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Economic Review ,DERAL RESERVE BANK OF ATLANTA SPECIAL ISSUE t I 1 B R A R Y m 1 5 m THE SOUTHEAST IN 1984 FEBRUARY 1984 The Recovery Rolls On President: Robert P. Forrestal Sr. Vice President a n d D i r e c t o r of Research: Donald L. Koch Vice P r e s i d e n t a n d A s s o c i a t e D i r e c t o r of Research: William N. Cox Financial Structure: B. Frank King. Research Officer Larry D. Wall Robert E. Goudreau National Economics: Robert E. Keleher, Research Officer Mary S. Rosenbaum Joseph A. Whitt, Jr. Regional Economics: Gene D. Sullivan, Research Officer Charlie Carter William J. Kahley Bobbie H. McCrackin Joel R. Parker Database Management: Delores W. Steinhauser Pamela V. Whigham Payments Research: David D. Whitehead Visiting Scholars: 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 C o m m u n i c a t i o n s Officer: Donald E. Bedwell Public Information Representative: Duane Kline Publications Coordinator: Gary W. Tapp Graphics: Eddie W. Lee, Jr. Cheryl D. Berry To our readers: As t h e n e w p r e s i d e n t of t h e Federal R e s e r v e B a n k of Atlanta, I'm p l e a s e d t o i n t r o d u c e t h i s s p e c i a l i s s u e of t h e Economic Review. It h a s b e c o m e a t r a d i t i o n for us t o g a t h e r t h e considerable resources and widespread contacts of o u r R e s e a r c h D e p a r t m e n t e a c h F e b r u a r y t o p r e s e n t t h e e c o n o m i c o u t l o o k for t h e southe a s t e r n states. T h i s year, t h e s t a t e s in o u r r e g i o n c a n l o o k f o r w a r d t o i m p r o v e d c o n d i t i o n s as t h e econ o m i c e x p a n s i o n c o n t i n u e s . T h e r e are, of c o u r s e , s o m e p r o b l e m s in t h e e c o n o m y , not t h e least of w h i c h is t h e t h r e a t of r e n e w e d inflation. T o r e s t r a i n t h a t t h r e a t , w e will n e e d n o t o n l y a f i r m m o n e t a r y policy, b u t a f i s c a l policy that deals responsibly with the federal deficit. O u r r e s e a r c h e f f o r t will c o n t i n u e its s t r o n g focus on specific problems impeding the nation's e c o n o m i c g r o w t h a n d on specific solutions to t h o s e problems. A forthcoming a r t i c l e o n h i g h - p e r f o r m a n c e c o m p a n i e s , for e x a m p l e , will a d d r e s s t h e issue of h o w t o k e e p p r o d u c t i v i t y i m p r o v i n g t h r o u g h t h e ups a n d d o w n s of t h e b u s i n e s s c y c l e . M a n y of o u r r e a d e r s rely o n o u r a n n u a l outlook issue a s a reliable s o u r c e of analysis p r e s e n t e d in a n e a s i l y a c c e s s i b l e style. The A t l a n t a F e d p l a n s t o m a i n t a i n its c o m m i t m e n t t o r e s e a r c h e x c e l l e n c e , n o t o n l y in regional s t u d i e s , b u t a l s o in f i n a n c i a l s t u d i e s , n a t i o n a l economics, and the payments system. We plan t o c o n t i n u e o u r p o p u l a r c o n f e r e n c e series o n t i m e l y a n d s o m e t i m e s c o n t r o v e r s i a l topics. W e also plan to c o n t i n u e to offer special i s s u e s of t h e R e v i e w o n t o p i c s w e t h i n k deserve c o n c e n t r a t e d attention. As part of t h a t c o m m i t m e n t t o excellence, w e w a n t t o b e r e s p o n s i v e t o o u r r e a d e r s ' needs. In t h a t regard, I i n v i t e y o u t o w r i t e a n d let me k n o w w h a t y o u like a n d d i s l i k e a b o u t t h e Review and how you think w e can improve our efforts The E c o n o m i c Review seeks to inform the public about Federal Reserve policies and the e c o n o m i c environment and. in particular to narrow the g a p b e t w e e n specialists and c o n c e r n e d laymen. Views expressed in the Economic Review arent necessarily those of this Bank or the Federal Reserve System Material may be repiinted or abstracted if the Review and author are credited. Please provide the B a n k 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, PO. Box 1731. A t l a n t a G a 3 0 3 0 1 ( 4 0 4 / 5 2 1 - 8 7 8 8 ) . Also contact the Information Center to receive Southeastern 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. ISSN 0 7 3 2 - 1 8 1 3 R o b e r t P. F o r r e s t a l V O L U M E LXIX, N O . 2 The Southeast in 1984: An Overview 4 Florida: Expecting a Boom 6 Will slumping international trade, which slowed Florida's high-powered economy last year, revive in 1984? If it d o e s not, will the c o n t i n u i n g flow of new r e s i d e n t s a n d h i g h - t e c h c o m p a n i e s be e n o u g h to k e e p the state's e c o n o m y b o o m i n g ? Georgia: A Healthy Economy Looks for Solid Growth 22 Tennessee: Continuing the Momentum of Recovery 34 After n e g o t i a t i n g the r e c e s s i o n with minimal d a m a g e , G e o r g i a l a u n c h e d i n t o a s o l i d recovery. But is the state's e c o n o m i c strength limited to Atlanta? With its e c o n o m y highly sensitive to the business cycle, Tennessee has already e x p e r i e n c e d a strong rebound. Will that early strength w e a k e n as the recovery matures? Louisiana: Hopes Ride on World Trade, Energy and World's Fair Alabama: Prospects Brighten for 1984 48 0 Louisiana, crucially d e p e n d e n t on energy prices, e m e r g e d late from the last recession. With its ports also suffering from the d e c l i n e in world trade, Louisiana hopes the World's Fair will boost tourism. A l a b a m a ' s e c o n o m y m a d e a s h a r p t u r n a r o u n d in 1983 as d e m a n d i n c r e a s e d for its m a n u f a c t u r e d products. Can an e c o n o m y so heavily d e p e n d e n t on steel a n d coal maintain its m o m e n t u m in 1984? Mississippi: State in Transition North Carolina: Impressive Growth, Long-Term Questions 66 76 By the e n d of 1983, the M a g n o l i a State's economy had begun to improve. Mississippi's leaders hope the state's e c o n o m y has r e a c h e d a t u r n i n g point. Will North Carolina be able to sustain 1983 s impressive growth rate? How will state planners deal with major uncertainties in the t o b a c c o a n d textile industries? South Carolina: A Strong Recovery, But Problems Remain Statistical Summary 84 South C a r o l i n a s c o r e d a s u r p r i s i n g l y r a p i d recovery from the last r e c e s s i o n . S t r u c t u r a l problems t h r e a t e n to restrain future g r o w t h u n l e s s the state's industry diversifies. ! FEDERAL RESERVE B A N K O F A T L A N T A 3 92 The Southeast in 1984: An Overview W i t h the Southeast's economy mustering fresh strength m o v i n g into 1984, the o u t l o o k is promising for the region in the months ahead. W i t h i n the region, those state e c o n o m i e s that s h o w e d the greatest strength in the 19811982 recession and the recovery in 1983 alsoare likely t o lead the way in 1984. Of the eight states covered in this issue, Florida should enjoy the strongest expansion. An inflow of n e w residents a n d businesses into Florida promises to boost spending o n h o u s i n g a n d consumer durable goods, creating new jobs at the same time. Increased defense s p e n d i n g will stimulate local e c o n o m i e s surrounding military installations and, in particular, boost those areas that p r o d u c e sophisticated military hardware. Florida's tourist attractions will lure a g r o w i n g n u m b e r of d o m e s t i c and foreign travellers, a n d a d d t o the growth of the state's e c o n o m y as well. O t h e r states in the region will benefit from these strengths, too. 4 Georgia and N o r t h Carolina, especially, are likely to benefit from the effects of increased migration. Increased defense s p e n d i n g will boost m a n y local e c o n o m i e s in the region. Tourism is e x p e c t e d t o be a pillar of Louisiana's recovery in 1984 a n d t h e benefits of the W o r l d ' s Fair to be held there this year should spread across the Southeast. The national recovery this year and increased t o u r i s m should boost t h e region's airline and c o n v e n t i o n trade. W i t h the world's fair, t h e c o n t i n u e d lure of Disney World's EPCOT Center, and the g r o w t h of c o n v e n t i o n facilities in Atlanta, this c o u l d be a banner year for southeastern hospitality industries. Revived g r o w t h will stimulate the manufacturing economies of Alabama, Mississippi, and Tennessee. These states, hard-hit by the recessions of the early 1980s, have begun t o experience solid e m p l o y m e n t gains in response t o the national recovery. In 1984, t h e y should gain f r o m plant reo p e n i n g s in d i v e r s e d u r a b l e m a n u f a c t u r i n g industries and f r o m increasing m i n i n g activity. South Carolina, also hard-hit by the recession, made a faster than usual c o m e b a c k in 1983 and state leaders are m o v i n g aggressively to diversify its economy. A lack of diversity hurt Louisiana's energy and trade dependent e c o n o m y in t h e recent recession. Louisiana's e c o n o m y still has some catching up t o do because the p e t r o l e u m industry and international trade have both been slow to join in the economic revival. A r e b o u n d of the energy sector a n d increased trade flows w o u l d benefit this a n d other states in the region. It is likely that international trade will improve later this year, particularly helping Louisiana, North Carolina and south Florida. Increased exports also w o u l d induce faster growth in the other regional states. The region also should profit from foreign investment. The Southeast in Recovery After suffering t h e pains of a recession that continued through most of 1982, parts of the southeastern e c o n o m y began to experience a strong u p t u r n during the first half of 1983 w i t h a reawakening of c o n s u m e r spending. Increasingly optimistic consumers began to buy cars, clothes and houses as interest rates fell. A revival in residential construction, first noted as 1982 drew to a close, stimulated constructionrelated industries across the nation. Predictably, t h e region's substantial furniture and carpet manufacturing industries soon began to expand o u t p u t rapidly t o meet the r e n e w e d d e m a n d . The recovery spread quickly, injecting n e w life into the Southeast's c o n c e n t r a t i o n s of autom o b i l e parts and apparel manufacturing plants. Closed factories FEBRUARY 1984, E C O N O M I C REVIEW began t o r e o p e n and idled employees w e r e s u m m o n e d back to work. Total e m p l o y m e n t , w h i c h had languished through 1982, began to grow again during the late spring, p u m p i n g m o r e m o n e y into the e c o n o m y . As 1983 ended, both e m p l o y m e n t a n d joblessness reflected the recovery's burgeoning strength. Employment was showing strong growth, while the unemploym e n t rate continued to drop. Alabama, Louisiana, Mississippi and T e n n e s s e e c o n t i n u e d t o experience jobless rates around 11 12 percent late in the year, b u t the region's average rate had fallen f r o m nearly 11 percent at the beginning of the year to about 9 percent by the fourth quarter. In Florida, Georgia and North Carolina, where economic activity w e a t h e r e d t h e recession relatively well, u n e m p l o y m e n t had fallen t o 7.8, 7.1 a n d 8.2 percent, respectively, in November. Those states' mix of service-related industries had p r o v i d e d some insulation from the u n e m p l o y m e n t problems that plagued the manufacturing-dominated economies of neighboring states. A s e c o n d c o n s e c u t i v e year of e c o n o m i c expansion promises a continuing r e d u c t i o n in unemp l o y m e n t t h r o u g h o u t the Southeast and in the nation, w h e r e the rate seems likely t o decline t o 8 percent or even lower by yearend. the f l o w of agricultural and energy products at major ports in the region. The speed of e c o n o m i c recovery w o r l d w i d e should help shape the vigor of recovery in important coal, phosphate, chemical, a n d p u l p and paper exports as well as imports of oil a n d machinery into t h e U n i t e d States. If the dollar's foreign exchange value declines this year partly in response t o a widening American merchandise trade deficit, the nation's m a n u f a c t u r e d exports should grow steadily later in the year despite c o n t i n u e d stagnation in the Latin American market. Such a r e b o u n d w o u l d a d d t o the increased trade stim u l a t e d by reviving global econ o m i c growth. A n o t h e r p r o b l e m sector, particularly for t h e Southeast, is agriculture. Drought across most of the region last year left farmers hard-pressed to repay the debts t h e y had a c c u m u l a t e d during several years of adversity. A severe freeze in Florida near yearend d a m a g e d crops and augured poorly for the new year. For survivors, though, conditions look brighter in 1984. C o n t i n u e d e c o n o m i c recovery Unanswered Questions But trouble spots that could generate problems in the months ahead also remain in the regional economy. The international trade and energy areas, w h i c h declined so dramatically during the recession, c o n t i n u e t o lag other sectors of e c o n o m i c activity in recovery. A strong U.S. dollar reduced trade flows through most of 1983, including V FEDERAL RESERVE B A N K O F A T L A N T A and favorable trade developm e n t s s h o u l d increase agricultural exports a n d generate d e m a n d for farm products. Farmers are likely t o resume fullscale p l a n t i n g , w h i c h w o u l d trigger a resurgence in demand for seed, fertilizer a n d equipm e n t — g o o d news for merchants w h o suffered d u r i n g last year's acreage reductions. Summary As t h e e c o n o m i c good news continues to roll in, construction, services and manufacturing firms are gearing up for w h a t t h e y e x p e c t to be a second c o n s e c u t i v e year of r e g i o n a l growth. Plants should continue r e o p e n i n g and the j o b p i c t u r e should improve, assuming that c o n s u m e r a n d business spending continues to fuel the national recovery. As w e have e m p h a s i z e d in past o u t l o o k issues, t h e Southeast, so o f t e n characterized as a m o n o l i t h i c fast-growing unit, actually c o n t a i n s states w i t h w i d e l y differing e c o n o m i c profiles. This region of over 4 0 million people, representing almost 18 percent of the nation's population,is a fascinating mix of rural and urban, agricultural a n d m a n u f a c t u r i n g , a n d traditional and high-tech industries. A d d i n g t o the mix, the Southeast in recent years has become a h o t b e d of entrepeneurship, aided by a traditional c o m m i t m e n t to free enterprise a n d a history of g o o d managementlabor relations. Those qualities, t o g e t h e r w i t h a rich diversity of environmental factors, give each state in the region a quite distinct e c o n o m y . The detailed stateby-state analyses in this issue explore those distinctions a n d what they hold in store for southeastern states in the year ahead. The issue was p r o d u c e d by our regional research team, headed by Gene D. Sullivan. — Donald L. Koch 5 Florida: Expecting a Boom O n c e recognized solely for its clean beaches and warm climate, Florida is n o w a leading center of industry and commerce. The fastgrowing high-technology industry is locating in Florida at a rapid rate; high-tech n o w constitutes more than 27 percent of manufacturing e m p l o y m e n t compared t o 20 p e r c e n t o n average for the nation. The state ranks in the t o p six nationally in t h e value of foreign trade m o v i n g through its ports. Three Florida bank h o l d i n g c o m p a n i e s rank in the t o p 35 nationwide, and out-of-state financial organizations are supplying funds aggressively for e c o n o m i c d e v e l o p m e n t in the state. Business climate studies consistently rank Florida near the t o p of the list of desirable locations for n e w and e x p a n d i n g firms. Florida's p o p u l a t i o n g r o w s by n e a r l y 1 , 0 0 0 p e o p l e e v e r y day. Recent projections place Florida as the f o u r t h largest state by 1990, behind only California N e w York and Texas. The growing population provides an a m p l e labor force for industry t o tap. E m p l o y m e n t never stopped growing through the 1980-1982 national recession; the n u m b e r e m p l o y e d grew 3 percent in 1 9 8 1 , 0 . 8 percent in 1982 and 4.5 percent in 1983. Florida's g r o w t h p a t h c e r t a i n l y has n o t b e e n a s m o o t h one. A t times, major setbacks have raised questions a b o u t the staying p o w e r of t h e state's growth. But t h e diversity of the e c o n o m y today, w i t h r e d u c e d d e p e n d e n c e o n tourism and real estate d e v e l o p m e n t should help propel Florida through even the nation's worst recessions. After a sluggish year in 1982 a n d the beginnings of recovery in 1983, Florida is poised for rapid expansion in 1984. This year should be o n e of the " b o o m times" o n t h e state's e c o n o m i c g r o w t h chart. Population g r o w t h is returning t o prerecession levels, n e w housing construction has regained its strength, a n d industry d e v e l o p m e n t is moving forward. Personal income rose 7.6 percent in 1983 compared t o 5.7 percent growth at its most recent w e a k point. 6 With population growth returning to prerecession levels, c o n s t r u c t i o n s u r g i n g and high-tech industry expanding, Florida looks forward to a strong 1984. F E B R U A R Y 1 9 8 4 , E C O N O M I C REVIEW Chart 1 . Florida Nonfarm Employment Annual Percent Change November 1983 C h a r t 2. Florida Office Construction Building Permits (12-month cumulative rate) Mil 900 IbjU lini -4 In n .# -Ij s -s îr ° CU ö « / Qj qj m% SO§ s s Pg co * 3751 i i I . i i i i 1981 Source: Florida Department of Labor and Employment Security A f e w factors should serve t o d a m p e n t h e e x p e c t e d growth, b u t none should t h w a r t it entirely. A repeat p e r f o r m a n c e of the tourist surge i n d u c e d by Disney's n e w EPCOT center last year is unlikely in 1984. A n d M i a m i has yet t o recover the losses it sustained f r o m ailing Latin American trade a n d tourism. Prior t o t h e most recent national recession, south Florida was the strongest region of the state. Today, however, a shift in p o p u l a t i o n g r o w t h f r o m the southeast coast to the T a m p a / O r l a n d o / M e l b o u r n e corridor is indicative of t h e relocation of n e w e c o n o m i c o p p o r t u n i t y . The state's southeast region dev e l o p e d first, primarily based o n real estate investment for resort, tourist and retirement properties. The central corridor is d e v e l o p i n g rapidly t o d a y because of high-technology and other industry growth, resulting in e x p a n d e d j o b opportunities. Diversified Business Development W i t h a dual goal of e c o n o m i c g r o w t h and e n v i r o n m e n t a l preservation, m u c h of Florida's d e v e l o p m e n t emphasis starting in the late 1970s was on light, clean m a n u f a c t u r i n g industries. Florida has been particularly successful in capturing high growth, high-technology companies. Rapid growth in Florida's service and trade sectors also has h e l p e d r o u n d o u t the state's economy. Florida's expanding economic base has provided e m p l o y m e n t for m a n y of t h e y o u n g workers w h o ! FEDERAL RESERVE B A N K O F A T L A N T A 7 i i i i i i i i i I i i i i i i i I 1982 1983 Source: Construction Statistics Division, U.S. Census Bureau, unpublished d a t a r e l o c a t e t o t h e state each year, a n d t h a t base c o n t r i b u t e d t o the e c o n o m y ' s resilience d u r i n g the 1981-82 recession. W h i l e t h e U. S. was experiencing year-to-year n o n f a r m e m p l o y m e n t declines of almost 2 percent d u r i n g t h e early 1980s recessionary period, Florida e m p l o y m e n t was registering average gains of almost 1 percent. E m p l o y m e n t e x p a n d e d by almost 5 percent in 1983 t o total over 3.9 million people. Chart 1 shows the change in n o n f a r m e m p l o y m e n t for major Florida cities. Florida's rapidly e x p a n d i n g business sector and t h e associated high a b s o r p t i o n of existing office space have made Florida a very attractive market for n e w office d e v e l o p m e n t , w h i c h has recently experienced an " u n p r e c e d e n t e d boom." The value of statewide office construction in 1983 was 31 percent higher than in 1982 (Chart 2). W i t h t h e heavy office c o n s t r u c t i o n currently underway, office construction p r o b a b l y will slow d o w n in 1984. Retail a n d industrial construction should remain strong (Table 1). Florida hopes t o capture a d i s p r o p o r t i o n a t e share of its target industries, i n c l u d i n g aviation, c o m m u n i c a t i o n s and electronics, defense, f o o d processing, pharmaceuticals, a n d surgical and medical instruments. O n e study of manufacturing business climates ranked Florida first in b o t h 1982 and 1981. 1 A 1983 Fortune survey of the 'Alexander Grant and Company, G e n e r a l M a n u f a c t u r i n g Climates, 1981-1982. Business T a b l e 1 . Nonresidential Construction by SMSA (12 month Cumulative Rate) November 1983 FLORIDA Jacksonville Tallahassee Pensacola Daytona Gainesville Melbourne Orlando Lakeland Tarn past. Petersburg Sarasota Ft. Myers W. Palm Beach Ft. Lauderdale Miami SMil Annual % Change Sq. Ft. (OOO's) 4279.3 + 15.3 81,439 + 15.4 345.4 55.0 97.7 71.3 34.3 113.6 489.0 75.2 +68.2 -21.5 +69.6 -21.7 -41.8 +28.1 +51.6 +51.3 5,918 1,121 +44.1 - 4.5 1.598 1,344 +52.8 -21.4 -48.3 + 19.2 744.2 1 15.5 78.1 425.6 414.9 696.5 +22.5 +46.4 14,842 2,362 1,489 7,826 -28.8 +52.6 - 3.6 -24.6 466 2.032 9,41 1 1,265 8,768 13.522 Chart 3. Florida Nonagricultural Employment Major Sectors as Percentages of Total Annual % Change +27.6 +23.2 +286 +56.3 -16.7 +44.0 -10.7 -7.6 40 B 1970 1983 30 20 10 / US J / J Source: Calculated from data published by F. W. Dodge, McGraw-Hill, Inc. Source: Florida Department ot Labor and Employment Security nation's t o p 1,000 companies ranked Florida second as a choice for corporate headquarters. W h i l e high-technology manufacturing has registered impressive g r o w t h rates in the past f e w years, t h e largest n u m b e r of jobs has b e e n created in o t h e r areas. Chart 3 shows h o w t h e distribution of Florida's nonagricultural e m p l o y m e n t changed from 1 9 7 0 t o 1983. W i t h t h e p o p u l a t i o n growing rapidly, the service sector grew f r o m 18.6 percent of nonagricultural emp l o y m e n t in 1 9 7 0 t o 24.3 percent in 1983. The finance, insurance and real estate sector grew f r o m a 1970 level of 6.1 percent to 7.5 percent in 1983, a significant gain d u r i n g a period w h e n technological advances permitted increasing automation in these fields. D u r i n g the same period, the share of workers e m p l o y e d in construction declined, as did manufacturing e m p l o y m e n t as a share of total nonfarm e m p l o y m e n t . A l t h o u g h Florida manufacturing has not exp a n d e d at t h e rate of t h e o t h e r sectors, its g r o w t h has been m u c h greater than in o t h e r areas of the country. Between 1 9 7 0 a n d 1983, Florida increased its share of national m a n u f a c t u r i n g jobs f r o m 1.7 percent t o 2.5 percent. In addition, i m p o r t a n t shifts have o c c u r r e d w i t h i n Florida manufacturing, most notably t h e e v o l u t i o n away from construction-related activities toward a greater emphasis on high-technology products and processes. ' D o n a l d L. Koch, William N. Cox, Delores W. Steinhauser and Pamela V. Whigham, " H i g h Technology: The Southeast Reaches Out for Growth 8 Florida's manufacturing sector, w i t h its hight e c h n o l o g y products and y o u n g companies employing advanced technology processes, is dynamic and growth-oriented compared t o manufacturing in states w i t h a large p o r t i o n of older smokestack industries. Florida leads t h e Southeast in high technology, b o t h in terms of absolute employm e n t and as a percentage of total manufacturing e m p l o y m e n t . By a narrow definition of high technology, the Florida high-tech manufacturing sector represented 27 percent of total manufacturing e m p l o y m e n t and e m p l o y e d 126,000 p e o p l e in 1982, up 4 7 percent from 1977. N a t i o n w i d e , high t e c h n o l o g y e m p l o y m e n t has increased 22 percent over t h e same period and n o w makes up 20 percent of total manufacturing employment.2 M u c h of Florida's high-technology manufacturing is defense-related. For the 1982 fiscal year, Florida c o m p a n i e s received prime D e p a r t m e n t of Defense contracts totaling $4.2 billion, ranking Florida seventh in t h e value of contract awards. Aircraft engines, electronics e q u i p m e n t and missile systems a c c o u n t e d for w e l l over half of Florida companies' military contracts. Almost half of t h e statewide contract dollars w e n t t o t w o companies, U n i t e d Technologies Corporation of West Palm Beach and Martin Marietta Corporation Industry" E c o n o m i c Review, Federal Reserve Bank ot A t l a n t a Vol. 68 (September 1983), pp. 4-19. FEBRUARY 1984, E C O N O M I C REVIEW 1 I of Orlando, with total contracts of $1.2 billion and $0.9 billion, respectively. Other major Florida recipients of defense contracts in Fiscal 1982 and their dollar awards w e r e H o n e y w e l l I n c , Clearwater ($ 175 thousand), Harris Corporation! Palm Bay ($174 thousand), a n d Pan A m e r i c a n W o r l d Airways, Patrick Air Force Base ($118 thousand). 3 Florida's e c o n o m i c d e v e l o p m e n t efforts are in large 3art a t t r i b u t a b l e t o t h e s u p p o r t a n d cooperative efforts of the governor, legislature, state a n d local governments, a n d t h e private business sector. M u c h responsibility for soliciting and assisting n e w plants and expansions rests w i t h t h e state's D e p a r t m e n t of C o m m e r c e . The d e p a r t m e n t in 1982 assisted the establishment of 111 n e w plants a n d 110 industrial expansions that created over 36,000 n e w jobs. 4 In 1983, those figures d r o p p e d t o 93 n e w plants, 48 expansions and 16,000 n e w jobs. The w e a k e r industrial expansion in 1983 resulted f r o m the recession-induced d e c l i n e in capital s p e n d i n g on plant a n d e q u i p m e n t nationwide. Florida appears t o be b u i l d i n g the f o u n d a t i o n for leadership in the e m e r g i n g a r e a of robotics. In N o v e m b e r 1982, General Electric a n n o u n c e d the establishment of the w o r l d w i d e headquarters of its n e w A u t o m a t i o n Systems D e p a r t m e n t near Orlando. Last February, I B M began m a r k e t i n g an e x p a n d e d line of highly intelligent industrial robots p r o d u c e d at its Boca Raton facility. Dougherty Pressed Metals, a small engineering a n d manufacturing firm in St. Petersburg, began prod u c t i o n of a specialized industrial r o b o t early this year. In a d d i t i o n t o m a n u f a c t u r i n g hydraulic presses, t h e firm n o w makes t h e robots t o " f e e d " and operate t h e m . In September, A u t o m a t i o n Intelligence Inc. purchased t h e W e s t i n g h o u s e industrial a u t o m a t i o n facility in O r l a n d o that produces integrated circuits for robots; t h e firm will c o n t i n u e p r o d u c i n g for Westinghouse and o t h e r r o b o t manufacturers. High t e c h n o l o g y c o m p a n i e s t e n d t o cluster in areas offering an a m p l e s u p p l y of highly trained technical labor. The state's heaviest concentrations are in central Florida from the T a m p a Bay area through O r l a n d o t o M e l b o u r n e , and along t h e southeast coast These regions have accumulated the critical mass of technological expertise, processes, a n d products that encourages n e w start- 3 Department of Defense. FEDERAL RESERVE B A N K O F A T L A N T A up firms and acts as a magnet in attracting related companies. Central Florida is experiencing an explosive growth fueled primarily by t h e rapidly e x p a n d i n g high-technology sector. N o n f a r m e m p l o y m e n t c l i m b e d 5.9 percent in O r l a n d o a n d 5.2 percent in M e l b o u r n e d u r i n g the last year. O r l a n d o a n d neighboring M e l b o u r n e have the state's largest concentration of guided missiles and space vehicles activity, w i t h M e l b o u r n e a major p r o d u c e r of aircraft a n d parts. O t h e r strong elements in the central Florida e c o n o m i c mix i n c l u d e c o m m u n i cation a n d electronic c o m p u t i n g e q u i p m e n t and electronic components. A n n o u n c e m e n t s of small t o m e d i u m sized c o m p a n i e s m o v i n g t o or exp a n d i n g in t h e O r l a n d o area are at an all t i m e high. D u r i n g the 12 m o n t h s e n d i n g in O c t o b e r , the Industrial D e v e l o p m e n t Commission of M i d Florida provided assistance to 62 new or expanding firms that created 10,000 area jobs. M a r t i n Marietta, Orlando's largest e m p l o y e r , is responsible for t h e area's largest expansion project, the M a r t i n M a r i e t t a O r l a n d o Aerospace Electronics System Center. Scheduled for completion early this year, the centeKs first phase will provide 7 0 0 , 0 0 0 square feet of space at an estimated cost of $82.9 million a n d should a c c o m m o d a t e up t o 3 , 0 0 0 employees. In addition, Westinghouse chose O r l a n d o as the w o r l d headquarters site for its Steam Turbine Generator Division, w h i c h will e m p l o y over 850. Business d e v e l o p m e n t has b e e n strong in t h e T a m p a Bay area of Florida's west coast, w h e r e rapid g r o w t h in the n u m b e r of electronics c o m p a n i e s has given the region o n e of t h e state's largest concentrations. M o s t of t h e electronics firms are in St. Petersburg, w h e r e the p o o l of military retirees in St. Petersburg offers a mature labor force for electronics. The rapid g r o w t h in this sector has attracted m o r e y o u n g retirees a n d y o u n g families t o t h e area a n d has changed the e c o n o m y and demographics of this resort t o w n . M o s t notable has been the large r e d u c t i o n in average age in St. Petersburg from 55 in 1 9 7 0 to 4 4 in 1980. W h i l e t h e electronics c o m p a n i e s o f t h e T a m p a Bay area historically have not been as d e p e n d e n t on defense contracts as t h e high-technology companies in o t h e r parts of t h e state, several have c a p t u r e d major D e p a r t m e n t of Defense 'Annual Report to the Governor and t h e Legislature, January 1 9 8 3 , State of Florida, Division of Economic Development. 