expected to begin showing recovery by spring. New construction should lead the way but increasing oil and gas activity and a bulge in consumer spending for cars, furniture, appliances and clothes should provide noticeable strength to the local economy by the second half of 1983. — G e n e D. Sullivan and W. Gene Wilson 66 FEBRUARY 1983, E C O N O M I C REVIEW Now Available Supply-Side Economics in the 1980s CONFERENCE PROCEEDINGS Sponsored by the Federal Reserve Bank of Atlanta and the Emory University Law and Economics Center. March 1 7 - 1 8 1 9 8 2 — a 297-page record of the historic gathering of Nobel laureates, leading administration policy shapers, academicians, congressmen, and press observers. The conference, held at the peak of the controversy over the application of supply-side theory, provided a rare forum for proponents and opponents of the ideas that have dominated the economic headlines since the Reagan administration took office. Including: Supply-Side Economics: The Administrative Perspective Murray L. Weidenbaum Alternative Policies for Stable Noninflationary Growth Lawrence R. Klein Supply-Side Economics: An American Renaissance? Jack Kemp The Conceptual Foundations of Supply-Side E c o n o m i c s Martin Feldstein Supply-Side Policies: Where Do We Go f r o m Here? Milton Friedman Supply-Side Aspects of Government Spending Phil Gramm Theoretical Foundations of Supply-Side E c o n o m i c s Paul Craig Roberts Reaganomics: The Monetary C o m p o n e n t Beryl W. Sprinkel ORDER FORM Send me copies of Supply-Side Economics at $35.00 each. in the 1980s Name Company Purchase Order # Title D C h e c k / M o n e y Order Institution _ Address City D M a s t e r Charge Card Number State ZIP DVisa • American Express Exp. Date Signature Send order to: GREENWOOD PRESS • 88 Post Road West • P.O. Box 5 0 0 7 • Westport, Conn. 0 6 8 8 1 _ North Carolinas Diversification Slowed by Recession Efforts to diversify the state's industrial base and promote export markets are beginning to pay off. As the recovery takes hold, North Carolina should solidly outperform the nation. A d e c a d e long period of steady change in N o r t h Carolina's industrial mix has b e e n s l o w e d by the longest recession since W o r l d W a r II. Cautious o p t i m i s m a b o u t an i m p e n d i n g u p t u r n has d o n e little t o sustain industrial i n v e s t m e n t or t o utilize n e w a n d upgraded p r o d u c t i o n capacity in key industrial sectors. Rapid increases in o u t p u t and e m p l o y m e n t are e x p e c t e d in t h e traditional c o n s u m e r goods industries and in recently d e v e l o p i n g p r o d u c e r goods industries o n c e t h e anxiously awaited recovery begins. Immediate Prospects The prospects for an u p t u r n in 1983 l o o k mildly encouraging. N o one believes North Carolina will t u r n t h e corner o n its own, w i t h o u t a national e c o n o m i c recovery, because of t h e current recession's e x t r e m e d e p t h . During the early phase of t h e national recovery, N o r t h Carolina's e c o n o m y will d o no better than t h e U.S. average. Later in this year, however, the state should solidly o u t p e r f o r m the nation regardless of t h e national recovery's relative strength. The above-average g r o w t h rate should be built o n t h e strength of state c o n s u m e r expenditures, o n a revival of the housing industry nationally w i t h a t t e n d a n t d e m a n d for h o m e furnishings whose p r o d u c t i o n remains c o n c e n t r a t e d in the state, a n d o n orders for durable goods in machinery a n d electronics. 68 Near-Term and Future Trends Several d e v e l o p m e n t policies begun in the late 1970s or early 1980s are e x p e c t e d t o bear fruit in t h e near-term a n d c o u l d accelerate depending on the pace and breadth of the expected recovery. M a n y experts believe efforts to stimulate exports will find foreign markets for 95 percent of the c o m m o d i t i e s p r o d u c e d or m a n u f a c t u r e d w i t h i n the state. Intensified efforts by the N o r t h Carolina D e p a r t m e n t of C o m m e r c e a n d n e w o p p o r t u n i t i e s a f f o r d e d by t h e Export Trading Act of 1982 t o p r o m o t e the f o r m a t i o n of efficient e x p o r t companies h o l d considerable long-term promise once the recovery improves international markets. In t h e m e a n t i m e , Foreign Trade Zones continue t o be formed in the state's metropolitan areas t o take advantage of customs-free fabrication or processing in many of the new growth industries. A recovery seems certain t o c o n t i n u e the state's economic transformation. Industrial investments will shift steadily away f r o m past reliance o n cheap raw inputs such as low-skill labor and undeveloped plant sites. Conscious state policies to recruit capital-intensive, high-technology, a b o v e average wage industries should yield a welldiversified mixture of industries. The overall economy will be strengthened against subsequent business cycles as its traditional industrial base is b o t h upgraded and c o m p l e m e n t e d by emerging industries w i t h different p r o d u c t cycles and rates of growth and technological innovation. FEBRUARY 1983, E C O N O M I C REVIEW " Effective diversification hinges on rapidly developing support industries such as finance, business services, printing, utilities a n d transportation, particularly air a n d trucking. The strength a n d sophistication of the support industries is expected to grow with corporate research and development facilities in t h e t o p m e t r o p o l i t a n areas. Research Triangle Park in the Raleigh-Durham area is the state's focal p o i n t at present for research and d e v e l o p m e n t . The state's long-term investment in its highly regarded university a n d c o m m u n i t y college systems should start paying off as N o r t h Carolina expands its support for microelectronics, bio-engineering, and o t h e r scientifically based innovations t o meet the requirements of emerging industries. Finally, the future of the state's economy will be d e t e r m i n e d by recent policies initiated t o encourage p u b l i c a n d private investments in both urban a n d rural c o m m u n i t i e s . The planned d e v e l o p m e n t of efficient p r o d u c t i o n centers and high-quality living e n v i r o n m e n t s p r o b a b l y is indispensible if the e c o n o m y ' s long-term diversification is t o be realized. Current Developments M u c h of the state's manufacturing is t i e d t u the Homebuilding a n d a u t o m o b i l e industries. Furniture, textiles, furnishings a n d related producergoods manufacturers are tied in to construction; specialized textiles a n d suppliers of r u b b e r a n d plastics o r o t h e r m o t o r v e h i c l e s u p p l y f i r m s depend u p o n sales t o a u t o m o b i l e manufacturers. Since b o t h a u t o sales a n d housing starts are extremely d e p e n d e n t on interst rates and consumer confidence, state industries will be counting heavily o n d e c l i n i n g interest rates t o stimulate demand. However, textile a n d furniture manufacturers also have taken the initiative t o export m o r e t o foreign markets. Productivity improvements have helped lower prices in b o t h industries t o a range which, w h e n c o m b i n e d with international preferences for American household and fashion goods, should pay off in greater exports a n d r e d u c e d d e p e n d e n c e on d o m e s t i c industries. C o m p u t e r ized control o f efficient n e w p r o d u c t i o n equipment, c o m b i n e d w i t h w o r k e r retraining, has increased p r o d u c t i v i t y of the textile industry at a 4 percent annual rate in recent years. Direct exports f r o m N o r t h Carolina manufacturers have d o u b l e d 1976's $ 4 2 0 million total, a n d exports exceeding $1 billion per year are w i t h i n sight.. ' FEDERAL RESERVE B A N K O F A T L A N T A N o r t h Carolina furniture manufacturers lead the nation in industrial p r o d u c t i o n , although t h e companies have only begun to tap export markets t h r o u g h t h e Tailored Export M a r k e t Plan (TEMP) o p e r a t e d by the U.S. D e p a r t m e n t of C o m m e r c e . N o r t h Carolina currently grows two-thirds o f flue-cured and four-tenths of all U.S. tobacco, of which $2.5 billion worth is exported annually. Despite a favorable five-to-one ratio of exports t o imports, t h e market share of flue-cured p r o d u c t i o n on w o r l d markets d r o p p e d f r o m 6 0 percent in t h e late 1950s t o 29 percent in 1980. M a n y observers claim that the support price is set by factors responsible for the price of U.S. leaf being twice that of foreign producers, w i t h t h e c o n s e q u e n t loss of N o r t h Carolina's share of t h e market. The price and d e m a n d effects o f recently enacted tax increases, allotm e n t reductions, a n d direct export privileges are unclear but are likely to change the industry's cost structure. Since 270,000 North Carolinians farm t o b a c c o in 91 of t h e state's 100 counties, and another 25,000 are e m p l o y e d at an average wage of $ 9 . 2 1 / h o u r manufacturing t o b a c c o products, the state's e c o n o m y clearly will be affected by any important changes in the industry. The state administration's aggressive recruiting of high-technology industries centers on t h e microelectronics industry. W i t h i n the last several years, a number of national firms, including General Electric, have a n n o u n c e d major investments in research facilities a n d production plants in the state. M u c h of this investment is located in t h e Research Triangle area, w h e r e t h e state is constructing t h e M i c r o e l e c t r o n i c s Center of N o r t h Carolina ( M C N C ) . This 80,000 square f e e t $24 million facility will concentrate o n leading-edge research into t h e design, fabrication, testing and applications of integrated circuits a n d s e m i c o n d u c t o r materials. This research will be c o n d u c t e d collaboratively by industry scientists a n d faculty a n d graduate students f r o m t h e three major universities in the area. State officials a n d industry executives anticipate that the o p e n i n g of the M C N C and t h e selection of t h e Research Triangle Park as the location o f the S e m i c o n d u c t o r Research Cooperative, f o r m e d u n d e r the auspices of the S e m i c o n d u c t o r Industry Association, will further e n h a n c e t h e state's attractiveness to o t h e r high-tech industries, including pharmaceuticals a n d bio-technology. 69 T a b l e 1 . Population, Employment, a n d Per C a p i t a I n c o m e C h a n g e in N o r t h C a r o l i n a 1 9 7 0 - 1 9 8 0 Employment Population (•000s) rooos) 1970 1980 Percent Change 1970 1980 Percent Change 203,302.0 226,505.0 11.4 70,880.0 90,406.0 27.5 North Carolina 5,099.2 5,888.2 15.5 1,748.9 2,331.0 33.3 Metropolitan Counties 2,670.6 3,105.0 16.3 898.1 1,394.3 55.2 Non-Metropolitan Counties 2,428.6 2,783.2 14.6 850.7 936.7 10.1 United States Source: Regional Economic Information System, B u r e a u of Economic Analysis, North Carolina E c o n o m i c Security Commission, U.S. Department of Labor - Bureau of L a b o r Statistics. The state's financial sector has been following several trends characterizing the industry nationally, b u t has several wrinkles of its o w n . N o r t h Carolina has felt t h e t r e n d t o w a r d increasing concentration in the banking industry. The n u m b e r of banking institutions in t h e state has d e c l i n e d from 98 t o 70 w i t h i n the past 12 years, b u t branches have increased f r o m 1,116 t o 1,763 w h i l e total assets have increased from $8.5 million t o $29.1 million in t h e same period. M u c h of the increased concentration resulted f r o m extensive mergers and acquisitions. In 1982, three of N o r t h Carolina's banks w e r e ranked by Fortune magazine a m o n g t h e nation's 50 largest (in part, because state law permits statewide banking). Smaller banks have expressed some concern a b o u t t h e increasing concentration and t h e emergence of financial supermarkets in an age of increasing industry deregulation. The t r e n d t o w a r d deregulation nationally is already manifest in N o r t h Carolina in the arena of interstate banking. N o r t h Carolina's largest bank, Charlotte-based North Carolina National Bank ( N C N B ) , is o n e of the f e w in t h e nation that actually o w n s a n d operates full-service banks across state lines, having purchased t w o Florida banks last year. Presently, North Carolina laws d o not limit interstate banking. State financial leaders, as well as the Southern Growth Policies Board, believe it is o n l y a matter of t i m e before legislatures in several seaboard states from Virginia to Florida authorize reciprocal interstate banking. Several other large North Carolina banks may f o l l o w N C N B ' s lead t h e n 70 a n d m o v e aggressively i n t o o t h e r southeastern markets. A Decade's Growth N o r t h Carolina's p o p u l a t i o n grew by 15.5 p e r c e n t d u r i n g t h e 1970s, a f e w percentage points over the U.S. g r o w t h rate b u t still short of t h e 22 percent gains posted a m o n g all southeastern states. The average g r o w t h rate was rather evenly shared by the state's 100 counties, although t h e Raleigh-Durham a n d W i l m i n g t o n m e t r o p o l i t a n areas grew at nearly t w i c e N o r t h Carolina's overall rate a n d some rural areas grew even m o r e rapidly. E m p l o y m e n t g r o w t h increased t w i c e as fast as the p o p u l a t i o n d u r i n g t h e decade, as a greater p r o p o r t i o n of t h e p o p u l a t i o n fell b e t w e e n the ages of 16 and 65, and more w o r k i n g w o m e n swelled w o r k force entrants necessary t o fill n e w j o b openings. E m p l o y m e n t g r o w t h was not as equally shared by metropolitan and non-metropolitan counties; SMSAs benefited considerably more by decade's e n d as the state gradually b e c a m e more urbanized. As higher proportions of the population entered t h e w o r k force, per capita personal incomes rose f r o m $3,220 in 1 9 7 0 t o $7,832 in 1980. Per capita incomes increased even more rapidly ( b y 149 percent) in n o n - m e t r o p o l i t a n areas (see Table 1). H o w e v e r , by decade's end, t h e per capita i n c o m e of N o r t h Carolinians had remained a constant 82 percent of t h e U.S. figure. The growth of industrial e m p l o y m e n t and wage rates in non-metropolitan areas helped FEBRUARY 1983, E C O N O M I C R E V I E W " Per Capita I n c o m e (dollars) Percent 1970 1980 Change Region as a P e r c e n t of U.S. Per C a p i t a I n c o m e 1970 1980 Change N/A J,893 9,530 144.8 N/A N/A 3 220 7,832 143.2 82 82 0.0 3,633 8,671 138.7 92 91 -1.0 ^/,766 6,896 149.3 70 73 3.0 C h a r t 1. Nonagricultural E m p l o y m e n t f * r w Source: North Carolina Employment Security Commission. * > * ^ > > ^ »» boost their per capita incomes t o 73 p e r c e n t of U.S. levels, w h i l e m e t r o p o l i t a n incomes fell one point t o 91 percent. The stability of lowerthan-average incomes is partially responsible for the extraordinary increase in j o b g r o w t h during t h e 1970s. These e m p l o y m e n t changes have b e e n anything b u t s m o o t h d u r i n g the 1970s a n d early 1980s. Troughs a n d peaks of t h r e e distinct national business cycles have shaken the state's economy. Nonagricultural e m p l o y m e n t plunged more rapidly for t h e state t h a n t h e nation in the 1974-75 recession, although t h e state had r e b o u n d e d strongly f r o m the shallow 1971 recession (Chart 1). Subsequent rates of recovery from t h e 1974-75 d o w n t u r n w e r e stronger during the following t w o years for North Carolina, after w h i c h t h e y began t o converge w i t h the general pattern of U.S. e m p l o y m e n t changes. The uniformity of e m p l o y m e n t changes across the state is significant because of its w i d e l y dispersed pattern of industry. U n l i k e m a n y states, North Carolina's industrial development has n o t c o n c e n t r a t e d in a f e w centers b u t is split almost evenly b e t w e e n m e t r o p o l i t a n a n d n o n - m e t r o p o l i t a n areas. E m p l o y m e n t is dispersed less evenly across t h e coastal, p i e d m o n t , and m o u n t a i n regions. Coastal a n d m o u n t a i n regions e n j o y e d faster annual e m p l o y m e n t growth t h a n t h e p i e d m o n t prior t o t h e 1974-75 recession, d u r i n g a n d after w h i c h t h e m o u n t a i n region experienced above-average employment swings. The last half of t h e decade witnessed a convergence of cyclical swings among the three regions. FEDERAL RESERVE B A N K O F A T L A N T A The most remarkable e m p l o y m e n t changes involved the division b e t w e e n m e t r o p o l i t a n a n d n o n - m e t r o p o l i t a n areas (Chart 2). M e t r o politan and n o n - m e t r o p o l i t a n e m p l o y m e n t experienced roughly parallel swings in e m p l o y m e n t of c o m p a r a b l e m a g n i t u d e f r o m 1 9 7 0 until 1978. In t h e f o l l o w i n g t w o years (the onset of the current recession), t h e t w o trends diverged sharply: e m p l o y m e n t grew rapidly in m e t r o p o l i t a n areas and d r o p p e d sharply in n o n - m e t r o p o l i t a n areas. The state a d o p t e d a 71 Balanced Growth Policy in 1980 t o help dampen these swings a n d t o rationalize private a n d p u b l i c investments across areas. Major Industry Changes N o r t h Carolina's e c o n o m y remains heavily oriented toward manufacturing, even as services, trade, a n d g o v e r n m e n t increase rapidly in size and importance. The state remains a m o n g t h e t o p t h r e e in terms of total nonagricultural e m p l o y m e n t a c c o u n t e d for by manufacturing industries. A b o u t 33 percent of t h e nonagricultural employment last October was in manufacturing, d o w n f r o m nearly 4 0 percent in 1972. The composition of manufacturing also changed as manufacturers of traditional nondurable goods slipped f r o m 69 percent t o 62.8 percent of all manufacturing e m p l o y e e s in O c t o b e r . These changes in manufacturing e m p l o y m e n t clearly date f r o m major shifts that began after t h e 1974-75 recession. N o n d u r a b l e goods manufacturers never fully recovered their previous levels of e m p l o y m e n t , while durable goods manufacturers posted steady increases through the balance of the decade. The most steadily growing industries in the past d e c a d e were services, trade, and government. Together, their 44.8 percent of nonagricultural e m p l o y m e n t in 1972 j u m p e d t o 53.3 percent in O c t o b e r 1982. However, the deepening recession a n d revised federal budgetary priorities have i n h i b i t e d trade and g o v e r n m e n t since 1980. The c o n t i n u e d rise in services reflects the basic transition u n d e r w a y througho u t the U. S. e c o n o m y . In N o r t h Carolina, steady growth of population and of informationbased R&D facilities have fueled increased c o n s u m e r and business services e m p l o y m e n t . Construction e m p l o y m e n t fluctuated w i t h broad m o v e m e n t s in interest rates a n d w i t h business cycles t h r o u g h o u t t h e d e c a d e but remained stable on the whole. M i d - d e c a d e d o w n t u r n s in t r a n s p o r t a t i o n , c o m m u n i c a t i o n s , a n d utilities p r o m p t e d successive rounds of adjustments t o increases in basic fuel costs, particularly in the state's large trucking industry. Stable employment in FIRE (finance, insurance and real estate) t h r o u g h o u t the d e c a d e disguised the changes in this sector: the burgeoning g r o w t h of t h e state's financial industry has been offset totally by m o r e rapid changes in office a u t o m a t i o n and white-collar productivity. 