9 contracts in the last year. Some of these i n c l u d e E Systems' $14 million Air Force contract for development of a new combat identification system, Reflectone's $17.7 million Navy contract to build eight more electronic training devices and Honeywell's expansion t o assemble and test electronic guidance systems. The area also has attracted a n u m b e r of research and d e v e l o p m e n t facilities, and in 1983 a major Japanese cancer research institute selected St. Petersburg Industrial Park as its U.S. site. W h i l e high-technology companies have cont r i b u t e d heavily t o Tampa's current prosperity, its e c o n o m i c g r o w t h has f o l l o w e d a diverse path. W i t h international connections through its port and airport, c o m m e r c e is i m p o r t a n t in Tampa's e c o n o m y , and the manufacturing companies relocating t o T a m p a have been a diverse group. Tampa's major business relocations in 1983 i n c l u d e d C i t i c o r p Travelers Checks' w o r l d headquarters for processing travelers checks a n d General Dynamics' Electric Boat Division, a r e search and development arm for designing nuclear submarines. Office construction has been heavy in Tampa. Projects currently underway or planned will s u p p l e m e n t the existing 10 million square feet of office space by 1.1 million square feet in 1984, 1.4 million square feet in 1985, and 1.2 million in 1986. Local analysts expect that absorption could lag the c o m p l e t i o n of projects underway, w h i c h in t u r n c o u l d force t h e o c c u p a n c y rate t o d r o p from 86 percent t o around 80 percent by as early as m i d - 1 9 8 4 . In southeast Florida, t h e W e s t Palm BeachBoca Raton-Del ray Beach area has b e e n t h e e c o n o m i c leader t h r o u g h o u t the recession and recovery. Office construction is strong in south Florida, w h e r e absorption in Broward and Palm Beach counties was high d u r i n g the past year. N e w firm locations and expansions have given manufacturing the highest rate of j o b g r o w t h a m o n g Palm Beach C o u n t y employers over the past year. This g r o w t h has been particularly strong in high-technology manufacturing, w i t h most of that g r o w t h c o m i n g f r o m expansions. IBM's Entry Systems Division in Boca Raton has u n d e r g o n e a large expansion, a d d i n g 1,200 jobs in 1983 and e x p e c t e d t o a d d another 2,300 jobs d u r i n g the next t w o years. Also in 1983, Motorola's expansion of its Pager Assembly plant f r o m Broward C o u n t y will a d d 1,500 jobs by m i d - 1 9 8 4 . Palm Beach C o u n t y continues t o 10 be popular w i t h w e a l t h y retirees, and population increases have fueled rapid g r o w t h of retail firms and health care services. M o s t of Broward County's recent growth has been in its manufacturing sector. Business dev e l o p m e n t in Broward d u r i n g 1983 reflects the northern migration of p o p u l a t i o n and businesses from Dade County. Of the 24 firms that relocated to Broward C o u n t y in 1983 w i t h the assistance of t h e local e c o n o m i c d e v e l o p m e n t agency, seven w e r e from Dade County. Jacksonville has e n t e r e d an expansion, led by g r o w t h in retail trade, services and government. Following a sluggish p e r f o r m a n c e in the 1970s, Jacksonville's e c o n o m y has e n j o y e d diversified growth during the early 1980s. A major boost came w i t h Bendix's a n n o u n c e m e n t in 1981 that it w o u l d build a $40 million plant there. Bendix was followed by several manufacturing companies and by AT&Ts decision t o build its new computerized American Transtech operation, w h i c h ultimately will e m p l o y 1500. In a d d i t i o n t o AT&T's move into its new buildings, Prudential announced d u r i n g 1983 that Jacksonville will b e c o m e o n e o f only four regional centers in Prudential's future operations, and Ryder/P.I.E. N a t i o n w i d e and C l o w C o r p b o t h selected Jacksonville for their corporate headquarters. The military, w h i c h has always been a stabilizing factor in Jacksonville's economy, has contributed t o the g r o w t h m o m e n t u m . The Navy is currently in a long-term expansion of three facilities that will c o n t i n u e t h r o u g h the year 2005. In addition t o its direct impact on the local economy, military expansion has attracted sub-con tractors t o the area, such as the Ingersoll-Rand Corporation, w h i c h plans t o b u i l d a p u m p repair facility. Commercial construction was strong in Jacksonville during the past year. Almost half of this new b u i l d i n g has been n e w office space, a large p o r t i o n of w h i c h is contained in t h e city's t w o newest skyscrapers, the Southern Bell T o w e r and the Flagship Bank Building. W h i l e d e v e l o p m e n t has b r o u g h t an increase in u n o c c u p i e d office space d o w n t o w n , local officials are optimistic a b o u t filling it. W h i l e t h e y are c o u n t i n g on relocating out-of-town companies to absorb most of the space, anticipated spin-offs from Bendix and AT&T also should be important. O t h e r major nonresidential projects u n d e r w a y include Prudential's $90 million office c o m p l e x , the $27 million d o w n t o w n c o n v e n t i o n center, and a m u l t i - m i l l i o n dollar Federal Reserve Bank facility. FEBRUARY 1984, E C O N O M I C REVIEW In addition, Faison and Associates will break ground in 1984 o n a $40 million office b u i l d i n g to house the new corporate headquarters for Florida National Bank, the first in an eightbuilding c o m p l e x t o be d e v e l o p e d over the next fifteen years. Financing for Growth Economic growth in Florida should be facilitated by a broader, m o r e p o w e r f u l financial infrastructure. Three shifts are taking place w i t h i n Florida's financial structure t o b r o a d e n t h e range of available financial services a n d t o ensure c o m p e t i t i o n a m o n g financial institutions in the state. (1) Out-of-state financial organizations a n d "near-banks" are m o v i n g into the state w i t h as w i d e an array of financial services as t h e y can legally offer. (2) Florida's c o m m e r c i a l banking industry is consolidating t h r o u g h acquisitions and mergers, giving the t o p h o l d i n g c o m p a n i e s enough size t o service t h e growing e c o n o m y and to c o m p e t e w i t h the out-of-state organizations. (3) Savings a n d loan associations, w h i c h h o l d over 50 percent of the total bank and thrift deposits, are recovering f r o m severe losses in the last f e w years a n d are beginning t o use their powers to offer n e w c o n s u m e r and c o m m e r c i a l services. Interstate Banking - Business d e v e l o p m e n t in Florida is often d e p e n d e n t on out-of-state funding by financial organizations large enough t o support a given project i n d e p e n d e n t l y . At times, funds are p o o l e d f r o m local a n d out-of-state banks t o provide capital for n e w ventures. Local banks maintain an extensive n e t w o r k of correspondent banking relationships b o t h nationwide and w o r l d w i d e . Out-of-state banks have loan p r o d u c t i o n a n d Edge Act offices in the state. Larger Florida firms deal w i t h out-of-state commercial a n d i n v e s t m e n t banks. Suppliers of venture capital headquartered elsewhere serve Florida firms. Funding for business d e v e l o p m e n t has managed to find its w a y into the state through various quasi-bank institutions, despite interstate banking restrictions. W h i l e geographic restrictions are greatest for commercial banks, t h e out-of-state incursions are formidable. A c c o r d i n g t o a recent study, 5 David D. Whitehead, 'Interstate Banking: Taking Inventory" E c o n o m i c Review, Federal Reserve Bank of A t l a n t a Vol. 68 (May 1983), p. 19. V FEDERAL RESERVE B A N K O F A T L A N T A Florida is h o m e t o at least 621 offices of out-ofstate banking organizations. The p e n e t r a t i o n is second o n l y t o California, w h i c h has 787 offices. Other states are h o m e to fewer than 4 0 0 interstate b a n k i n g offices. 5 Citicorp of N e w York alone has 29 offices in the state, including corporate banking, consumer finance, investment banking, mortgages, credit card and data processing, and Edge Act headquarters. 6 N C N B Corp., the largest bank h o l d i n g c o m p a n y in N o r t h Carolina, has taken advantage of a grandfather clause in Florida's banking legislation that allows it t o acquire Florida banks. U p o n approval of its acquisition of Florida's Ellis Banking Corp., N C N B of Florida, w i t h deposits of $3.5 billion, w o u l d be the fifth largest bank h o l d i n g c o m p a n y in t h e state. Consolidation of Florida Commercial Banks Florida's commercial banking industry is positioning to c o m p e t e head-on w i t h the m o n e y center banks as geographic barriers c o n t i n u e t o break d o w n . M a j o r banks have a c q u i r e d smaller institutions aggressively in the past f e w years t o b u i l d organizations w i t h financial staying power. In 1983, c o m m e r c i a l banks filed 29 applications for acquisition w i t h the Federal Reserve Board for approval. Barnett Banks of Florida, Sun Banks of Florida a n d Southeast Banking C o r p o r a t i o n all have assets over $8 billion. These three institutions, w i t h statewide b a n k i n g networks in place are the largest c o m m e r c i a l b a n k i n g organizations in t h e Sixth Federal Reserve District a n d are a m o n g the t o p 35 bank h o l d i n g c o m p a n i e s in the nation. Florida banks can c o n t i n u e to grow and dev e l o p financial strength by e x p a n d i n g i n t o neighboring states. A state legislative proposal that c o u l d be v o t e d o n early this year advocates limited reciprocal banking. In brief, the bill w o u l d allow Florida banks t o acquire banks in eight southeastern states, if those states have similar legislation allowing their o w n banks t o m o v e i n t o Florida t h r o u g h acquisition. After t h r e e years, the reciprocity w o u l d apply t o any state in the nation, including N e w York. T h e n the regional banks presumably w o u l d be large enough to provide the services necessary t o c o m p e t e w i t h m o n e y center institutions and t o avoid massive acquisitions of local institutions. Savings and Loan Associations - W i t h over 50 percent of all bank a n d thrift deposits, savings and loan associations are serious contenders t o "Daniel Hertzberg, "Interstate Banking Spreads Rapidly Despite Laws Restricting Practice" Wall Street Journal, December 19, 1983. 11 C h a r t 4. Florida Deposits Bil. $ 55 50 S&Ls f \ J advantage of their n e w commercial banking powers. O n e e x c e p t i o n is Freedom Federal in Tampa, w h i c h acquired Combanks, Inc., a group of commercial banks in the central Florida markeL It has actively solicited commercial as well as c o n s u m e r lending and deposit business. Other larger S&Ls are f o l l o w i n g this lead. - Population Growth and Shifts 45 f / / Commercial Banks 40 . . • 1 . . 1 > 1 1 i i-i—I—1 1981 1982 1983 Source: Federal Reserve Board service business and consumer financial needs. The M o n e t a r y C o n t r o l Act of 1 9 8 0 and t h e GarnSt Germain Act of 1982 b o t h gave S& Ls increased powers t o offer services traditionally l i m i t e d t o c o m m e r c i a l banks, b u t t h e y also gradually eliminated t h e interest rate differential S&Ls o n c e enjoyed. As a result, commercial banks are gaining o n t h e S&Ls for a greater share of the total deposit market (Chart 4). S&Ls have been battered in the past several years because their cost of funds rose more sharply t h a n t h e yields o n t h e i r m o r t g a g e p o r t f o l i o s . The poor health of the industry made its members likely candidates for takeover. In Palm Beach C o u n t y , for example, five of t h e nation's eleven largest S&Ls o p e r a t e offices that w e r e acquired w h e n t h e y merged w i t h ailing institutions. Even out-of-state c o m m e r c i a l banks are taking over failing thrifts. C i t i c o r p recently s u b m i t t e d the w i n n i n g bid for N e w Biscayne Federal Savings & Loan Associaton in Miami, and the Federal Reserve Board has a p p r o v e d the acquisition. But the industry is beginning t o recover. The total net w o r t h of S&Ls in the state increased 43 percent from October 1982 to October 1983 after declining 23 percent d u r i n g t h e prior 1 2 months. 7 Because of the difficult times in the past several years, S&Ls have been slow t o take ' S e l e c t e d Balance Sheet D a t a - L i a b i l i t i e s Fourth Federal H o m e Loan Bank District October 31, 1983. 12 Florida's business d e v e l o p m e n t has been encouraged by robust p o p u l a t i o n growth, with migration a c c o u n t i n g for over 90 percent of the total increase. W i t h a current p o p u l a t i o n of 10.8 million, Florida is the seventh largest state. 8 The high interest rates and soft national housing market restrained p o p u l a t i o n growth in 1983 to 215,000, a level low by historical standards and much lower than forecasters predicted a year ago. The expected continuation of national economic r e c o v e r y a n d an a c c e l e r a t i o n of m i g r a t i o n in late 1983 make this look like a strong year for p o p u l a t i o n g r o w t h in Florida. The f l o w of n e w inhabitants is cyclical and is sensitive t o interest rates and the national housing market. But even w i t h the slower growth of the last t w o years, p o p u l a t i o n increases w e r e relatively strong and continued to propel the economy through t h e national recession (Chart 5). W h i l e it is true that Florida attracts more retirees than any other state, it has always attracted a large share of p r i m e w o r k i n g age people in search of e m p l o y m e n t and opportunity. In recent years t h e average age of m i g r a n t s has b e e n t r e n d i n g d o w n w a r d . A c c o r d i n g t o Census data, the share of persons migrating into Florida during the 1960s w h o w e r e 65 or older at the e n d of the d e c a d e d e c l i n e d from 28 percent t o 22 percent in t h e 1970s. W h i l e n a t i o n w i d e demographic changes associated w i t h the aging of the baby b o o m e r s account for some of the shift, employm e n t o p p o r t u n i t i e s created by Florida's successful expansion and diversification of its e c o n o m i c base have also c o n t r i b u t e d t o changing patterns. The University of Florida's Population Project estimates that Florida's p o p u l a t i o n of around 10.8 million should increase t o 12.5 million by 1990 and 14.8 million by 2000. In annual terms, their projections i m p l y increases of 273,000 a year b e t w e e n 1 9 8 0 and 1990 and 234,000 per »All population data from the Bureau of E c o n o m i c a n d Business Research Population Division, University of Florida FEBRUARY 1984, E C O N O M I C REVIEW ! A recent study c o n c l u d e d that Florida's total capital needs for transportation, water and wastewater over t h e 1 9 8 2 - 2 0 0 0 period total $30.8 billion. I n c l u d i n g t h e i d e n t i f i e d backlog requirements, the total is $41.0 billion. Projected revenue sources will cover o n l y 59 t o 66 percent of the capital needs, leaving a $ 6 0 0 million t o $ 7 0 0 million shortfall annually. 1 0 Chart 5. Florida Population Annual Increases Thous 500 70 72 74 76 78 80 82 84 •Projections Source: Historical population data trom the Bureau of Economic and Business Research, University of Florida. year b e t w e e n 1 9 9 0 and 2000. Increasing at these rates, Florida should rise f r o m t h e seventh to the f o u r t h largest state in the nation by 1990. The r e b o u n d i n g national e c o n o m y and the migration u p t u r n d u r i n g the last t w o quarters of 1983 suggest that p o p u l a t i o n will accelerate even fasterthis year than the long-run trend, w i t h state forecasters' projections ranging from a low of 2 7 4 , 0 0 0 t o a high of 354,000. 9 Since Florida's p o p u l a t i o n growth is closely tied to interest rates, any change in the level of mortgage rates this year w o u l d affect population growth. Infrastructure Challenges O n e of t h e greatest challenges in a c c o m m o dating rapid p o p u l a t i o n a n d industrial growth in Florida has b e e n maintaining and e x p a n d i n g the s u p p o r t i n g infrastructure that has been strained under pressures of g r o w t h in t h e last decade. The challenges of p r o v i d i n g a d e q u a t e roads, water, water t r e a t m e n t a n d educational facilities w e r e heightened by the N e w Federalism, which shifted more of the b u r d e n f r o m the federal g o v e r n m e n t to the states, cities and counties. The cutbacks fell hardest o n rapidly g r o w i n g states like Florida. 9 Henry Fishkind of the Bureau of Economic and Business Research forecasts a population increase of 274,000. Gary Cooper, Florida State Economist, forecasts population increasing by 3 5 4 . 0 0 0 between the fourth quarter of 1983 and the fourth quarter of 1984. FEDERAL RESERVE B A N K O F A T L A N T A The study d e t e r m i n e d t h a t a p p r o x i m a t e l y 9 0 percent of t h e state's future capital needs are for transportation, primarily roads. W h i l e the comb i n a t i o n o f t o u r i s t a n d local t r a f f i c o n t h e n o r t h / s o u t h routes has b e c o m e very heavy in recent years, t h e greatest needs will be for expanding the east/west highway network. Traffic along I-75 in w e s t e r n Florida has increased as t h e interstate nears c o m p l e t i o n , creating traffic and increased congestion on the connecting east/west routes. The largest concentration of overcrowded roads a n d bridges in need of m a i n t e n a n c e are in t h e state's rapidly-growing urban counties such as Broward, Hillsborough, Palm Beach, Pinellas, and Sarasota. A large p o r t i o n of the f u n d i n g for upgrading a n d e x p a n d i n g roads in these areas will go for re-routing existing traffic d u r i n g construction. The state and counties share responsibility for t h e state's highway network. Bringing roads up t o standard and a c c o m m o d a t i n g future g r o w t h will require cooperative effort. Despite the rapid g r o w t h in t h e late 1970s and early 1980s, real c o m b i n e d state and local s p e n d i n g o n roads a n d highways failed t o rise. Recent tax increases a n d enabling legislation will help u n d e r w r i t e large capital outlays. M o s t of t h e revenues f r o m the 1983 increase of five cents a gallon in t h e gasoline tax is earmarked for state road improvements. In addition, in 1982 the legislature permitted local governments to raise the gasoline tax as m u c h as four cents per gallon. A t t h e e n d of 1983, almost half the counties had exercised the o p t i o n w i t h an average tax of t h r e e cents. The most urgent n e e d created by rapid p o p u lation g r o w t h is for n e w w a t e r and sewage t r e a t m e n t facilities. State resource experts say that the state does not lack underground supplies of fresh water, t h o u g h the cost of getting the water t o t h e user is likely t o increase as readily available supplies are reduced. U n d e r g r o u n d ,0 N e i l G. Sipe and Earl M. Starnes, "Florida's Infrastructure: A Preliminary Report," Bureau of Economic and Business Research, University of Florida 13 w a t e r is a b u n d a n t in Florida's inland aquifers. Coastal c o m m u n i t i e s face the threat of salt water intrusion w h e n t h e level in t h e aquifer falls e x t r e m e l y low. In periods of drought a n d heavy usage, conservation measures are often required. Expanding wastewater t r e a t m e n t fast e n o u g h is difficult in Florida's rapidly growing areas and at times has delayed construction. O r l a n d o had a m o r a t o r i u m o n permits in 1 9 8 0 because t h e city c o u l d not dispose safely of all t h e wastewater generated by the g r o w i n g population. The fastg r o w i n g city a d o p t e d t h e " g r o w t h ought to pay its o w n way" philosophy for economic developm e n t and t u r n e d from b o n d issues t o i m p a c t fees t o pay for n e w wastewater t r e a t m e n t plants. Rather than tax all citizens t o provide t h e capital n e e d e d for new infrastructure, the n e w users bear all the costs. Reflectingthe impactfees, n e w w a t e r connections in O r l a n d o j u m p e d f r o m $ 4 0 0 in 1 9 8 0 t o $ 1 6 0 0 in 1983. W h i l e state and local officals marshal resources t o i m p r o v e Florida's infrastructure, a potential tax revolt is b r e w i n g a m o n g the state's voters. Led by a small band of conservative activists, t h e group has placed a tax-limiting a m e n d m e n t o n the N o v e m b e r 4 ballot. Proposition 1, as the a m e n d m e n t is called, w o u l d i m p o s e strict limits on nearly all funds collected by state, c o u n t y and local governments in Florida. The m o v e m e n t has received most of its financial backing f r o m corporate real estate developers reacting t o their increasing share of Florida's p r o p e r t y taxes in recent years. The increased share resulted from higher h o m e s t e a d exemptions for elderly residential p r o p e r t y owners. To generate revenue for i m p r o v i n g education, Florida's corporate i n c o m e tax was increased in 1983 t h r o u g h changes w h i c h increase t h e tax base for some companies. The changes i n c l u d e a repeal of Florida's existing e x e m p t i o n of foreign source i n c o m e as taxable corporate profits, a change in the definition of Florida sales, and a provision for w o r l d w i d e unitary a p p o r t i o n m e n t for d e t e r m i n i n g t h e corporate i n c o m e tax base. T h o u g h it represents o n l y a small p o r t i o n of t h e estimated $95 m i l l i o n in revenue f r o m the tax package, t h e w o r l d w i d e unitary a p p o r t i o n m e n t provision has e v o k e d the strongest reaction f r o m the corporate c o m m u n i t y . U n d e r w o r l d w i d e unitary a p p o r t i o n m e n t , a c o m p a n y ' s w o r l d w i d e operating i n c o m e is inc l u d e d in taxable corporate profits w h i c h are t h e n a p p o r t i o n e d t o Florida by the a m o u n t of sales, payroll, and property in the state compared 14 to everywhere else in t h e world. Companies operating primarily in Florida or the U n i t e d States will experience little change in taxes from the n e w provision, w h i l e multinationals c o u l d be heavily impacted. In particular, this provision will increase t h e tax base for any c o m p a n y whose offshore operations are more profitable than its domestic operations. State analysts are currently studying the potential impact of t h e measure on business d e v e l o p m e n t efforts, since local industrial d e v e l o p m e n t commissions report that many recruitment prospects have expressed concern. In addition, expansion plans of some corporate giants already active in t h e state, such as IBM, may be affected by t h e measure. Established Industries Accelerate Florida's established industries are more susc e p t i b l e t o cyclical fluctuations than the new growth sectors. Construction, tourism, agriculture and international trade slowed d o w n or declined during t h e latest recession. But in 1983, construction and tourism r e b o u n d e d substantially, p r o v i d i n g a strong boost t o t h e overall economy. Activity in these sectors returned t o or surpassed prerecession peaks. Agricultural production, particularly citrus, was below norma! last year because of damaging freezes in earlier years. A n d t h e severe freeze in late 1983 has d i m m e d the o u t l o o k for this year. I nternational trade suffered for t h e past t w o years f r o m weak Latin markets, b u t initial recovery is e x p e c t e d by late 1984. Residential Construction As p o p u l a t i o n growth picked up in 1983, Florida's residential construction c o n t i n u e d the rebound begun in late 1982. W i t h the anticipated stronger p o p u l a t i o n influx this year, the o u t l o o k for residential construction is bright. N e w residential housing starts are estimated at just over 180,000 in 1983, falling short of the 1 9 7 9 peak of 192,000 units. Housing starts in 1984 are p r e d i c t e d t o be around 2 2 0 , 0 0 0 units (Table 2). 1 1 M o n t h l y housing starts o n a 1 2 - m o n t h cumulative basis in N o v e m b e r , 1983 w e r e 78 percent above the trough reached in August, 1982, w h i l e t h e value of n e w units was up a lower 71 " A l l residential construction data are from Dodge Construction Potentials, F. W. Dodge, McGraw-Hill Informational Systems Company, McGraw-Hill, Inc. FEBRUARY 1984, E C O N O M I C REVIEW T a b l e 2. Residential Construction by City Number of Units (12 month Cumulative Rate) Percent Decline From Peak 1979-80 Peak 1982 Trough 195,993 99,555 -49 177,067 Jacksonville 6,608 4,765 -28 Tallahassee 2,808 1,443 -49 Pensacola 3,469 2,311 Daytona 6,123 Gainesville Melbourne FLORIDA Orlando Lakeland Tam past. Petersburg November 1983 Percent Increase from Trough Percent Single-Family Percent Multi-Family 78 52.9 47.1 10,756 +126 51.4 48.6 3,638 +152 66.3 33.7 -33 5,499 +138 45.1 54.9 3,585 -41 4,707 + 31 79.3 20.7 3,433 1,087 -68 2,008 + 85 48.0 52.0 7,159 3,071 -57 5,834 + 90 61.0 39.0 12,504 7,966 -36 19,165 +141 58.0 42.0 3,904 1,963 -50 4,078 +108 + — — 30,212 16,030 -47 30,070 + 88 55.7 44.3 Sarasota 6,899 3,135 -55 5,040 + 61 57.5 42.5 Ft. Myers 9,652 4,235 -56 5,668 + 34 45.8 54.2 W. Palm Beach 29,844 9,263 -69 18,300 + 98 49.0 51.0 Ft. Lauderdale 24,355 6,591 -73 13,126 + 99 29.8 70.2 Miami 22,475 7,145 -68 15,023 + 110 38.9 61.1 Source: Calculated from data published by F. W. Dodge, McGraw-Hill. Inc. percent. The smaller value increase reflects a shift by builders t o m e e t the d e m a n d for m o d e rately priced homes. T h r o u g h o u t the state, inventories of m o d e r a t e l y priced single- a n d multifamily h o m e s are " l o w t o normal." The market for luxury waterfront condominiums remains w e a k in m a n y of Florida's coastal areas. A reduction in foreign buyers brought a b o u t by the strong dollar a n d international e c o n o m i c recession has curtailed the d e m a n d . Speculators are no longer active in t h e market as t h e y w e r e in the late 1970s w h e n prices w e r e rising rapidly. While pockets of unsold luxury condominiums can be f o u n d t h r o u g h o u t the state, the largest inventories are in Dade C o u n t y , w h i c h has b e e n hard-hit by t h e loss of a substantial p o r t i o n of t h e Latin A m e r i c a n market. M u c h of t h e Latin speculation a n d o v e r b u i l d i n g in the luxury market was stimulated by a quirk in U. S. tax law that exe m p t e d foreigners f r o m capital gains taxes on real estate investment. The repeal of this law also has contributed t o the s l o w d o w n in Dade County's luxury market. The luxury units that do sell often c o m m a n d substantial discounts. Since ! FEDERAL RESERVE B A N K O F A T L A N T A lenders are just starting t o u n l o a d their c o n d o m i n i u m repossessions, a t r e n d that may n o t peak until 1985, t h e r e is no i m m e d i a t e i m p r o v e m e n t in sight. In t h e northwest Florida coastal cities of Pensacola, Fort W a l t o n Beach a n d Panama City, construction of less-luxurious waterfront condominiums has been strong. These units are in the m o r e affordable 5 7 0 , 0 0 0 t o $1 50,000 range a n d are in d e m a n d by seasonal tourists. The most active residential construction is in local areas w i t h rapidly e x p a n d i n g business a n d industrial sectors, such as central Florida Housing starts in O r l a n d o during the 12 m o n t h s e n d i n g November 1983 totaled 19,165, placing Orlando second o n l y t o T a m p a / S t Petersburg. Local observers say the b o o m in construction has resulted in occasional shortages of such essential b u i l d i n g materials as dry wall. The Tampa/St. Petersburg m e t r o p l i t a n area has e m e r g e d as Florida's largest housing market. N e w residential c o n s t r u c t i o n units in 1983 w e r e a p p r o x i m a t e l y equal t o those d u r i n g t h e last peak 12-month period, but Tampa/St Petersburg 15 has increased its lead o v e r t h e large m e t r o p o l i t a n areas in southeast Florida The T a m p a Bay area should be Florida's t o p housing market in 1 9 8 4 and t h e eighth largest nationally. C o n s t r u c t i o n in northeast Florida has been f u e l e d by business expansion a n d increasing retiree migration into that part of the state. Residential construction is strong in Jacksonville, w i t h t h e multi-family sector s h o w i n g especially strong advances. Resort areas in northeast Florida most of w h i c h are golf-oriented, report an increasing n u m b e r of year-round residents. Several e x p e r i e n c e d shortages of homes in 1983 a n d are e x p e c t e d t o have another o u t s t a n d i n g year in 1984. In southeast Florida, residential construction c o n t i n u e d r e b o u n d i n g in 1983 f o l l o w i n g a fouryear contraction. The n u m b e r o f residential housing units for the t h r e e c o u n t y area was up 105 percent in 1983 over 1982, w i t h an 80 percent increase in t h e value of n e w homes. Both W e s t Palm Beach and M i a m i s h o w a stronger r e b o u n d a m o n g single-family homes, w h i l e in Fort Lauderdale multi-family activity is stronger. The percentage of n e w h o m e s c o m p o s e d of multi-family units is 70 percent in Fort Lauderdale, t h e highest in t h e state. Tourism W h i l e tourism is service-oriented, it is a major e x p o r t industry for Florida since most touristrelated business comes f r o m p e o p l e outside t h e state. O n l y Hawaii, Maine, N e v a d a and V e r m o n t have a greater share of tourist-related jobs than Florida's conservatively estimated 8.9 percent, a b o u t d o u b l e the U.S. norm. 1 2 Last year was an e x t r e m e l y good o n e for Florida tourism. It was the first full year of operation for Walt Disney World's new attraction, EPCOT (Environmental Prototype C o m m u n i t y of T o m o r r o w ) . The lure of EPCOT, along w i t h t h e recovery and lower gasoline prices, brought a 10 percent increase in visitors last year t o 4 0 million. This surge came despite a decline in visitation by foreigners. Tourism should c o n t i n u e t o grow in 1984, but at a slower pace. The factors influencing visitation should reverse. Strengthening w o r l d e c o n o m i e s a n d a w e a k e r U.S. dollar may bring m o r e foreign visitors, b u t EPCOT's novelty may have diminished somewhat for American travelers. • ' I m p a c t of Travel on State E c o n o m i e s (Washington, D. C.: U. S. Travel Data Center, July 1983). S u b s e q u e n t tourism d a t a from: Dick Pope Institute, University ot Florida Bureau of Business and Economic Research, State Economist s Office, local airport administrative offices, Eastern 16 C o m p e t i t i o n f r o m the N e w Orleans W o r l d ' s Fair and, t o a lesser extent, t h e Los Angeles Olympics, may d a m p e n g r o w t h in Florida's tourist sector. A 7-8 percent increase in visitors is likely this year. The healthy increase in tourist arrivals in 1983 was reflected in increased airport activity. Plane passenger arrivals were up 15 percent in Orlando a n d 2 0 percent in West Palm Beach for the first three quarters of the year. Jacksonville and Tampa also recorded hefty increases of 9 and 11 percent Miami's lackluster p e r f o r m a n c e is reflected in the 3 percent decline in plane passenger arrivals a n d in the heavy losses recorded by Eastern Airlines. Air travel should c o n t i n u e t o grow in 1984, and t h e o u t l o o k for air carriers appears bright. Miamibased Air Florida shows a 4 0 percent increase in advance bookings for the w i n t e r tourist season. O r l a n d o airport officials are seeking t o arrange s c h e d u l e d international service t o that city, a project that c o u l d take over a year. But officials e x p e c t t o finish construction of a n e w $6 million customs center in 1 9 8 4 t o increase t h e a i r p o r t s capacity for processing international visitors. Orlando's n e w international capacity could further c o m p l i c a t e Miami's a n d Eastern Airlines' problems. Eastern provides a major international h u b for foreign travelers, b u t t h r o u g h the third quarter, 1983, Eastern lost $128.9 million o n t o p of a similar loss in 1982. Eastern's heavy d e b t b u r d e n f r o m its capital expansion exacerbated the cost pressures of deregulation. As Eastern a t t e m p t e d t o reduce costs, labor-management tensions heightened. Eastern officials t h r e a t e n e d b a n k r u p t c y if its workers refused t o grant wage and benefit concessions. By year end, however, Eastern s e e m e d t o have reached a resolution w i t h its unions a n d creditors, a n d corporate officials w e r e f o r m u l a t i n g strategies, such as e x p a n d i n g service t o Latin A m e r i c a and through t h e M i d w e s t , t o increase t h e carrier's revenues. Eastern Airlines is Miami's largest private sector e m p l o y e r w i t h one-third of its 39,500 e m p l o y e e s based there and a payroll of $ 3 5 0 million per year. Eastern pays a b o u t $10 million annually t o t h e Dade C o u n t y Aviation D e p a r t m e n t for rent and landing fees and buys $ 2 0 0 million in goods and services from local firms. Total compensation per e m p l o y e e averages almost $47,000. Airlines, U. S. Travel and Tourism Administration, Florida Division of Tourism, Walt Disney World, Pannell, Kerr and Forster, T a m p a TribuneTimes, Orlando Sentinel, and M i a m i Herald. FEBRUARY 1984, E C O N O M I C REVIEW ! Foreign visitors c o m e t o the U n i t e d States primarily by air, a n d many enter t h r o u g h Miami. Florida was t h e primary destination of 36 percent of overseas visitors t o the U n i t e d States in t h e first quarter of 1983. N o o t h e r state c o m m a n d s such a high p r o p o r t i o n of foreign air travelers. As the recovery exerts a greater i m p a c t abroad, more foreigners should visit Florida. M o s t of Florida's 4 0 million visitors enter t h e state by a u t o m o b i l e . They visit W a l t Disney World, other major t h e m e parks, and the beaches; they stay in c a m p g r o u n d s or at o n e of the m a n y Florida hotels. A u t o travel, spurred by a 2.2 percent decline in gasoline prices f r o m August, 1982 t o August, 1983, was up significantly last year. The n u m b e r of visitors registering at Florida w e l c o m e centers grew 6.7 percent in the first three quarters. O c c u p a n c y at Florida's private campgrounds rose t h r o u g h o u t t h e year and by August was 10 percent ahead of the first eight months in 1982. Tourism in central Florida is most highly inf l u e n c e d by W a l t Disney W o r l d . The influx of visitors t o t h e n e w l y o p e n e d EPCOT heightened activity a r o u n d O r l a n d o in 1983. Total visitors t o Disney W o r l d through the t h i r d quarter w e r e 77 percent higher than the same period in 1982. Over 20 million p e o p l e visited t h e park last year. Just sustaining that level of a t t e n d a n c e will be admirable for 1984. The o p e n i n g of a n e w General Electric C o r p o r a t i o n pavillion in late 1983 and the p l a n n e d o p e n i n g of a M o r o c c a n exhibit in late 1984 should encourage s o m e return visits, especially by Florida residents. O t h e r attractions suffered in 1983 f r o m EPCOT's c o m p e t i t i o n , b u t their a t t e n d a n c e is likely t o increase in 1984. The EPCOT b o o m renewed the lodging industry in central Florida as o c c u p a n c y rates rose an average 21 percent t h r o u g h the year. A b o u t 11,500 t o 13,500 rooms have been or will be a d d e d t o 1983's level of 34,000 rooms in the three-county O r l a n d o a r e a There is some concern a b o u t an o v e r s u p p l y of rooms as the onetime surge of EPCOT visitors levels off. Occupancy rates already are beginning to dip. In t h e immediate Disney W o r l d vicinity, hotel o c c u p a n c y d r o p p e d t o 80 percent in O c t o b e r f r o m 84 percent the previous year. Visitation t o M i a m i has been affected adversely by t h e d e c l i n e in foreign tourism in general and the c o m p e t i t i o n f r o m EPCOT, sometimes disparagingly referred t o as the " E P C O T Wall." FEDERAL RESERVE B A N K O F A T L A N T A A t t e n d a n c e at M i a m i ' s Seaquarium has been d o w n 11 t o 12 p e r c e n t The c o n v e n t i o n market is also soft. The n u m b e r of conventions in M i a m i Beach d r o p p e d f r o m 3 0 0 in 1982 t o 2 5 0 last year, and preliminary estimates indicate a decrease f r o m 4 0 0 , 0 0 0 delegates in 1982 t o 2 7 5 , 0 0 0 in 1983. In addition t o the recession, which reduced c o n v e n t i o n traffic n a t i o n w i d e , M i a m i Beach's c o n v e n t i o n business has deteriorated because o t h e r cities have a d d e d or e x p a n d e d facilities, lowering its rank in exhibition space from seventh in 1976 t o 32 nd in 1983. N e w hotel construction and expansion of t h e city's c o n v e n t i o n center should help i m p r o v e t h e M i a m i tourist market over t h e long-term. For 1984, however, the industry is likely t o s h o w little i m p r o v e m e n t . W h i l e t h e t o u r i s m o u t l o o k for 1 9 8 4 generally is bright, near-term d e v e l o p m e n t s p o r t e n d difficulties for Florida's t o u r i s m industry. The most i m p o r t a n t of these will p r o b a b l y be t h e W o r l d ' s Fair in N e w Orleans, w h i c h extends f r o m M a y 12 t h r o u g h N o v e m b e r 11. M a n y of the 11 million visitors e x p e c t e d at t h e fair are t h e same upscale travelers w h o w o u l d be attracted t o EPCOT. However, c o n t i n u a t i o n of e c o n o m i c expansion should increase disposable i n c o m e not o n l y in t h e U n i t e d States, b u t also abroad, generating further increases in travel t o Florida. Agriculture Florida's a g r i c u l t u r e s e c t o r , t h o u g h o v e r shadowed by tourism, construction, and business d e v e l o p m e n t is important in the state's economy. Florida ranks e l e v e n t h a m o n g t h e states in value of agricultural products, and agribusiness accounts for $12 billion or 11 percent of statewide income. O v e r half of Florida's farm revenue is generated by fruits a n d vegetables. Cattle a n d sugarcane are also important. In 1983, t h e citrus industry, Florida's largest agricultural revenue producer with annual earnings over $1 billion, 1 3 was recovering f r o m the damaging back-to-back freezes of 1 9 8 1 a n d 1982 w h e n e x t r e m e l y severe w e a t h e r struck o n c e again. In late D e c e m b e r of 1983, t e m p e r a t u r e s plunged, breaking records t h r o u g h o u t the state. Damage was most extensive in central a n d north Florida w h e r e t e m p e r a t u r e s fell b e l o w freezing for t w o consecutive nights. Oranges, as a 13 Economic Research Service, USDA. Economic Indicators of the Farm Sector, State Income and Balance Sheet Statistics 1981. Washington: GPO, 1982. 