72 Key Industries in Flux The big story in N o r t h Carolina's industrial diversification concerns t h e changing mix of its traditional and emerging industries. North Carolina has long b e e n characterized by traditional, slov^growing industries such as textiles, apparel, furniture, tobacco, and food, but other industrial sectors have c o m e t o play an increasingly p r o m i n e n t role. W h i l e the familiar factors associated w i t h favorable "business climate" conditions helped build North Carolina's traditional industrial base, many business and government leaders b e c a m e c o n v i n c e d by t h e w r e n c h i n g 1974-75 recession that t h e e c o n o m y required greater diversification. Long-term e m p l o y m e n t trends suggested that the state's manufacturing e m p l o y m e n t relied t o o heavily o n stable (apparel, furniture, food, and tobacco) or declining (textiles) industries. Efforts t o reverse this situation i n c l u d e d the aggressive d e v e l o p m e n t of industries that offered high-wage, capital-intensive or technologically innovative e m p l o y m e n t The state has e n j o y e d some success in expanding e m p l o y m e n t in t h e electrical a n d nonelectrical machinery, fabricated metals, chemical and transportation equipment industries. These emerging industries a c c o u n t e d for a b o u t 7.7 percent of all nonagricultural e m p l o y m e n t in 1 9 8 1 , up a b o u t 0.8 percentage points f r o m t h e same post-1974-75 recession p e r i o d in w h i c h traditional m a n u f a c t u r i n g industries lost a b o u t 3.1 percentage points. Shifts in e m p l o y m e n t levels by themselves are not enough t o predict future trends. Investm e n t by industry sector reveals the rate at w h i c h p r o d u c t i o n capacity or p r o d u c t i v i t y potential are being added. Extremely low investm e n t rates characterized traditional industries until 1976; relatively higher rates were registered for emerging industries through that year, alt h o u g h t h e absolute a m o u n t s w e r e comparable. Post-1976 investments d e p a r t e d dramatically from these earlier trendlines. A l t h o u g h apparel and furniture investments increased less dramatically, nearly every other traditional a n d emerging industry showed steady or spectacular gains in investment. Tobacco a n d b r e w i n g broke ground for n e w facilities in 1978, a n d the textile industry intensified efforts t o modernize and consolidate p r o d u c t i o n in fewer, m o r e p r o d u c t i v e plants that have placed some of the state's traditional industries o n m o r e solid footing. FEBRUARY 1983, E C O N O M I C R E V I E W " I On the other hand, every emerging industry— and particularly chemicals, nonelectrical, and electrical m a c h i n e r y — u n d e r t o o k impressive levels of i n v e s t m e n t in at least t w o of the four years b e t w e e n 1 9 7 7 a n d 1981. The g r o w t h of investment and p r o d u c t i o n in this e m e r g e n t complex of capital-intensive or high-tech industries influenced N o r t h Carolina's a t t e m p t t o establish a microelectronics industry, particularly since m a n y of these industries also have been rapidly e x p a n d i n g their research and d e v e l o p m e n t facilities at Research Triangle Park. Industrial i n v e s t m e n t in t h e state hit a peak in 1980, d e c l i n e d slightly in 1981 a n d d e c l i n e d sharply t h r o u g h t h e t h i r d quarter of 1982. The type and c o m p o s i t i o n of industrial i n v e s t m e n t has changed d u r i n g t h e current recession. In 1980, fully 56 percent of all a n n o u n c e d industrial i n v e s t m e n t was for n e w facilities, w i t h the » remainder for expansion of existing facilities. In 1981, the p r o p o r t i o n for n e w facilities had d r o p p e d t o 44 percent a n d in the first three quarters of 1982 it was d o w n t o 4 0 percent. During 1982, the largest industrial investment occurred in t h e textile i n d u s t r y — n e a r l y $ 2 0 0 million, over 20 percent of total industrial * investment in the state. The majority of this investment was devoted t o automating existing plants during a time when both product demand and employment had been significantly reduced. Other sectors w i t h large investments d u r i n g the past year were paper, chemicals, nonelectrical machinery, a n d electrical machinery. O f these, n e w i n v e s t m e n t was larger t h a n expan/ sion investment only in chemicals and electrical machinery (see Table 2). * k I f* Recent Performance of the North Carolina Economy The state's e c o n o m y has suffered in the current recession, b u t t h e distress has b e e n Chart 3. Seasonally Adjusted Monthly Unemployment Rates Percent J A S O N D J F M A M J J A S O N Sources: North Carolina Employment Security Commission and the U.S Bureau of Labor Statistics uneven among economic sectors and geographic regions. Nonagricultural e m p l o y m e n t d r o p p e d 2.7 percent f r o m July 1981 t o O c t o b e r 1982, c o m p a r e d t o 2.2 percent for t h e U. S. In manufacturing, where the recession has focused at the national level, e m p l o y m e n t d e c l i n e d in N o r t h Carolina by 7.8 p e r c e n t f r o m July 1981 t o O c t o b e r 1982, considerably better than t h e 9.9 percent for t h e U. S. The u n e m p l o y m e n t rate in N o r t h Carolina c l i m b e d f r o m 5.7 t o 10.1 percent f r o m July 1981 t o O c t o b e r 1982 b u t still was b e l o w t h e U. S. u n e m p l o y m e n t rate of 10.4 percent. Such e c o n o m i c indicators s h o w that early in the recession N o r t h Carolina fared b e t t e r than t h e U. S. average, b u t d u r i n g the last half of 1982 its performance deteriorated rapidly t o resemble the national economy more closely (Chart 3). From July 1981 t o last O c t o b e r , average weekly initial claims for u n e m p l o y m e n t increased 141 percent and average w e e k l y hours w o r k e d decreased by 1.4 percent. Retail sales d r o p p e d 0.5 percent, and n e w business incorporations fell 9.6 p e r c e n t H o w e v e r , n e w housing permits increased 1.3 percent a n d n e w car registrations 3.8 percent, e v i d e n t l y b u o y e d by d e c l i n i n g interest rates. A m o n g major sectors of t h e state e c o n o m y , m a n u f a c t u r i n g a n d c o n s t r u c t i o n suffered t h e most b e t w e e n O c t o b e r 1981 a n d O c t o b e r 1982. E m p l o y m e n t in construction fell by 10.7 percent, c o m p a r e d t o 5.6 p e r c e n t nationally, w h i l e e m p l o y m e n t in m a n u f a c t u r i n g fell 6.2 percent c o m p a r e d t o 8.7 p e r c e n t nationally. 73 f j T a b l e 2. New and Expanded Industries by Type January 1 - September 30, 1982 Number New Food and Kindred Products Tobacco Manufacturers Textile Mill Products Apparel and Other Finished Products Lumber and Wood Products Furniture and Fixtures Paper a n d Allied Products Printing and Publishing Chemicals and Allied Products Petroleum Refining & Related Industries R u b b e r s Miscellaneous Plastics Products Leather and Leather Products Stone, Clay, Glass and Concrete Products Primary Metal Industries Fabricated Metal Products Machinery, Except Electrical Electrical and Electronic Machinery Transportation Equipment Measuring, Analyzing & Controlling Instruments Miscellaneous Manufacturing Industries Totals Investment ($000) Expansions 6 32 7 65 29 36 26 17 27 18 — 11 11 1 8 2 7 7 4 New Expansions 6,860 — 51,235 4,585 65 5,420 1,125 25,150 67,730 12 3 19,075 — 5 3 8 18 8 6 16 12 23 35 14 10 2 17,638 15,762 145,991 11,729 9,428 15,474 111,747 16,754 39,876 Employees New Expansions 185 560 1,280 1,456 655 241 457 259 109 121 — 611 630 5 280 19 514 633 4,722 853 302 8,774 9,062 23,656 39,905 55,575 14,850 1 5,343 10,403 19,334 58,619 30,343 8,051 114 195 470 913 1,687 328 55 232 320 3,151 356 671 1 28,450 1,250 570 82 3 4 500 2,670 95 110 387 362,01 7 535,987 7,551 497 — 56 220 — — 10,281 17,832 898,004 Source: North Carolina Department of Commerce. Both durable and n o n d u r a b l e manufacturing shared in the state's loss of jobs: a decline of 7.7 percent for the durable goods sectors a n d 5.3 percent for n o n d u r a b l e goods. The textile industry was hit particularly hard w i t h a loss of 17,100 jobs ( d o w n 7.1 percent) during the year. W h i l e a significant a m o u n t of this d r o p is cyclical in nature, m u c h will b e c o m e permanent as t h e industry continues t o invest heavily in a u t o m a t i o n t o c o m p e t e more