17 Chart 6. Florida Frozen Concentrated Orange Juice Mil. Gal. (shipped per season) 325 ' 260 - •Estimates before and after Dec. 83 freeze. Source. Historical d a t a from Agricultural Statistics 1982, USDa, Washington. D C.: GPO, 1 9 8 Z result of a t h i n n e r skin, suffered m o r e damage than the less valuable grapefruit crop. Freeze-damaged fruit can be utilized for j u i c e although the juice yield is much lower. Fortunately, t e m p e r a t u r e s remained b e l o w normal f o l l o w i n g t h e freeze, thus retarding deterioration. M u c h of the crop apparently can be salvaged, but j u i c e p r o d u c t i o n will be r e d u c e d significantly. 1 4 The freeze was especially crushing because the 1 9 8 3 - 1 9 8 4 orange c r o p had b e e n e x p e c t e d to be the first normal o n e in three years. W h i l e the previous season's crop had been an improvem e n t over 1981-82's o u t p u t , it remained b e l o w normal. W i t h favorable prices a n d larger crops, Florida orange growers fared better last year. The prospects for 1984 a b r u p t l y changed w i t h the early w i n t e r freeze (Chart 6). The short-term i m p a c t of the freeze will be a shortage of fresh citrus, especially oranges. Growers in counties near Orlando and northward are expected to supply little fresh fruit to the retail market until next season. Prices of frozen concentrated orange j u i c e (FCOJ) will rise significantly in the short run. The late January wholesale price was 22 percent above the pre-Christmas price. In the long run, the i m p a c t will d e p e n d largely o n the degree of tree damage incurred by the '"An early January estimate of t h e Florida Citrus Mutual, a grower organization. 18 citrus industry. If trees e x p e r i e n c e d limb and t w i g damage, it c o u l d mean a r e d u c e d crop in the 1 9 8 4 - 1 9 8 5 g r o w i n g season. Consumers will c o n t i n u e t o feel the effects of t h e D e c e m b e r w e a t h e r t h r o u g h o u t 1984 and possibly longer. After t h e 1 9 8 0 - 1 9 8 1 freeze, wholesale frozen concentrate prices c l i m b e d 48 percent and remained above the pre-freeze price. Even w i t h an almost certain increase in Brazilian imports, concentrate prices are likely t o remain higher t h a n last year until at least next season. Vegetables generate almost $ 8 0 0 million, or 20 percent of Florida's farm revenue, and are especially important in south Florida where farmers have the advantage of being off-season producers. Weather is always a concern of vegetable growers a n d in recent years rising M e x i c a n imports have also p r o v e d worrisome. The D e c e m b e r freeze devastated Florida's vegetable industry with temperature-sensitive crops such as tomatoes, squash, and p e p p e r virtually w i p e d out. N o area of t h e state was left free of damage although tougher crops such as celery e x p e r i e n c e d only minor damage. Perhaps the most significant i m p a c t has been the rising cost of fresh vegetables t o consumers. Vegetable prices will remain high until n e w crops are harvested in late winter. By early January, wholesale prices of crops such as lettuce and corn had m o r e than d o u b l e d w h i l e no market price was established for some c o m m o d i t i e s , because of their absence from the market. Farm workers w h o normally harvest the vegetable crops in Florida f o u n d little d e m a n d for their service. , , . , Sugarcane, w h i c h accounts for a p p r o x i m a t e l y 6 percent of the state's cash farm receipts, also suffered from cold damage. O n e source estimates an a p p r o x i m a t e 10 percent reduction in sugar, processed from cane. Despite the s m a l l e r s u p p l y of Florida sugar, little price movement is expected. As a result the net revenue of Florida sugarcane growers may decline. The cattle industry, which accounts for approximately 11 percent of Florida's farm cash receipts, has b e e n taking substantial losses as cattle prices fell 31 percent f r o m their peak of over $70 per hundredweight in early 1979. However, cattlemen should see a t u r n a r o u n d in profit margins as beef supplies grow tight by midyear. Given the diversity in Florida agriculture, it normally is difficult t o characterize its health. It appears, however, that a n u m b e r of factors are FEBRUARY 1984, E C O N O M I C REVIEW impacting several major farm industries negatively. C a t t l e m e n are not likely t o see a significant turnaround in profit margins until at least midyear. What had been shaping up as a favorable year for the citrus industry was a b r u p t l y changed by t h e late 1983 freeze. M a n y growers are experiencing b e l o w - n o r m a l p r o d u c t i o n this growing season and may face a small c r o p in t h e 1 9 8 4 - 1 9 8 5 season. The vegetable industry suffered serious short-term losses in the early m o n t h s of 1984 b u t can quickly rebound barring further severe weather. In general, 1 9 8 4 may be a very trying year for the farm sector a n d this will u n d o u b t e d l y have an i m p a c t o n t h e state's e c o n o m i c health. C h a r t 7. Florida Exports and Imports Mil, $ Annually International Trade Following a p o o r p e r f o r m a n c e in 1 9 8 2 , international trade in Florida w e a k e n e d further in 1983. W i t h t h e strong U.S. dollar a n d e c o n o m i c problems in key Latin American countries, exports f r o m Florida fell sharply. F o r t h e first nine m o n t h s of 1983, the value of airborne a n d w a t e r b o r n e foreign exports in t h e southern half of Florida declined 28 percent while exports from northern Florida w e r e d o w n o n l y 4.8 percent. Southern Florida's poorer p e r f o r m a n c e resulted from its heavier d e p e n d e n c e on trade w i t h t h e t r o u b l e d Latin A m e r i c a n countries. W h i l e exports will likely be higher in 1984, t h e y will c o n t i n u e t o be constrained by sluggish g r o w t h and debt-related pressures in Latin America (Chart 7). The c o n t i n u e d strength of the U.S. dollar and t h e b e g i n n i n g o f an i n t e r n a t i o n a l e c o n o m i c recovery boosted state i m p o r t values in 1983 f o l l o w i n g a d e c l i n e in 1982. D u r i n g the first nine m o n t h s of 1983, the value of foreign imports was up 3.2 percent over the same p e r i o d in 1982. Imports into south Florida w e r e up o n l y 0.2 percent, w h i l e imports into north Florida ports w e r e up 5.4 percent. 1 5 During t h e last decade, international trade b e c a m e an increasingly i m p o r t a n t sector of Florida's e c o n o m y as t h e state's 16 seaports a n d major international airports c a p t u r e d a growing share of b u r g e o n i n g U.S. foreign trade. W i t h t h e value of merchandise exports t h r o u g h Florida ports g r o w i n g at a c o m p o u n d annual rate of nearly 26 percent d u r i n g t h e 1970s, international trade activity h e l p e d fuel the state's e c o n o m i c growth. ^ H i g h l i g h t s of U. S. Export a n d Import Trade, U. S. Bureau of the Census, F T 9 9 0 / S e p t e m b e r 1983. V FEDERAL RESERVE B A N K O F A T L A N T A Source: Highlights of U. S. Export a n d Import Trade, U. S. Bureau of the C e n s u s Increased foreign c o m m e r c e has b e n e f i t e d not o n l y those directly involved b u t o t h e r major sectors of the economy, such as tourism, banking, real estate and retailing. Those w h o b e c o m e familiar with Florida through traderelated business o f t e n find t h e state a nice place t o vacation a n d a safe place t o invest capital. So expansions a n d contractions in international activity increasingly i m p a c t m a n y sectors o f the Florida e c o n o m y . A d i s p r o p o r t i o n a t e share of Florida's foreign trade expansion has b e e n w i t h Latin A m e r i c a a n d the Caribbean. In the early 1980s, t r a d e w i t h these countries made up m o r e than t w o - t h i r d s of the state's total foreign c o m m e r c e , w i t h most o f the trade c o n d u c t e d t h r o u g h M i a m i . W h i l e the strong dollar suppressed U.S. exports in all regions, t h e political, social, a n d e c o n o m i c p r o b l e m s plaguing m a n y Latin A m e r i c a n countries dealt a particularly harsh blow to Florida's export-oriented international c o m m e r c e . The Port of T a m p a services such key state commodities as phosphate rock and byproducts. D u r i n g t h e p o r t s 1983 fiscal year, total cargo tonnage was up 11 percent f r o m the prior year. The increased tonnage resulted primarily from a 24 percent increase in p h o s p h a t e s h i p m e n t s t o industrialized countries. Total earnings of phosphate exporters, however, were 7 percent lower t h a n in 1982 because of lower w o r l d prices. 16 ,6 P h o s p h a t e Rock Export Association, T a m p a Florida 19 The Port of Jacksonville remains one of t h e nation's t o p ports for i m p o r t e d cars. For the fiscal year e n d i n g S e p t e m b e r 1983, t h e n u m b e r of cars i m p o r t e d was 4 percent lower t h a n in 1982, reflecting Japan's voluntary a g r e e m e n t t o limit its exports t o t h e U n i t e d States. The s c h e d u l e d 10 percent increase in the 1984 quota should increase the number of imports entering through Jacksonville in 1984. 1 7 The o u t l o o k for Florida agricultural exports in 1 9 8 4 is less certain t h a n for m a n u f a c t u r e d goods. Farm products a c c o u n t e d for o n e - t e n t h of the state's total e x p o r t values in 1982. Florida ranks second a m o n g the states as a fruit exporter a n d fifth as a source of vegetable exports. The late 1983 freeze has d i m m e d t h e prospects for citrus exports. In a d d i t i o n , t h e grapefruit industry faces an uncertain future because Japan, buyer of half of Florida's grapefruit exports, may limit imports as the result of a pesticide controversy. The potential loss of this market could sharply reduce grapefruit exports. The overall prospect for international trade in the state in 1 9 8 4 is c l o u d e d by c o n t i n u e d d e b t p r o b l e m s in Latin A m e r i c a n countries. Some i m p r o v e m e n t should result f r o m the full i m p l e m e n t a t i o n of the Caribbean Basin Initiative (CBI). The CBI provides m a n y Central American and Caribbean products w i t h 12year duty-free access t o the U.S. market. In addition, t h e CBI makes available t o Basin countries a trade-financing program that provides for t h e purchase of U.S. raw materials and i n t e r m e d i a t e goods n e e d e d t o fuel these countries' economies. The state's 1984 trade outlook is also e n h a n c e d by t h e e c o n o m i c recoveries underway in Canada Japan, and Western Europe. Conclusion Paced by b o o m i n g g r o w t h in its "central corridor," Florida appears ready t o erase most doubts about the staying power of its economic growth. High growth, high-technology companies are f l o c k i n g to t h e state, along w i t h enough n e w residents t o bring p o p u l a t i o n growth back t o prerecession levels. Such rapid growth will challenge t h e state's water, road and education systems, but the state's n e w e c o n o m i c diversity promises t o help Florida c o n t i n u e its remarkable growth. — Donald L Koch, Pamela V. Whigham, and Delores W. Steinhauser " J a c k s o n v i l l e Port Authority. Miami: Foreign Influence Affects Economy Miami's economy has begun a steady rebound f r o m the recession, t h o u g h at a slower pace than t h e rest of t h e state. As Florida's d o m i n a n t international city and the United States' gateway t o the Caribbean a n d Latin America, e c o n o m i c recovery in M i a m i has been suppressed by t h e social, political, a n d e c o n o m i c problems in Latin A m e r i c a n countries. W h i l e the loss of a large p o r t i o n of the Latin American market has hit t o u r i s m a n d small exporters most severely, other sectors of Miami's economy have suffered also. Though M i a m i ' s long-term prosperity lies in its increasing role in w o r l d c o m m e r c e , its high degree of internationalization promises t o d a m p e n its e c o n o m i c p e r f o r m a n c e until the Latin American e c o n o m i e s strengthen. 20 During t h e past t w o decades M i a m i has changed from a quiet resort c o m m u n i t y catering t o tourists and retirees t o a thriving international metropolitan area Miami's population currently is almost 4 0 percent Hispanic, t h e base of w h i c h came primarily f r o m C u b a in the early 1960s. The influx of this highly entrepreneurial group stimulated foreign trade activity principally w i t h transplanted Cubans in Latin American and Caribbean countries. The strong cultural ties facilitated trade, w h i c h evolved into a reciprocal n e t w o r k i m p a c t i n g m o r e than those directly active in foreign trade. Miami's tourist industry has b e c o m e increasingly d e p e n d e n t o n the Latin tourists and businessmen w h o s e numbers have risen during the last t w o decades t o offset the declining n u m b e r of d o m e s t i c visitors. M a n y Latin businesses have established offshore offices in Miami, whose transportation FEBRUARY 1984, E C O N O M I C REVIEW and c o m m u n i c a t i o n s networks o f t e n m a k e it an easier base f r o m w h i c h t o c o n d u c t business than most Latin countries. The increasing i n t e r n a t i o n a l activity has affected all sectors of Miami's e c o n o m y a n d shaped the pattern of business d e v e l o p m e n t . A recent study f o u n d t h a t those involved in international transactions in 1981, including those directly a n d indirectly involved in foreign trade or w h o cater t o international tourists, businessmen, and investors, made up 22 percent of Dade C o u n t y workers, up f r o m 1 7 percent in 1975. W h i l e t o u r i s m in north a n d central Florida r e b o u n d e d in 1983, Dade C o u n t y tourist expenditures in 1983 are estimated t o have fallen over 10 percent short of the 1982 level and 33 percent below 1980 tourist expenditures. 18 The decline in tourism has hurt business for Miami's retailers. W h i l e retail sales statewide w e r e up 12.5 percent d u r i n g t h e first t e n m o n t h s of 1983, in M i a m i t h e y w e r e up only 4.7 p e r c e n t Local real estate agents estimate that almost half of the hotels in several of Dade's o n c e thriving beachfront tourist districts are for sale, t h o u g h hotel construction has been strong in Miami's business district, d o w n t o w n and near t h e airport. Latin Americans have invested heavily in south Florida real estate, f i n d i n g the region a safe harbor for dollars d r a w n o u t of their o w n financially troubled economies. Wealthy Latins h e l p e d fuel rampant inflation a n d speculation in Miami's luxury c o n d o m i n u i m market in t h e late 1970s. W i t h increasing restrictions o n withdrawing capital from many of the countries, t h e f l o w of Latin American i n v e s t m e n t m o n e y has slowed and has b e e n d i r e c t e d t o w a r d less conspicuous investments, t h e r e b y drying up the luxury c o n d o m i n i u m market. There are an estimated 3,000-3,500 exporters in South Florida, most of w h i c h are small operations e m p l o y i n g five or f e w e r p e o p l e specializing in exports t o Latin A m e r i c a n countries. W i t h a 28 percent decline in exports during the last year, the area's small exporters have shown enormous resilience. Lower earnings have forced m a n y t o t u r n t e m p o r a r i l y t o o t h e r types of w o r k t o k e e p their operations going. The p r o l o n g e d decline of Miami's foreign trade has underscored t h e n e e d t o diversify from a heavy d e p e n d e n c y o n exports t o Latin ' " M e t r o Dade Department of Tourism, Research Division. FEDERAL RESERVE B A N K O F A T L A N T A American countries. M a n y officials and businessm e n are t r y i n g t o diversify by seeking n e w e x p o r t markets in Europe, Asia, a n d Africa. However, w i t h their Latin backgrounds a n d fluency in Spanish, most Florida exporters have a c o m p a r a t i v e advantage in trading w i t h Latin A m e r i c a and t h e Caribbean, so trade is likely t o c o n t i n u e t o be heavily w e i g h t e d t o w a r d those areas. By o p e r a t i n g large vessels to Latin America, Miami freight forwarders can consolidate shipments and transport goods at a lower per unit charge. M a n y see an e x p a n d i n g role for M i a m i as a t r a n s s h i p m e n t point for cargo c o m i n g f r o m foreign countries. In addition, Miami's small exporters can position themselves t o receive and market the increasing imports f r o m Latin A m e r i c a n countries. Increased imports are inevitable if these countries are t o rebuild their e c o n o m i e s a n d service their large foreign debts. M a n y pin high hopes on d e v e l o p i n g Miami's potential as an international medical center, serving primarily Latin American countries. M i a m i has extensive hospital and medical facilities constructed to serve its large elderly population. By offering a c o m p r e h e n s i v e health service package t o prospective foreign patients, M i a m i c o u l d fill t h e currently e m p t y beds and lay the foundation for expansion of its medical network. In a d d i t i o n t o direct patient care, services o f f e r e d t o t h e Latin market c o u l d i n c l u d e specialized medical e d u c a t i o n for physician s u p p o r t technicians, i n f o r m a t i o n services, a n d stimulation of local manufacture and distribution of medical e q u i p m e n t a n d supplies. Despite the international difficulties, Miami's e c o n o m y is recovering. N e w housing starts in t h e Dade C o u n t y m e t r o p o l i t a n area are up 100 percent over 1982 levels, and 11,700 nonagricultural j o b s have been a d d e d over the past year. Even t h o u g h M i a m i is heavily d e p e n d e n t on international trade, t h e current recovery demonstrates that t h e city has a diversified e c o n o m i c base, some of w h i c h is b o u n c i n g back with the domestic economy. For example, active in M i a m i ' s recovery are a large n u m b e r of small manufacturers a n d warehousers that serve t h e local south Florida market. W i t h recovery in t h e U.S. increasing activity in the broader south Florida region, these companies are c o m i n g back t o life But a robust expansion must wait for the revival of major Latin American economies. 21 Georgia: A Healthy Economy Looks for Solid Growth Georgia is w e l l p o s i t i o n e d t o continue its strong economic perf o r m a n c e in 1984. Just as t h e state s e e m e d m u c h less vulnerable t o recession than most of its neighbors in the Southeast, its e c o n o m i c growth in coming years should continue t o show sharper gains than t h e nation or the region as a whole. A l o n g w i t h Florida, Georgia can be fairly described as the " e n g i n e " of southeastern e c o n o m i c growth. Atlanta is, in turn, the engine of Georgia's strong e c o n o m i c performance. A r e b o u n d i n g e c o n o m y nationally has r e n e w e d t h e strong in-migration that contributes immeasurably t o the e c o n o m i c strength of this part of Georgia. As the national e c o n o m y b e c o m e s more decentralized geographically, Atlanta will benefit from being the natural e c o n o m i c center of a healthily growing southeastern market. Significant imbalances remain in t h e A t l a n t a e c o n o m y , b u t t h e y are the imbalances of g r o w t h rather than stagnation. In t h e northern part of Georgia surrounding Atlanta, the predominant light industry s h o w e d a remarkable resurgence in 1983, s o m e w h a t ahead of similar industries in o t h e r parts of the South. The n e w year promises c o n t i n u i n g strength in north Georgia, t h o u g h not at the same rate of i m p r o v e m e n t as earlier because t h e early consumer-goods phase of the national e c o n o m i c recovery has peaked. The longer-run challenge is m o d e r n i z a t i o n in the face of low-cost foreign c o m p e t i t i o n . Five years of drought in the past seven have left farmers w i t h e x t r e m e l y heavy debt. A l t h o u g h t h e r e are bright spots in particular locations, it will probably take many years to resolve problems c o n f r o n t i n g the agricultural e c o n o m y . 22 Georgia held up remarkably well during t h e past recession, p a c e d by Atlanta's m a g n e t i c effect o n relocating c o m p a n i e s . O u t s i d e of Atlanta, t h e s t a t e ' s manufacturing and agricultural sectors look f o r w a r d t o a b e t t e r year. FEBRUARY 1984, E C O N O M I C REVIEW Chart 1. Georgia Unemployment Rate, Compared with Region and the Nation Georgia Southeast Source; Federal Reserve Bank of Allanta Recent Economic History Georgia held u p remarkably well d u r i n g the past recession, b o t h in comparison w i t h t h e nation a n d w i t h previous recessions. The stability of the state's unemployment rate was an especially bright feature in its economy. During the recession, Georgia's jobless rate remained b e l o w those of the Southeast and the nation (Chart 1 ). Compared with the 1973-1975 business cycle, the stability of Georgia's recent u n e m p l o y m e n t is even more apparent During the earlier recession, the jobless rate increased by m o r e than five percentage points before it peaked; d u r i n g the past d o w n turn, Georgians' u n e m p l o y m e n t rose little over t w o points. Georgians' personal income also showed healthy growth d u r i n g t h e past recession. In fact, t h e state's annual increase of 10 percent for t h e period e n d i n g in m i d - 1 9 8 3 e x c e e d e d that of t h e nation by nearly 2 p e r c e n t Also, Georgia's consumer s p e n d i n g has o u t p a c e d s p e n d i n g growth in the region since early 1982 (Chart 2). Part of t h e explanation for Georgia's increased stability lies in its e m p l o y m e n t base. Since the 1973-1975 recession, t h e percentage e m p l o y e d in service jobs in t h e Peach State has increased, while the p r o p o r t i o n in manufacturing and construction has decreased (Chart 3). The increasing share of service jobs, generally less susceptible t o economic downturns, has served ! FEDERAL RESERVE B A N K O F A T L A N T A C h a r t 2. Georgia and Southeast Taxable Sales, Annual Percent Change Georgia Southeast Monthly Data: 1/82 - 9/83 Source: Federal Reserve Bank of Atlanta t o insulate the Georgia e c o n o m y during recessions. 1 Furthermore, a cyclically sensitive sector, durable goods, currently accounts for 8 percent of nonagricultural e m p l o y m e n t in t h e state c o m p a r e d w i t h 12 p e r c e n t nationwide. Recovery f r o m Georgia's m i l d recession has been broad-based, with improvement in employment, construction activity, and tourism. Following "classic" recovery behavior, declining interest rates d u r i n g early 1983 stirred d e m a n d a n d stimulated consumer purchases, w h i c h depleted inventories a n d increased e m p l o y m e n t . The j o b market brightened for almost all Georgians in 1983, w i t h e m p l o y m e n t rising in all major industries. Pent-up demand for automobiles stimulated e m p l o y m e n t in Georgia's transportation e q u i p m e n t industry. Similarly, l u m b e r a n d w o o d e m p l o y m e n t r e s p o n d e d favorably t o increased d e m a n d s for housing. Residential a n d c o m m e r c i a l construction also s h o w e d increases over year-ago levels. Singlefamily b u i l d i n g permits in t h e state w e r e up 64 percent through N o v e m b e r compared with 1982 levels. C o m m e r c i a l space absorption in Atlanta, although posting near-record highs, barely kept pace w i t h a d d i t i o n a l n e w construction. Georgia's tourism sector was aided in 1983 by relatively low gasoline prices and pass-through 'William N. Cox and R. Mark Rogers, "Georgia: Rebuilding in 1983," E c o n o m i c Review, Federal Reserve Bank of Atlanta (February 1983), pp. 20-29. 23 Chart 3. Percent of State's Nonfarm Employment Nov. 1973 Nov. 1983 Manufacturing Nondurables Government Services Trade Construction 0 10 20 Source: Federal Reserve Bank of Atlanta traffic t o EPCOT Center in Florida Georgia welc o m e centers, National Park Services sites, and state parks all e x p e r i e n c e d increases in visitors. Overall activity at Georgia's d e e p w a t e r ports was n o t as favorable. C o n t r i b u t i n g t o t h e 4 percent decrease in port activity at Savannah and Brunswick was softness in w o r l d d e m a n d for clay, lumber, paper a n d w o o d pulp. In addition, American firms' conservation a n d stockpiling of petrochemicals slowed shipping through Georgia ports, as d i d t h e decreased w o r l d d e m a n d for U.S. exports. For m a n y Georgia farmers, 1983 was a year of m i x e d blessings. The year began w i t h huge surpluses of major crops a n d t h e prospect of c o n t i n u e d l o w farm prices. The federal paymentin-kind (PI K) program reversed t h e price o u t l o o k w h e n thousands of participating farmers idled acreage. However, the resulting rise in grain prices l o w e r e d profit margins in t h e poultry and egg industries and inefficient producers suffered losses. Several structural changes have affected the nature of Georgia's recovery and future growth. 24 The e f f i c i e n c y - p r o m o t i n g measures u n d e r t a k e n d u r i n g t h e recession by certain manufacturing industries, such as textiles and paper and pulp, may mean that fewer n e w jobs will be n e e d e d t o meet post-recessionary demand. Also, the relative increase in service-related jobs, w h i c h t e n d t o be c o n c e n t r a t e d a r o u n d cities, may exacerbate the r u r a l - t o - u r b a n m i g r a t i o n t h a t h a d s l o w e d in Georgia2 Pressure t o reduce costs also affected the construction industry. In the industrial sector, some companies have begun phasing o u t their regional distribution centers, relying instead on centralized facilities and c o m p u t e r i z e d systems t o p r o m o t e profitability and t o ensure fast distribution. However, t h e t r e n d t o w a r d centralized distribution c o u l d be mitigated by declining interest rates, w h i c h reduce the cost of carrying inventories, a n d by an offsetting t r e n d t o w a r d closer ties between industries and their suppliers. The m o v e t o w a r d c o m p u t e r i z a t i o n instead of construction is beginning in the deregulated b a n k i n g industry, w h i c h had previously relied on t h e c o n v e n i e n c e of branch facilities t o attract customers. Banking mergers may slow employm e n t g r o w t h in traditional functions; however, as financial i n s t i t u t i o n s increase their scope of services, t h e n e e d for e m p l o y e e s t o fill resulting n e w positions also will grow. Metropolitan Atlanta O u t l o o k M e t r o Atlanta has c o n t r i b u t e d significantly t o the state's recovery, and prospects are bright for further i m p r o v e m e n t in 1984. Atlanta's longt e r m o u t l o o k , however, will d e p e n d partly on h o w the region addresses t w o major issues c o n f r o n t i n g it. O n e issue is n o r t h - s o u t h g r o w t h i m b a l a n c e . The strong thrust of development and population g r o w t h has created a " b o o m t o w n " of t h e north m e t r o area ( M a p 1). The influx of p e o p l e has created an urgent need for land-use guidelines, new services, a n d d e v e l o p m e n t planning for t h e flourishing northern suburbs, some of w h i c h u n d e r w e n t rapid transition f r o m rural towns. W h i l e t h e north m e t r o area struggles w i t h the m i x e d blessing of rapid growth, d e v e l o p m e n t of south Atlanta has been disproportionately slower. ' F o r a c l o s e r l o o k a t the importance of service industries to Georgia and the Southeast, see Bobbie H. McCrackin, Services: Key to Current Stability and the Future Growth, E c o n o m i c Review. Federal Reserve Bank of Atlanta (July 1983). pp. 36-52 FEBRUARY 1984, E C O N O M I C REVIEW M a p 1 . Directions of Population Growth Mm 1970 - 1980 — Interstate System Net Population Increase Atlanta Region mm 1980 - 1982 Directional Section Boundary Central area/railroad cordon had a net loss of 4 0 . 5 0 0 persons between 1970 and 1980, and 1,587 persons b e t w e e n 1980 and 1982 totaling 42,185 persons since 1970. Area ENE ESE SSE ssw WSW WNW WNW NNE 1970-1980 87,767 59,295 21,871 42,787 38,301 6,161 77,625 51,209 1980-1982 15,927 5,265 -867 1,490 810 2,024 20,472 23,250 Source: Atlanta Regional Commission The o t h e r issue f a c i n g A t l a n t a is t h a t t h e skilled workers n e e d e d by local industries are in short supply, w h i l e substantial u n e m p l o y m e n t prevails a m o n g low-skilled workers. Atlanta business a n d g o v e r n m e n t leaders rue t h e growing split b e t w e e n north-south and high skilled-low skilled. The b u r d e n of unbalanced growth clearly weighs on the entire region. ' I m p a c t of Travel on State Economies (Washington, D. C.: U. S. Travel Data Center, July 1983),pp. 25-26, 35. "Scott Kilman, "Hartsfield's H u b Role Fading," T h e Atlanta Constitution, August 26, 1983, pp. 1, C3. s B o b b i e H. McCrackin, "Services: Key to Current Stability and Future Growth, E c o n o m i c Review. July 1983, pp. 36-52. ! FEDERAL RESERVE B A N K O F A T L A N T A Tourism, Business & Convention Travel. Travel a c c o u n t e d for 98,000 jobs a n d $211 million in local and state tax revenues in 1982. 3 Hartsfield International Airport alone generates 30,000 jobs a n d nearly $3 billion in the local economy. 4 In 1982 Atlanta hosted a p p r o x i m a t e l y 1,000 conventions w i t h 1.15 million delegates, w h o contributed $420 million in revenues. The tourist trade creates jobs for thousands of low-skilled workers a n d helps the central business district, w h i c h is striving t o maintain its share of Atlanta's commercial d e v e l o p m e n t 5 Atlanta tourism improved substantially in 1983. As of N o v e m b e r , Stone M o u n t a i n Park had 22 percent more visitors; t h r o u g h September, t h e Six Flags O v e r Georgia a m u s e m e n t park had 2.3 million visitors, a year-over-year gain of 9 percent Air travel increased after declining in 1982. In January 1983 Hartsfield International Airport had its first year-over-year increase since Sept e m b e r 1981; it has c o n t i n u e d t o post positive increases. Passenger arrivals remain b e l o w peak levels attained prior t o deregulation of airline industry routes and rates, however, because of increased c o m p e t i t i o n from n e w h u b cities. Through August, h o t e l / m o t e l o c c u p a n c y rates in m e t r o A t l a n t a w e r e 64 percent, c o m p a r e d w i t h 65 percent in 1982 and the peak level of 70 percent reached in 1979. This t r e n d follows the national pattern, w i t h o c c u p a n c y lagging b e h i n d c o m p a r a b l e m o n t h s of 1982. 6 Atlanta convention traffic remained weak through most of 1983. 7 Since bookings usually are m a d e t w o to three years in advance, t h e c o n v e n t i o n trade takes longer to recover f r o m e c o n o m i c downturns. The o u t l o o k for Atlanta area tourism in 1 9 8 4 is bright Continuing recovery should further reduce u n e m p l o y m e n t and raise personal income, thereby encouraging discretionary s p e n d i n g for travel. Atlanta will feel the effects of the 1984 W o r l d ' s Fair in N e w Orleans. In addition, Six Flags O v e r Georgia and Stone M o u n t a i n Park plan to expand their facilities. C o n t i n u i n g e c o n o m i c recovery should spur further g r o w t h in air travel and expansion of »"National Trend of Business Lodging Industry (Philadelphia. Laventhol and Horwath, July 1983), unpaged. 'Atlanta Convention and Visitors Bureau. "Scott Kliman, "Air Atlanta Plans to Get Business Flying in Early 84, T h e Atlanta Constitution, October 6, 1983, p. C1. 25 service. Air Atlanta p l a n n e d t o initiate service catering to business travelers coming to or leaving Atlanta on February 1. 8 Scandinavian Airlines System has b e e n considering establishing direct flights from Atlanta to Scandinavia The c o m p l e t e d expansion of the Georgia W o r l d Congress Center should boost Atlanta's hotel and c o n v e n t i o n business in 1984. In November the center o p e n e d the first part of a two-phase $103 million expansion. This o p e n i n g a d d e d t w o n e w e x h i b i t i o n halls t o t h e facility, totaling 1.8 million square f e e t The center is already b o o k e d t o 85 percent of its capacity through t h e first 10 years. 9 As in m a n y o t h e r southeastern cities, hotel construction will c o n t i n u e apace: 3,000 n e w hotel rooms will c o m e o n the market in d o w n t o w n Atlanta over the next t h r e e years, bringing t h e m e t r o total t o 35,000. W i t h t h e Congress Center's expansion, t h e Atlanta area should be positioned t o draw the largest conventions a n d trade shows in the country. The larger meetings should bring d e m a n d into line w i t h the greatly e x p a n d e d supply of hotel rooms in the area. Atlanta's long-term c o n v e n t i o n o u t l o o k c o u l d also be e n h a n c e d by t h e planned $ 1 1 0 - m i l l i o n Underground Atlanta redevelopment project currently u n d e r negotiation by t h e city and the Maryland-based Rouse C o m p a n y . If the project is approved, preliminary d e m o l i t i o n c o u l d begin this summer, w i t h an o p e n i n g date targeted for M a r c h 1986. 1 0 If successful, the "festival marketplace" c o u l d attract 11.5 million visitors a year and provide 2,500 jobs. It also promises a huge increase in M A R T A riders and, ultimately, $ 2 0 0 million in private i n v e s t m e n t in the d o w n t o w n area. 11 Retail Trade. The rate of increase in c o n s u m e r s p e n d i n g in Atlanta has b e e n even higher than the increase in c o n s u m e r s p e n d i n g for the state, resulting in a 1 5 percent gain in d e p a r t m e n t store sales t h r o u g h O c t o b e r , c o m p a r e d w i t h the same period in 1982. M A R T A tax collections w e r e up 13 percent in the same period. Retailers reported robust d o u b l e - d i g i t sales increases for t h e 1983 Christmas season over the previous year. Georgia retail trade e m p l o y m e n t increased by 1 5,600 jobs d u r i n g the year, w i t h the majority of t h e n e w jobs generated in the Atlanta area. The o u t l o o k for retail trade in 1984 is excellent, although sales and e m p l o y m e n t can be expected t o grow at a s o m e w h a t slower rate than in 1983. Government. M o s t revenue sources in the Georgia p u b l i c sector will increase in 1984. In t h e first quarter of fiscal 1984, overall revenue collections rose 9 percent from the previous year. Atlanta's government sector should also experience some growth in revenues and employm e n t during the year. Atlanta's city b u d g e t will increase a slim 3 p e r c e n t 1 2 Surplus state governm e n t revenues c o u l d provide a boost for Atlanta and t h e rest of Georgia in 1 9 8 4 and beyond. If federal budget cuts continue, however, state revenue surpluses c o u l d be offset by a retrenching of federal agencies' regional offices based in Atlanta Financial Institutions. Atlanta banks made significant gains in c o m m e r c i a l l e n d i n g in 1983, w h i l e major savings a n d loan associations have also been successful w i t h commercial loans. Citizens and Southern National Bank m o v e d up from 4 9 t h t o 4 4 t h place a m o n g t h e country's t o p 100 commercial banks, w h i l e First National Bank of Atlanta climbed 13 places to 70th position nationally. 13 Manufacturing. Atlanta's m a n u f a c t u r i n g sector should register a better 1984 as nondurables emp l o y m e n t continues to grow. Also, in response t o i m p r o v e d d e m a n d for a u t o m o b i l e s , General M o t o r s plans t o reopen its Lakewood assembly plant in south Atlanta this spring, recalling 1,650 laid-off workers. Ford M o t o r C o m p a n y will recall 1,200 laid-off workers at the Hapeville plant in m i d 1984. 1 4 These t w o recalls will p r o v i d e a boost both for e m p l o y m e n t of low-skilled workers and for southside Atlanta. Construction. Atlanta's construction industry was e x t r e m e l y active in 1983. Building permits w e r e up 71 percent through N o v e m b e r , compared w i t h the same period for 1982. The rate at w h i c h single-family residences were going up, however, t h r e a t e n e d to o v e r w h e l m even optimistic estimates of current d e m a n d . A l t h o u g h building permits diminished beginning in August, m e t r o Atlanta still had a significant n u m b e r of n e w houses unsold by yearend. Similarly, Atlanta ,3 'Georgia World Congress Center. November 1983. "Richard Stogner, Atlanta M a y o r s Office, December 7, 198.3. Kelly S c o t t "The Return of Underground," The Atlanta Journal-Constitution, Atlanta Weekly, November 20, 1983, p. 17. '•'Katheryn Hayes, ' " 8 4 City Budget Expected to Rise 3 Percent, T h e Atlanta Journal. D e c e m b e r 9, 1983, p. 1 9 A 26 "Top 100 U. S. Commercial Banks in Commercial & Industrial Lending,' A m e r i c a n Banker, J u n e 22, 1983, p. 26. Scott Kilman, "Ford Calls 1,200 Here BacktoJobs," T h e Atlanta Journal, December 1, 1983, p. 1 A 14 FEBRUARY 1984, E C O N O M I C REVIEW is d e v e l o p i n g a severe o v e r s u p p l y of a p a r t m e n t units. The strength of c o m m e r c i a l leasing a n d construction has b e e n shifting f r o m t h e central business district n o r t h t o t h e Perimeter C e n t e r / Georgia 4 0 0 area. By fall, 10.2 million square feet of office space w e r e available in t h e Perimeter area, w i t h 11.2 percent vacancy, c o m p a r e d w i t h 11.6 million square feet in the central business district, w i t h a 24 percent vacancy rate. 15 The central district had 10.6 million square feet of c o m p e t i t i v e office space w i t h a 12 percent vacancy rate in 1973. 1 6 Most estimates indicate that the Atlanta SMSA's p o p u l a t i o n should rise almost 5 percent f r o m 1983 through 1985, largely as the result of in-migration. In each of these years, the m e t r o area will require roughly 32,000 n e w housing units just t o handle t h e influx; yet f e w e r singlefamily residences almost certainly will be built and sold in 1984 than in 1983. The burst of activity in 1983 resulted primarily f r o m a backlog of d e m a n d that most market watchers believe has been satisfied. The market will be healthy in 1984, b u t not o u t of control as some feared early in the housing recovery. The oversupply of multi-family housing, apartments, and c o n d o m i n i u m s will persist if the single-family residence market enjoys the g o o d year that w e expect. M o s t southeasterners will leave apartments a n d bypass c o n d o m i n i u m s if mortgage rates a n d price structure allow t h e m t o b u y houses. The o u t l o o k for c o m m e r c i a l real estate construction a n d leasing is favorable for most of Georgia. Atlanta, w i t h the state's largest concentration of c o m m e r c i a l real estate, should experience a net d e c l i n e in its office vacancy rate. Southside Atlanta c o u l d receive a major boost f r o m the p e n d i n g Rouse r e d e v e l o p m e n t of U n d e r g r o u n d Atlanta. In addition, Filmworks USA has p r o p o s e d t o lease Lakewood Fairgrounds and spend at least S5 million to renovate the site into a m o t i o n picture a n d e n t e r t a i n m e n t complex. 1 7 Together w i t h a p r o p o s e d industrial park at Blair Village, the Rouse a n d Lakewood projects c o u l d p r o v i d e major i m p e t u s for muchn e e d e d southside d e v e l o p m e n t . 5 Building Owners and M a n a g e r s of Atlanta, Inc., "Fall Occupancy Report," Fall 1983. ! FEDERAL RESERVE B A N K O F A T L A N T A Atlanta and the Rest of Georgia Because Atlanta is h o m e t o 37 percent of Georgia's p o p u l a t i o n a n d is a regional transportation h u b a n d m e d i a center, m a n y p e o p l e t e n d t o forget that t h e r e is a "rest of Georgia." An analysis of s o m e c o m m o n misperceptions will help sort o u t w h a t is really Atlanta and w h a t is actually " t h e rest of Georgia." First, Atlanta has no m o n o p o l y o n w e a l t h and i n c o m e in t h e state. It is true that five of the state's t o p 10 counties ranked according to 1 9 8 0 per capita i n c o m e are in t h e Atlanta SMSA: DeKalb, Fulton, Clayton, C o b b and Fayette (see Table 1). But the five remaining counties are scattered t h r o u g h o u t the state, three o n t h e coast, o n e in the central part of the state a n d one in north G e o r g i a The i n c o m e of the lowest of these is a p p r o x i m a t e l y the national average. A second m y t h is that t h e rest of t h e state is rural. M o s t of the land area is rural, b u t it contains important cities, such as Albany, Athens, Augusta, Columbus, M a c o n a n d Savannah. These cities account for almost 20 percent of the state's total p o p u l a t i o n , c o m p a r e d t o Atlanta's 37 percent share. Even outside of Atlanta, a substantial portion of the p o p u l a t i o n lives in urban areas. The contrasting characters of Atlanta and the rest of the state are illustrated by t h e sources of i n c o m e a n d e m p l o y m e n t of residents of b o t h areas. M a n u f a c t u r i n g e m p l o y s the largest proportion of the state's workers. Traditionally, these have b e e n textiles and w o o d p r o d u c t industries that t h r i v e d o n the l o w wages t h e y c o u l d pay workers in isolated t o w n s of rural Georgia. These industries statewide gradually have shifted toward m a k i n g f i n i s h e d p r o d u c t s such as clothing, paper and p l y w o o d w i t h a m u c h higher v a l u e - a d d e d than the traditional cloth or lumber. As late as 1970, m a n u f a c t u r i n g e m p l o y e d the largest p o r t i o n of t h e Atlanta w o r k force (21 percent) (see Chart 4). But after the 1 9 7 4 - 1 9 7 5 recession, the city's employment structure changed radically, w i t h services b e c o m i n g the largest employer and manufacturing second. From 1970 t o 1975, Atlantans e m p l o y e d in manufacturing fell by 16 percent, and those in services rose by 36 percent. ">Building Owners and Managers ot Atlanta, Inc., "Office Space O c c u p a n c y Survey," as of October 1, 1973. " T h o m a s Oliver, " N e w Fairgrounds Movie Venture Awaits City OK,' T h e Atlanta Journal, D e c e m b e r 7, 1983, p. 13D. 27 T a b l e 1 . Georgia's 10 Highest Income Counties, 1980 County Per Capita Income (dollars) Personal Income ($ millions) 11,850 11,317 9,378 9,294 8,821 8,659 8,608 8,376 8,372 8,196 5,724 6,676 1,410 2,767 485 1,301 250 112 1,693 620 DeKalb Fulton Clayton Cobb Glynn Bibb Fayette Camden Chatham Hall Chart 4. Percent of Total Nonagriculural Employment " U e o t g i d = C j e o r g i a excluding Atlanta 35 Atlanta | I Georgia I I 25 15 EServices h Government Manufacturing 1970 35 Georgia's 10 Lowest Income Counties, 1 9 8 0 25 County Quitman Lee Crawford Clay Union Twiggs Baker Stewart Randolph Brantley Per Capita Income (dollars) 3,818 4,108 4,164 4,222 4,260 4,383 4,464 4,579 4,584 4,597 Personal Income ($ millions) 9 48 32 15 40 41 17 27 44 40 Source: 1983 Georgia County Guide In t h e rest of Georgia, manufacturing e m p l o y s close t o o n e - t h i r d of the w o r k force. The prop o r t i o n has d e c l i n e d since 1970, b u t no single sector has taken u p the slack as d i d services in Atlanta. W h i l e outside of Atlanta 20 percent of 1982 personal income was derived from manufacturing, only 14 percent of Atlanta i n c o m e came f r o m this source. Overall, the state has an aboveaverage involvement in manufacturing compared t o the U.S. average. Government Government employs the second largest p r o p o r t i o n of Georgia's w o r k force w i t h 20 percent and delivers 15 percent of its personal income. The state has a national reputation for w e l c o m i n g federal military installations. It is also, in effect, a regional center for m a n y federal programs. H o w e v e r , o n l y 4 percent of the w o r k 28 15 Government Manufacturing 1975 35 25 15 Services Government Manufacturing 1980 Source: Atlanta Regional Commission force falls within the federal government category. The federal government's share of e m p l o y m e n t outside of Atlanta may begin to expand late in 1984 because of the new Trident submarine base at Kings Bay. Its share of Atlanta jobs should decline a bit as federal e m p l o y m e n t remains fairly static a n d o t h e r sectors expand. If a recent proposal t o phase d o w n the use of regional administration centers is enacted, federal employm e n t in Atlanta c o u l d decline significantly over the next three t o four years. FEBRUARY 1984, E C O N O M I C REVIEW State a n d local g o v e r n m e n t e m p l o y s 13 percent of the Atlanta w o r k force, not surprising since Atlanta is t h e state capital. But state a n d local g o v e r n m e n t payrolls carry 19 percent of Georgia workers outside of Atlanta. The large n u m b e r of counties (159) largely explains this surprisingly high percentage. Atlanta has a stronger service industry t h a n the rest of Georgia. W i t h 21 percent o f its w o r k force, services are seven percentage points ahead of the city's second largest employer, manufacturing. In the rest of t h e state, service firms e m p l o y 13 percent of the workers, behind both manufacturing and state and local g o v e r n m e n t in relative proportions of t h e w o r k force. The service e m p l o y m e n t in Atlanta reflects this industry's t e n d e n c y t o concentrate in m e t r o p o l i t a n areas. The state's rural areas are likely t o be w e a k in f u t u r e services growth, although such e m p l o y m e n t in the rest of Georgia e x p a n d e d by 3 percent f r o m 1 9 7 0 t o 1980. In addition, service j o b s t e n d t o be either high paying or low paying, w i t h little in b e t w e e n . Thus, t h e many service j o b s o p e n i n g up in Atlanta find a m p l e qualified applicants for lower level positions, b u t offer f e w o p p o r t u n i t i e s for advancement. N o t only does Atlanta have a strong service sector relative t o t h e rest of t h e state, but it has been e x p a n d i n g at a m u c h faster pace. Atlanta service e m p l o y m e n t b a l l o o n e d f r o m almost 15 percent in 1 9 7 0 t o almost 21 percent of t h e city's e m p l o y m e n t in 1980, w h i l e the remainder of Georgia grew o n l y from 9.5 percent t o 12.5 p e r c e n t The growth in t h e city has been roughly d o u b l e that in the rest of t h e state. Atlanta is not a m i c r o c o s m of Georgia. The structure of its income and employment is unique. A n d t h e rest of Georgia, t h o u g h m o r e rural, has considerable manufacturing e m p l o y m e n t , several cities and a large share of t h e state's income. The Manufacturing Horseshoe As w e have seen, Atlanta is distinctly underrepresented in terms of manufacturing employm e n t Yet the state actually has a higher percentage of manufacturing e m p l o y m e n t than the nation — 23.8 percent versus 22.1 percent (Chart 5). M o s t of the manufacturing activity is packed into a horseshoe surrounding Atlanta, running clockwise a r o u n d the m a p f r o m M a c o n t h r o u g h ! FEDERAL RESERVE B A N K O F A T L A N T A Chart 5. Manufacturing Employment Percentage of Nonagricultural Employment Source U S.. o e o r g i a ano Atlanta: (-ederai Heserve Bank ot Atlanta, i 9 a j H o i s e s h o e tstimateci from 1980 d a t a Georgia Descriptions on Data U S. Uept of C o m m e i c e . Bureau of the Census. 190 J Census ol Population and H o i s m g C o l u m b u s t o Rome, a r o u n d the n o r t h e r n rim of t h e state t o Athens, and e n d i n g in Augusta. This area contains 34 percent of the state's population, but 44 percent of its manufacturing e m p l o y m e n t W i t h i n this horseshoe, a b o u t 32 percent of t h e n o n f a r m e m p l o y m e n t is in manufacturing, 4 percentage points higher than Michigan, Ohio, or Pennsylvania A b o u t 2 5 0 , 0 0 0 m a n u f a c t u r i n g workers are e m p l o y e d in t h e horseshoe. For example, in Fulton a n d D e k a l b Counties (Atlanta), t h e r e are a p p r o x i m a t e l y t h r e e workers in retailing a n d professional occupations for every w o r k e r in manufacturing. In Floyd C o u n t y (Rome) the ratio is a p p r o x i m a t e l y one-to-one. In W h i t f i e l d C o u n t y (Dalton), t h e r e are t w i c e as many manufacturing workers as workers in retailing or professions — fully six times the c o n c e n t r a t i o n in Fulton-DeKalb. Even t h o u g h the manufacturing c o n c e n t r a t i o n exceeds t h e average for the industrial M i d w e s t , the t y p e of manufacturing is m u c h different. Relatively f e w smokestack industries o p e r a t e in Georgia; the c o n c e n t r a t i o n is instead o n manufacturing of n o n d u r a b l e items in general, a n d of textile a n d apparel goods in particular. A b o u t 35 percent of Georgia's manufacturing e m p l o y m e n t is in these t w o sectors. A p p a r e l plants (two-fifths of that) are scattered a r o u n d t h e state, b u t textile factories are c o n c e n t r a t e d in the horseshoe. These textile a n d apparel firms m o v e d South f r o m N e w England d u r i n g t h e 1930s a n d again 29 Chart 6. Employment Growth in the Horseshoe Atlanta Columbus Geoigia Augusta Macon 4 - Annual % Change The big u n a n s w e r e d question for the rest of the 1980s is finance. Families w a n t i n g t o b o r r o w for new homes will find their demands conflicting w i t h the e n o r m o u s deficit financing needs of the federal government, and with the business sector's n e e d t o finance its o w n revitalization. 2 U -2 :/\pJV 198* 1903 b o u i c e F--(l'-rai Reserve ban", oi Atlanta after W o r l d W a r II, in search of cheaper nonunion labor. 18 It is n o t u n c o m m o n for smaller t o w n s in t h e horseshoe t o be d o m i n a t e d by a single apparel or textile plant. During t h e 1970s, t h e g r o w t h a n d prosperity of n o n d u r a b l e manufacturing e n a b l e d most of the counties in the horseshoe t o post m o d e r a t e t o strong gains in population, even w h i l e many counties in south Georgia less successful in generating manufact u r i n g e m p l o y m e n t , w e r e losing population. 1 9 Today the manufacturing c o n c e n t r a t i o n introduces t w o distinct vulnerabilities. The first is vulnerability t o t h e business cycle. N o n d u r a b l e manufacturing generally is less volatile t h a n the durable smokestack industries, b u t distinctly more volatile than the service-and-government orientation that characterizes t h e Atlanta area. 20 The t u f t e d carpet industry in n o r t h w e s t Georgia, however, is e x t r e m e l y subject t o changes in housing d e m a n d . This region, w h i c h accounts for three-fifths of U.S. carpet production, is particularly d e p e n d e n t o n sales of n e w homes. Reflecting this d e p e n d e n c e , the e c o n o m i e s surrounding Columbus, M a c o n a n d Rome have b o u n c e d back sharply in response t o t h e sharp upsurge in national housing d e m a n d t h r o u g h t h e fall of 1983 (Chart 6). Since the near-term outlook is for c o n t i n u e d strength in t h e housing market, "-See J o h n S. Hekman, "What Are Businesses Looking For? Survey of Location Decisions in the South," this Review, (June 1982), p. 6. l9 See James W. Clay and Alfred W. Stuart, " U n e v e n Growth: Southern Population Change at the County Level,' this Review, (June 1982), p. 43. 30 1 9 8 4 promises relative i m m u n i t y f r o m the business cycle vulnerability. For the longer term, t h e national demographics for housing, and for textiles and apparel generally, are q u i t e good, as t h e baby b o o m generation enters the 25-to-45 age group that has traditionally spent a high proportion of its income on housing, home furnishings, and apparel. However, the manufacturing-intensive h o r s e shoe section's greatest vulnerability is to foreign competition, particularly in textiles and apparel. M o r e than 14 percent of the U.S. textile market is n o w being s u p p l i e d through imports. Almost 6 percent of apparel sales is foreign-produced. These n u m b e r s are growing, simply because foreign p r o d u c t i o n can p r o d u c e stock textile items w i t h m u c h lower labor cost. Some help may c o m e f r o m n e w federal regulations that will restrict i m p o r t g r o w t h if imports are disrupting the market. Southern textile firms, however, appear t o be fighting back by r e t h i n k i n g their advantages and substituting n e w t e c h n o l o g y t o reduce costs and enhance responsiveness to the market Southern textile mills have r e d u c e d t h e labor c o n t e n t of w h a t t h e y p r o d u c e f r o m the 25-30 percent o n c e characteristic t o less t h a n 20 percent in many cases. Still, these developments put pressure o n the traditional labor relationships of Georgia textile and apparel firms and require extensive i n v e s t m e n t in b o t h training and technology. The vulnerability of manufacturing in the horseshoe was demonstrated during the recent recession. Between the beginning of 1982 a n d July 1983, fully 43 plants e m p l o y i n g m o r e than 100 persons each closed in Georgia ( M a p 2). T w e n t y - o n e w e r e in the horseshoe area, inc l u d i n g four of the six closed plants that used t o e m p l o y m o r e than 500 persons. Four of t h e six large closed plants p r o d u c e d textiles, and a fifth p r o d u c e d apparel. 2 1 ' " S e e Bobbie H. i/icCrackin, "Services: Key to Current Stability and Future Growth," this Review, (July 1983), p. 36. 2, S e e David Avery and Gene D. Sullivan, " K e y s to Success: Why Some Textile Producers Will Prosper," this Review, (December 1983), p. 11 FEBRUARY 1984, E C O N O M I C REVIEW M a p 2. Manufacturing Plant Closings 1-1-82 through 7-15-83 S h a d e d area shows manufacturing horseshoe. Source: Georgia Department of Industry and Trade M a n y successful textile firms across the state have s h o w n h o w t o fight this vulnerability. The state D e p a r t m e n t of Industry a n d Trade, u n d e r new leadership, is shifting some of its traditional emphasis o n recruiting outside firms t o w a r d helping existing industries redirect their markets and p r o d u c t i o n methods. 2 2 Traditionally, t h e manufacturing-intensive section of the state has not been t i e d t o o closely t o Atlanta. That will p r o b a b l y change. Success in the new manufacturing environment places a p r e m i u m o n knowledge, access a n d responsiveness t o changing markets, and application of n e w technology. These strengths of the area i m m e d i a t e l y surrounding Atlanta will b e c o m e increasingly valuable t o producers and workers in t h e horseshoe. Northeast Georgia, o n e of t h e poorest a n d most sparsely p o p u l a t e d parts of the state, faces its o w n set of peculiar problems. Because of the area's lakes and mountains, it is becoming increasingly popular for second homes, retirem e n t homes, and recreational activities. M u c h " S e e Avery and Sullivan, op. cit " S e e Donald L. Koch, William N. Cox, D e l o r e s W Steinhauser, and Pamela ! FEDERAL RESERVE B A N K O F A T L A N T A of this activity emanates f r o m Atlanta, and particularly f r o m the m o r e affluent northern suburbs. The p r o b l e m is that these activities typically d o not p r o v i d e a local tax base commensurate w i t h the a d d i t i o n a l d e m a n d s o n it, so it c o u l d prove a m i x e d blessing for north Georgia. The prospects again are for increased ties w i t h the A t l a n t a a r e a The corridor b e t w e e n Athens a n d Atlanta has high e c o n o m i c potential. Currently, Athens and Atlanta are separate economies. Athens is d o m i n a t e d by t h e University of Georgia, w i t h few Atlanta commuters. But the high-tech activity n o w spreading northeast f r o m DeKalb and G w i n n e t t counties promises a natural link-up w i t h Athens, perhaps e n h a n c e d by some of the " s u p e r - c o m p u t e r 7 ' d e v e l o p m e n t s in t h e educational center. This is Georgia's most o b v i o u s o p p o r t u n i t y for a high-tech corridor, a n c h o r e d by Atlanta a n d Georgia Tech o n the o t h e r end, because of t h e "critical mass" of technicians and facilities d e m a n d e d by high-tech industry. 2 3 The Farm O u t l o o k Farm e m p l o y m e n t will c o n t i n u e t o decline in t h e f u t u r e . D r y years in 1 9 7 7 , 1 9 7 8 , 1 9 8 0 , 1981 a n d 1983 have left Georgia farmers in worse shape than most in t h e nation. The unfavorable w e a t h e r has left farmers unable t o pay back m o n e y b o r r o w e d t o o p e r a t e their farms. O n e source places t h e total d e b t outstanding at around $5 billion. The debt requires in excess of $ 5 0 0 million just t o make annual interest p a y m e n t s — m o r e than Georgia farmers clear in most good years. A d d i n g t h e typical vagaries of w e a t h e r and c o m m o d i t y p r i c e s t o this h e a v y l o a d of debt, the p r o b l e m s of t h e Georgia farm comm u n i t y are a p p r o a c h i n g a kind of critical mass. A l t h o u g h t h e droughts began the difficulties, d e b t is n o w t h e focus of the p r o b l e m . A n d m o r e d e b t in the f o r m of low-interest disaster loans may only p o s t p o n e t h e resolution. A major credit source for Georgia farmers, the Farmers H o m e A d m i n i s t r a t i o n (FmHA), lists almost three-fifths of Georgia's 9,200 borrowers as d e l i n q u e n t . Seven h u n d r e d of these loans are n o w slated for foreclosure, although a court injunction has delayed such action. V. Whigham, " H i g h Technology: The Southeast Reaches Out for Growth Industry," this Review, (September 1983), p. 4. 31 Because of farmers' inability over the last three years t o t u r n crops i n t o profits w i t h w h i c h t o repay loans, those w h o have b e e n able t o operate o u t - o f - p o c k e t w i t h as little d e b t as possible have fared better t h a n those w h o b o r r o w e d heavily. Large farms t e n d t o be m o r e heavily leveraged t h a n small ones. In Georgia, the largest farms are around Albany. As a group, these farms have b e e n in the worst shape financially. Because of the d r o u g h t a n d their financial plight, Georgia farmers participated in t h e federal payment-in-kind program (PIK) to a greater extent than expected. The state's grain producers w e r e particularly enthusiastic. W h i l e the PIK program served as a t e m p o r a r y reprieve for m a n y farmers in 1 9 8 3 , it was not a lasting solution for marginal, d e b t - b u r d e n e d farmers. 2 4 The program, utilizing government crop reserves, gave each participating farmer a pro rata portion of a c o m m o d i t y based on his idled acreage. Farmers could dispose of their PIK commodities as t h e y pleased, i n c l u d i n g selling it, w h i c h many did. The e n d of t h e PIK program in 1983 c o u l d cause as m u c h as o n e million additional acres t o be planted in Georgia in 1984, stimulating at least three areas of farming-related business. First, more operating credit will be required by t h e farmers enlarging their planted acreage. That means m o r e business for lending institutions. Second, farm suppliers will be selling m o r e fertilizer, herbicides and pesticides. A n d third, there will be a greater demand for support services n e e d e d t o plant, harvest, transport, store and utilize a larger v o l u m e of t h e crops affected by the e n d of PIK. This will mean more e m p l o y m e n t and higher i n c o m e s in t h e farm belt c o m p a r e d t o last year, w h e t h e r or not the farmers do well. In spite of their general difficulties, some growers have d o n e better t h a n others. In the relative order of their success at selling a crop at a profit are t h e tobacco, peanut and soybean growers. Grain producers, primarily corn and w h e a t producers in Georgia, have b e e n t h e least profitable. . A t the start of 1 9 8 3 , Georgia corn farmers w e r e receiving the lowest price in five years for their c o m m o d i t y . By the year's end, t h o u g h the price was close to a record high. The explanation " W . Gene Wilson,' The PIK Program s Mixed Effects,' this Review, (June 1983), p. 24. 32 for this radical change lies in the g o v e r n m e n t farm programs and a severe drought that gripped m a n y major c o r n - p r o d u c i n g states. Corn and other grain farmers should find 1984 t o be a year of profit-generating prices. The crop sector, overall, should be a positive factor in the Georgia e c o n o m y this year. W h i l e 1983 was a profitable year for efficient growers of broilers, it was not the banner year it might have been. Reduced feedgrain production increased feed prices approximately 15 percent, negating m u c h of the advantage t o producers of a j u m p in prices. For marginal, high-cost operations, profit margins were extremely small. D u r i n g 1984 the broiler industry can e x p e c t only slight i m p r o v e m e n t . The egg industry c o n t i n u e d t o face i m p o s i n g problems in 1983. Loss of e x p o r t m a r k e t s a n d w e a k d o m e s t i c d e m a n d sent prices d o w n w a r d earlier in the year. By t h e f o u r t h quarter, b o t h feed and egg prices stood at 15 percent above fourth quarter 1982. The first half of 1 9 8 4 is unlikely t o show significant i m p r o v e m e n t , b u t by midyear that situation c o u l d t u r n around. Georgia a p p l e p r o d u c t i o n was b u f f e t e d o n c e again in 1983 by late spring cold snaps, although damage was m u c h less than in 1982. A p p l e production remained approximately 40 percent b e l o w normal although it was five million p o u n d s m o r e than t h e year before. Peach p r o d u c t i o n , on the other hand, fell sharply as late frosts a n d freezes cut p r o d u c t i o n t o nearly half t h e normal crop size. A l t h o u g h agriculture occupies most of t h e land in the farm belt, manufacturing e m p l o y s t h e most p e o p l e by far. Even in such hard core a g r i c u l t u r a l c o u n t i e s as C a l h o u n , M a r i o n , Quitman and Randolph, manufacturing e m p l o y m e n t exceeds that of any o t h e r t y p e of work. Counties closer to interstate highways generally have e v e n higher levels of m a n u f a c t u r i n g employment. The farm belt will c o n t i n u e the e c o n o m i c expansion i n t o 1984. M a n u f a c t u r i n g employm e n t will c o n t i n u e t o grow, although at a slower pace than in 1983. Those w h o sell t o farmers should have a m u c h i m p r o v e d year because w i t h the e n d of the PIK program more acres will be planted. The Coast Georgia's coastal region extends roughly 100 miles inland f r o m Effingham C o u n t y in the FEBRUARY 1984, E C O N O M I C REVIEW north d o w n t o t h e Georgia-Florida border. The area is strongly influenced by the coastal timber belt, its seaports, its tourist appeal, a n d military bases. Georgia's l u m b e r a n d w o o d firms, part of a $7 billion forest products industry, should continue to expand. H o m e construction is expected to grow, at least until mid-decade, as the postW o r l d W a r II baby b o o m continues t o reach the prime h o m e - b u y i n g ages of 25 t o 35. Longer-term g r o w t h may be curtailed by the leveling of d e m a n d from t h e baby b o o m and s u b s e q u e n t " b a b y b u s t " generations. The increased popularity of smaller h o m e s also spells decreased demand for building materials; however, this may be offset by the increasing n u m b e r of single p e o p l e buying homes. In addition, the continuing influx of people moving to the sunbelt will mean additional housing and construction activity. The return t o normal capacity utilization in the d o m e s t i c paper a n d p a p e r b o a r d industry and the l i m i t e d l u m b e r resources in foreign markets will increase pulp d e m a n d through the 1980s. Paper a n d p u l p will experience stiff c o m p e t i t i o n from plastics. Traditional b r o w n paper grocery sacks, for instance, have met c o m p e t i t i o n f r o m new plastic bags. Georgia's Savannah port increased its share of U.S. shipments d u r i n g t h e recent recession and will c o n t i n u e t o undergo expansion and growth. Both the Savannah and rapidly g r o w i n g Brunswick ports offer excellent highway and rail facilities a n d ready access t o Atlanta's distribution services. Savannah's m o d e r n and flexible facilities, part of a 10-year, $500 million expansion, are in fact attracting cargoes from areas m u c h closer t o o t h e r ports. 