effectively w i t h foreign producers. O t h e r N o r t h Carolina manufacturing employers highly sensitive t o the national recession have been electrical machinery ( w h i c h lost 12.8 percent) and chemicals ( d o w n 10.6 percent). These industries' e m p l o y m e n t losses are n o t e w o r t h y because b o t h are targets of an aggressive state policy t o recruit high-technology industrial activity. Services, finance, and g o v e r n m e n t c o n t i n u e d to grow despite the recession. These three sectors a d d e d 11,900 n e w jobs t o the state's e c o n o m y during t h e year, w i t h services a c c o u n t i n g for 9,700 of these. These g r o w t h sectors w e r e insufficient, however, t o offset t h e loss of over 50,000 jobs in manufacturing alone a n d a n o t h e r 12,200 in construction. — Edward Bergman and Harvey Goldstein University 74 of North Carolina-Chapel FEBRUARY 1983, E C O N O M I C Hill REVIEW South Carolina: In Transition, But to What? South Carolina's economy has been in the doldrums since late 1979. The state is actively diversifying its industries, but continued dependence on consumer-oriented manufactured products may slow South Carolina's recovery. Outsiders o f t e n see South Carolina as a typical Sunbelt s t a t e — a robust e c o n o m y i m m u n e t o the ravages of the current recession, a favorable business climate, a n d an ability t o lure industry from outside the state. W h i l e some of these perceptions are accurate, others are overstated. For example, South Carolina has b e e n able t o attract numerous manufacturing facilities of firms headquartered elsewhere. The state is usually ranked near t h e t o p in surveys of business climate and factors i m p o r t a n t in t h e plant site selection process. However, t h e structure of the South Carolina e c o n o m y is p r o b a b l y m o r e similar t o those of Frostbelt states than t o others in the Sunbelt. South Carolina is still highly d e p e n d e n t u p o n one industry, textiles, for a large share of its e m p l o y m e n t a n d personal income, s i m i l a r t o t h e one-industry d e p e n d e n c e seen in several midwestern states. As a result, South Carolina has suffered high u n e m p l o y m e n t a n d p e r m a n e n t job losses just as those states have suffered. The South Carolina e c o n o m y has reached a significant transition point. In an effort t o reduce its d e p e n d e n c e u p o n o n e industry, the state is a t t e m p t i n g t o diversify its e m p l o y m e n t base to include " t h e t h r e e f s " — t e x t i l e s , tourism, and technology. The state's long t e r m d e v e l o p m e n t prospects d e p e n d on its success in m a k i n g that transition. In the period i m m e d i a t e l y ahead, a moderate recovery in t h e nation will result in a ' FEDERAL RESERVE B A N K O F A T L A N T A more m o d e r a t e than usual recovery in South Carolina. That is because of South Carolina's d e p e n d e n c e on national markets for t h e state's c o n s u m e r - o r i e n t e d m a n u f a c t u r e d products. An Overview of the Current Recession The South Carolina e c o n o m y has e x p e r i e n c e d significant short-run p r o b l e m s in the national recession w h i c h began in m i d - 1 9 8 1 . In fact, a strong case can be made that the current recession in South Carolina began at the e n d of 1979. The e v i d e n c e of a long-term recession is compelling. For example, the state's u n e m p l o y m e n t rate stood at a low 4.8 percent in the second quarter of 1979. Since then, it has t r e n d e d upwards t o w h a t may have been a peak of 11.2 percent in the second quarter of 1982 (Table 1). Other key indicators that peaked in 1979 include housing starts, textile e m p l o y m e n t , total manufacturing e m p l o y m e n t , and perhaps the best indicator of the state's e c o n o m y , real per capita income. Furthermore, real retail sales have d e c l i n e d an average of 3.2 percent for the years 1980-1982. However, o t h e r traditional indicators, such as nonfarm e m p l o y m e n t and personal income, did not peak until the second a n d t h i r d quarters of 1981, respectively. A comparison of the current recession in South Carolina w i t h 1 9 7 3 - 1 9 7 5 is also revealing. The 75 T a b l e 1 . The South Carolina Business Cycle 1973-1975 Peak Series 1979-Present Trough Peak % Chg. Date Value Date Value Total Nonfarm Employment 1 74:3 1,028.9 75:1 952.3 Manufacturing Employment 1 73:4 382.1 75:1 Textile Employment 1 - 2 73:4 160.0 75:1 Unemployment Rate 73:4 4.0 75:1 10.0 Real Total Personal Income 3 74:3 10,691.6 75:2 10,398.7 Real Per Capita Income 4 74:1 3,776.6 75:1 Real Retail Sales 3 73:2 7,627.2 75:1 Housing Starts 5 72:2 30,936.0 74:4 Trough % Chg. Date Value Date Value -7.4 81:2 1,027.5 82:1 1,176.2 323.0 -15.5 79:4 401.9 82:2 362.7 -9.8 128.0 -20.0 79:2 143.0 82:2 121.2 -15.2 N/A 79:2 4.8 82:2 11.2 -2.7 81:3 13,086.6 82:1 12,835.5 3,513.7 -7.0 79:4 4,129.3 82:1 4,024.6 -2.5 6,534.4 -14.3 79:2 9,073.6 82:1 7,382.4 -18.6 10,968.0 -64.5 79:2 31,128.0 81:4 12,244.0 -60.7 -2.6 N/A -1.9 1 1 ri t h o u s a n d s of workers. SIC 22 only. l n millions of dollars, annual rate. 4 tn dollars. s Number, annual rate. S 3 earlier recession was shorter in South Carolina, b u t m o r e severe. For example, in t h e m i d - 1 9 7 0 s recession, most e c o n o m i c indicators peaked at the e n d of 1973 or in early 1974, w h i l e recovery began in t h e second quarter of 1975. Thus, that recession lasted a b o u t 5 quarters; in contrast, t h e current recession has persisted for 10 or 11 quarters. O n e effect of t h e relative length of the current recession is that retail trade is s o m e w h a t worse off t h a n in the earlier recession. Yet t h e prior recession resulted in significantly greater e c o n o m i c losses. Total n o n f a r m e m p l o y m e n t fell 7.4 percent, or nearly 80,000 jobs in only a half year. In the current recession, the j o b loss has b e e n 2.6 percent, w h i c h represents slightly m o r e than 30,000 lost jobs. Losses in manufacturing e m p l o y m e n t also w e r e substantially steeper at 15.5 percent, w h i l e in the 197982 recession, those jobs d r o p p e d 9.8 percent. O f particular interest is textile mill products, w h e r e e m p l o y m e n t d e c l i n e d by 20 percent in the last recession b u t " o n l y " 15.2 percent in the current period. However, the latter decline results in part f r o m a smaller base and reflects t h e declining share of textile e m p l o y m e n t in South Carolina. The severity of the 1 9 7 3 - 1 9 7 5 period is also reflected by real per capita income, w h i c h plunged 76 7 percent in a year c o m p a r e d t o the current 2.5 percent decline. N e t migration t o South Carolina was at a relatively high level in the 1970s a n d has lessened in recent years. Accordingly, population growth has declined somewhat more than income. The South Carolina e c o n o m y has p r o b a b l y u n d e r g o n e some p e r m a n e n t change as a result of the m o d e r a t e decline in e c o n o m i c activity since 1979. The duration of weakness has cost n u m e r o u s jobs d u e t o plant closures. In the short run, it has w r e a k e d havoc on state budgetary planning since state revenues are d e t e r m i n e d largely by growth in personal i n c o m e and retail sales. The South Carolina e c o n o m y traditionally has lagged national downturns, b u t this recession may reverse the usual experience. The g o o d news is that the state's e c o n o m y may have t r o u g h e d in June. For example, n o n f a r m e m p l o y m e n t has risen for four consecutive months, a n d the u n e m p l o y m e n t rate has d e c l i n e d slightly from its June peak. Furthermore, the state's composite index of coincident indicators troughed in June, and by O c t o b e r it had increased in t h r e e of four months. Thus, South Carolina was not only in t h e forefront of the recession, b u t it may also precede the national recovery. FEBRUARY 1983, E C O N O M I C REVIEW " South Carolina's e c o n o m y is in transition b o t h cyclically a n d structurally. The structural change is directly related t o trends in the manufacturing sector, a n d it will strongly influence the strength of any recovery. Manufacturing and the South Carolina Economy South Carolina's m a n u f a c t u r i n g sector is particularly i m p o r t a n t from b o t h cyclical and long-run perspectives. As in most areas of t h e country, manufacturing e m p l o y m e n t bears t h e brunt of any cyclical d o w n t u r n . H o w e v e r , in t h e longer run, growth in the manufacturing sector is crucial to South Carolina, w h i c h ranks e x t r e m e l y low among most national e c o n o m i c statistics. The state's e c o n o m y historically has b e e n d o m i n a t e d by the low-paying textile industry, b u t its role has been diminishing at an increasing rate. The key issue facing South Carolina is w h e t h e r diversification can c o m p e n s a t e for c o n t i n u i n g j o b losses in the textile industry. In 1970, e m p l o y m e n t in textile mill products n u m b e r e d 148,800 workers, or 17.7 percent of total nonfarm e m p l o y m e n t Employment peaked in 1973 at 160,000 workers. Yet, by t h e trough of the recession in 1975, e m p l o y m e n t had fallen to 128,000. A l t h o u g h there was a r e b o u n d in the following year, e m p l o y m e n t in textile mill products has d e c l i n e d each year since 1976. From the 1973 peak, e m p l o y m e n t in textile mill products has d e c l i n e d t o 121,200. M o r e o v e r , the 17.7 percent peak share had fallen t o only 10.3 percent by 1982. There are t w o primary reasons for this decline. First are t h e inroads imports have m a d e in t h e domestic market. D e v e l o p i n g countries in Latin America and t h e Far East have encouraged textile production. Since t h e U. S. market was relatively u n e n c u m b e r e d by restrictions, imports' market share rose dramatically d u r i n g the 1970s and has continued t o rise despite the i m p l e m e n t a t i o n of some quotas. The second factor is related t o i n v e s t m e n t decisions m a d e by d o m e s t i c textile producers. In an effort t o c o m pete w i t h imports, textile firms have closed obsolete plants, m a n y well over 50 years old, and have invested heavily t o modernize newer plants. H o w e v e r , the d o m e s t i c market is growing by only 1 percent per year o n a longterm basis, and investment has t e n d e d t o be labor-saving. ' FEDERAL RESERVE B A N K O F A T L A N T A A l t h o u g h t h e textile industry is still d o m i n a n t in South Carolina, it is likely t o c o n t i n u e t o shrink. Textile firms that have m o d e r n i z e d and increased efficiency, however, will remain viable and are likely t o be m o r e profitable in t h e future. Excludingthe textile sector, manufacturing has maintained a relatively strong position in South Carolina, and t h e durables have p e r f o r m e d q u i t e well. E m p l o y m e n t in durable goods p r o d u c t i o n in 1 9 7 0 was 84,100, representing 10 percent of nonfarm e m p l o y m e n t Before the recession began in 1979, there w e r e 122,200 jobs, a gain of 45 percent, and t h e share of total e m p l o y m e n t was 10.4 percent. (Table 2). The primary g r o w t h sectors i n c l u d e fabricated metals, nonelectrical machinery, a n d electrical e q u i p m e n t , w h i c h together recorded a net increase of 26,000 jobs from 1970-1982. Since these sectors are relatively capital intensive, their c o n t r i b u t i o n t o state personal i n c o m e has increased over the past 12 years. In this period, nominal personal i n c o m e rose 251.3 percent, but earnings in durable goods j u m p e d 278.4 percent. Accordingly, durables' share of personal i n c o m e increased f r o m 7.5 p e r c e n t in 1 9 7 0 t o 8.5 percent in 1980. A different situation arises in nondurable goods, attributable t o t h e textile industry. Before the recession in 1979, nondurable goods e m p l o y m e n t rose by roughly 21,000 jobs f r o m 1970, b u t the share of total n o n f a r m e m p l o y m e n t d e c l i n e d f r o m 30.4 percent t o 23.6 percent. H o w e v e r , t h e current recession has caused a severe reduction. Clearly, the recession has exacerbated the shakeo u t in t h e textile industry. Excluding 1 9 8 2 , o n e surprising f i n d i n g is that nondurable goods' share of total personal i n c o m e has n o t fallen p r o p o r t i o n a t e l y to reductions in e m p l o y m e n t . The share was 21 percent in 1 9 7 0 a n d 17.8 percent in 1980. This results f r o m a change in t h e industry mix of nondurables. Some g r o w t h has o c c u r r e d in printing a n d publishing and chemicals, where wages are somewhat higher than in textiles. A l t h o u g h the manufacturing sector's relative share in the South Carolina e c o n o m y has declined in t h e past decade, it remains the key t o future growth. The share of manufacturing e m p l o y m e n t has fallen 24 percent f r o m 1 9 7 0 - 1 9 8 2 , yet t h e share of personal i n c o m e d e c l i n e d a m o r e modest 17 percent Continuing industrial developm e n t and diversification are imperative in order t o c o m p e n s a t e for t h e t r o u b l e d textile industry. 77 T a b l e 2 . The i m p o r t a n c e of M a n u f a c t u r i n g in t h e S o u t h C a r o l i n a E c o n o m y 1 9 7 0 - 1 9 8 2 Personal Income (nominal, $ millions) Employment (000's) Year Total Nonfarm Durable Goods % Share Nondurable Goods % Share Total Durable Goods % Share Nondurable Goods % Share 1970 842.0 84.1 10.0 256.2 30.4 7,668 575 7.5 1,613 21.0 1979 1,176.0 122.2 10.4 277.3 23.6 20,548 1,750 8.5 3,718 18.1 1980 1,188.8 120.6 10.1 271.4 22.8 22,722 1,922 8.5 4,034 17.8 1981 1,196.5 115.3 9.6 273.0 22.8 25,457 2,116 8.3 4,391 17.2 1982* 1,179.3 108.8 9.2 253.0 21.5 26,940 2,176 8.1 4,169 15.5 •Estimated Diversification of the State's Manufacturing Sector Industrial development has been a major activity for South Carolina over the past f e w years, and the state has established a track record for attracting manufacturing facilities. Since 1950, 1,935 n e w plants have been a n n o u n c e d for the state. In 1981 alone, 733 firms a n n o u n c e d t h e y planned to expand or locate in South Carolina, t o create 16,000 new jobs w i t h $2.4 billion of capital investment. M u c h of the effort t o attract industry has been a i m e d at diversifying the state's e m p l o y m e n t . A n d there is evidence that this diversification is beginning t o take place. W h i l e manufacturing e m p l o y m e n t grew 4.6 percent b e t w e e n 1976 and 1981, certain industries grew significantly faster during that period (Table 3). These industries include primary metals (73 percent), rubber and plastics (88 percent), electrical and electronic e q u i p m e n t (36 percent), transportation (41 percent), a n d fabricated metals (26 percent). As a result of this growth, these industries c o m p r i s e d a larger percent of total manufacturing employm e n t in 1981 than t h e y d i d in 1976. For exam pie, machinery c o m p r i s e d 6.7 percent in 1976 a n d 7.9 percent in 1981; similarly, electric and electronic e q u i p m e n t comprised 4.3 percent of manufacturing e m p l o y m e n t in 1976 and 5.6 percent in 1981. In addition, r u b b e r a n d plastics grew from 2.7 percent to 4.9 percent of the manufacturing labor force. 78 Firms h e a d q u a r t e r e d in Frostbelt states have c o n t r i b u t e d t o South Carolina's e m p l o y m e n t gains. For example, 92 percent of the n e w e m p l o y m e n t in electrical and electronic equipm e n t over the past decade resulted from the expansion of Frostbelt-based firms, and 34 percent of the gains in chemicals resulted f r o m the expansion of mid-Atlantic-based firms. 1 Firms h e a d q u a r t e r e d in N e w York lead t h e list for branch plants located in South Carolina (274), f o l l o w e d by N o r t h Carolina (77), Illinois (61), O h i o (57), Pennsylvania (48), and N e w Jersey (46). Foreign investment has also been a major c o m p o n e n t of South Carolina's industrial development; it comprised over 20 percent of announced industrial i n v e s t m e n t in 1981 and has been as high as 46.9 percent (in 1974). This investment has been p r e d o m i n a n t l y in t h e chemicals and metal w o r k i n g industries. In 1981, fully 42 percent of all foreign direct investment in South Carolina manufacturing was in chemicals, another 23 percent in metal w o r k i n g industries. W h i l e diversification has been a major goal for South Carolina, the geographic implications of that n e w d e v e l o p m e n t have been a concern. The state has expressed t h e goal of encouraging * industrial development of its rural counties. During 'Nancy Matthews and Richard McKenzie, " N e w Plant and Employment Gains in South Carolina during the 1970s," B u s i n e s s a n d E c o n o m i c Review. Vol. XXIX, No. 1, College of Business Administration, University of South Carolina. (October 1982). FEBRUARY 1983, E C O N O M I C REVIEW " T a b l e 3 . Composition of the Manufacturing Sector in South Carolina 1 9 7 6 - 1 9 8 1 Industry Durable Goods Lumber and W o o d Products Furniture and Fixtures Stone, Clay, and Glass Primary Metals Fabricated Metals Machinery, Except Electrical Electrical and Electronic Equipment Transportation Instruments Miscellaneous londurable Goods Food and Kindred Products Textile Mill Products Apparel Paper and Allied Products Printing and Publishing Chemicals Rubber and Plastics Other Nondurables TOTAL MANUFACTURING 1976 Employment 1981 Employment % Change 1976-1981 % 1976 Mfg. Employment % 1981 Mfg. Employment 14,600 4,500 10,800 4,400 11,700 24,800 14,300 4,900 10,700 7.600 14,700 30,500 -2.1% 8.9 -.9 72.7 25.6 23.0 3.90% 1.20 2.90 1.20 3.20 6.70 3.70% 1.30 2.80 2.00 3.80 7.90 15,900 3,600 5,100 4,300 21,600 5,100 5,800 4,200 35.8 41.7 13.7 -2.3 4.30 1.00 1.40 1.20 5.60 1.30 1.50 1.10 13,700 149,500 46,200 13,500 6,400 30,700 10,200 1,100 14,100 133,100 46,700 13,900 8,000 32,700 19,200 1,200 2.9 -11.0 1.1 3.0 25.0 6.5 88.2 9.1 3.70 40.30 12.50 3.60 1.70 8.30 2.70 .03 3.60 34.30 12.00 3.60 2.10 8.40 4.90 .03 371,000 388,200 4.6 100.00 100.00 the 1970s, South Carolina's major m e t r o p o l i t a n areas w e r e t h e beneficiaries of most n e w plants, although a case can be m a d e that contiguous rural counties b e n e f i t e d as w e l l from these e m p l o y m e n t opportunities. Ironically, t h e firms that a i d e d t h e state's efforts t o diversify t e n d e d t o hurt rural development. These w e r e generally large firms that located in the major m e t r o p o l i t a n areas w h e r e , labor was m o r e plentiful. Branch plants f r o m northern states a c c o u n t e d for 56 percent of the new e m p l o y m e n t b u t 42 percent of the plant openings d u r i n g the 1970s. 2 Two specific d e v e l o p m e n t actions have helped South Carolina's rural counties. The Governor's Rural Economic A c h i e v e m e n t T r o p h y (GREAT) ' Towns program was instituted t o encourage small t o w n s t o increase their chances by designating plant sites, p r o v i d i n g the necessary infrastructure, and otherwise a c c o m m o d a t i n g the needs of a facility. In addition, the Governor's Rural Economic D e v e l o p m e n t Initiatives (REDI) program was established in 1981 t o create jobs in t h e most e c o n o m i c a l l y distressed counties. To accomplish this task, federal funds have been set aside for a revolving loan f u n d t o businesses locating or e x p a n d i n g in o n e of these counties. 