2 5 As the recovery progresses a n d inventories are d e p l e t e d , raw material exports t o industrialized nations should step up; increasing personal incomes likewise should boost consumer exports to foreigners. Revived competitiveness of the textile, apparel and f o o d processing industries also will stimulate exports through Georgia's " G e o r g i a Anchor A g e (September/October, 1983) p. 5. ! FEDERAL RESERVE B A N K O F A T L A N T A ports. O n the o t h e r hand, c o n t i n u e d recession in d e v e l o p i n g countries a n d the strong U.S. dollar may d a m p e n s o m e e x p o r t shipments during 1984. T o u r i s m along Georgia's 1-95 corridor, including Savannah, Brunswick, St. Simons, and Jekyll Island, will c o n t i n u e strong if gasoline prices remain low. H o w e v e r , s u m m e r passthrough traffic may be off if t h e Louisiana W o r l d ' s Fair a n d t h e Los Angeles O l y m p i c s draw visitors away from Florida's EPCOT Center. Effects of the $1.4 billion Kings Bay Trident submarine base expansion will range from beneficial diversification of local e c o n o m i e s and tax base expansion t o shortages of schools and sewage facilities. C a m d e n County, h o m e of the submarine base, will absorb a p p r o x i m a t e l y 60 percent of the Trident-related population. Growing pains will also be most severe in C a m d e n County, w i t h capital costs for roads, schools, sewage systems and p u b l i c services a m o u n t i n g t o over $42 billion by the 1988 c o m p l e t i o n . M u c h of t h e cost, however, is t o be a b s o r b e d by federal funds. N e i g h b o r i n g Nassau a n d Duval Counties in Florida will absorb a p p r o x i m a t e l y o n e - t h i r d of the n e w population. Conclusion Georgia's e c o n o m i c o u t l o o k for 1 9 8 4 remains bright. Strong p o p u l a t i o n inflows and business d e v e l o p m e n t should c o n t i n u e t o drive rapid growth in the Atlanta area. The " m a n u f a c t u r i n g horseshoe," still vulnerable t o recessions a n d foreign c o m p e t i t i o n , is likely t o gather strength this year. W i t h the exception of the still-recovering farm sector, Georgia's diverse e c o n o m y should be in for m o r e solid g r o w t h in 1984. — William N. Cox, Leigh Watson Healy, Ruth Hughes and Joel Parker 33 Tennessee: Continuing the Momentum of Recovery Business cycle trends make t h e outlook for Tennessee's economy brighter than in several years, but such structural factors as the balance of m a n u f a c t u r i n g and service employment will influence the degree of i m p r o v e m e n t felt in different regions of the state. C e r t a i n sectors, s u c h as construction and consumer spending, which typically lead the expansion during the early phases of recovery, already have experienced a strong r e b o u n d in Tennessee and in t h e nation. Building-related manufacturing also has registered substantial e m p l o y m e n t gains. Industries t h a t t e n d t o trail t h e initial recovery because t h e y are o r i e n t e d t o d e m a n d from capital i n v e s t m e n t should experience m o r e i m p r o v e m e n t in 1984. Since capacity utilization had fallen t o low levels d u r i n g the recession, many e m p l o y e r s w e r e able t o increase o u t p u t in t h e early phase of recovery w i t h o u t a d d i n g plants or e q u i p m e n t . A rise in the utilization rate reported by t h e Federal Reserve Board f r o m 70.1 percent in N o v e m b e r 1982 t o 79.2 percent in N o v e m b e r 1983 a n d sharp increases in U. S. corporate profits foretell substantial expansion of plants and e q u i p m e n t , t h e r e b y boosting d e m a n d for Tennessee's basic a n d i n t e r m e d i a t e industries. The state's u n e m p l o y m e n t rate, w h i c h remained in the d o u b l e d i g i t range t h r o u g h N o v e m b e r , should fall in 1 9 8 4 because of cyclical dynamics. During early phases of recovery t h e labor force typically increases as f o r m e r l y discouraged workers reenter t h e labor market in search o f j o b s . H o w e v e r , e m p l o y e r s , still c a u t i o u s , t e n d t o increase hours of e m p l o y e e s already on their staffs before hiring new workers. A rise in average w e e k l y hours in Tennessee from 39.5 in N o v e m b e r 1982 t o nearly 4 1 by last N o v e m b e r suggests e m p l o y m e n t g r o w t h o n the horizon. C o n t i n u a t i o n of recovery may stimulate exports as foreign economies begin t o strengthen. In addition, d e m a n d for exports c o u l d grow if t h e foreign exchange rate of the dollar declines f r o m its 34 Tennessee's interest-rate sensitive industries b o u n c e d b a c k w e l l in 1 9 8 3 , b u t t h e state's continuing dependence on manufacturing poses structural problems fqr the near future. FEBRUARY 1984, E C O N O M I C REVIEW c u r r e n t level, 3 0 p e r c e n t h i g h e r o n a t r a d e weighted basis w i t h major trading partners than it was t h r e e years ago. Increased exports w o u l d boost Tennessee's agricultural and manufacturing sectors. Exports are unlikely t o increase sharply, though. Finally, state and local g o v e r n m e n t spending should increase, providing an additional stimulus. The effect of recovery on g o v e r n m e n t revenues came t o o late t o be reflected in fiscal year 1984 budgets, prepared in the spring, b u t should be in evidence by the t h i r d quarter of 1984. A l t h o u g h expansion of the housing industry may slow as the recovery matures, general increases in employment and growth in commercial construction and industries that have yet t o i m p r o v e should maintain a strong m o m e n t u m . An Atlanta Fed poll of Tennessee businesses in late 1983 revealed considerable o p t i m i s m for 1984. Structural Factors Nonetheless, the state's continuing dependence on manufacturing poses structural p r o b l e m s that may slow Tennessee's return t o prerecession peaks. M a n u f a c t u r i n g accounts for 2 7 percent of Tennessee's n o n f a r m jobs b u t only 22 percent of the nation's, despite the rapid g r o w t h of service jobs in Tennessee over t h e last decade. From 1971 t o 1982, Tennessee gained 56,000 jobs in health care, 18,000 in miscellaneous business services, and 37,000 in restaurants, compared w i t h a net gain of 18,000 n o n d u r a b l e manufacturing jobs a n d 40,000 durable manufacturing jobs. 1 Similarly, w h i l e t h e share of personal inc o m e attributable t o n o n d u r a b l e manufacturing declined by one percentage p o i n t miscellaneous services' share rose by two. 2 M o r e o v e r , Tennessee's manufacturing base is c o n c e n t r a t e d in labor-and energy-intensive industries that may be u n d e r g o i n g secular declines. These will not be reversed by the present recovery. O v e r the last d e c a d e pressures f r o m lower-cost foreign producers have whittled e m p l o y m e n t in apparel and chemical manufacturing, Tennessee's largest industries in terms of jobs. Increasing p o w e r costs in the 1970s d e n i e d Tennessee's energy-intensive industries, such as a l u m i n u m a n d p u l p a n d paper, o n e cost ' U. S. Department of Commerce, County Business Patterns, Tennessee, 1971, p. 11, and p. 1 of the 1981 issue. ' C o m p u t e d from data in State Survey Tables, Bureau of Economic Analysis. U. S. Department of C o m m e r c e (not published). ! FEDERAL RESERVE B A N K O F A T L A N T A advantage that had brought t h e m t o t h e state initially. Related changes in the energy sector exacerbated another structural problem in Tennessee manufacturing: its concentration in credit-sensitive durable goods, especially those tied t o construction and transportation. During the 1970s, the Tennessee Valley Authority's (TVA's) nuclear p o w e r plant c o n s t r u c t i o n e n g e n d e r e d rapid g r o w t h that offset the volatility of durable goods e m p l o y m e n t and helped keep Tennessee's u n e m p l o y m e n t rate b e l o w the nation's. Termination of this expansion program over the past f e w years has r e m o v e d an i m p o r t a n t buffer, and as in the 1960s, the state's u n e m p l o y m e n t rate is higher than t h e nation's. Tennessee has s h o w n signs of strength in attracting more diversified business and industry w i t h higher profit, less cyclical products. Tennessee r a n k e d 1 3 t h in a rating of state manufacturing business climates; six of its southeastern neighbors ranked higher, though. 3 The state's high ranking on a national scale was influenced by its relatively low taxes a n d wages a n d its f o r m e r l y rapid p o p u l a t i o n growth. Weaknesses i n c l u d e d high energy costs, frequency of work stoppages, and a comparatively low percentage of high school educated adults. A recent poll of t h e nation's 30 largest cities indicates that Nashville and M e m p h i s have t h e second and third lowest residential utility rates, but industrial rates are no longer relatively cheap. 4 The potential for diversification t o m o r e profitable kinds of manufacturing has begun t o be realized. An estimated 85 a d v a n c e d technology firms w i t h 30,000 workers o p e r a t e in the Oak Ridge/Knoxville area of East Tennessee. G o v e r n m e n t installations, such as the Oak Ridge National Laboratory, t w o o t h e r Departm e n t of Energy (DOE) facilities involved in uranium e n r i c h m e n t for nuclear plants and nuclear w e a p o n s production, the University of Tennessee, and t h e TVA, f o r m t h e bulk of the state's h i g h - t e c h n o l o g y base. T h e p r o d u c t strengths of this area i n c l u d e energy systems, instrumentation, measurement, and biotechnology. The g r o w i n g t e c h n o l o g i c a l i n f l u e n c e o n Tennessee manufacturing is found in the private T h e Fourth Study of General Manufacturing Business Climates of t h e 4 8 C o n t i g u o u s States of America, Alexander Grant and Company, 1983, p. 4. ""Cost of Electricity in Major Cities C o m p a r e d " Public Power (NovemberDecember 1983), pp. 22-24. 35 sector as well. Tennessee Eastman has spent m o r e than $ 5 0 0 million on a coal gasification project that will convert coal into chemical b u i l d i n g blocks used t o make p h o t o g r a p h i c film, plastics, cigarette filters, and synthetic textiles a m o n g o t h e r products. This project was tested last fall and is s c h e d u l e d t o be fully operational early this year. In addition, Tennessee is a leader in the Southeast in Japanese investment. M o r e t h a n 20 Japanese c o m p a n i e s have invested over $1 billion in the state The largest, Nissan, is p i o n e e r i n g in t h e application of m o d e r n m a n a g e m e n t t e c h n i q u e s t o traditional industry. Nissan's newly o p e n e d plant south of N a s h v i l l e is a m o d e l of c o n g e n i a l labormanagement relations. The emphasis on shared responsibilities for quality products and t h e utilization of advanced technologies make this plant a paradigm of the attributes some analysts believe are necessary t o restore America's industrial p r o m i n e n c e . Although these examples imply future strength in large manufacturing operations, t h e f u t u r e for small businesses appears less bright Tennessee ranked 2 4 t h a m o n g states' climates for small businesses. Low ratings in capital resources, labor, and general business activity (population, e m p l o y m e n t , and personal i n c o m e growth) offset the effect of t h e state's low tax structure. The state has a loan-to-asset ratio b e l o w t h e median of 51.6 percent and lacks a statesponsored venture capital program. 5 These factors c o u l d deter the g r o w t h of private high t e c h n o l o g y firms a n d o t h e r small businesses. Sharp Geographic Differences A n o t e w o r t h y structural factor pertains t o geography. Statewide averages and even SMSA data o f t e n o v e r l o o k the typical experiences of t h e majority of Tennesseans w h o live in smaller cities and rural areas. O n l y 45 percent of Tennessee's 4.6 million residents live in cities of 50,000 or more, and 4 0 percent live in rural areas of fewer t h a n 2,500 people. O n l y 26 percent of Americans live in such areas.6 M o r e over, Tennessee has three regions, with distinct e c o n o m i c as w e l l as cultural and political traditions that will help d e t e r m i n e the course of ' I n e (October 1983), pp. 140ff. "Population Characteristics, Series P-20. No. 374, U. S. Department of Commerce, Bureau of the Census (September 1982), p. 12. ' C o m p u t e d from data in U.S. Department of Commerce, Bureau of Economic Analysis. Local Area Personal Income, 1 9 7 6 - 8 1 , Southeast 36 developments in 1984. West Tennessee accounts for 27 percent of t h e state's population. Per capita i n c o m e t h e r e averaged $9,232 in 1981 (see map). M i d d l e Tennessee had 31 percent of the state's population and average per capita personal i n c o m e of $8,970. East Tennessee had 39 percent of the population; per capita i n c o m e averaged $8,070. 7 W e s t Tennesee's e c o n o m y is based largely on agriculture, especially soybeans a n d o t h e r f o o d crops, w h i c h have p r o v e n as a m e n a b l e t o extensive cultivation in the plateau e x t e n d i n g f r o m the Tennessee River t o the Mississippi as c o t t o n o n c e was (see map). Farm cash receipts exceeded $30 million in five of west Tennessee's 21 counties; o n l y o n e of Tennessee's other 74 counties e n j o y e d such a high dollar v o l u m e of agricultural products. 8 M e m p h i s has long b e e n a trade and transportation center for farm products from Tennessee and neighboring states. As s h o w n in Table 1, M e m p h i s continues t o depend more on services than on manufacturing. The c o n c e n t r a t i o n ratios in this table measure under- and over-representation of various sectors in Tennessee cities. M e m p h i s ' s concentration ratio of 1.54 for transportation indicates its share of jobs in this sector is m o r e than 50 percent greater than its overall share of t h e state's jobs. However, t h e city's meager 2 percent p r o j e c t e d p o p u l a t i o n g r o w t h for t h e 1980s portends slow growth in construction, retail trade and other services. The State Planning Office conservatively projects population growth of 8-19 percent in o t h e r Tennessee SMSAs. In east Tennessee, mountainous terrain makes farming difficult, but burley t o b a c c o is an important cash crop. However, the mountains' a b u n d a n t natural resources have led t o a concentration of durable goods manufacturing and heavy industry. Coal in northeastern Tennessee attracted heavy industry after the Civil W a r and still provides energy supplies t o the TVA. This m o u n t a i n o u s area's extensive hardw o o d s d r e w Tennessee Eastman, DuPont, a n d o t h e r chemical manufacturers there half a century ago t o convert cellulose and other l u m b e r products i n t o chemicals n e e d e d by industry and consumers. The region's a b u n d a n c e of Region (June 1983), pp. 246-271. (Percentages d o not add to 100 because of rounding.) "U. S. Department of Commerce, Bureau of C e n s u s , 1 9 7 8 C e n s u s of Agriculture, Tennessee (April 1981), p. XVI. FEBRUARY 1984, E C O N O M I C REVIEW Table 1 . Tennessee SMSA Concentration Ratios Goods SMSA Const. Services Manu. TCPU FIRE Trade Misc. Serv. Govt. Total Service Chattanooga 0.84 0.97 0.93 1.28 0.99 0.95 1.09 1.01 Knoxville 1.10 0.87 0.81 0.90 1.02 0.98 1.25 1.05 Memphis 0.82 0.57 1.54 1.18 1.26 1.21 1.02 1.20 Nashville 1.19 0.77 1.08 1.46 1.09 1.14 0.94 1.10 Source: C o m p u t e d from data in U.S. Dept. of Labor. Bureau of Labor Statistics, E m p l o y m e n t a n d Earnings, May 1983, pp. 122-123. zinc a n d pyrites used t o make sulfuric acid helps Tennessee lead t h e U n i t e d States in p r o d u c t i o n of these minerals. 9 The institution of t h e TVA in the 1930s m a d e cheap energy readily available, and public officials encouraged energy-intensive industries such as a l u m i n u m t o locate in the area. Yet the future of m a n y east Tennessee industries is c l o u d e d by the rapid g r o w t h in energy costs in recent years and foreign competition. Moreover, east Tennessee's major cities, Knoxville a n d Chattanooga, have b e e n slow in the transition to services (see Table 1). Consequently, the recessions effects w e r e more devastating, a n d current growth is from a lower relative base as seen in higher u n e m p l o y m e n t rates (see map). In m i d d l e Tennessee t h e rolling terrain of the C u m b e r l a n d Plateau lends itself t o a m o r e diversified e c o n o m y . Livestock c o m p l e m e n t s f o o d and t o b a c c o crops in i m p o r t a n c e in rural areas. Nashville has b e c o m e a service center (see Table 1), offering not only distributive services (trade and transportation) like M e m p h i s but also many business and c o n s u m e r services, such as health care, insurance, private education, and finance. M o r e o v e r , the largest local source of manufacturing jobs, printing and publishing (see Chart 1), involves the dissemination of information, w h i c h m a n y analysts consider t h e underlying cause of services sector growth. Minerals Yearbook. Vol. II (Washingfon. D. C.: Bureau of M i n e s U. S. Department of the Interior, 1983), pp. 457-469. '"Computed from data in Dun and Bradstreet, Monthly New Incorporations. " U . S. Bankruptcy Courts of Chattanooga, Knoxville, Memphis, and Nashville. ! FEDERAL RESERVE B A N K O F A T L A N T A O n e sign of the city's prosperity is its b o o m i n g c o m m e r c i a l construction and its ability to fill n e w office space relatively quickly. N o n e t h e less, m i d d l e Tennessee has pockets of poverty and u n e m p l o y m e n t particularly in certain rural counties that have relied on a few manufacturing firms t o sustain local e m p l o y m e n t and trade. General Business and Labor Conditions N e w incorporations through t h e first half of 1983 w e r e 7 percent ahead of 1982. 1 0 Bankruptcies d e c l i n e d 12 percent in the 1 7 - c o u n t y area of southeastern Tennessee including Chattanooga during the first 11 months. Bankruptcies d e c l i n e d 11 percent in the Nashville district and 7 percent in the M e m p h i s district However, in the 2 4 - c o u n t y area of northeast Tennessee including Knoxville, bankruptcies w e r e nearly o n a par w i t h the 1982 level. 11 I m p r o v e m e n t in labor market conditions was m o r e belated. 1 2 After falling 2.1 percent in 1982, n o n f a r m e m p l o y m e n t statewide began increasing in late 1983,and by N o v e m b e r reached 1.7 million, or 3 percent m o r e t h a n the year before b u t 72,000 less than in 1979. Jobless Tennesseans n u m b e r e d 34,000 fewer in late 1983 than late 1982, b u t the labor force grew more rapidly t h a n e m p l o y m e n t By N o v e m b e r " C h a n g e s in the labor market w e r e c o m p u t e d from d a t a published by the Tennessee Department of Employment Security. Unless otherwise indicated, data are preliminary and not seasonally adiusted and c h a n g e s are relative to year-earlier levels 37 W o r l d ' s Fair h e l p e d hold the 1982 u n e m p l o y m e n t rate at 8.8 percent. Tri-Cities had the highest jobless rate, 9.3 percent, in O c t o b e r . The u n e m p l o y m e n t rate for East Tennessee as a w h o l e was 10.3 percent in S e p t e m b e r (see map). M e m p h i s c o n t i n u e d to lose jobs t h r o u g h the first nine months, w i t h 3 4 7 , 0 0 0 e m p l o y e d there by October. However, the unemployment rate began d r o p p i n g in June. West Tennessee's unemployment rate was 9 percent in September. In Nashville e m p l o y m e n t d e c l i n e d by small margins t h r o u g h the first 10 m o n t h s of 1983, and the 3 6 8 , 0 0 0 e m p l o y e d t h e r e in O c t o b e r n u m b e r e d 10,000 fewer than in 1981. However, Nashville's u n e m p l o y m e n t rate was only 6.9 percent in N o v e m b e r . M i d d l e Tennessee's jobless rate was the lowest of the t h r e e regions. The apparent paradox between employment gains statewide and losses in the cities is attributable t o the concentration of manufacturing, w h i c h e x p e r i e n c e d the largest g r o w t h in j o b s , o u t s i d e u r b a n areas. M o r e t h a n half t h e work force in 23 non-SMSA counties is e m p l o y e d in m a n u f a c t u r i n g . The labor m a r k e t o u t l o o k for 1 9 8 4 is positive, b u t the rate of improvem e n t will vary f r o m o n e sector of the e c o n o m y t o another. Manufacturing t h e percentage of Tennesseans o u t of w o r k had d e c l i n e d t o 11.4 percent (seasonally adjusted) from a peak of 12.8 percent in February 1983, whereas the U.S. rate had fallen to 8.4 percent by that time. In east Tennessee, labor market conditions remained depressed t h r o u g h o u t most of 1983. Chattanooga's e m p l o y m e n t stood at 166,000 in O c t o b e r , 7,600 fewer than in 1979 and only 2 percent more than in October 1982. However, u n e m p l o y m e n t began falling relative t o year earlier levels in M a y and by N o v e m b e r had reached 9.1 percent. Knoxville had fewer employed through the first t h r e e quarters of 1983, and the unemployment rate remained in d o u b l e digits through the first half. In contrast, t h e 38 Manufacturing e m p l o y m e n t has been edging higher since m i d - 1 9 8 3 and by N o v e m b e r had generated nearly 29,000 more jobs than a year earlier. Durable manufacturing i m p r o v e d more robustly than n o n d u r a b l e manufacturing. By N o v e m b e r the rate of increase in durable goods e m p l o y m e n t reached 10 percent, b u t that in n o n d u r a b l e goods had a d v a n c e d only 4 percent. Durables a d d e d over 19,000 jobs t o reach a total of 215,000, whereas nondurables a d d e d 9,000 jobs t o reach 270,000. Durables and nondurables e m p l o y m e n t remains b e l o w historical peaks of 1979 and 1973, respectively. The strong recovery in housing and in replace m e n t purchases of h o u s e h o l d durables stimulated building-related industries. Stone, clay, and glass e m p l o y m e n t led the g r o w t h w i t h a N o v e m b e r increase of 25 percent. Lumber and w o o d e m p l o y m e n t was up almost 8 percent. These high g r o w t h rates in part reflect the low levels t o w h i c h these industries fell in 1 9 8 2 — the lowest in over a decade. Machinery employm e n t d e c l i n e d t h r o u g h June but rose 11 percent in N o v e m b e r . Refrigeration e q u i p m e n t FEBRUARY 1984, E C O N O M I C REVIEW Key Economic Activities Johnson Chattanooga Memphis 1 I soybeans | | dairy I I apparel I H i i l i i | tobacco Percent of Population+ Tourist Receipts (%) 1984 Capital Expansion Projects (%) Jobs(%) Per Capita Personal Income 1983 Unemployment rate* West 27 27 Middle 31 37 East 39 36 34 20 39 33 $9,232 $8,970 9.0 8.6 46 28 58,070 10.3 'September +Figures do not add to 100 because of rounding. a c c o u n t s for 35 p e r c e n t of n o n e l e c t r i c a l machinery e m p l o y m e n t and value-added, and household appliances, TVs, a n d radios account for over 4 0 percent of electrical machinery jobs a n d v a l u e - a d d e d . 1 3 In r e s p o n s e t o g r o w i n g n a t i o n w i d e auto sales, transportation equipm e n t (automobiles a n d parts) e m p l o y m e n t began to rise in midyear a n d by N o v e m b e r was 14 percent ahead of last year. Primary and fabricated metals p r o d u c t i o n began to recover later in the summer, achieving 8 and 2 p e r c e n t respective advances in jobs by N o v e m b e r . Because of lingering weaknesses in the paper, chemicals, a n d f o o d industries, n o n d u r a b l e manufacturing e m p l o y m e n t growth was sluggish. In the paper industry e m p l o y m e n t declines were in the d o u b l e d i g i t range in most of 1983. Jobs in chemicals fell throughout 1983 although the rate of decline narrowed in each successive month except August Chemical manufacturing " C o m p u t e d from data in 1978-79 A n n u a l Survey of Manufactures, Tennessee U. S. Department of Commerce, Bureau of the Census (January 1983), Section 6, pp. 243-7. ! FEDERAL RESERVE B A N K O F A T L A N T A accounts for a larger share of value-added (17 percent) t h a n any o t h e r industry and ranks second in the share of industrial jobs (10 percent) (see Chart 1). A p p a r e l and textiles e m p l o y m e n t began t o increase last spring a n d by N o v e m b e r had achieved g r o w t h rates of 8 and 7 percent, respectively, after d e c l i n i n g substantially in 1982. The g r o w t h in apparel e m p l o y m e n t to 69,000 is significant because in terms of jobs it is the largest industry (see Chart 1). Apparel factories are t h e leading source of e m p l o y m e n t in 21 of the 39 counties for w h i c h such data are available. Textile producers began to recover in 1983 because of increasing demand for apparel, carpets, and auto upholstery. A poll of Tennessee businesses revealed considerable o p t i m i s m a b o u t the o u t l o o k for durable goods manufacturing in 1984. Transportation e q u i p m e n t p r o d u c t i o n should c o n t i n u e to improve in 1984 because Detroit automakers have scheduled a substantial increase in auto assemblies. G r o w t h in l u m b e r industry orders and e m p l o y m e n t may slow in concert w i t h an e x p e c t e d deceleration in h o m e - b u i l d i n g , b u t the normal three-to-six m o n t h lag in commercial 39 construction should c o n t i n u e to boost stone, clay, a n d glass production. However, glass manufacturers t i e d t o the soft drink market are experiencing stiff competition from plastic containers and are contemplating layoffs. A l u m i n u m manufacturers are more optimistic about the market for replacement purchases of h o m e appliances than that for residential construction materials. N o n d u r a b l e manufacturers w h o rely on the retail market look for c o n t i n u e d increases in that segment in 1984. The printing and publishing industry, c o n c e n t r a t e d in the Tri-Cities a n d Nashville, has been plagued by excess production, b u t industry representatives report slight increases in d e m a n d , w h i c h d e p e n d s on c o n s u m e r spending, and forecast a good year in 1984. However, chemical manufacturers, such as Tennessee Eastman, are l o o k i n g for generally slow i m p r o v e m e n t . Foreign d e m a n d for chemicals is likely to remain slack. Chemical exports a c c o u n t e d for $1.6 billion of the state's $5.6 billion export-related manufactures and almost o n e - f o u r t h of chemical manufacturing e m p l o y m e n t in 1981. 1 4 M a n u f a c t u r e d exports, particularly chemicals and textiles, d e c l i n e d sharply in 1982 and 1983. Demand for chemicals may n o t strengthen substantially in 1984 because, even if the exchange rate of the dollar declines, exports n o r m a l l y r e s p o n d slowly. M o r e o v e r , almost 40 percent of Tennessee's chemical p r o d u c t i o n supplies synthetic fibers t o textile producers; thus, it is subject to the same long-term constraints as that industry. D e v e l o p m e n t s in the chemical industry will have a greater effect on Chattanooga and M e m p h i s than o n other cities. Chemical prod u c t i o n , w h i c h accounts for 18 percent of t h e value a d d e d by manufacturing a n d 10 percent of industrial jobs in Chattanooga, ranks a m o n g the t o p three local industries in a city heavily d e p e n d e n t on manufacturing (see Chart 1). In Memphis, only food outranks chemicals in terms of jobs or the share of value a d d e d by manufacturing, but manufacturing comprises a smaller p o r t i o n of the local e c o n o m y . O n e positive sign for manufacturing is t h e extent of capital expansions o n the horizon. Increased capital s p e n d i n g nationally should boost d e m a n d for zinc by 38 percent, according t o C o m m e r c e D e p a r t m e n t projections. Tennessee leads the nation in zinc o u t p u t . W i t h i n the state, p l a n n e d capital investments in t h e first nine m o n t h s of 1983 w e r e only $36 million below the 1982 total of $761 million. Tennessee should have its second highest manufacturing i n v e s t m e n t in 1983; the record of $1.8 billion was set in 1 9 8 0 w h e n Nissan a n n o u n c e d its half-billion dollar investment. Of t h e $725 million w o r t h of planned investments, 77 percent are expansions of existing operations. East Tennessee leads t h e state w i t h 46 percent of planned capital expansion. Alcoa's $250 million investment in a new finishing mill and renovation of existing operations should make smelting operations there a m o n g the most a d v a n c e d in the world. Rising energy prices, w h i c h represent o n e - f o u r t h of t h e cost of p r o d u c i n g a l u m i n u m , have had a smaller i m p a c t o n Alcoa than o n o t h e r Tennessee a l u m i n u m manufacturers because it produces 4 0 percent of its electrical needs through a subsidiary. W e s t Tennessee accounts for 34 percent of capital expansion plans a n d m i d d l e Tennessee for 20 percent. N e w j o b o p p o r t u n i t i e s created by this capital i n v e s t m e n t should surpass last yeaKs level by 13 percent. Potential n e w jobs totaled m o r e than 12,000 t h r o u g h S e p t e m b e r 1983 c o m p a r e d t o the 1982 annual level of 10,000. A l t h o u g h east Tennessee will garner the largest share of capital investment, its proportion of j o b opportunities from this investm e n t are least, c o m p r i s i n g only 28 percent of t h e state's total. W e s t Tennessee's capital i n v e s t m e n t accounts for 39 percent of the n e w jobs, and m i d d l e Tennessee's accounts for 33 percent15 Energy Tennessee's recovery is reflected in changes in demand for electrical power in 1983. By August, kilowatt hours increased 6 percent in Tennessee, although U.S. usage had c l i m b e d 9 percent. However, aggregate d e m a n d is w e l l b e l o w peak 1979 levels. The revival of Tennessee's industries, especially durable goods, should spark c o n t i n u i n g u p t u r n in d e m a n d . This t r e n d ,5 '""Origin of Exports of Manufactured Products,'" 1 9 8 1 Annual Survey of Manufactures (May 1983), pp. 16, 29. 40 Third quarter 1983 Economic Growth Report, Tennessee Department of Economic and Community D e v e l o p m e n t FEBRUARY 1984, E C O N O M I C REVIEW is significant because industrial customers account for almost half of all energy c o n s u m p t i o n in Tennessee. 1 6 By August, industrial usage had risen 8 percent c o m p a r e d w i t h a 10 percent increase in the nation. Consumer-generated dem a n d should remain m o d e r a t e because of conservation measures. O n the supply side, the outlook is for cont i n u e d contraction b u t at a slower rate t h a n in the past f e w years. The TVA, t h e major energy supplier in the state, reduced coal consumption by 4.5 percent f r o m 1982 t o 1983. From 1981 to 1983, the utility closed or placed on seasonal status 1 7 percent of its coal-fired load capacity. Agency officials project little change in 1 9 8 4 from 1983 levels because the utility is converting from coal, w h i c h costs 2.3 cents per kilowatt hour, t o nuclear power, w h i c h has an operating cost of 1.4 cents. In 1983, fully 55 percent of the TVA's capacity came f r o m coal-fired units a n d 18 percent came from nuclear; ultimately, it plans t o rely on coal for o n l y 4 7 percent of its capacity and on nuclear energy for 30 percent. Thus, coal p r o d u c t i o n a n d m i n i n g e m p l o y m e n t should experience o n l y slow g r o w t h in 1984. Moreover, the TVA has been a t t e m p t i n g for several years t o bring capacity m o r e closely in line with demand by cancelling plans for nuclear p o w e r plants. Congress t e r m i n a t e d f u n d i n g for the Clinch River breeder reactor, near Oak Ridge, in N o v e m b e r . The TVA plans t o s p e n d $1.3 billion on power-generating projects in fiscal 1984, $ 3 0 0 million less t h a n in fiscal 1983. TVA e m p l o y m e n t , already r e d u c e d from a regional total of 52,000 in 1 9 8 0 t o 37,000 in late 1983, should c o n t i n u e to d e c l i n e by 4 , 0 0 0 over t h e next five years albeit at a rate set largely by attrition rather than layoffs. The impact will c o n t i n u e t o be greatest in east Tennessee, w h e r e t w o of the six coal-fired plants affected by t h e shift t o nuclear p o w e r are located. O f the 24,000 TVA e m p l o y e e s in Tennessee, Chattanooga and Knoxville each has a r o u n d 5,000. Coal m i n i n g is c o n c e n t r a t e d in u p p e r East Tennessee. Construction The b u i l d i n g industry led o t h e r sectors of the state's economy in recovering from the recession. ,6 U. S. Department of Energy, State Energy Data Report I 9 6 0 thr'pugh 1980, (July 1982), p. xi. ! FEDERAL RESERVE B A N K O F A T L A N T A Chart 2. Tennessee Building Permits 3 - M o n t h Moving Average, S.A Multi-family — Single-family Source: Seasonally adjusted by Federal Reserve Bank ot Atlanta from Bureau of C e n s u s d a t a The dollar value of construction contracts, on a 1 2 - m o n t h rate, had reached $3.6 billion by N o v e m b e r , 4 4 percent higher than the year before. 1 7 This was the first year since 1979 that the value of construction increased significantly. Residential construction, w h i c h comprises half the value of construction spending, led this growth. Single-family building permits doubled in the s u m m e r after d e c l i n i n g since 1978 and remaining flat in 1982 (see Chart 2); multifamily permits w e r e up 125 percent in N o v e m b e r . These rates surpassed those of Georgia and Florida, w h i c h d i d n o t d e c l i n e so sharply in the recession. N o n r e s i d e n t i a l b u i l d i n g ¡hermits, w h i c h did not begin t o recover until m i d - 1 9 8 3 , were 24 percent above 1982 levels by November. In this category, office buildings a n d stores s h o w e d t h e most strength. Chattanooga's residential b u i l d i n g has been reviving. By N o v e m b e r , s i n g l e a n d m u l t i f a m i l y b u i l d i n g permits had risen over 65 percent (12m o n t h rate) from 1982 levels. The value of nonresidential construction grew at a slower rate, attaining a 4 9 percent increase t h r o u g h N o v e m b e r . Knoxville's g r o w t h has been tempered by m u l t i f a m i l y permits, w h i c h d e c l i n e d almost 60 percent b e l o w 1982 levels. The " C o n s t r u c t i o n figures were obtained from the Bureau of the Census, the Middle Tennessee H o m e Builders Association, Aladdin Resources, RCM interests, Baptist Hospital, Southeast Venture Companies, and various government agencies 41 W o r l d ' s Fair spurred construction of hotels and motels as w e l l as c o n d o m i n i u m s , apartments, and offices in anticipation of sustained increases in d e m a n d that d i d n o t occur. In Nashville, every category of construction was booming, and the first 10 m o n t h s of 1983 w e r e a peak period for housing starts. In the M e m p h i s area the value of residential construction contracts rose 125 percent t h r o u g h N o v e m b e r over the first 11 m o n t h s of 1982. The value of nonresidential construction contracts increased by 10 percent. C o m m e r c i a l construction i m p r o v e d as well. After staying b e l o w 5 percent in 1982, office vacancies in Nashville rose t o over 13 percent by the second half of 1983 before falling t o 11 percent by t h e t h i r d quarter. The surge was caused by increased supply a n d the consolid a t i o n of o f f i c e space b e t w e e n t w o local insurance companies. M o s t of M e m p h i s ' s large inventory of industrial space was absorbed. Despite the overall improvement in construction, e m p l o y m e n t c o n t i n u e d t o decline relative t o year-earlier levels. At 72,000 in N o v e m b e r , building-related e m p l o y m e n t was only 1,400 b e l o w the N o v e m b e r 1982 level b u t 21,000 b e l o w peak 1 9 7 9 levels. The o u t l o o k for Tennessee construction is bright even t h o u g h the rate of g r o w t h in h o m e b u i l d i n g may decelerate. The Nissan truck plant in Smyrna should generate substantial b u i l d i n g nearby. Construction of m o r e than six million square feet of office space in Nashville from 1 9 8 3 - 1 9 8 5 , an increase of 50-80 percent over existing inventory, should buoy employment and demand for building materials. Major projects i n c l u d e a $25 million renovation of office a n d retail space o n Second Avenue, a $25 million W a s h i n g t o n Square complex, t h e $50 million O n e Nashville Place office tower, a $38-$40 million office complex to house Northern Telecom's headquarters, and Baptist Hospital's c o n t i n u i n g expansion. Despite this veritable explosion in office construction, industry analysts e x p e c t a high rate of absorption because of Nashville's diversified, servicebased economy. Chattanooga city officials are seeking $4.6 million in Urban D e v e l o p m e n t A c t i o n Grant funds for a $28 million multi-use mall near the TVA's $ 1 8 0 million Office of Power complex. This project would help integrate the revitalized areas of Chattanooga's central business district 42 by c o n n e c t i n g t h e Chattanooga C h o o - C h o o h o t e l / e n t e r t a i n m e n t c o m p l e x w i t h the TVA office center. Both projects should be complete by mid-1984. M a j o r n e w construction projects in M e m p h i s include a $46 million, 4 0 6 - r o o m c o n v e n t i o n center hotel, t h e $32 million O n e M e m p h i s Place, a n d t h e $42 million M o r g a n Keegan building. Consumer Spending Consumer spending patterns are d e t e r m i n e d largely by trends in personal income and population. Tennessee's total personal income growth has accelerated after sluggish performance during the recession years. For the 1 2 - m o n t h period ending in mid-1983, personal income increased 6.3 percent, slightly higher than t h e nation's 6 percent gain. By the first half of 1983, Tennessee's personal i n c o m e a m o u n t e d t o $43.7 billion. Population growth, w h i c h slowed t o .6 percent per a n n u m in the April 1980-July 1982 period, should accelerate as recovery continues a n d migration rises. However, r e s u m p t i o n of the growth rates of the 1970s is unlikely. 