'Ibid ' FEDERAL RESERVE B A N K O F A T L A N T A 79 Diversification into High Technology Diversification of the State's Economic Base As in o t h e r parts of the nation, South Carolina's industrial d e v e l o p m e n t specialists have b e c o m e infatuated w i t h the newest industrial location p r o s p e c t s — h i g h - t e c h n o l o g y and research a n d d e v e l o p m e n t firms. This interest has escalated because such "industries of the f u t u r e " have been s o m e w h a t more resilient in t h e face of the nation's current recession. South Carolina has already had some success in this field; firms such as Cincinnati M i l a c r o n ( w h i c h produces a n d develops industrial robots), Digital, Sony, U n i t e d Technologies, and others have located in the state. South Carolina has also begun t o diversify into industries o t h e r than manufacturing. Tourism is n o w the state's second largest industrial employer, just b e h i n d textiles, w i t h 68,000 jobs directly related t o travel and tourism. This travel-generated e m p l o y m e n t increased 4.7 percent b e t w e e n 1 9 8 0 - 1 9 8 1 , substantially m o r e t h a n t h e .6 perc e n t increase in South Carolina's total employm e n t d u r i n g that period. Travelers spent almost $2.4 billion in the state in 1981, a 13 percent increase f r o m 1 9 8 0 a n d 56 percent f r o m 1977. The Department of Parks, Recreation, and Tourism p r o m o t e s the state b o t h here a n d abroad, a n d events such as the Spoleto Festival in Charleston a n d Canadian-American Days in M y r t l e Beach have b o o s t e d tourism. However, a c o n c e r t e d effort is n o w being m a d e t o attract more of these firms. The Technical and Comprehensive Education (TEC) System, a statewide post-secondary e d u c a t i o n system that has h e l p e d m e e t t h e training needs of the state's industries, is preparing t o m e e t t h e needs of these high-tech industries as well. Emerging t e c h n o l o g y centers have been established at six of the TEC System's regional campuses in fields such as microelectronics, robotics, c o m p u t e r applications t o manufacturing, and advanced machine tool technology. These centers, together w i t h the TEC System's ability t o tailor training t o an individual firm's specifications, will offer a p o w e r f u l incentive for high-technology firms. Governor Richard Riley has also a n n o u n c e d t h e creation of a quasi-public research authority t o lure high-tech industry. The authority will oversee and lease space in three research parks that will be established in c o n j u n c t i o n w i t h t h e University of South Carolina, Clemson University, a n d the M e d i c a l University of South Carolina. The state has several real and perceived disadvantages in its recruiting, w h i c h include a scarcity of skilled labor (South Carolina ranks 41st of the 50 states in the percentage of p o p u l a t i o n over 18 w i t h a college education); and t h e lack of "critical mass" w h i c h develops as skilled labor, research firms, and universities attract o n e another. It also got a late start in a t t e m p t i n g t o attract high-tech firms; at least 17 states n o w have programs t o finance high-tech a n d research activities. Further, South Carolina is not perceived as a state strong in high technology, and it will be difficult to c o m p e t e w i t h Research Triangle Park in neighboring N o r t h Carolina. 80 i j W h i l e total nonagricultural e m p l o y m e n t grew 15.3 percent b e t w e e n 1976 a n d 1981, certain 1 sectors grew faster (Table 4). Services, i n c l u d i n g t h e travel-related e m p l o y m e n t , grew 27.4 percent during t h a t period; finance, insurance, and f real estate rose 24.7 percent, and trade increased 23.3 percent. All three sectors increased their p r o p o r t i o n of nonagricultural e m p l o y m e n t in \ 1981 f r o m 1976. Also significant is that w h i l e g o v e r n m e n t e m p l o y m e n t grew 15.3 percent in 1981, it merely maintained its share of total employment. White-collar workers c o m p r i s e d 46 percent of all e m p l o y m e n t in South Carolina in 1980, an increase from 39.5 percent in 1970. Blue-collar workers constituted 39 percent of e m p l o y m e n t , in 1980, a decrease from 42.6 percent in 1970. This t r e n d is likely t o c o n t i n u e i n t o 1990: whitecollar e m p l o y m e n t is projected t o reach 53.5 percent of the state's total e m p l o y m e n t in 1990, and blue-collar workers are projected t o comprise just 34 percent. 3 In summary, South Carolina is e x h i b i t i n g a * growing diversification w i t h i n its manufacturing sector and a m o n g all its e m p l o y m e n t sectors. These changes, however, are long-term in nature, and will not significantly influence the immediate o u t l o o k for the state's e c o n o m y . 3 S e n a B l a c k e t a l , I n f o r m a t i o n R e s o u r c e s M a n a g e m e n t in S o u t h C a r o l i n a State G o v e r n m e n t : A State Strategy, Institute for Information Management, Technology, and Policy, College of Business Administration, University of South Carolina, Columbia, South Carolina (December 1982). F E B R U A R Y 1 9 8 3 , E C O N O M I C REVIEW " T a b l e 4 . South Carolina Nonagricultural Employment 1 9 7 6 - 1 9 8 1 Sector Manufacturing 371,000 388,200 35.70% 32.40% 1,800 1,800 0.0 .02 .02 71,200 15.8 5.90 6.00 61,500 % Change 1976-1981 4.6% Transportation and Public Utilities 42,700 53,800 26.0 4.10 4.50 Trade Wholesale Trade Retail Trade 187,600 40,900 146,600 231,300 50,500 180,800 23.3 23.5 23.3 18.10 3.90 14.10 19.30 4.20 15.10 Finance, Insurance, and Real Estate 39,700 49,500 24.7 3.80 4.10 Services 130,500 166,200 27.4 12.60 13.90 Government 203,300 234,400 15.3 19.60 19.60 1,038,100 1,196,500 15.3 100.00 100.00 TOTAL 1 % 1981 Nonagricultural Employment 1981 Employment Mining Construction % 1976 Nonagricultural Employment 1976 Employment The Near-Term Outlook: Some Risks, But a Moderate Recovery is Likely In a typical recovery, the South Carolina economy has o u t p a c e d t h e national u p s w i n g for t w o primary reasons. First, m a n y of the state's manufactured products are consumer-oriented, and, since retail sales lead a recovery, p r o d u c t i o n rebounds relatively quickly. Second, plant relocation t o a n d expansion in South Carolina has provided additional stimulus. However, the anticipated recovery in 1983 may be s o m e w h a t different. Because c o n s u m e r s p e n d i n g i s unlikely to k be as robust as in the past, t h e initial u p s w i n g will be moderated. Furthermore, n e w i n v e s t m e n t j may only compensate for the restructuring taking } place in the manufacturing sector. < v l J , I ' ^ f For t h e short run at least, t h e state's recovery is d e p e n d e n t on the p e r f o r m a n c e o f t h e national economy. This is particularly apparent since approximately 8 0 percent of t h e p r o d u c t s manufactured in South Carolina are e x p o r t e d . U n d e r the assumption of a consensus forecast that anticipates 2.5 t o 3 percent growth in the national [ economy, South Carolina w o u l d experience some * J f i ' FEDERAL RESERVE B A N K O F A T L A N T A uneven g r o w t h w i t h c o n t i n u i n g p r o b l e m s in the manufacturing sector. For the aggregate e c o n o m i c variables, a m i x e d pattern results. Expected gains in real total personal i n c o m e w o u l d be a minimally satisfactory 2.0 percent in 1983. G r o w t h in total n o n f a r m e m p l o y m e n t is likely t o be relatively sluggish. The projected u n e m p l o y m e n t rate averages 10.2 percent, w i t h a d e c l i n e t o 9.3 percent by t h e year's end. Employment gains in manufacturing aren't likely until the second half of 1983 even u n d e r t h e best circumstances. There is a 3 percent annual average loss in t h e consensus forecast w h i c h reinforces t h e n o t i o n of 2.5 - 3 percent national g r o w t h as a " g r o w t h recession." Durable goods e m p l o y m e n t records a small loss o n an annualized basis, b u t conditions are e x p e c t e d t o w o r s e n in some n o n d u r a b l e goods sectors. Particularly hard-hit is textile e m p l o y m e n t , w h e r e losses potentially range near 7 percent for the year. O n the positive side, significant i m p r o v e m e n t is e x p e c t e d in b o t h housing a n d retail sales. Given declining rates on construction and mortgage loans, housing starts are e x p e c t e d t o rise over 25 percent. This w o u l d bring t h e starts rate back t o the level of 1980. W h i l e that was not a banner 81 year, it still represents considerable improvement. Real retail sales are e x p e c t e d t o c l i m b a b o u t 5 percent. Again, this also must be p u t in perspective given t h e fact that real retail sales have d e c l i n e d an average of 3.2 percent for t h e last three years. In summary, t h e consensus forecast w o u l d keep South Carolina in the e c o n o m i c doldrums. A m o d e r a t e recovery appears most likely, b u t t h e risks of further e c o n o m i c losses, at least in t h e short-run, are clearly present. Conclusions The South Carolina e c o n o m y has e x p e r i e n c e d significant short-run p r o b l e m s a n d will likely c o n t i n u e t o d o so in early 1983 unless there is a major u p t u r n in t h e national e c o n o m y . The state's e c o n o m y typically improves m o r e rapidly than that of the nation, but 1983 may be different if consumer spending proves lackluster. The long-term improvement of South Carolina's e c o n o m i c picture lies in its ability t o diversify its e c o n o m i c base b o t h w i t h i n the manufacturing sector and among all employment sectors. Tourism has grown into a major component of the employm e n t base and has exerted a positive influence on the state's e m p l o y m e n t and revenues. Further, efforts t o attract high technology and research activity are crucial t o t h e state's long-term econ o m i c health. South Carolina is not likely t o become a national center of research and developm e n t Yet it does have potential as a location for (1) firms that c o n d u c t extensive p r o d u c t or process i m p r o v e m e n t research (and w h i c h locate near their manufacturing facilities) and (2) certain high-technology p r o d u c t i o n processes, such as the manufacture of computer components, which can be located away f r o m w e l l - k n o w n research centers. — Richard W . Ellson and Nancy Grden-Ellson University ol South Carolina Note: The following m e m b e r s of the Federal Reserve Bank of Atlanta research staff also c o n t r i b u t e d to this issue: Cheryl Cornish, Sandra Davis, Pam Frisbee, Patricia McGill, Gustavo Uceda, and David D. Whitehead. 82 FEBRUARY 1983, E C O N O M I C REVIEW " FINANCE DEC $ millions Commercial Bank Deposits Demand NOW Savings Time Credit Union Deposits Share Drafts Savings & Time Commercial Demand NOW Savings Time Credit Union Deposits Share Drafts Savings & Time 1982 1,196,078 294,448 66,452 155,358 701,061 51,968 3,845 43,283 NOV 1982 DEC 1981 ANN. % CHG. DEC 1982 1,191,183 1,088,890 302,058 297,864 65,046 49,767 153,992 146,733 703,288 619,246 51,741 39,825 3,859 2,489 43,340 34,984 savings <5c Loans Total Deposits NOW Savings Time 128,544 127,260 34,163 34,120 8,439 8,700 15,282 15,153 72,684 72,541 4,927 4,932 360 345 4,157 4,152 116,499 34,334 6,390 14,529 64,092 3,998 269 3,472 Savings & Loans Total Deposits NOW Savings Time Mortgages Outstanding Mortgage Commitments 541,650 540,063 515,450 7,412 12,712 12,403 96,737 95,622 91,468 433,390 433,517 416,303 OCT OCT SEPT + 5 +72 + 6 + 4 75,559 1,224 11,537 62,760 OCT 74,633 3.487 + 5 +70 + 3 +4 4,511 106 565 3,874 OCT 3,698 49 4,530 106 569 3,908 SEPT 3,787 46 4,370 64 570 3,760 OCT 4,003 51 + 3 +65 - 1 + 3 - 8 - 4 48,051 1,416 7,941 38,753 OCT 39,337 2.235 48,108 1,335 8,065 38,758 SEPT 40,204 2.313 45,696 860 7,715 36,992 OCT 45,702 3.059 + 5 +65 +3 +5 -14 -27 9,857 240 1,211 8,542 OCT 8,885 182 9,915 240 1,209 8,570 SEPT 8,881 188 9,603 126 1,158 8,347 OCT 9,349 111 + 3 +90 + 5 + 2 8,033 127 1,268 6,665 SEPT 7,386 192 7,410 72 1,192 6,165 OCT 7,141 208 + 9 +79 + 8 + 9 Mortgages Outstanding Mortgage Commitments 8,077 129 1,282 6,692 OCT 7,404 198 Savings <3t Loans Total Deposits NOW Savings Time Mortgages Outstanding Mortgage Commitments 2,461 65 246 2,171 OCT 2,100 22 2,420 63 241 2,138 SEPT 2,144 19 2,385 33 233 2,128 OCT 2,205 17 Mortgages Outstanding Mortgage Commitments Savings <5c Loans Total Deposits NOW Savings Time 14,057 3,537 736 1,611 8,623 874 70 729 13,267 3,448 570 1,521 8,077 699 52 632 Commercial Bank Deposits Demand NOW Savings Time Credit Union Deposits Share Drafts Sayings & Time 42,255 12,170 3,786 6,517 20,504 2,217 181 1,715 41,464 11,793 3,686 6,420 20,431 2,206 193 1,719 38,318 12,265 2,784 6,268 17,758 1,813 148 1,435 Commercial Bank Deposits Demand NOW Savings Time Credit Union Deposits Share Drafts Savings & Time 18,142 6,167 1,255 1,709 9,737 918 37 18,054 6,285 1,230 1,705 9,728 906 39 814 16,078' 5,993 925 1,562 8,538 729 22 685 Savings <5c Loans Total Deposits NOW Savings Time Commercial Bank Deposits Demand NOW Savings Time Credit Union Deposits Share Drafts Savings & Time 23,178 5,759 1,174 2,478 14,081 163 11 153 23,096 "20,966 6,010 5,890 861 1,144 2,360 2,469 14,068 1 2 , 1 8 1 112 164 11 11 105 155 Savings & Loans Total Deposits NOW Savings Time Commercial Bank Deposits Demand NOW Savings Time Credit Union Deposits Share Drafts Savings & Time 10,611 2,311 636 762 7,042 N.A. N.A. N.A. 10,544 2,311 609 763 7,066 N.A. N.A. N.A. Mortgages Outstanding Mortgage Commitments savings & Loans Total Deposits NOW Savings Time Mortgages Outstanding Mortgage Commitments Mortgages Outstanding Mortgage Commitments +10 - 1 +35 +6 +11 ANN. % CHG. 79,549 1,993 12,062 65,762 SEPT 68,391 2.888 14,125 3,526 766 1,609 8,588 854 67 723 9,653 2,323 470 722 6,328 N.A. N.A. N.A. DEC 1981 79,494 2,081 11,942 65,754 OCT 67,401 2.790 Commercial Bank Deposits Demand NOW Savings Time Credit Union Deposits Share Drafts Savings ¿c Time 818 NOV 1982 -10 -20 - 5 +64 + 4 - 5 + 3 +97 + 6 + 2 - 5 +29 +11 Savings & Loans Commercial Bank Deposits 20,233 20,045 18,217 4,230 4,304 4,295 Total Deposits 6,537 6,543 6,095 + 7 Demand - 2 NOW +81 NOW 1,083 1,034 780 + 39 125 122 69 697 2,207 2,185 2,096 + 5 Savings 710 669 +4 Savings +14 Time 5,722 5,723 5,368 + 7 Time 12,732 12,625 11,210 OCT SEPT +21 OCT Credit Union Deposits 780 777 645 49 47 36 +36 Mortgages Outstanding 5,977 5,992 6,234 - 4 Share Drafts 615 +21 Mortgage Commitments 104 130 42 + 148 Savings & Time 743 740 Notes: All deposit data are extracted from the Federal Reserve Report of Transaction Accounts, other Deposits and Vault Cash (FR2900), and are reported for the average of the week ending the 1st Wednesday of the month. This data, reported by institutions with over $15 million in deposits as of December 31, 1979, represents 95% of deposits in the six state area. The major differences between this report and the "call report" are size, the treatment of interbank deposits, and the treatment of float. The data generated from the Report of Transaction Accounts is for banks over $15 million in deposits as of December 31, 1979. The total deposit data generated from the Report of Transaction Accounts eliminates interbank deposits by reporting the net of deposits "due to" and "due from" other depository institutions. The Report of Transaction Accounts subtracts cash in process of collection from demand deposits, while the call report does not. Savings and loan mortgage data are from the Federal Home Loan Bank Board Selected Balance Sheet Data. The Southeast data represent the total of the six states. Subcategories were chosen on a selective basis and do not add to totaL N.A. = fewer than four institutions reporting. http://fraser.stlouisfed.org/ Federal ofV St. F F n F R AReserve I D E C E D VBank E B A M O F Louis ATI ANITA 8 3 EMPLOYMENT Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA Insured Unemployment - thous. Insured UnempL Rate - % Mfg. Avg. Wkly. Hours Mfg. Avg. Wkly. Earn. - $ soniarm Employment- th Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. & Pub. UtiL Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA Insured Unemployment - thous. Insured Unempl. Rate - % Mfg. Avg. Wkly. Hours Mfcr. Avg. Wkly. Earn. - $ Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA Insured Unemployment - thous. Insured UnempL Rate - % Mfg. Avg. Wkly. Hours Mfg. Avg. Wkly. Earn. - $ 14,553 13,033 1,520 10.7 N.A. N.A. 39.7 293 3,755 445 247 3,776 349 284 1,000 617 888 276 231 1,722 1,459 263 15.9 N.A. N.A. 40.0 291 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. A Pub. UtiL Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA Insured Unemployment - thous. Insured UnempL Rate - % Mfg. Avg. Wkly. Hours Mfg. Ave. Wkly. Earn. - $ 2,609 2,433 176 6.8 N.A. N.A. 39.7 Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA Insured Unemployment - thous. Insured UnempL Rate - % Mfg. Avg. Wkly. Hours Mfg. Avg. Wkly. Earn. - $ Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., <5c Real Est. Trans. Com. & Pub. UtiL 1,827 1,717 155 8.8 N.A. N.A. 42.3 367 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. & Pub. Util. 1,049 960 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. & Pub. UtiL 262 1,050 1,066 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. & Pub. UtiL All labor force data are from Bureau of Labor Statistics reports supplied by state agencies. Only the unemployment rate data are seasonally adjusted. The Southeast data represent the total of the six states. The annual percent change calculation is based on the most recent data over prior year. http://fraser.stlouisfed.org/ 84 Federal Reserve Bank of St. Louis 91,765 20,025 4,221 20,883 16,137 18,800 5,308 5,188 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com, <5c Pub. UtiL Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA Insured Unemployment - thous. Insured Unempl. Rate - % Mfg. Avg. Wkly. Hours Mfe. Avg. Wkly. Earn. - $ Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA Insured Unemployment - thous. Insured UnempL Rate - % Mfg. Avg. Wkly. Hours Mfg. Avg. Wkly. Earn. - $ TENNESSEE Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA Insured Unemployment - thous. Insured UnempL Rate - % Mfg. Avg. Wkly. Hours Mfg. Avg. Wkly. Earn. - $ 89,536 18,495 4,081 20,519 15,830 19,144 5,347 5,054 1,018 606 920 279 231 - 3 1,700 468 FEDERAL RESERVE B A N K O F ATLANTA o CONSTRUCTION ANN OCT 1982 NOV 1982 NOV 1982 OCT 1982 NOV 1981 \ Mil. 45,459 5,329 11,931 5,131 1,775 800 45,545 5,302 12,215 5,205 1,760 807 52,495 7,090 14,924 6,513 1,395 758 -13 -25 -21 -21 +27 + 6 Residential Building Permits Value - $ Mil Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. Nonresidential Building Permits - !