1 8 G r o w t h of retail sales in Tennessee trailed the increase in personal income, and e m p l o y m e n t in retail and wholesale trade d e c l i n e d slightly through t h e first eight m o n t h s of 1983, but increased thereafter. Through August taxable sales rose less than in 1982, w h e n W o r l d ' s Fair visitors raised c o n s u m e r s p e n d i n g t o exceptionally high levels. However, the rate of growth accelerated in t h e third quarter of 1983. From July through N o v e m b e r , total sales tax collections rose 13 percent. Building materials, auto dealers, a n d h o m e furnishings registered the strongest increases of 30, 36, and 18 percent, respectively. Sales tax collections for the T e n n e s s e e SMSAs w e r e up in all areas e x c e p t Knoxville, w h e r e t h e y d e c l i n e d 4 percent from the same period last year. Collections rose 9 percent in Chattanooga, 14 percent in Memphis, 16 percent in Nashville, a n d 6 percent in t h e Tri-Cities. 1 9 By the Christmas s h o p p i n g season, d e p a r t m e n t store merchants in Nashville w e r e registering double-digit increases in sales over »U. S. Department of Commerce. Bureau of the C e n s u s Provisional Proiection of t h e Population of States, by A g e and Sex: 1 9 8 0 to 2 0 0 0 . Current P o p u l a t i o n Reports, Series P-25, No. 9 3 7 , (August 1983), p. 11. ^ T Monthly S t a t e m e n t of Revenue Collections, Tennessee Department of Revenue, November 1983. FEBRUARY 1984, E C O N O M I C REVIEW year-earlier levels, a n d most w e r e o p t i m i s t i c a b o u t the holiday season. However, reports from retailers in t h e Tri-Cities indicated more modest p e r f o r m a n c e and even some declines, in part because of a substantial decrease in the t o b a c c o harvest. Retail sales should c o n t i n u e t o grow briskly in 1984. Faster e m p l o y m e n t income, and population g r o w t h w o u l d further increase c o n s u m e r spending. A $60 million s h o p p i n g mall, the second largest in Tennessee, should strengthen Nashville's status as a regional center for retail trade and could generate $120 million in annual sales w h e n c o m p l e t e d in 1987. C o n s t r u c t i o n may begin in the second half of 1984. T w o n e w malls, each over 8 0 0 , 0 0 0 square feet, have o p e n e d near M e m p h i s in t h e past t w o years. Wholesale traders in the locally i m p o r t a n t farm supplies market expect considerable i m p r o v e ment in 1984 because increased acreage should boost p r o d u c t i o n substantially a n d c o n t i n u i n g recovery should sustain d e m a n d . A $50 million mall in Knoxville should boost that city's retail sector w h e n it opens this summer. Public Sector The o u t l o o k for Tennessee's state a n d local g o v e r n m e n t appears brighter than a year ago. By N o v e m b e r , public sector jobs n u m b e r e d 300,000, or 3,000 m o r e than in N o v e m b e r 1982 after d e c l i n i n g since 1981. N o o t h e r n o n m a n u f a c t u r i n g sector generated so m a n y new jobs. Revenue collections e x c e e d e d estimates in t h e first four m o n t h s of the fiscal year. Sales tax receipts in 1983 m o r e than offset the shortfall in franchise and excise tax collections. The latter are Tennessee's counterpart t o o t h e r states' corporate i n c o m e taxes. M a n y corporations had filed for a six-month extension, from April t o O c t o b e r , a n d receipts w e r e less than expected. Unlike prior years w h e n hiring freezes and budget cutbacks w e r e c o m m o n , state governm e n t is likely t o c o n t r i b u t e t o g r o w t h in 1984. The governor has p r o p o s e d a $5.1 billion budget for fiscal 1985, 14 percent higher than the 1984 budget. This increase w o u l d give state workers their first raise in 2 years a n d reward high-performance teachers through an incentive program. Financing w o u l d c o m e from a 1 cent hike in the 4'/2 cent sales tax and other tax increases. W h e t h e r or n o t this b u d g e t wins ! FEDERAL RESERVE B A N K O F A T L A N T A approval, c o n t i n u i n g recovery should boost individual and corporate incomes, thereby fostering higher tax receipts, government hiring and spending. However, the traditional stimulative role of the federal government in Tennessee's economy has diminished. Federal g o v e r n m e n t employm e n t d e c l i n e d 6 percent t h r o u g h the first three quarters. Defense e x p e n d i t u r e s for military functions in Tennessee (especially personnel costs) d e c l i n e d by 10 p e r c e n t t o $1 billion in 1983; the Defense Department projects a mere 2 percent increase in 1984, t h e lowest of any southeastern state. 20 Federal civilian employm e n t also is unlikely t o r e b o u n d significantly. The TVA has b e e n i m p l e m e n t i n g cutbacks for several years, a n d m o r e are likely in 1984. Finance Tennessee's c o m m e r c i a l bank deposits w e r e up 10 percent in N o v e m b e r f r o m t h e same m o n t h in 1982, an increase well b e l o w the 15 percent e x p e r i e n c e d by southeastern banks but slightly above the national increase. Savings placed in m o n e y market deposit accounts ( M M D A s ) paced this expansion by growing 127 percent. Federal H o m e Loan Bank Board figures i n d i c a t e that b a n k t i m e d e p o s i t s declined by 9 percent. Savers w e r e reluctant to place m o n e y in t i m e deposits because market rates w e r e rising a n d M M D A s offered a m o r e liquid a n d attractive alternative. Tennessee savings a n d loan associations posted double-digit deposit gains f r o m M a r c h t o N o v e m b e r relative t o year-earlier levels. By N o v e m b e r , Tennessee thrifts had $7.3 billion in deposits. M M D A s accounted for the majority of this growth. In response to the surge of h o m e buying, Tennessee thrifts lent a healthy v o l u m e of mortgages in 1983. C o m m i t m e n t s w e r e up 70 percent f r o m N o v e m b e r to N o v e m b e r . The 4 percent decline in mortgages o u t s t a n d i n g since N o v e m b e r 1982 reflects the t r e n d of Tennessee S&Ls t o discount in the secondary market a high p r o p o r t i o n of the mortgages they made. Credit unions, outperforming both banks and S&Ls, registered a 14 percent d e p o s i t gain. U S Dept of Defense, Estimated Expenditures for States S e l e c t e d a r e a s Fiscal Years 1983 and 1984 and 43 A l t h o u g h depository institutions for the most part had a good year in 1983, a n u m b e r of Tennessee banks failed in a crisis triggered by the February 14 collapse of the United American Bank of Knoxville. Bad loans, loss of loan participations w i t h failed banks, and lack of c o n f i d e n c e in some Tennessee banks caused the subsequent failures. Employment was virtually flat in Tennessee's financial sector. Slight declines occurred in the first eight months, but in N o v e m b e r the n u m b e r of jobs a d v a n c e d slightly t o 80,000. The p e r f o r m a n c e of Tennessee's financial sector will be d e t e r m i n e d largely by d e v e l o p m e n t s in o t h e r state econ o m i c sectors. A challenge facing the state's financial institutions is t h e growth of interstate banking. After focusing on t h e fast-growing Georgia and Florida markets, out-of-state banks, such as N C N B and Citicorp, have recently t u r n e d t o Tennessee to offer consumer and housing loans and other financial services. Some Tennessee banks have begun t o consolidate across c o u n t y lines in response t o state legislation enacted in 1983 t o prepare t h e m for interstate banking. Tourism. Travel a c c o u n t e d for $3 billion of Tennessee's $52 billion gross state p r o d u c t in 1981. In 1.982 tourism generated 80,000 jobs, or 4.3 percent of total e m p l o y m e n t . 2 1 The direct e c o n o m i c impact of Tennessee's tourism industry exceeds the $1.8 billion generated by agriculture and roughly equals that of construction and finance in terms of jobs. Nashville had one-quarter of t h e state's travel-related e m p l o y m e n t , a n d middle Tennessee received 37 percent of travel expenditures. M e m p h i s a n d m o u n t a i n o u s east Tennessee are also important travel destinations. M e m p h i s ' s C o o k C o n v e n t i o n Center, w i t h 2 0 0 , 0 0 0 square feet of exhibit space, is t h e largest c o n v e n t i o n center in the state. West Tennessee received 27 percent of travel expenditures in 1981, and east Tennessee 36 percent Air travel statewide in 1983 was slightly above 1982 levels. However, Knoxville's plane passenger arrivals through N o v e m b e r w e r e off 21 Travel figures from T h e E c o n o m i c Impact of Travel on T e n n e s s e e Counties, 1 9 8 2 , U.S. Travel Data Center (April 1983); gross state product estimates from An E c o n o m i c Report to t h e Governor of t h e 44 11 percent. Chattanooga posted a 16 percent increase t h r o u g h N o v e m b e r , a n d N a s h v i l l e a 3 percent increase. A u t o travel, as reflected in v i s i t o r c e n t e r registrations, also d e c l i n e d . Through December, 2.1 million visitors registered at state w e l c o m e centers, 6 percent f e w e r than in the same period of 1982. M a j o r private attractions had lower attendance t h a n in 1982. M a n y of Tennessee's tourism indicators for 1983 were d o w n because the World's Fair in Knoxville b u o y e d year-earlier figures to unusually high levels, n e w tourist attractions such as Disney's EPCOT Center in Florida offered intense competition, and the pace of recovery in Tennessee was slower than elsewhere. Less expensive attractions and those that rely m o r e on local travel did show improvement in 1983. Tennessee National Park Service sites had 7 percent more visitors t h r o u g h O c t o b e r , and state parks registered a .2 percent increase through November. Lodging tax receipts through November were d o w n 1 5 percent f r o m 1982 b u t up 9.9 percent over 1981 levels. M a n y Tennessee hotels and motels b e n e f i t e d f r o m EPCOT-related travel along interstate corridors t o Florida. However, Nashville's o c c u p a n c y rate d e c l i n e d 3 percent to 67 percent, and Knoxville's p l u m m e t e d 33 percent to 50 percent Chattanooga's occupancy fell 5 percent to 62 percent t h r o u g h O c t o b e r . In contrast, M e m p h i s ' s o c c u p a n c y rate, 65 percent through O c t o b e r , was 2 percent better than in 1982. 2 2 Continuing recovery should lower unemploym e n t and raise personal income, t h e r e b y fost e r i n g more discretionary s p e n d i n g for travel. A n o t h e r i m p o r t a n t factor will be the 1984 N e w Orleans W o r l d ' s Fair. It should increase auto traffic, especially along Tennessee's interstate highways, boosting business at m a n y hotels and motels. However, t h e W o r l d ' s Fair may c o m m a n d so m u c h money and time that visitors will have little left for Tennessee attractions. As a h u b b e t w e e n the M i d w e s t and N e w Orleans, M e m p h i s stands to gain the most traffic Advance bookings for bus tours are very strong. The city is u n d e r g o i n g a revitalization that should boost its appeal t o tourists. The historic Peabody State of Tennessee. Center for Business and Economic Research, University of Tennessee (January 1983), p. 95. " P a n n e d . Kerr, and Forster FEBRUARY 1984, E C O N O M I C REVIEW ! Hotel r e o p e n e d in 1982 as a 4 5 0 - r o o m luxury hotel. Beale Street, the " b i r t h p l a c e of t h e blues," r e o p e n e d in O c t o b e r after an $11 million rebuilding program. The M u d Island attraction has d r a w n a r o u n d 1 million visitors annually since it o p e n e d in 1981. Refurbishing and p r o m o t i o n of t h e N a t c h e z Trace Parkway should draw m a n y fair visitors through m i d d l e Tennessee. The U. S. Departm e n t of the Interior has a p p r o p r i a t e d $9.2 million for i m p r o v i n g sections of the parkway in Tennessee. N e w or e x p a n d e d attractions s h o u l d also e n h a n c e t h e area's a p p e a l t o travelers. The O p r y l a n d t h e m e park will o p e n a $3.7 million b o b s l e d - t y p e ride in June. M u s i c Village USA an ongoing entertainment complex, will a d d t w o c o u n t r y music m u s e u m s this spring. Nashville's c o n v e n t i o n business should improve w i t h the $50 million expansion of t h e 4 7 0 - r o o m O p r y l a n d Hotel, c o m p l e t e d in 1983. A $25 million c o n v e n t i o n center is u n d e r construction, b u t financial p r o b l e m s have stalled plans for a related hotel and renovation of U n i o n Station into a retail complex. Of t h e major conventions already b o o k e d this year the American Society of Association Executives (ASAE) in M a r c h is w i d e l y regarded as the most important. O n e - f i f t h of the m e m b e r s of this organization, heads of 6,000 leading trade and professional associations, normally schedule subsequent meetings of their respective organizations in the host city. N e w and e x p a n d e d carrier service i m p l e m e n t e d at year-end should boost Nashville's airport v o l u m e . In east Tennessee, celebration of the 5 0 t h anniversary of t h e Great Smoky M o u n t a i n s National Park should spur tourism. Scott County residents are awaiting the c o m p l e t i o n of a local national park site, t h e Southfork Recreation Area. This facility, begun four years ago, is o p e n i n g in phases leading to c o m p l e t i o n in 1987-1988. The area's main attraction is a gorge w i t h rapids for rafting. Also, hunting, banned in nearby National Park Service facilities, will be o p e n t o the p u b l i c Knoxville a n d Chattanooga c o n v e n t i o n representatives are intensifying their marketing efforts. The renovated Knoxville Exhibition Hall will p r o v i d e additional facilities t o the area, but no n e w hotels are planned because of soft d e m a n d in 1983. C o n v e n t i o n a n d city officials in Chattanooga are negotiating w i t h a d e v e l o p e r t o construct a $45 million hotel, parking garage, FEDERAL RESERVE B A N K O F A T L A N T A and trade center development to be completed by February 1985. W h i t e - w a t e r rafting should c o n t i n u e t o boost Polk County's e c o n o m y since the TVA agreed t o refrain f r o m diverting water from the O c o e e River t h r o u g h o u t the tourist season. Agriculture The leading products for Tennessee's 92,000 farmers are soybeans, dairy and meat cattle, and tobacco. Together, these account for almost two-thirds of Tennessee's $1.8 billion in farm cash receipts. 2 3 The dairy industry in m i d d l e and east Tennessee (see map) accounts for a p p r o x i m a t e l y 13 percent of Tennessee's farm revenue. The levy of milk assessments on production reduced the effect of price supports, a n d higher f e e d costs e r o d e d profits in 1983. M a n y d a i r y m e n suffered losses severe e n o u g h t o force liquidation. N o v e m b e r ' s e n a c t m e n t of n e w dairy legislation, i n t r o d u c i n g financial incentives to reduce production, could improve t h e industry's prospects. Efficient producers are most likely t o benefit, but high f e e d costs in the first half threaten t o lower their profit margins. Marginal operations are likely to cease or cut back. Industry analysts believe milk prod u c t i o n may have peaked in 1983. Some 50,000 m i d d l e a n d east Tennesseans grow burley t o b a c c o (see map) although most produce small volumes, averaging 1,300 pounds per farm, according t o University of Tennessee Extension Service d a t a T o b a c c o p r o d u c t i o n , of w h i c h 80 percent is burley, generates approximately 12 percent of the state's farm income. Tobacco is a m o n g the t o p three e x p o r t comm o d i t i e s in Tennessee. Thus, t h e e x t r e m e damage t o the drought-stricken t o b a c c o crop in 1983 dealt a severe b l o w t o Tennessee's economy. Over o n e - t h i r d of the 1983 crop was lost because of adverse weather; farmers had the worst yields in t h r e e decades. M u c h of the remaining t o b a c c o was of an inferior quality and earned low prices, w h i c h w e r e only slightly offset by the m o d e s t price supports granted to inferior tobacco. Preliminary estimates of income indicate a sharp d e c l i n e (see Chart 3). The " E c o n o m i c Indicators of t h e Farm Sector, State a n d I n c o m e Balance Sheets Statistics, 1981, (October 1982) USDA Economic Research Service, pp. 121-122. 45 C h a r t 3. Percent Change in Farm Revenue 35 l l 1981-82 1982-83 25 m 15 5 -15 n o -25 not i n c l u d e d in the p a y m e n t - i n - k i n d (PIK) program. C r o p incomes are e x p e c t e d t o fall (see Chart 3). Livestock farmers suffered f r o m declining prices. C r o p shortages m o t i v a t e d cattle a n d p o r k farmers t o rush their stock t o market t o avoid soaring feed costs. The resulting surfeit caused meat prices t o fall. Nonetheless, some farmers may e n d the year w i t h a profit (see Chart 3). Farmers enrolled in the PIK program will receive c o m m o d i t y payments, and those w h o increased crop insurance will receive a d d i t i o n a l assistance. Cattle prices should revive by m i d - 1 9 8 4 as beef supplies grow tight. -35 -45 .«N® Source: Federal Reserve Bank of Atlanta estimates possibility of more favorable w e a t h e r is the sole source of o p t i m i s m for 1984. T o b a c c o growers face increasing pressure for major revisions in t h e t o b a c c o program. High taxes and changing habits will c o n t i n u e t o t e m p e r domestic consumption, and exports are unlikely t o increase. In west Tennessee, w h e r e p r o d u c t i o n of soybeans, wheat, corn, cotton, pork, a n d cattle is c o n c e n t r a t e d (see map), farmers began 1983 in better financial c o n d i t i o n than farmers in most other southern states. However, Tennessee experienced m o r e severe crop damage than any southeastern state. Yields of soybeans, w h i c h c o n t r i b u t e one-fifth of t h e state's farm cash receipts, fell 4 0 percent f r o m a recent five-year average; cotton, 30 percent; and corn, 44 p e r c e n t The sharp d r o p in soybean yield was especially harmful since soybeans w e r e 46 Conclusion Tennessee should see continued i m p r o v e m e n t in 1984. E m p l o y m e n t gains in many industries have already served t o l o w e r t h e u n e m p l o y m e n t rate and should c o n t i n u e t o d o so in 1984. The rate of g r o w t h in residential construction may slow, b u t c o m m e r c i a l construction should cont i n u e its healthy pace. Capital expansion plans for many of Tennessee's manufacturing operations will help maintain e c o n o m i c growth. H o w e v e r , nondurables manufacturing, especially chemicals, should i m p r o v e m o d e s t l y at best as foreign competition and export problems plague the industry. Personal income growth should stimulate consumer spending and tax revenues. Tennessee's financial c o m m u n i t y should c o n t i n u e t o stabilize f r o m 1983's p r o b l e m s and begin t o consolidate for increased competition. Increased personal income a n d the W o r l d ' s Fair should stimulate tourism. The o u t l o o k for agriculture is m o r e mixed; m u c h will depend on foreign economies and the weather. — Bobbie H. M c C r a c k i n and Paula Johannsen FEBRUARY 1984, E C O N O M I C REVIEW Recent research by the Federal Reserve Bank of Atlanta has focused on high-performance companies, firms whose ideas might be useful in stimulating our sluggish national productivity. As part of that research, we are inviting chief executive officers from successful and innovative southeastern companies to discuss the secrets of their success In addition, we'll hear from respected consultants and securities analysts offering their perspectives on the ingredients that distinguish successful companies from mediocre ones. To assure your place at this gathering of representatives from corporations, academia, and government, return the registration form below and join us in Atlanta in April! REGISTRATION FORM How to Compete Beyond the 1980s: Perspectives from High-Performance Companies Charge t o m y account • Master Card PLEASE PRINT OR TYPE Account No. Fee: $295 prior to March 1, 1984; $395 after March 1 • Visa Atlanta Hilton Hotel Atlanta, Georgia April 5-6 Exp. Date Name Title Firm Address Cit y ..... __ ... _ _ _ Payment must accompany registration form. All others will be returned. Registration fee will http://fraser.stlouisfed.org/ l-or more information, call Carolyn H. Vincent Conference Coordinator, at 4 0 4 / 5 2 1 - 8 8 6 5 . Federal Reserve Bank of St. Louis State be refunded for cancellations before April 1 Zip Louisiana: Hopes Ride on World Trade, Energy and World's Fair Louisiana's economy entered into the most recent national recession in 1 9 8 2 — l a t e r t h a n most states—and emerged from it later than o t h e r states in 1983. In the 10 years before 1982, Louisiana's energy-dependent economy had enjoyed rapid e c o n o m i c growth. W o r l d oil prices increased dramatically over that span t o fuel the state's g r o w t h a n d help it avoid t h e national recession in 1980. But high energy prices also h e l p e d t o spark a w o r l d w i d e recession that hit the U n i t e d States in 1981. As t h e recession d e e p e n e d , w o r l d oil prices d r o p p e d significantly in 1982 and 1983 as an energy glut spread o u t over t h e globe. In response, Louisiana energy producers curtailed their exploration a n d d e v e l o p m e n t activities and t h e state j o i n e d the nation in recession in 1982. The long a n d d e e p global recession that e x t e n d e d into 1983 in many countries also slowed w o r l d trade. Louisiana's economy benefited more than most states f r o m rapidly e x p a n d i n g trade activity in the 1970s. It also has suffered more from the d e c l i n e in w o r l d trade since 1 9 8 0 because so m a n y of the nation's imports and exports flow through the state's ports. In part, Louisiana's economic recovery was slow t o arrive in 1983 because U. S. trade flows grew weakly over the year. Louisiana's d o m i n a n t energy-related industries w e r e also slow t o recover in 1983. The energy and trade o u t l o o k for 1984 was still cloudy, but brightening, as the new year began. Neither of these activities is likely t o grow at the lofty rates registered by b o t h in t h e 1970s. But there are signs that t h e y will add t o the pace of Louisiana's recovery in 1984. Additionally, tourism should provide a particularly strong boost in 1984 as the state prepares t o host a W o r l d ' s Fair in N e w Orleans that will run f r o m M a y 1 2 to N o v e m b e r 11 and attract an e x p e c t e d 11 million visitors. Altogether, 1984 promises to be a more prosperous year than 1983 for most Louisianians. 48 Energy and international trade, central to Louisiana's e c o n o m y , b o t h s u f f e r e d in 1983. This year s h o u l d see some improvement and a needed boost from the N e w O r l e a n s W o r l d ' s Fair. FEBRUARY 1984, E C O N O M I C REVIEW Table 1. United States and Louisiana Labor Force* (Thousands) November November November Area & Employment 1983 1982 1981 United States Civilian Labor Force Employed Unemployed Rate (percent) 112,147 103,018 9,129 8.1 110,855 99,379 11,476 10.4 109,179 100,502 8,676 7.9 Louisiana Civilian Labor Force Employed Unemployed Rate (percent) 1,920.7 1,716.2 204.5 10.6 1,874.7 1,654.3 220.4 11.8 1,859.5 1,707.3 152.2 8.2 Alexandria Civilian Labor Force Employed Unemployed Rate (percent) 77.8 70.2 7.6 )9.8 74.9 65.9 9.0 11.9 72.2 65.0 7.2 9.9 Baton Rouge Civilian Labor Force Employed Unemployed Rate (percent) 244.7 223.3 21.4 8.8 234.0 210.4 23.6 10.1 231.7 214.4 17.3 7.5 Lafayette Civilian Labor Force Employed Unemployed Rate (percent) 102.6 94.9 7.7 7.5 102.1 95.4 6.7 6.6 95.3 91.6 3.7 3.9 Lake Charles Civilian Labor Force Employed Unemployed Rate (percent) 76.9 65.4 11.5 14.9 75.4 63.7 11.7 15.5 79.4 72.1 7.3 9.2 Monroe Civilian Labor Force Employed Unemployed Rate (percent) 58.2 52.1 6.1 10.5 58.5 51.2 7.3 12.4 57.7 51.6 6.1 10.6 New Orleans Civilian Labor Force Employed Unemployed Rate (percent) 529.7 478.9 50.8 9.6 518.1 463.3 54.8 10.6 518.6 477.0 41.6 8.0 Shreveport Civilian Labor Force Employed Unemployed Rate (percent) 168.2 151.0 17.2 10.2 164.8 145.1 19.7 12.0 162.1 149.3 12.8 7.9 ' D a t a not seasonally adjusted Source: Louisiana Department ot Labor Labor Market Developments W h e n the nation slipped into recession in mid-1981, Louisiana's economy was still growing. E m p l o y m e n t in the state e x p a n d e d t h r o u g h o u t 1981. It t h e n d r o p p e d sharply in 1982 before ! FEDERAL RESERVE B A N K O F A T L A N T A Chart 1 . U. S. and Louisiana Unemployment Rate 1980-Present (Seasonally Adjusted) Louisiana (j.S. Source: U S Department of Labor, b u r e a u ot Labor Statistics. beginning its recovery in mid-1983. By November, total e m p l o y m e n t in the state stood at 1.7 million, up 3.7 percent over the previous November (Table 1). But nonfarm e m p l o y m e n t was still 11,800 b e l o w t h e n u m b e r e m p l o y e d a year earlier. In that same span, the state's labor force grew 2.4 percent and the u n a d j u s t e d u n e m p l o y m e n t rate fell 1.2 percent, t o 10.6 percent. Still, Louisiana's u n e m p l o y m e n t stood significantly above the nation's rate. For the most part, the Bayou State's u n e m p l o y m e n t has been above the nation's rate since 1981. Louisiana also suffered m o r e t h a n the nation in the 1 9 8 1 - 1 9 8 2 recession f r o m a higher peak u n e m p l o y m e n t rate, 12.8 percent, t h a n the nation's 10.8 percent (Chart 1). Furthermore, t h e national recovery was late in coming to Louisiana The nation's u n e m p l o y m e n t rate p e a k e d in Dec e m b e r 1982. In Louisiana, the u n e m p l o y m e n t rate peaked last May. W i t h i n the state, d e v e l o p m e n t s in major state labor markets in the recession reflected their somewhat different industrial dependencies. N e w Orleans and Baton Rouge, t h e largest labor markets in the state, had m i x e d experiences in recession. Both labor markets registered unemp l o y m e n t rates during t h e recession that w e r e a b o u t o n e percentage point b e l o w the average for the state. The d o w n t u r n in the p e t r o c h e m i c a l industry and the decline in w o r l d trade had a strong negative impact in Baton Rouge a n d N e w Orleans. But these areas boast o t h e r industries 49 that helped t h e m weather the national recession. In Baton Rouge, government and education provided support while preparations for the World's Fair and service industries helped N e w Orleans. The local e c o n o m y of southwest Louisiana, centered in Lafayette and Lake Charles, suffered a severe jolt in 1982 and 1983, largely as a result of the oil glut and the d o w n t u r n in the petrochemical industry. Lake Charles' u n e m p l o y m e n t rate reached the highest level of any major labor market in the state. It's unemployment rate finally d r o p p e d b e l o w the level for the comparable year earlier m o n t h in October 1983 for the first time since late 1980. Even so, at 14.9 percent in November, its unemployment rate was 5.7 percentage points above the level two years earlier and was barely below the level in November 1982. Meanwhile, the cutback in energy drilling activity stopped the economic b o o m in Lafayette, but that area's u n e m p l o y m e n t rate, 7.5 percent in November, remained the lowest in the state. Alexandria, in central Louisiana, and Shreveport and Monroe, in north Louisiana, fared about the same in recession as the state as a whole. Their u n e m p l o y m e n t rates peaked at 12.7 to 12.8 percent in the first half of 1983. By the end of 1983, there was evidence that a full recovery was underway in these areas. Income and Trade The spread of economic weakness in Louisiana caused by the energy bust and the d o w n t u r n in world trade activity is reflected in the movements of population, income, and consumer spending in the state last year. For example, personal income grew by only 2.6 percent in the year ending in the second quarter of 1983 (Chart 2). That growth rate was the lowest in the Southeast and trailed far b e h i n d the 7 and 6 percent gains for the Southeast and nation, respectively. The dramatic slowing of income growth in the state in 1982-1983 is in marked contrast to gains of the previous years. Prosperity associated w i t h the energy-boom years of the 1970s carried over into the early 1980s to rank Louisiana a m o n g the top states in the growth of income and per capita income. Louisiana's personal income grew by 335 percent in the 1970s compared to 275 percent for the nation. That fast growth pushed the state's per capita i n c o m e to 90 percent of the national average in 1980 from 77 percent a 50 Chart 2. United States and Louisiana Personal Income Louisiana I 1972 I U. S. i 1974 i i 1976 i I 1978 1 1 1980 1 L 1982 S o u r c e : U. S. D e p a r t m e n t of C o m m e r c e . Survey of C u r r e n t B u s i n e s s decade earlier. Louisiana's income continued t o grow faster than the rate nationally until mid1982. The continuing fast growth of i n c o m e in the early 1980s, w h i l e other state economies were languishing, lured out-of-state workers to Louisiana's b o o m i n g oil and gas fields. In the 2 7 - m o n t h period ending in mid-1982, the state gained 22,700 people from migration. A m o n g southeastern states, Louisiana and Georgia were the only states that gained more from migration in this period than the yearly average gain expected in the decade by the U. S. Bureau of Census. Although migration data are unavailable after mid-1982, it is likely that the state lost population from migration w h e n its e c o n o m y w e n t into a tailspin in 1982-1983. The slowdown in population and income growth since mid-1982 is reflected in Louisiana's retail trade data. Consumer spending b o u n c e d back later and more slowly than spending in other parts of the nation. Retail sales in the first half of 1983 were flat compared w i t h the same months of 1982 w h i l e the nation posted healthy comparable increases. M o n t h l y retail sales growth for the state continued to fall short of the nation's after midyear, but the spending pace picked up. By October, the m o n t h l y increase over the previous O c t o b e r reached 8.9 percent, and healthy gains were reported by the news media for the Christmas season. FEBRUARY 1984, E C O N O M I C REVIEW Looking ahead t o 1984, the g r o w t h of consumer s p e n d i n g in the state should catch up w i t h the nation as e c o n o m i c recovery spreads a n d grows in the state. Louisiana retailers w e r e m u c h more o p t i m i s t i c at year-end 1983 t h a n t h e y w e r e a year earlier. They anticipated that the strong holiday sales t h e y w e r e experiencing w o u l d spill over into 1984's retail sales. C h a r t 3. Change in Percentage Share of Employment 1982-83 0.5 0.3 0.1 Nonfarm Employment State n o n f a r m e m p l o y m e n t was off 11,800 in N o v e m b e r 1983 f r o m a year earlier, b u t the b u l k of the j o b s lost during t h e recession had been regained. Job losses became noticeable in t h e state in m i d - 1 9 8 2 ; M a y 1982 was the first m o n t h in the 1980s that 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 in Louisiana f r o m the comparable m o n t h in t h e previous year. W h e n the recession d e e p e n e d and spread around the state in 1982, this employm e n t shortfall c l i m b e d from 8,200 in M a y t o a peak of 55,000 in D e c e m b e r 1982. The shortfall then d r o p p e d slowly in the first half of 1983 a n d then m o r e rapidly as the recovery q u i c k e n e d in the fall. E m p l o y m e n t shares a m o n g broad e c o n o m i c sectors usually change slowly. However, changes that d i d occur in these shares in the year e n d i n g last November suggest the severity of the recession in Louisiana. The n u m b e r of jobs a n d employm e n t shares fell for t h e state's goods-producing i n d u s t r i e s — m i n i n g , c o n s t r u c t i o n a n d manufacturing—and its transportation and public utilities industry (Chart 3). In the same period, e m p l o y ment and e m p l o y m e n t shares increased in wholesale/retail trade, services, government, a n d finance, insurance a n d real estate. The d i s t r i b u t i o n of Louisiana's e m p l o y m e n t w o r k e d against the state in the recession. A larger share of Louisiana's w o r k force is c o n c e n t r a t e d in the g o o d s - p r o d u c i n g a n d t r a n s p o r t a t i o n a n d public utilities industries than is the case nationally. Unfortunately, these industries suffered most in the recession. Nationally, goods-producing industries registered a 10.3 percent decline in e m p l o y m e n t d u r i n g the recession a n d jobs in the transportation and p u b l i c utilities industry fell by 3.4 p e r c e n t . F u r t h e r m o r e , e m p l o y m e n t rose nationally in the recession only in the services and finance s e c t o r s — t h e o n l y service-producing sectors that a c c o u n t for below-national-average shares of e m p l o y m e n t in Louisiana. V FEDERAL RESERVE B A N K O F A T L A N T A -0.1 -0.3 -0.5 Nonfarm Employment, November 1983, 1,597,400 Manufacturing Construction Mining Transportation Trade Finance Services Government k \ \ \ \ V Source: Louisiana Department of Labor M a j o r i m p r o v