Ì Mil. 6,262 Total Nonresidential 719 Industrial Bldgs. 1,343 Offices 951 Stores 282 Hospitals 82 Schools 6,204 713 1,344 955 269 82 7,483 769 1,398 1,147 264 74 -16 - 7 - 4 -17 + 7 + 11 Kesidentiai Building Permits Value - $ Mil. Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. Nonresidential Building Permits - :f Mil. 392 Total Nonresidential 81 Industrial Bldgs. 60 Offices 62 Stores 23 Hospitals 8 Schools 389 82 54 63 25 8 427 45 55 68 26 4 - 8 +80 + 9 - 9 -12 + 100 Residential Building Permits Value - $ Mil. Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. Nonresidential Building Permits - :$ Mil. 3,135 Total Nonresidential 367 Industrial Bldgs. 640 Offices 508 Stores 144 Hospitals 18 Schools 3,090 359 650 506 130 19 4,281 387 627 661 142 23 -27 - 5 + 2 -35 + 1 -22 Residential Building Permits Value - $ Mil. Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. Nonresidential Building Permits - S VIil. 980 Total Nonresidential 135 Industrial Bldgs. 222 Offices 90 Stores 34 Hospitals 19 Schools 983 144 226 89 27 18 1,068 186 263 123 21 27 - 8 -27 -16 -27 +62 -30 Residential Building Permits Value - $ MiL Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. Nonresidential Building Permits - $ Mil. 938 Total Nonresidential 87 Industrial Bldgs. 296 Offices 147 Stores 29 Hospitals 24 Schools 924 79 297 150 28 24 891 69 304 134 48 13 + 5 +26 - 3 +10 -41 + 85 Residential Building Permits Value - $ MiL Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. Nonresidential Building Permits - $ Mil. 157 Total Nonresidential 14 Industrial Bldgs. 18 Offices 35 Stores 5 Hospitals 3 Schools 150 13 17 33 5 3 181 17 42 36 10 1 -13 -18 -57 - 3 -50 +200 Residential Building Permits Value - $ MiL Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ MiL Nonresidential Building Permits - $ Mil. 659 Total Nonresidential 34 Industrial Bldgs. 106 Offices 108 Stores 38 Hospitals 10 Schools 666 35 106 113 43 . 10 649 64 107 125 17 5 + 2 -47 - 1 -14 +124 + 100 Residential Building Permits Value - $ MiL Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. % CHG ANN % NOV 1981 CHG 12-month Cumulative Rate Total Nonresidential Industrial Bldgs. Offices Stores Hospitals Schools 38,212 36,804 518.4 429.0 83,672 493.3 417.1 41,363 575.8 424.4 - 8 -10 + 1 -11 82,349 93,858 6,867 6,693 8,526 105.7 83.8 13,129 100.5 83.4 123.5 106.7 -19 -14 -21 12,897 16,022 -18 236 4.6 4.3 229 311 4.4 4.2 5.8 6.0 -24 -20 -28 629 618 738 -15 4,077 4,015 54.4 50.3 7,211 52.0 50.3 7,105 5,995 74.6 77.9 10,276 1,300 1,243 1,030 25.1 12.0 2,280 23.8 12.0 2,227 21.4 8.3 +26 +17 +44 2,098 + 9 -32 -27 -36 -30 638 620 605 + 5 10.8 8.1 10.3 8.1 10.1 8.3 1,576 1,544 1,496 + 8 - 2 +5 167 162 168 - 1 3.3 2.1 324 3.3 2.1 312 3.6 1.8 - 8 +19 350 - 7 449 416 + 8 7.3 6.9 425 6.9 6.8 8.0 4.5 - 9 +55 1,108 1,091 1,065 +4 Data supplied by the U. S. Bureau of the Census, Housing Units Authorized By Building Permits and Public Contracts, C-40. Nonresidential data excludes the cost of construction for publicly owned buildings. The southeast data represent the total of the six states. The annual percent change calculation is based on the most recent month over prior year. Publication of F. W. Dodge construction contracts has been discontinued. http://fraser.stlouisfed.org/ FEBRUARY 1 9 8 3 , E C O N O M I C R E V I E W Federal Reserve Bank of St. Louis 85 WÈ GENERAL LATEST CURR. PREV. DATA PERIOD PERIOD Personal Income ($biL - SAAR) Taxable Sales - $biL Plane Pass. Arr. 000's Petroleum Prod, (thous.) Consumer Price Index 1967=100 Kilowatt Hours - mils, YEAR AGO ANN. % CHG. 2,447.6 N.A. N.A. 8,607.6 281.5 183.6 + 6 + 6 N.A. 33.8 289.3 N.A. 3,821.9 1,408.1 N.A. 31.4 33.8 22.5 106.6 52.0 N.A. 4.9 33.6 21.7 96.1 53.0 N.A. 4.7 32.8 21.3 110.5 59.4 N.A. 4.5 + 3 + 6 - 4 -12 Personal Income ($biL - SAAR) 3Q Taxable Sales - $ biL Plane Pass. Arr. 000's OCT Petroleum Prod, (thous DEC Consumer Price Index Miami Nov. 1977 = 100 Kilowatt Hours - mils. SEP 114.3 66.7 1,709.0 67.0 NOV 156.8 9.2 111.3 66.6 1,474.2 68.0 SEP 156.1 9.2 105.5 66.7 1,662.8 90.4 NOV 153.6 8.6 + 8 0 + 3 -26 Personal Income ($bil. - SAAR) 3Q Taxable Sales - $ biL 3Q Plane Pass. Arr. 000's OCT Petroleum Prod, (thous.) Consumer Price Index - Atlanta 1967 = 100 Kilowatt Hours - mils. SEP 53.3 39.4 1,493.4 N.A. DEC 296.1 5.5 52.5 37.2 1,294.0 N.A. OCT 297.8 5.2 50.6 38.1 1,586.4 N.A. DEC 282.2 4.7 + 5 + 3 - 6 Personal Income ($biL - SAAR) Taxable Sales - $ biL Plane Pass. Arr. 000's Petroleum Prod, (thous.) Consumer Price Index 1967 = 100 Kilowatt Hours - mils. 44.4 N.A. 271.0 1,173.0 N.A. 6.1 43.7 N.A. 234.5 1,172.5 N.A. 5.9 41.8 N.A. 276.4 1,164.3 N.A. 5.5 + 6 DEC DEC SEP 2,584.9 N.A. N.A. 8,619.8 292.4 198.4 2,541.5 N.A. N.A. 8,637.5 Personal Income ($biL - SAAR) 3Q Taxable Sales - $ biL Plane Pass. Arr. 000's OCT Petroleum Prod, (thous. DEC Consumer Price Index 1967=100 Kilowatt Hours - mils. SEP 307.4 N.A. 3,763.6 1,382.0 N.A. 34.8 301.8 N.A. 3,268.7 1,384.5 Personal Income ($biL - SAAR) Taxable Sales - $ biL Plane Pass. Arr. 000's Petroleum Prod, (thous. Consumer Price Index 1967=100 Kilowatt Hours - mils. 3Q 3Q OCT OCT DEC SEP 3Q OCT DEC SEP 293.6 183.6 + 0 + 4 + 8 - 2 - 2 +11 + 9 + 2 + 7 + 5 +17 - 2 + 1 +11 DEC 1982 NOV (R) 1982 DEC 1981 Agriculture Prices Rec'd by Farmers Index (1977=100) 127 Broiler Placements (thous.) 79,861 Calf Prices ($ per cwt.) 58.30 Broiler Prices (<t per lb.) 24.3 Soybean Prices ($ per bu.) 5.45 Broiler Feed Cost ($ per ton) 201 129 75,276 58.20 24.5 5.34 198 128 77,942 57.70 24.6 6.00 Agriculture Prices Rec'd by Farmers 114 Index (1977=100) Broiler Placements (thous.) 30,752 Calf Prices ($ per cwt.) 55.17 Broiler Prices (4 per lb.) 24.1 Soybean Prices ($ per bu.) 5.56 Broiler Feed Cost ($ per ton) 189 114 28,231 53.25 23.9 5.45 185 114 29,733 54.03 23.5 6.16 203 Agriculture Farm Cash Receipts - $ mil. (Dates: SEPT, SEPT) 1,354 Broiler Placements (thous.) 10,263 Calf Prices ($ per c w t ) 54.40 Broiler Prices ($ per lb.) 24.0 Soybean Prices ($ per bu.) 5.52 Broiler Feed Cost ($ per ton) 197 9,406 52.20 23.5 5.41 192 Agriculture Farm Cash Receipts - $ mil. 3,176 (Dates: SEPT, SEPT) 1,863 Broiler Placements (thous.) Calf Prices ($ per cwt.) 58.00 Broiler Prices (<t per lb.) 24.0 Soybean Prices ($ per bu.) 5.52 Broiler Feed Cost ($ per tor 210 Agriculture Farm Cash Receipts - $ miL (Dates: SEPT, SEPT) 2,138 Broiler Placements (thous.) 12,338 Calf Prices ($ per cwt.) 51.50 Broiler Prices (4 per lb.) 23.5 Soybean Prices ($ per bu.) 5.44 Broiler Feed Cost ($ per ton) 185 Agriculture Farm Cash Receipts - $ miL (Dates: SEPT, SEPT) Broiler Placements (thous.) Calf Prices ($ per cwt.) Broiler Prices (« per lb.) Soybean Prices ($ per bu.) Broiler Feed Cost ($ per ton) 838 N.A. 56.00 24.5 5.65 250 - - 1,852 55.00 24.0 5.41 210 - 11,307 49.80 23.0 5.31 181 - N.A. 55.20 25.0 5.55 245 1,388 9,691 53.10 22.5 6.18 215 3,042 2,007 55.20 24.0 6.18 215 2,190 12,162 50.10 23.0 5.96 194 918 N.A. 56.30 25.5 6.24 240 - 1 + 2 + 1 - 1 - 9 -.4 0 + 3 - 2 + 6 +2 +7 -11 - 8 ' 1 : + 4 SiÊ iJ -h J - 2 + + + - 2 1 3 2 9 5 " - 9 + 1 4 9 4 Agriculture Personal Income 19.9 19.7 19.0 Farm Cash Receipts - $ miL ($biL - SAAR) + 5 3Q N.A. N.A. N.A. (Dates: SEPT, SEPT) Taxable Sales - $ biL 1,120 1,156 - 3 27.7 29.1 33.9 -18 Broiler Placements (thous.) 6,288 5,666 + 7 Plane Pass. Arr. 000's OCT 5,873 91.0 94.0 - 4 Petroleum Prod, (thous.) DEC 90.0 Calf Prices ($ per c w t ) 58.20 58.20 55.60 + 1 Broiler Prices ($ per lb.) Consumer Price Index 25.5 26.0 25.5 0 N.A. N.A. N.A. 1967 = 100 Soybean Prices ($ per bu.) 5.55 5.41 6.20 -10 2.6 2.4 2.3 + 13 Broiler Feed Cost ($ per ton) 161 -14 Kilowatt Hours - mils. SEP 161 188 Agriculture Personal Income ($biL - SAAR) 41.7 41.0 39.6 + 5 Farm Cash Receipts - $ miL 3Q 28.7 27.4 26.9 + 7 (Dates: SEPT, SEPT) 1,041 +4 997 Taxable Sales - $ biL DEC 140.8 151.9 Plane Pass. Arr. 000's OCT 156.0 + 3 Broiler Placements (thous.) N.A. N.A. N.A. N.A. N.A. N.A. Calf Prices ($ per cwt.) Petroleum Prod, (thous.) DEC 52.40 51.50 52.70 - 1 Consumer Price Index Broiler Prices (<t per lb.) + 7 23.5 23.5 22.0 N.A. N.A. N.A. 1967 = 100 Soybean Prices ($ per bu.) 5.58 6.08 - 8 5.53 6.5 6.4 5.8 + 12 Broiler Feed Cost ($ per ton) 193 Kilowatt Hours - mils. SEP - 4 200 Notes: Personal Income data supplied by U. S. Department of Commerce. Taxable Sales are reported as a 12-month cumulative total. Plane Passenger Arrivals are collected from 26 airports. Petroleum Production data supplied by U. S. Bureau of Mines. Consumer Price Index data supplied by Bureau of Labor Statistics. Agriculture data supplied by U. S. Department of Agriculture. Farm Cash Receipts data are reported as cumulative for the calendar year through ,the month shown. Broiler placements are an average weekly rate. The Southeast data represent the total of the six states. N.A. = not available. The annual percent change calculation is based on most recent data over prior year. R = revised. http://fraser.stlouisfed.org/ Federal Reserve 86 Bank of St. Louis FEDERAL RESERVE B A N K O F ATLANTA,* http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis _ Bulk Rate U.S. Postage PAID Atlanta, Ga. Permit 292
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