e m e n t s in e m p l o y m e n t are exp e c t e d in 1984 for i m p o r t a n t sectors of the state's e c o n o m y . C o n t i n u i n g e c o n o m i c recovery will generate jobs in wholesale a n d retail trade. Workers a d d e d in o t h e r industries will s p e n d their paychecks, stimulating retail sales. The W o r l d ' s Fair also will provide a major boost to retail sales a n d to the gamut of services industries associated w i t h the hospitality industry. A reb o u n d in w o r l d trade and stabilized energy prices w o u l d additionally stimulate b o t h t h e state's goods a n d services-producing sectors, b u t there is uncertainty over the pace of recovery in w o r l d trade and the course of the price of oil. The likely strength of construction s p e n d i n g in 1984 is also o p e n t o debate, and d e v e l o p m e n t s in t h e g o v e r n m e n t sector will d e p e n d o n actions taken recently t o address t h e state's fiscal crisis that emerged in the recession. Oil and Gas The p o o r p e r f o r m a n c e of Louisiana's oil a n d gas industry in 1982 c o n t i n u e d through midyear 1983 before s h o w i n g signs of i m p r o v e m e n t in the second half of the year. O n e popular indicator of energy sector activity is t h e Hughes Tool C o m p a n y c o u n t of w o r k i n g drilling rigs. By that measure, activity peaked in July 1981 w i t h an 51 average of 4 7 7 rigs working, although 4 7 0 rigs w e r e still active in January 1982. The n u m b e r of active rigs (seasonally adjusted) d r o p p e d dramatically in 1982. By last July, the n u m b e r had fallen t o 250, its recessionary low. The rig c o u n t t h e n r e b o u n d e d t o reach o v e r 3 0 0 in N o v e m b e r . Some industry experts believed that steady gains late in the year signaled the hoped-for turnaround in the energy sector. That v i e w is buttressed by t h e 4 5 percent increase in the n u m b e r o f drilling permits issued statewide in the f o u r t h quarter of 1983 c o m p a r e d w i t h the same quarter in 1982. A t u r n a r o u n d w o u l d be w e l c o m e d by the thousands of oil and gas extraction workers w h o lost jobs during the recession. But workers directly e m p l o y e d in t h e oil and gas extraction industry still n u m b e r e d 91,500 in N o v e m b e r . The oil and gas industry c o m b i n e s w i t h the p e t r o c h e m i c a l industry in Louisiana to e m p l o y o n e o u t of four workers, directly or indirectly. It is also the state's largest source of income; oil and gas severance taxes totaled more than $859 million in the fiscal year e n d i n g last June. These taxes a c c o u n t e d for nearly one-third of Louisiana's tax collections. Lease a n d royalty i n c o m e p r o v i d e d the state w i t h an additional $545 million in fiscal year 1983. Severance taxes and lease income together p r o v i d e d $1.4 billion, or roughly half of all state revenues. Oil and gas producers, drilling contractors, and oilfield e q u i p m e n t suppliers w e l c o m e even the modest recovery that seems t o be u n d e r w a y in t h e energy sector, f u e l e d by the national econ o m i c recovery. Even if t h e r e b o u n d proves to be real, though, the recent energy bust triggered a wave of bankruptcies still e v i d e n c e d physically by piles of repossessed drilling pipe and o t h e r oilfield e q u i p m e n t . (The glut of e q u i p m e n t i d l e d by the energy bust has benefited some companies by l o w e r i n g t h e c o s t o f drillinga well.) Troubles in t h e oil industry also have caused some p r o b l e m s in state government because of the unanticipated d r o p in tax revenues that t h r e a t e n e d t o w r e c k the state's b u d g e t in fiscal 1984. Manufacturing A l t h o u g h the recession in Louisiana slowed oil and gas operations, that activity remains t h e dominant force in the state's economy. Its abrupt r e t r e n c h m e n t caused w i d e s p r e a d layoffs and plant s h u t d o w n s in 1982 and 1983 in diverse manufacturing plants across the state that supply 52 t h e industry. Jobs in durable manufacturing industries such as fabricated metals and electrical and nonelectrical machinery disappeared for at least a w h i l e in recession. Nearly 4,000 f e w e r workers held jobs in these t h r e e industries in O c t o b e r 1983 than even a year earlier w h e n m a n u f a c t u r i n g e m p l o y m e n t w a s in the m i d d l e o f its decline. Total m a n u f a c t u r i n g e m p l o y m e n t in Louisiana d r o p p e d almost 16 percent in t h e recession, to 191,000 in the second quarter of 1983, f r o m its peak of 2 2 7 , 0 0 0 in September 1981. Manufacturing jobs in November 1983 remained 9,400 b e l o w the level of a year earlier (Table 2). Lost jobs in manufacturing accounted for four-fifths of the November shortfall in nonfarm e m p l o y m e n t from a year earlier. Most of the lost manufacturing jobs are a t t r i b u t a b l e t o weakness in the broad petrochemical industry or to weakness in shipping activity. The chemical industry o p e r a t e d at 65 percent capacity in 1982. Even w i t h e c o n o m i c recovery, the utilization rate was o n l y 75.9 percent in the t h i r d quarter of 1983. The chemicals and allied products industry e m p l o y e d 30,300 workers in Louisiana in N o v e m b e r c o m p a r e d w i t h 32,700 a year earlier and 34,900 at t h e peak e m p l o y m e n t level for the industry in December 1981. Louisiana's large chemical industry, a b o u t equal t o that of Japan, p r o d u c e s p r e d o m i n a t e l y c h e a p b u l k chemicals. A m m o n i a and ethylene, w i t h their derivatives, account for more than 70 percent of the value of t h e state's production. Chemical a n d allied products i n c l u d e o t h e r products used t o p r o d u c e synthetic fibers, plastics, and pigments, as well as finished chemical products such as drugs, cosmetics, a n d soaps. O t h e r products are used to produce paints, fertilizers, and explosives. C o m p a n i e s flocked to Louisiana in the 1960s and 1970s t o b u i l d p e t r o c h e m i c a l plants. They w e r e lured by l o w transportation costs because of the Mississippi River, the low cost of electricity, and t h e a b u n d a n t supplies of natural gas feedstocks for the chemical plants. Unfortunately, those c o m p e t i t i v e advantages have eroded, particularly in e x p o r t markets. Louisiana's D e p a r t m e n t of Natural Resources ( D N R ) warns in a 1983 report that portions of t h e state's p e t r o c h e m i c a l industry face a " b l e a k " future. The D N R says t h e industry is u n d e r g o i n g a shakeout of excess capacity created by reduced demand and increased foreign competition. In 1983, a m m o n i a and ethylene p r o d u c t i o n FEBRUARY 1984, E C O N O M I C REVIEW T a b l e 2. Louisiana: Manufacturing Wage and Salary Employment (Thousands) Manufacturing Durable Goods Lumber and Wood Products Furniture and Fixtures Stone, Clay and Glass Products Primary Metals Industries Fabricated Metals Products Machinery, except Electrical Electric and Electronic Equipment Transportation Equipment Other Durable Goods Nondurable Goods Food and Kindred Products Apparel and Other Textile Products Paper and Allied Products Printing and Publishing Chemicals and Allied Products Petroleum and Coal Products Other Nondurable Goods November 1983 Percent Change from Nov. 1982 193.1 89.1 13.5 0.7 7.9 3.5 16.3 12.0 8.2 24.8 2.2 104.0 26.7 8.4 11.9 9.9 30.3 12.7 4.1 -4.6 -5.7 4.6 0 1.3 -20.4 3.0 -11.1 -15.5 -6.1 -4.3 -3.7 -3.9 0 -1.6 1.0 -7.3 -3.8 2.5 Source: Louisiana Department of Labor, Louisiana Labor Market Information, various issues. capacities w e r e e x p a n d i n g w o r l d w i d e . These expansions a m o u n t t o four times t h e state's a m m o n i a capacity a n d d o u b l e its ethylene capacity. Producers in Canada, Mexico, and t h e M i d d l e East are b u i l d i n g plants t o run on gas that is presently flared off as surplus. In Louisiana, by contrast, gas supplies are b e c o m i n g expensive. Utility rates for the electricity used so intensively by the industry also are rising. The n e w foreign c o m p e t i t i o n probably will shift bulk chemical p r o d u c t i o n to lower-cost producers in Mexico and other countries. Louisiana's longer-run hope for the industry lies with specialty chemicals or related products that are m o r e technology intensive. The hope for 1984 is that continuing e c o n o m i c recovery nationally will enable the industry t o c o n t i n u e t h e cyclical r e b o u n d that began in 1983. But investments t o improve efficiency during the recession practically insure that previous e m p l o y m e n t levels will not be attained in t h e current recovery and hopedfor subsequent expansion. A state industrial d e v e l o p m e n t program has been p r o p o s e d t o attract light industry users of t h e basic chemicals ! FEDERAL RESERVE B A N K O F A T L A N T A p r o d u c e d in Louisiana t o take up the employm e n t slack. A s l o w d o w n in s h i p p i n g activity is reflected directly by a d r o p in e m p l o y m e n t in t h e transportation e q u i p m e n t industry. Louisiana transportation equipment manufacturers are comprised largely (about 85 percent) of firms engaged in shipbuilding a n d repair. The d e c l i n e in foreign and d o m e s t i c w a t e r b o r n e c o m m e r c e , along w i t h the decline in the energy sector, h e l p e d reduce jobs in this i m p o r t a n t manufacturing industry f r o m a peak of 31,600 workers in D e c e m b e r 1981 t o 2 4 , 6 0 0 in M a y 1983. By N o v e m b e r , f e w of these jobs had been regained, because the market for river barges, t o w i n g a n d supply boats for offshore drilling rigs, tugboats, a n d o t h e r workboats remained depressed. Reduced international c o m m e r c e also h e l p e d slow Louisiana's f o o d processing plants. Some year-end 1983 d e v e l o p m e n t s brighten the o u t l o o k for the transportation industry in 1984 in addition t o the benefits from the expected i m p r o v e m e n t in the energy and international trade sectors. In particular, increased aerospace 53 and defense s p e n d i n g will bolster e m p l o y m e n t in N e w Orleans. Avondale Shipyards was awarded contracts t o build a dock-loading t r o o p ship and t w o fleet oilers. An o p t i o n t o build up t o four more dock-loadingships could bringthe valueof all the w o r k t o a b o u t $1 billion. Also, MartinM a r i e t t a Aerospace received a $133 million contract f r o m NASA t o increase the p r o d u c t i o n rate of external fuel tanks for the Space Shuttle. Manufacturing industries in Louisiana that fared w e l l in 1983 w e r e those strongly affected by construction activity. The revival in residential construction stimulated construction-related sectors such as Louisiana's lumber, w o o d , stone, clay, and glass industries. Logging camps, sawmills, and planing mills e n j o y e d increased activity and e m p l o y m e n t for the l u m b e r a n d w o o d products industry. Producers of concrete, gypsum, a n d plaster products also a d d e d workers t o their payrolls. If the housing industry continues t o grow in 1984, as e x p e c t e d , these supplying industries will prosper even more. Government State legislators e n d e d 1983 by sitting in a special session called by Governor Treen to consider fiscal measures t o balance the state budget. The legislature repealed part of the state's 1 9 8 0 i n c o m e tax cut t o raise $136.5 million and p r e v e n t a $ 2 4 0 million b u d g e t deficit for the 1984 fiscal year that ends in June. The governor also o r d e r e d all state agencies t o cut spending by a b o u t 1.6 percent for the rest of the budget year. An official of the state's Division of A d m i n i s t r a t i o n said the cuts w o u l d not require extensive layoffs or reductions in state services. The fiscal crisis in Louisiana represents a deepening of the s p e n d i n g revenue gap that e m e r g e d in 1982.. The budget crunch is largely attributable t o falling oil and gas severance tax receipts. Actual revenues have been less than the estimates o n w h i c h expenditures w e r e based. In the first five m o n t h s of fiscal 1984, severance taxes w e r e off $37.1 million f r o m the comparable period a year earlier, or 10.4 percent. For all of fiscal 1983, severance taxes w e r e off $112 million, or 11.5 percent, from the previous fiscal year. The state a v o i d e d a deficit in 1983, in part, by changing t o an accrual accounting system that counted certain revenues in the year t h e y w e r e earned (fiscal 1983) rather than received (fiscal 1984). Governor Treen also cut state agency budgets 4.4 percent m i d w a y through fiscal 1983. 54 Construction C o n s t r u c t i o n in Louisiana in 1982 and 1983 was m a r k e d by sharp reversals in residential b u i l d i n g a n d o t h e r construction activity. In 1982, residential construction sputtered w h i l e nonresidential b u i l d i n g and n o n b u i l d i n g construction boomed. Those situations were reversed in 1983. Louisiana's housing industry responded strongly last year t o t h e decline in mortgage rates that began in 1982. The value of residential construction contracts soared 50 percent in the first 11 m o n t h s of 1983, according t o F. W. D o d g e data. In 1982, the nominal value of all residential construction declined 4.3 percent and the amount of space 10 percent, f r o m the same 1 1 - m o n t h period in 1981. The state's r e b o u n d in housing activity in 1983 was less robust than the nation's 61 percent increase through N o v e m b e r , largely because the recession lingered longer in Louisiana However, because the state's e c o n o m y also entered into recession later t h a n t h e nation, its 1982 decline in housing activity was less severe. Nonresidential b u i l d i n g a n d n o n b u i l d i n g construction s l o w e d dramatically in 1983 from an exceptionally fast pace in 1982. Nonresidential construction was up over 80 percent in the first 11 m o n t h s of 1982 c o m p a r e d w i t h the same period in 1981. In 1983, this construction slumped 55 percent The shift of nonresidential construction s p e n d i n g f r o m strength in 1982 t o weakness in 1983 accounts f o r t h e 2 4 percent decline in total construction spending in the first 11 m o n t h s of 1983 f r o m a year earlier. It also accounts for t h e c o m p a r a b l e 46 percent increase in construction s p e n d i n g i n 1982 w h e n such s p e n d i n g h a d fallen slightly in the nation. The strength s h o w n by nonresidential construction in 1982 was d u e t o large and expensive p o w e r plant and oil refinery projects that w e r e w e l l i n t o t h e planning stage w h e n t h e recession hit. In addition, an office b u i l d i n g b o o m was underway in the state, particularly in N e w Orleans. These activities slowed in 1983 as excess industrial capacity grew in manufacturing plants and vacancy rates for c o m m e r c i a l office and warehouse space climbed. That is w h y employm e n t in the construction industry in N o v e m b e r (115,300) was 5,400 less than a year earlier and 28,800 less than its August 1981 peak. M a n y realtors and developers believe the outlook for industrial and commercial construction is poor for 1984. N e w office and industrial c o m p l e x e s around the state have a d d e d space FEBRUARY 1984, E C O N O M I C REVIEW that has not been fully absorbed, exerting d o w n ward pressure on leasing rates a n d d i m m i n g the financial prospects of n e w ventures. Both developers and lenders appear m o r e cautious. In N e w Orleans, t h e i m p e t u s of the W o r l d ' s Fair o n construction activity will be missing after midyear. Despite the e x p e c t e d slowing of residential building after t h e c o m p l e t i o n of several N e w Orleans hotels this year, t h e overall o u t l o o k for residential construction in 1 9 8 4 is good. Building permits increased substantially each m o n t h in 1983 over the comparable levels in 1982, suggesting that the housing r e b o u n d will c o n t i n u e this year. Activity may pick up noticeably in south and central Louisiana cities that saw little evidence of the housing r e b o u n d in 1983, b u t it may slow in areas that experienced rapid increases such as Baton Rouge a n d N e w Orleans. International Trade A dramatic increase in foreign trade shipments f l o w i n g t h r o u g h the Mississippi River system during the 1970s c o m p l e m e n t e d energy-related e c o n o m i c d e v e l o p m e n t at i m p o r t a n t Louisiana port cities. N e w Orleans, in particular, is an important center for international c o m m e r c e in energy products and their chemical derivatives, agricultural c o m m o d i t i e s , and o t h e r bulk products. The N e w Orleans Customs District, w h i c h encompasses the state's largest ports, is the nation's n u m b e r o n e customs district in items of the value of exports. In 1982, nearly $19 billion in w a t e r b o r n e exports w e r e s h i p p e d to foreign markets from t h e district. Unfortunately, s h i p p i n g activity in the district slowed significantly in t h e recession. At the huge Port of N e w Orleans, shipping activity in the first 11 m o n t h s of 1983 was d o w n 10 percent from even t h e depressed level for the same period in 1982. M u c h of this decline is from lower grain shipments, w h i c h a c c o u n t e d for more than 70 percent of the port's total export tonnage. Coal exports, w h i c h grew rapidly in the late 1970s a n d into t h e 1980s, also d r o p p e d sharply. The slowd o w n is reflected in declining customs d u t y collections and e m p l o y m e n t at the port. The port's level of e m p l o y m e n t in late 1983 was about 17,000, d o w n m o r e than 1,500 from the year-earlier level a n d 6,000 since mid-1981. M o s t of the nation's ports have been hurt by declining international trade b u t the mix of N e w Orleans' cargo shipments makes it especially V FEDERAL RESERVE B A N K O F A T L A N T A vulnerable t o changes in w o r l d c o m m o d i t y markets. The Port of N e w Orleans specializes in the export of bulk commodities and market conditions for farm c o m m o d i t i e s deteriorated rapidly in recent years. The dramatically increased foreign exchange value of the dollar has raised the price of U. S. exports to foreign countries. The strength of the dollar, c o m b i n e d w i t h declining incomes abroad, has r e d u c e d the v o l u m e of exports, idling ships a n d the m e n w h o load t h e m . The o u t l o o k for trade activity at Louisiana ports in 1984 is questionable. Some forecasters foresee an increase in exports, largely because t h e y believe the dollar will depreciate relative t o other currencies. They e x p e c t foreign d e m a n d t o increase w i t h e c o n o m i c recovery a n d g r o w i n g w o r l d income. Record foreign p r o d u c t i o n of most grains in 1983, however, c o u l d largely offset these anticipated advantages for U. S. farm exports and delay a major turnaround in Louisiana port activity in 1984. W e a t h e r a n d potential changes in trade policies in some countries also c l o u d the o u t l o o k for agricultural exports. O t h e r exports, a n d imports, are likely t o show m o d e s t growth. Tourism A c c o r d i n g t o the U. S. Travel Data Service, tourism was a $3.2-billion-a-year business in Louisiana in 1982. But its share of d o m e s t i c travel expenditures by Americans was only a b o u t 1.8 percent of the national total, the same as the state's share of the nation's population. The 71,500 jobs generated by tourism represented 4.3 percent of the state's e m p l o y m e n t , slightly b e l o w the U. S. average of 4.8 percent. Tourism is m u c h more i m p o r t a n t e c o n o m i c a l l y in N e w Orleans than in the state as a whole. C o n v e n t i o n delegates and business a n d vacation travelers p r o v i d e d m o r e than $2.1 billion in 1982 t o N e w Orleans' e c o n o m y , generating 47,000 jobs. The N e w Orleans hospitality industry ranks w i t h t h e petroleum industry in importance to N e w Orleans' economy, trailing o n l y the port. Louisiana's tourism industry was unimpressive in 1983. Air travel increased in N e w Orleans and Baton Rouge relative t o year-earlier levels, but the v o l u m e of air passengers remained b e l o w peak 1979 levels. M o r e visitors registered at the state's welcome centers and attendance at National Park Service sites was higher in 1983 than in 1982. However, state park visitations d r o p p e d . The N e w Orleans S u p e r d o m e also lost m o r e 55 money in 1983 than in 1982, and the performance of the higher revenue-generating lodging segm e n t of the industry was generally lackluster. In N e w Orleans, h o t e l / m o t e l o c c u p a n c y rates w e r e d o w n from 1982's levels. Some conventioneers and tourists p r o b a b l y p o s t p o n e d visits t o the Crescent City until t h e 1984 W o r l d ' s Fair. The Louisiana W o r l d Exposition in N e w Orleans is e x p e c t e d t o draw 11 million visitors and w i e l d an e c o n o m i c i m p a c t as high as $2.6 billion (see Box). A l t h o u g h t h e e c o n o m i c benefits will be c o n c e n t r a t e d in N e w Orleans, the state is trying t o spread t h e a d d e d tourist i n c o m e t h r o u g h o u t Louisiana. State Tourism D e p a r t m e n t officials have mapped alternative travel corridors to channel tourists off the expressways a n d i n t o various localities. It is likely that the Tourism Department's budget for the year, smaller t h a n t h e fair's promotional funds allocated by neighboring Mississippi, will yield a huge return. Agriculture Unlike 1 9 8 2 , last year was relatively kind t o Louisiana's crop farmers, w h o suffered m u c h less drought damage t h a n farmers in other states. The soybean crop yield, for example, d e c l i n e d only 7 percent from 1982's yield c o m p a r e d to a d r o p of 25 percent elsewhere in the Southeast. Furthermore, the d r o u g h t - r e d u c e d supply inflated the price of the state's most i m p o r t a n t crop sharply. Soybeans e n d e d up generating a $70 million increase in revenue for the state's farmers. Prices are likely to remain high enough in 1 9 8 4 for efficient growers t o earn acceptable profits. The Louisiana rice crop fell 35 percent in 1983 as a result of an acreage-limiting g o v e r n m e n t farm program a n d bad weather. The price of rice increased only m o d e s t l y despite the curtailed crop because of w e a k exports a n d large stocks from 1982. But supplies will be lower in 1984, 56 suggesting further price increases. Rice producers should be better off in 1984. The t w o i m p o r t a n t Louisiana livestock sectors, beef and dairy cattle, e x p e r i e n c e d difficult times in 1983. C a t t l e m e n and d a i r y m e n w a t c h e d feed costs shoot u p w a r d w h i l e net revenue fell. O n average, beef prices w e r e a little stronger than in 1982 b u t only the most cost-efficient c a t t l e m e n earned a profit for the year. Dairymen lost m o n e y despite a g o v e r n m e n t - s u p p o r t price for milk because milk assessments combined with higher feed costs t o p r o d u c e a cost-price squeeze. In 1984, beef prices should move upward in response t o reduced meat supplies, h e l p i n g cattlemen, and n e w legislation should help dairymen. The shrimp industry, an i m p o r t a n t source of i n c o m e in coastal areas, had another unfavorable year in 1983. A large fresh water runoff d u r i n g f l o o d i n g r e d u c e d the shrimp harvest. H o w well the industry fares in 1984 will d e p e n d on weather conditions a n d other e n v i r o n m e n t a l factors. Altogether, though, Louisiana's battered agricultural sector should find 1984 t o be a second year of recovery. Conclusion Louisiana expects a m o d e s t recovery in its oil and gas industries a n d a n e e d e d injection of tourist dollars from the world's fair. C o n s u m e r s p e n d i n g should catch up w i t h the national average, and increased defense s p e n d i n g will boost jobs and income. International trade through t h e state's ports remains a question mark. Louisiana's fanners should fare better this year than last — W i l l i a m J. Kahley and Gustavo Uceda FEBRUARY 1984, E C O N O M I C REVIEW W o r l d ' s Fair in " F u n City" New Orleans is one of America's greatest fun cities, with football at the Superdome, world-class restaurants, jazz music, carousing on Bourbon Street, and Mardi Gras. These attractions project the Crescent City, so named because it lies nestled in a bend of the mighty Mississippi River, as a festive and continental place. That image is likely to grow in 1984 as the city hosts a six-month party known formally as the 1984 Louisiana World Exposition. The city "that care forgot' promises to be the ultimate attraction in 1984, despite competition from the Olympics in Los Angeles, EPCOT Center at Disney World in Orlando, and upcoming World's Fairs in Vancouver (1985) and Toshiba (1986). The 82-acre fair site lies alongside the Mississippi River, adjacent to the city's central business district. Part of the site is constructed on wharves temporarily on loan from the Port of New Orleans. The wharves will be returned to the port at the conclusion of the fair, forming part of a revitalized warehouse district. Other parts of the Fair site will be converted into a center of marketing, entertainment, condominiums, and offices. The Rouse Corporation, a major national developer of central business district renovation projects, is to build a market district; the Hershey Corporation plans to add an entertainment center. Louisiana's slogan for the Fair is "Reaching for More in '84." The state is reaching high in its presentation of this event and hopes for even more w h e n it closes. According to the state's World Exposition Visitors Information Guide: "The United Nations has designated the 1980s as the decade dedicated to the problems and opportunities involved with providing sufficient fresh water for the people of all nations. This is the theme of the 1984 Louisiana World Exposition. The fair will spotlight the rivers and ports of Louisiana and the world..." By January 1984, a total of 24 international exhibitors including the Vatican, had signed up to participate in the fair and a couple more may eventually be added to the list. Features include a 1.4 mile monorail transportation system around the exposition grounds and access to the fair via a gondola ride across the Mississippi River. Pavillions will feature everything from religious art and ! FEDERAL RESERVE B A N K O F A T L A N T A sculpture from the Vatican to a NASA Space Shuttle. S o m e o t h e r f e a t u r e s a r e a n international trade pavillion, a 6,000-seat amphitheater, and 3,500 seat aquacade. A half-mile long "Wonderwall" (one to three stories high and 12 to 18 feet deep) will provide stages, shops, restaurants, arcades, and other diversions. Numerous private industry contributions are also included in the Fair, such as a 150-foot oil derrick sponsored by the oil industry. There will even be a 500-foot long floating dredge operation on the Mississippi River containing two theaters. The state expects to gain over $2 billion from staging the fair for the 11 million visitors likely to pass through the turnstiles. The bulk of these economic benefits will be concentrated in New Orleans. In preparation, 11 new hotels have been constructed that add 6,000 rooms and bring the city's total to 25,000. Meanwhile, the fair will employ about 8,000 workers during its run, from May 12 to November 11. Other downtown business construction and fair-related buildings are also giving New Orleans a new l o o k The New Orleans Convention and Exhibition Center a recently completed $ 9 5 million building, will be used as the state's pavilion during the fair. State tourism officials anticipate that the 15-acre, 350,000 square feet of exhibition space also will assure New Orleans' long-term success as a convention center. Together with the Superdome and the Rivergate convention facility, New Orleans will have the capacity to host all but the nation's largest trade shows and conventions. To upgrade the city's tourism infrastructure and help assure the fair's success, the city also committed $ 5 5 million for the renovation of some of downtown New Orleans' streets and sidewalks and the upgrading of the city's International Airport. According to an impact study for the fair, 70 percent of the expected 11 million visitors will come from within a 150-mile distance. Since most of these travelers will drive to the fair, special fairway routes have been designed to help direct visitors through natural corridors in Louisiana. Visitors will be encouraged to visit the Cajun country, the cotton country, fishing and hunting areas, and other attractions. In this way, backers hope, the fair's benefits will spread throughout the state. 57 O u r o u t l o o k for Alabama's economy is somewhat more optimistic than it has been for the last f e w years. I n u n d a t e d w i t h plant closings and layoffs in its steel, textile, lumber, and auto parts industries during t h e 1981-82 recession, the state's economy made a sharp t u r n a r o u n d in 1983 a n d is expected to gather m o m e n t u m this year. A l t h o u g h d e m a n d for steel remains weak, the industry already is r e c o v e r i n g m o d e r a t e l y a n d many plants have recalled laid-off workers. Employment in durable manufacturing has c l i m b e d 3.0 percent in the last year. Furthermore, strong d e m a n d for a u t o m o b i l e s is e x p e c t e d t o c o n t i n u e in 1984, bringing new orders t o the state's i m p o r t a n t a u t o parts industry. Alabama: Prospects Brighten for 1984 The u p t u r n in Alabama's e c o n o m y was so p r o n o u n c e d at midyear that Governor George Wallace reduced a scheduled cut in the education b u d g e t from 10 percent t o 5 percent, and the Alabama legislature is c o n t e m p l a t i n g rescinding a t e m p o r a r y increase in the oil p r o d u c t i o n tax. U. S. Steel C o r p o r a t i o n began p r o d u c t i o n at its m o d e r n $ 7 0 0 million seamless p i p e plant in late 1983 and is r e o p e n i n g its steelmaking facility this year. The state is unusually optimistic over prospects for t o u r i s m this year. Four major arteries, I20, I-65, 1-10, and I-85, crisscross the state and are expected t o draw visitors b o u n d for Louisiana's World's Fair from the p o p u l o u s Eastern Seaboard. Finally, if the value of the dollar should fall relative t o currencies of major U. S. trading partners, exports of Alabama's agricultural products, manufactured goods, and coal will become m o r e c o m p e t i t i v e in international markets. A resurgence in new car sales helped Alabama's manufacturing-based economy last year. This year should see some soft spots but modest growth overall. But 1984 will pose its share of difficulties. U n e m p l o y m e n t is still high. The state's coal industry remains soft because of c o n t i n u i n g weak d e m a n d f r o m d o m e s t i c a n d foreign chemical and utilities industries. T w o large mines closed in 1983 and m i n i n g e m p l o y m e n t fell 6.7 percent over the year. Second, falling oil prices have weakened the state's oil and gas industry. Crude oil production fell 20 percent last year. Natural gas prices have been stable for t w o years 58 FEBRUARY 1984, E C O N O M I C REVIEW Table 1 . Alabama's Recovery Slower than the National Economy (thousands) United States Industry Alabama November 1982 November 1983 Absolute Change 89,466 92,128 23,348 18,299 24,540 2,662 1,192 19,253 11,344 954 734 7,909 4,251 220 6.9 2.9 267 -29 6.7 -2.7 1,470 352 2.2 1.7 Total Nonfarm Employment Goods Producing Manufacturing Durables Nondurables Construction 10,610 7,689 Mining 1,065 66,118 20,549 Services Producing Trade Wholesale Retail Finance & Banking Transportation Government Services 3,984 5,231 15,318 5,335 1,036 67,588 20,901 5,306 15,595 5,051 5,500 5.048 16,003 19,180 16,018 20,121 75 277 ' 165 -3 15 941 Percent Change 3.0 5.1 5.2 1.4 1.8 3.1 -0.1 0.1 4.9 November 1982 November 1983 1,312.3 402.1 1,323.4 11.1 411.4 326.9 151.1 335.2 155.7 9.3 8.3 175.8 59.3 179.5 4.6 3.7 61.3 14.9 2.0 -1.0 912.0 271.0 1.8 2.7 -0.4 1.0 -0.6 199.4 68.5 202.5 59.0 71.6 58.9 71.1 3.1 -0.1 1.6 -0.2 -0.5 293.3 294.6 216.4 1.3 -1.6 -0.7 0.4 15.9 910.2 268.3 68.9 218.0 Absolute Change Percent Change 0.8 2.3 2.5 3.0 2.1 3.4 -6.3 0.2 -0.7 Source: U.S. Department ot Labor, Bureau of Labor Statistics, and the Federal Reserve Bank of Atlanta. in a row and industry experts expect no noticeable firming of prices in 1984. This o u t l o o k c o u l d further w e a k e n Alabama's energy a n d m i n i n g sectors in 1984. In summary, 1984 will not be a spectacular year for Alabama, b u t neither will it be a repeat performance of dreary 1981 or 1982. The state's u n e m p l o y m e n t rate had declined to 13 percent by N o v e m b e r 1983 from 16.3 percent in February as recovery gained m o m e n t u m . W e look for a single-digit u n e m p l o y m e n t rate late this year and c o n t i n u e d i m p r o v e m e n t in labor market conditions. Employment and Industry Developments Recession-sensitive industries have begun to recover in Alabama from t h e 1981-82 d o w n t u r n , and t h e overall o u t l o o k for 1984 is upbeat generally. N o n f a r m e m p l o y m e n t rose 0.8 percent last year and manufacturers a d d e d 2.5 percent to their work forces. As of November, the average w o r k w e e k in manufacturing was 1.2 hours longer than it was the previous N o v e m b e r , and factory income was up 9.7 percent from the third quarter of 1982 to the third quarter of 1983. M a n u f a c t u r i n g e m p l o y m e n t has grown by 8,300 since N o v e m b e r 1982, a marked contrast to ! FEDERAL RESERVE B A N K O F A T L A N T A the N o v e m b e r 1 9 8 1 - N o v e m b e r 1982 period w h e n manufacturing employment fell by 29,800. A great deal of Alabama's r e b o u n d can be a t t r i b u t e d to the n a t i o n w i d e recovery in the housing a n d a u t o m o b i l e industries. A f t e r losing workers in 1980 through 1982, the state's lumber and sawmills a d d e d 4.7 percent more workers t o their payrolls last year. A l t h o u g h m a n y mills have not yet returned t o full capacity, e m p l o y m e n t and l u m b e r p r o d u c t i o n are notably better than in 1982 w h e n m a n y mills w e r e left idle because of slack demand for lumber and building materials. E m p l o y m e n t in A l a b a m a brick, cement, and glass industries also rose last year after d e c l i n i n g in the prior four years. General Electric is enlarging its Decatur refrigerator facility, a d d i n g 400 jobs t o t h e e c o n o m y of n o r t h A l a b a m a . M a c h i n e r y e m p l o y m e n t , w h i c h includes electronic equipment, has recently b e e n gaining strength due primarily t o the fast-growing electronic equipm e n t sector. N e w g o v e r n m e n t contracts are e x p e c t e d to stimulate hiring in Alabama's hightechnology industry. Alabama defense expenditures are e x p e c t e d t o increase 9 percent in 1984, according t o D e p a r t m e n t of Defense estimates. Huntsville firms have received contracts to prod u c e rocket motors for defense a n d space use, 59 T a b l e 2 . Employment Gains Exceeded Labor Force Growth in Alabama's Larger Cities in 1 9 8 3 SMSA November November 1983 1982 (OOOs) (OOOs) Absolute Change Percent Change (000s) Anniston Labor Force Employment Unemployment Rate (percent) 45.7 40.0 6.1 13.3 47.1 41.6 5.5 11.6 1.4 1.6 -0.6 3.1 4.0 -9.8 Birmingham Labor Force Employment Unemployment Rate (percent) 388.2 329.2 59.0 15.2 393.0 345.7 47.3 12.0 4.8 16.5 -11.7 1.2 5.0 -19.8 Florence Labor Force Employment Unemployment Rate (percent) 56.8 47.2 9.6 16.9 59.2 50.0 9.2 15.5 2.4 2.8 0.4 4.2 5.9 -4.2 Gadsden Labor Force Employment Unemployment Rate (percent) 43.5 33.8 9.7 22.3 42.4 35.7 6.6 15.6 -1.1 1.9 -3.1 -2.5 5.6 -32.0 Huntsville Employment Unemployment Rate (percent) 151.3 131.7 19.7 13.0 161.2 145.6 15.7 9.7 9.9 13.9 -4.0 6.5 10.6 -20.3 Mobile Labor Force Employment Unemployment Rate (percent) 194.9 166.0 28.9 14.8 200.1 173.3 27.4 13.6 5.2 7.3 -1.5 2.7 4.4 -5.2 Montgomery Labor Force Employment Unemployment Rate (percent) 122.4 107.0 15.4 12.6 129.1 114.7 14.4 11.1 6.7 7.7 -1.0 5.5 7.2 -6.5 Tuscaloosa labor Force Employment Unemployment Rate (percent) 54.9 48.6 6.2 11.4 57.4 50.8 6.6 11.4 2.5 2.2 0.4 4.6 4.5 3.5 Alabama Labor Force Employment Unemployment Rate (percent) 1737.9 1469.8 268.1 15.4 1771.8 1551.0 220.8 12.5 33.9 81.2 -47.3 2.0 5.5 -17.6 Source: Alabama Department of Industrial Relations, Research and Statistics Unit munitions, B-1 b o m b e r parts, and cruise missile c o m p o n e n t s . The 180 high-tech companies in and around Huntsville have 18,000 e m p l o y e e s and a payroll of over $ 3 8 0 million. The University of A l a b a m a at Birmingham, pioneering in biot e c h n o l o g y and genetic research, has spun off several private firms h o p i n g t o capitalize on t h e e x p a n d i n g industry. 60 Primary metals e m p l o y m e n t has stabilized f o l l o w i n g three years of steep declines. After peaking at slightly over 4 5 , 0 0 0 e m p l o y e e s bet w e e n late 1978 and early 1979, e m p l o y m e n t rolls fell 46 percent by July 1983. However, as early as N o v e m b e r , hours w o r k e d in t h e industry w e r e up 11.5 percent from N o v e m b e r of 1982, indicating that the state's basic industries w e r e also on t h e path of recovery. U. S. Steel o p e n e d its seamless oil pipe facility in D e c e m b e r , a $ 7 0 0 million mill p u r p o r t e d t o be the most technologically a d v a n c e d in t h e world. A l t h o u g h t h e r e are differing schools of t h o u g h t on d e m a n d for t h e pipe because of slack oil p r o d u c t i o n , c o m p a n y officials t h i n k that comm i t m e n t s f r o m oil companies t o b u y f r o m the mill and recent sales of drilling sites in the Gulf make the outlook optimistic The new mill employs 900 workers. In addition, more than 3,000 people will be w o r k i n g this year at the Fairfield works. Late last year, U. S. Steel d e c i d e d t o restart steelmaking at Fairfield t o make rolled and flat steel sheets. The resurgence in d o m e s t i c auto sales has stimulated Alabama's auto parts and tire industry. In fact, tiremakers in t h e state are e x p a n d i n g capacity. A l a b a m a has the capacity t o p r o d u c e nearly 17 percent of the nation's tires, ranking first a m o n g t h e states. A c o m p a n y that makes electronic ignition systems for cars has a d d e d a b o u t 700 e m p l o y e e s in reaction t o increased auto sales. A l a b a m a apparel a n d textile mills, responsible for 6.8 percent of national shipments, also have reaped t h e benefits of increased c o n s u m e r demand. E m p l o y m e n t rose 3.7 percent in these industries after falling 2.2 percent a year earlier. I m p r o v e d efficiency a n d a stronger e c o n o m y should keep conditions favorable in 1984. Manor Corporation, o n e of the largest manufacturers of tailored slacks, plans t o d o u b l e t h e size of its plant in southwest Alabama a n d Russell Corporation in Alexander City, a producer of sports apparel, intends t o invest $30 million for u p d a t e d production equipment in 1984. The company has a d d e d 1,000 p e o p l e t o its payrolls in the last 18 m o n t h s a n d expects t o a d d m o r e jobs in 1984. The Scott Paper C o m p a n y plant in M o b i l e is b u i l d i n g a n energy c o m p l e x that will use coal and w o o d wastes instead of relatively expensive oil and gas t o p r o d u c e energy. Scott executives say that the $ 3 0 0 million project will provide longt e r m viability for t h e mill a n d will bring j o b security t o its 4,000 employees. FEBRUARY 1984, E C O N O M I C REVIEW The Tennessee-Tombigbee Waterway, scheduled for c o m p l e t i o n in less than t w o years, is expected t o spur industrial growth along its path. The " T e n n - T o m " is a less expensive route t o the Gulf of M e x i c o for coal, steel, t i m b e r , a n d grain p r o d u c e d or m i n e d in m i d d l e Tennessee and north Alabama. The savings in transportation costs are e x p e c t e d t o generate a great deal m o r e e c o n o m i c activity, a n d t o that e n d millions of dollars are being spent on industrial parks a n d ports. The w a t e r w a y will be especially beneficial to industries that d e p e n d o n foreign trade. C h a r t 1 . Alabama Sales and Use Tax Collections (Nov-76 to Nov-83) 60 " Millions of S 50 40 Income Scores Healthy Gain 30 Personal i n c o m e grew t h r e e times faster than the C o n s u m e r Price Index from m i d - 1 9 8 2 t o m i d - 1 9 8 3 , p r o v i d i n g Alabamians w i t h a healthy increase in purchasing power. The state's gain in real purchasing p o w e r surpassed t h e nation's and was in line w i t h the rest of the Southeast. The state's sharp gain is especially impressive in light of personal income's slow growth in t h e last f e w years. The relatively strong i n c o m e g r o w t h in 1983 p r o b a b l y e x c e e d e d p o p u l a t i o n growth, meaning that i n c o m e per capita rose last year. From April 1980 to July 1982, Alabama's population grew by o n l y 0.6 percent per year. N e t outmigration of 12,000 since the 1980 Census accounted for the below-average growth. Consumer s p e n d i n g normally parallels population a n d i n c o m e growth, a n d Alabama's consumers began t o spend m o r e freely last year. Taxable sales rose by 14.8 percent in N o v e m b e r c o m p a r e d w i t h N o v e m b e r 1982. That increase compares q u i t e favorably w i t h the 5.6 percent increase for t h e rest of the Southeast a n d a 4.4 percent d e c l i n e in the state the year before. To some degree, the sharp increase in consumer spending reflects the recession's severity in Alabama The u p t r e n d in e m p l o y m e n t , income, and consumer s p e n d i n g is e x p e c t e d t o c o n t i n u e in 1984 as Alabamians satisfy p e n t - u p d e m a n d for homes, automobiles, and c o n s u m e r goods. I f t h e nation's e c o n o m i c recovery continues through this election year, increased s p e n d i n g on capital e q u i p m e n t around the country should spur a b o v e average g r o w t h of e m p l o y m e n t , income, a n d spending in the state's i m p o r t a n t capital goods sector. Public Sector: Encouraging Signs The prospect for Alabama's p u b l i c sector is more encouraging than it has been in several ! FEDERAL RESERVE B A N K O F A T L A N T A 20 ^ 9p (O- nil <3 years. During fiscal 1983 (October 1982-September 1983), revenue collections barely m a t c h e d expenditures even with unprecedented reductions in spending on education a n d in o t h e r public services. Indeed, state receipts from all sources rose only 6.6 percent in fiscal 1983. This was well short of the e x p e c t e d 10 percent increase that the 1983 appropriations w e r e based on and b e l o w the 10.2 percent g r o w t h registered in fiscal 1982. U n p r e c e d e n t e d l y high u n e m p l o y m e n t placed heavy d e m a n d s on the state's U n e m p l o y m e n t Insurance Trust Fund, forcing Alabama to borrow from the federal government. Furthermore, sales a n d i n c o m e tax receipts w e r e sluggish through the first half of 1983 and receipts f r o m t h e oil a n d gas privilege tax d e c l i n e d as excess supplies of oil a n d gas c o n t i n u e d into 1983. Fiscal year 1984 ( O c t o b e r 1 9 8 3 - S e p t e m b e r 1984) got off t o a g o o d start. By N o v e m b e r 1983, revenue collections w e r e racing ahead of the previous year by 27 percent, d u e largely to a 1,000 percent increase f r o m N o v e m b e r 1982 t o N o v e m b e r 1983 in the oil and gas privilege tax. The state collected $34.1 million from t h e controversial tax in N o v e m b e r 1983 alone. During N o v e m b e r 1982, the state collected $2.8 million. But this large gain is a o n e - t i m e occurrence. Court decisions paved the w a y for Alabama t o get $28.9 million in severance tax revenue that had been locked in escrow accounts because of a lawsuit filed by oil companies. Revenue from 61 the 2 percent oil and gas p r o d u c t i o n tax, w h i c h many feel is a barometer of oil and gas production, decreased 4.4 percent over t h e year. But N o v e m b e r ' s sharp i n f l o w f r o m the oil and gas privilege tax was n o t entirely responsible for the 27 percent increase in state revenue. Sales tax receipts were 1 5.2 percent above the previous N o v e m b e r level and up 14.8 percent over t h e O c t o b e r - N o v e m b e r period of 1982. This d o u b l e digit g r o w t h in sales tax revenue attests t o the sharp t u r n a r o u n d in consumer spending. Sales tax collections had d e c l i n e d 3.1 percent f r o m N o v e m b e r 1981 t o N o v e m b e r 1982. Overall, w e expect general i m p r o v e m e n t in Alabama's e c o n o m y t o p r o d u c e d o u b l e - d i g i t increases in sales tax receipts in 1984. C o m b i n e d w i t h g r o w i n g inflows from its i n c o m e tax, overall state revenues are likely t o grow sharply in the state this year. This should give rise t o an u p t r e n d in the state's s p e n d i n g o n its infrastructure and help support a statewide recovery in 1984. International Trade Prospects for the state's e c o n o m y d e p e n d more on national and international developments than do the prospects in most other states. Almost a third of t h e nearly 22 million tons of coal m i n e d in the state last year was exported. The remainder w e n t t o utilities and steel mills. The state's high concentration of companies producing industrial equipment makes Alabama's economy particularly vulnerable to high interest rates and the dollar's strong foreign exchange value. Given these factors, it is not surprising that the international value of the dollar is of unusual concern in Alabama. The decline in w o r l d trade in 1983 had a substantial i m p a c t on the Port of M o b i l e . Like other ports a r o u n d the nation, M o b i l e was hurt by w e a k foreign d e m a n d for coal, grain, a n d petroleum. Mobile's total shipments in the JanuaryO c t o b e r period w e r e off 12.6 percent f r o m t h e same m o n t h s of 1982. The e c o n o m i c s l o w d o w n in Japan and western Europe severely curtailed the f l o w of coal shipments. Coal exports, through September, w e r e 21.5 percent b e l o w the level in 1982. The sharpest decline was in shipments of metallurgical coal t o large industrial buyers in Europe and Japan. D e m a n d for steam coal f r o m factories a n d electric plants was reduced significantly by t h e w o r l d w i d e recession. A large amount of Alabama's coal is sold t o Asian countries. In response to weak demand for coal, t w o large mines announced 62 layoffs in 1983. D r u m m o n d Coal C o m p a n y laid off 300 miners at its Kellerman m i n e in late August, and Alabama By-Products C o r p o r a t i o n left 330 coal miners jobless w h e n it closed its M a x i n e mine near Praco in mid-September. The Alabama State D o c k will be handling far less than its potential for several years. By yearend, port handling facilities w e r e operating at only 60 percent capacity. The M c D u f f i e Coal Terminal expansion earlier in the year raised the port's annual e x p o r t handling capacity to 23 million tons. A c c o r d i n g t o Alabama State Dock officials, only eight million tons of coal w e r e e x p o r t e d o u t of M o b i l e last year. This implies that the M c D u f f i e Coal Terminal o p e r a t e d at only 35 percent of e x p o r t i n g capacity in 1983. In the longer term, c o m p l e t i o n of the TennesseeT o m b i g b e e W a t e r w a y will enhance Alabama's export capacity further. The 1984 o u t l o o k for trade flows t h r o u g h M o b i l e hinges u p o n w o r l d d e m a n d for coal and grain and the value of the dollar. Economic recoveries in Europe and Japan should boost trade as the year progresses. A c c o r d i n g t o the traffic manager of the port, exports and imports handled at the state and private docks in M o b i l e are e x p e c t e d t o reach 37.5 t o 38 million tons in fiscal 1984 ( O c t o b e r 1 9 8 3 - S e p t e m b e r 1984). W h i l e this w o u l d be less than t h e record 42.3 million tons h a n d l e d in 1982, it w o u l d be up from 1983 w h e n the value of the dollar l i m i t e d shipments to 36.2 million tons. D o c k officials expect coal shipments t o reach the nine-to-ten million t o n range, up f r o m eight million last year. Officials from Taiwan have signed an agreement t o b u y t w o million bushels of Alabama soybeans for $18 million this year. Banking and Finance Inflows i n t o Alabama's thrifts e x c e e d e d those into S&Ls in other states in the Southeast and t h e nation, w i t h a year-to-year increase of 14 percent last year. M o r t g a g e c o m m i t m e n t s rose 491 percent last year, the highest increase in t h e Southeast. Also, unlike residents of other states, Alabamians placed 8 percent m o r e m o n e y into t i m e deposits. N O W account balances grew 33 percent but still account for only a small portion of total deposits. C o m m e r c i a l bank deposits increased 10 percent last year. As in other states, N O W accounts increased by a hefty margin, 30 percent, w h i l e bank t i m e deposits d e c l i n e d 8 p e r c e n t Savings FEBRUARY 1984, E C O N O M I C REVIEW deposits, mostly money market d e m a n d deposit accounts ( M M D A s ) a u t h o r i z e d in D e c e m b e r 1982, increased sharply. However, this sharp increase was b e l o w those of t h e o t h e r Sixth Federal Reserve District states (Florida, Georgia, Louisiana, Mississippi, a n d Tennessee) a n d that of the nation. W h i l e credit unions elsewhere in t h e region posted deposit g r o w t h rates from 18 to 47 percent last year, larger credit unions in A l a b a m a managed only a 5 percent increase. This slow growth is attributable in part t o t h e weakness in Alabama's steel industry, the primary e m p l o y e r for a large n u m b e r of Alabama's credit u n i o n members. Construction Shows Upturn Last year was a g o o d year for construction in Alabama Building permits authorized for singlefamily homes totaled 7,497 through November. N e w h o m e construction increased 69 percent last year, the highest level in Alabama since 1979. H o m e building's strong g r o w t h was not limited to single-family housing. Multifamily building permits w e r e up 85 percent over the year, with 7,688 apartments and condominiums under construction. Although industrial growth fell sharply in Alabama from 1981 t o 1982, conditions i m p r o v e d significantly in the latter part of 1983, suggesting that 1984 may prove t o be a year of strong industrial growth. N e w domestic incorporations in Alabama increased 11.2 percent b e t w e e n fiscal 1982 and fiscal 1983. This u p t u r n follows a 9 percent d r o p from 1981 t o 1982. M o s t of Alabama's 50,000 corporations are small businesses such as professional practices or small merchandise stores. 1 The recent j u m p in business starts can be attributed to the growing confidence of entreprenuers and others that the n e w e c o n o m i c e n v i r o n m e n t will help p r o m o t e their success instead of causing hardships. Several large projects will be under construction in the state this year. In the t o w n of Tallassee, where hundreds of residents have been laid off by the t o w n ' s largest e m p l o y e r ( M t . V e r n o n Mills) in the past year, U n i t e d Technologies is building a $20 million plant t o manufacture reinforced plastic parts. Estimates of the n u m b e r of workers t h e plant will e m p l o y range from 250 The B i r m i n g h a m News. December 11 1983. p. F-5. ! FEDERAL RESERVE B A N K O F A T L A N T A to 2,000 by 1985. In a d d i t i o n t o s p e n d i n g $15 million o n Alabama's fhird g r e y h o u n d racing track, Tuskegee anticipates t w o n e w industries this y e a r — a poultry p r o d u c t i o n plant that will e m p l o y 3 0 0 p e o p l e and a garment factory that will hire b e t w e e n 1 0 0 - 1 1 0 people. In the commercial construction area, a 1.2 million square foot s h o p p i n g mall, t o u t e d t o be the largest in the state, will be under construction in the Vestavia area. The mix of n e w and e x p a n d i n g industrial d e v e l o p m e n t s in 1983 indicates a c o n t i n u i n g shift toward potentially high-growth industries. For example, several plans for electronic or computerrelated plants have been announced. Defenserelated plants to manufacture missile parts, rocket motors, and hardware for the Space Shuttle are also leading contenders for expansion. To acc o m m o d a t e increasing c o n s u m e r d e m a n d in anticipation of continuing economic growth, tiremakers a n d appliance producers in the state are a d d i n g t o capacity. Table 1 lists these a n d other i m p o r t a n t n e w plants or expansions for 1984. Energy Officials h o p e that the August 1984 oil lease sale will be as lucrative as the 1981 sale, w h e n Exxon, M o b i l , Gulf, a n d Shell paid S449 million to the state t o lease tracts of the state's tideland. The oil c o m p a n i e s have been asked t o review 300,000 acres of s u b m e r g e d state-owned lands off the Alabama coast and to n o m i n a t e tracts on w h i c h t h e y w o u l d like t o bid in the summer. The 1981 monies w e r e p u t into a state trust f u n d and w e r e used indirectly to i m p r o v e the state infrastructure. Agriculture: In Transition Two dramatic changes have occurred in Alabama's agriculture sectors over t h e last f e w years. First, the p r o d u c t mix has changed. Traditional crops such as c o t t o n and corn have taken a back seat to broilers, eggs, cattle, and soybean. Second, the northern part of the state has e m e r g e d as the t o p farming area in the state. Cullman is by far the state's leadingfarm c o u n t y w i t h SI 65.4 million in gross farm i n c o m e in 1983. The S97.2 million earned from the sale of broilers a n d another $28.3 million from eggs comprise over threefourths of farm i n c o m e in the county. The half a billion broilers and 3.3 billion eggs p r o d u c e d by Alabama's 4,000 broiler growers and egg producers place the state third in t h e nation in 63 T a b l e 3. Capital Spending Plans - Alabama* Company Name Rohr Industries United Space Boosters Independent Kraft Corp. ACUREX CIBA-GEIGY Uniroyal General Electric Morton-Thiokol Corp. United Technologies HADCO Corp. Scott Paper Company CM I, Inc. Spicer Manor Corp. Georgia Kraft Location Foley Huntsville Tuscaloosa Huntsville Mcintosh Opelika Decatur Huntsville Tallassee Huntsville Mobile Athens Montgomery Bay Minette Cottonton Investment $5 million $ 2 0 million $ 2 5 0 million N/A $ 2 0 million Multimillion Multimiilion $7.5 million $ 2 0 million $ 2 0 million $ 3 0 0 million N/A $8 million $1.5 million N/A Employment Product Defense related Cruise missile, space shuttle Box plant Aerospace, electronics Chemicals Tires Appliances Rocket motors Composites Printed circuit board plant Paper plant modernization Ceramics Trailer axles Slacks Wood products N/A 400 300 N/A 50 150 400 N//A 250 500 N/A 50 100 150 230 " S p e n d i n g plans of selected firms a n n o u n c e d in 1983; e m p l o y m e n t promotions may not be for near-term. broiler production and seventh in egg production. Egg prices recovered part of the ground lost since early 1982 but remained below their average of the late seventies and early eighties. Rising feed costs also offset m u c h of t h e price rise on profit margins. It likely will be well into 1984 before profit margins show m u c h i m p r o v e m e n t . By late 1984, the financial c o n d i t i o n of egg producers definitely should be better. If feed costs had not climbed in 1983, Alabama's broiler industry w o u l d have had a m u c h i m p r o v e d year. As it was, broiler prices rose nearly 25 percent but feed costs c l i m b e d a p p r o x i m a t e l y 20 percent Profit margins, therefore, were slightly stronger in 1983 and conditions may i m p r o v e further in 1984. Reduced supplies of beef and pork may cause a further strengthening in broiler prices t h r o u g h o u t the year. In addition, feed costs should m o d e r a t e in the last half of t h e year as p r o d u c t i o n grows. The broiler industry might find 1984 better than the previous t w o years. Alabama's crops consist largely of peanuts a n d soybeans. Soybean production in 1983 fell nearly 50 percent from 1982 as drought and idled acreage t o o k its toll. Likewise, peanut p r o d u c t i o n d e c l i n e d a p p r o x i m a t e l y one-fifth. The damage t o Alabama's soybean crop was e x c e e d e d in the Sixth District only by Tennessee. For i n d e b t e d Alabama farmers, last year provided little assistance in reducing their d e b t burden. The prospect for 1984 is s o m e w h a t better. The s u p p l y - d e m a n d 64 situation for soybeans is m u c h better t h a n for other major crops and t h e price is likely t o remain high through 1984. Thus, Alabama's crop farmers should find 1984 to be m o d e r a t e l y beneficial. The livestock industry faced unfavorable conditions in 1983. Pork producers entered the year with weakening prices although profit margins remained satisfactory w i t h the help of low feed costs. W i t h pork production increasing as the year progressed, prices c o n t i n u e d to fall from t h e record high reached in m i d - 1 9 8 2 and by t h e fourth quarter of 1983 w e r e 28 percent b e l o w t h e year-ago price. As if falling prices w e r e n ' t enough, the industry saw f e e d costs spiral u p w a r d in response t o drought and g o v e r n m e n t programs. A t yearend, f e e d costs w e r e a p p r o x i m a t e l y one-fifth higher than in late 1982. Profit margins w e r e curtailed by the sharp rise in costs and lower returns. For 1984, the pork industry should see profit margins remain w e a k or nonexistent t h r o u g h t h e early m o n t h s and t h e n possibly begin an u p t u r n for the balance of the year. Production will have been substantially lowered, indicating rising prices in the face of small supplies. Similarly, the supply of feed should increase in light of e x p a n d e d f e e d grain acreage, thus lowering the cost. The last quarter, therefore, should bring favorable profits for pork producers. Alabama cattlemen also e x p e r i e n c e d a lackluster year although perhaps b e t t e r t h a n pork producers. Cattle and calves generate a full 20 FEBRUARY 1984, E C O N O M I C REVIEW V percent of the state's farm cash receipts, earning an important position in Alabama's farm economy. Cattle prices generally remained w e a k throughout the year although some strengthening occurred in t h e second quarter. By t h e fourth quarter, cattle prices w e r e essentially t h e same as at t h e e n d of 1982. The prospect for 1984 is for prices t o strengthen slightly in t h e first half a n d t h e n gain speed as the year progresses. W h e t h e r prices rise enough t o earn c a t t l e m e n substantial profits remains d o u b t f u l . Alabama's fishing industry was hurt in 1983 by the same f l o o d i n g that s w a m p e d o t h e r Gulf Coast states. A b o u t $500,000 w o r t h of oysters was lost as fresh water saturated M o b i l e Bay. In fact, the f l o o d i n g was so intense that t h e bay was transformed almost entirely i n t o fresh w a t e r for the first five m o n t h s of t h e year. In a d d i t i o n t o oysters, the financially i m p o r t a n t shrimp c r o p was severely damaged. Therefore, Alabama fishermen e x p e r i e n c e d t h e second year in a r o w of poor fishing. The oyster crop is likely t o remain poor in 1984, b u t t h e shrimp crop c o u l d return t o normal if e n v i r o n m e n t a l factors are favorable. Tourism: Going to the Fair A l t h o u g h A l a b a m a is relatively less d e p e n d e n t on tourism than m a n y southeastern states, the planned 1984 W o r l d ' s Fair in N e w Orleans has prompted Alabama's legislature to spend $800,000 to lure f a i r - b o u n d travelers. Estimates of travelrelated e m p l o y m e n t in the state run as high as 65,000, or slightly less than 5 percent of the state's nonfarm jobs. Alabama garnered from $1.2 billion t o $2.5 billion in domestic travel expenditures f r o m its 24 million out-of-state visitors in 1982. The W o r l d ' s Fair is t h e major factor in the o u t l o o k for A l a b a m a tourism in 1984, and state officials estimate that 3.5 million fair-bound travelers will pass t h r o u g h Alabama. A l t h o u g h Alabama trails Mississippi in f u n d i n g t o take advantage of this event, A l a b a m a t o u r i s m officials a n d private businesses are making plans t o reap substantial "spillovei" benefits. Instead of building and maintaining an e x h i b i t at t h e fair, the state will use most of its $ 8 0 0 , 0 0 0 p r o m o t i o n a l b u d g e t t o draw tourists traveling t o a n d from N e w Orleans. The state's campaign will focus on tourist spots in Alabama i n c l u d i n g the Space and Rocket Center in Huntsville, M o n t g o m e r y ' s First W h i t e House FEDERAL RESERVE B A N K O F A T L A N T A of the Confederacy, and M o b i l e ' s Bellingrath Gardens a n d t h e Battleship A l a b a m a 2 In addition, Governor Wallace has p l e d g e d state funds for an A m t r a k train that w o u l d shuttle fair visitors along t h e Gulf Coast from N e w Orleans t o M o b i l e if f u n d i n g is a p p r o v e d by neighboring states. M o b i l e tourism industry representatives have f o r m e d a special task force to reap the fair's benefits. They are targeting the tour bus market a n d already have b o o k e d $2 million in tours. Bus tours h e l p e d cities such as Asheville, N o r t h Carolina, enjoy substantial increases in tourist trade d u r i n g the Knoxville W o r l d ' s Fair. Both Birmingham and M o b i l e are o n major interstate arteries between the heavily populated northeastern U n i t e d States and N e w Orleans, and local hotels and restaurants should benefit f r o m the increased v o l u m e of auto travelers. The 4 0 0 - r o o m Riverview Plaza Hotel, t h e city's first c o n v e n t i o n - t y p e hotel, is e x p e c t e d t o spur convention business in 1984 and beyond. Birmingham contacts e x p e c t a 15 percent j u m p in hotel o c c u p a n c y this year. Construction of t w o n e w hotels in Birmingham will a d d 350 rooms t o the area by January 1985. The $10.4 million, 144r o o m Bainbridge H o t e l will cater to the upscale business travelers visiting Birmingham rather than t o conventions. Air travel in the state should i m p r o v e in 1984. Delta introduced four daily flights between Atlanta and M o b i l e in October 1983 and is contemplating using M o b i l e as a c o n n e c t i n g flight t o N e w Orleans, Houston, and Dallas. Eastern is also reintroducing a flight to Atlanta through Huntsville. Conclusion Alabama's e c o n o m y should c o n t i n u e t o gather m o m e n t u m this year as the state's manufacturing plants recall workers a n d a u t o m o b i l e d e m a n d remains strong. Tourists b o u n d for N e w Orleans should help Alabama's hospitality industry. W e a k spots in coal a n d oil p r o d u c t i o n remain, b u t the state's overall p e r f o r m a n c e should improve. — C h a r l i e Carter and David Avery ' S u n d a y Advocate, Baton Rouge, Louisiana November 2 7 , 1 9 8 3 , pp. 4-6. 65 Mississippi: A S t a t e in T r a n s i t i o n Mississippi's e c o n o m y e n d e d 1983 in better shape than it began the year. By yeaKs end, c o n d i t i o n s d e f i n i t e l y h a d improved, with u n e m p l o y m e n t falling sharply. Despite a vigorous national recovery, however, the Magnolia State's citizens have endured slow e c o n o m i c growth. In 1984 e c o n o m i c g r o w t h will continue, although progress will remain slow. E m p l o y m e n t p r o s p e c t s should i m p r o v e t h r o u g h o u t the year as a n u m b e r of positive e c o n o m i c factors c o m e into play. The forest products industry may anticipate an active, t h o u g h not exuberant, year. Several new plants will impact the economy favorably. Apparel a n d textile mills should benefit from c o n t i n u i n g growth in consumer d e m a n d . The w h o l e state will gain from a heavy influx of tourists on their way t o the W o r l d ' s Fair in N e w Orleans. In sum, the state's e c o n o m y should c o n t i n u e to e x p a n d m o d e r a t e l y for the balance of the year. After a late recovery, Mississippi's e c o n o m y should improve slowly throughout 1984. Lumber, textiles and tourism should be bright spots. A Longer Term O u t l o o k The year of 1984 c o u l d w e l l represent t h e beginning of a new era for the state of Mississippi. Long relegated to the b o t t o m , or near b o t t o m , of lists indicating e c o n o m i c and social well-being, the state may have reached a t u r n i n g point. A n e w emphasis on upgrading the e d u c a t i o n of Mississippi children, financed by additional taxes, will, in time, prove t o be of i m m e n s e assistance in the state's struggle to grow. M o r e i m m e d i a t e l y , however, there are o t h e r signs of the potential for growth. An influx of forestry firms accentuates an a b u n d a n t resource that will be i m p o r t a n t to the state's e c o n o m y for many years into the future. The state is also increasing its efforts at attracting industry. In 1983 legislation authorizing " e n t e r p r i s e zones" within the state was enacted. The program allows tax credits t o be o f f e r e d by certain counties t o attract industry. A p p r o x i m a t e l y 25 such zones should be established by 1987. 66 FEBRUARY 1984, E C O N O M I C REVIEW In addition, w o r k is p r o c e e d i n g o n a n e w c o m p u t e r i z e d i n f o r m a t i o n system t o assist industry in site selection. The system, the combined effort of various state agencies, c o u l d provide interested parties with almost immediate information a n d may prove valuable in attracting industry t o the state. In 1983, projects w e r e initiated to encourage the d e v e l o p m e n t of foreign trade. The establishm e n t of a Foreign Trade Z o n e on the Gulf Coast could prove t o be a valuable long-run plus for the state in attracting industry a n d e x p a n d i n g foreign trade. Last April, Mississippi participated in the creation of the M i d - S o u t h Trade Council. The purpose of the Council, c o m p o s e d of various southern states, is t o assist industry in m a k i n g c o n t a c t s a m o n g f o r e i g n b u y e r s a n d g i v i n g exposure t o southern industrial products. There seems t o be a r e n e w e d c o m m i t m e n t in many parts of the state toward expanding economic growth. Efforts by b o t h p u b l i c a n d private sectors may be c o m b i n i n g t o lay the g r o u n d w o r k for the future. In the short-run, however, the lingering effects of t h e past recession c o n t i n u e to be felt. Recession's Impact The recession's relatively severe impact on Mississippi is reflected a m p l y in the state's recent pattern of p o p u l a t i o n , income, a n d c o n s u m e r spending growth. In the 2 7 - m o n t h period e n d i n g last June, t h e state's personal i n c o m e grew by 8 percent per year, or 5 percent b e l o w t h e average growth rate for t h e nation a n d nearly 1 percent below the Southeasf s average. For the 12 months ending last October, Mississippi's personal income grew by 5 percent c o m p a r e d t o 6 percent for the nation a n d 7 percent for the Southeast. The i n c o m e g r o w t h pattern of the Magnolia State since 1980 resembles the growth registered by Alabama and Tennessee, t w o other states hard hit by the successive recessions of the early 1980s. These t h r e e states also shared .5 t o .6 percent average annual p o p u l a t i o n growth rates for the April 1980-July 1982 period, one-third of the average for the region. Mississippi's retail sales p e r f o r m a n c e mirrors its weak growth in income and population. Furthermore, spending grew slowly c o m p a r e d to most other states in the region. In the first ten m o n t h s of 1983, consumer spending, as measured by taxable sales, increased by o n l y 3.7 percent over the same m o n t h s of 1982. ! FEDERAL RESERVE B A N K O F A T L A N T A Chart 1 . Mississippi Unemployment Rate Source. Federal Reserve Bank of Atlanta The o u t l o o k for Mississippi's personal i n c o m e and retail sales g r o w t h in 1984 is gloomier than for some o t h e r states in the Southeast and for the nation. As the national e c o n o m y improves, Mississippi's e c o n o m y will also brighten, b u t at a slower pace. The relatively slow and weak reb o u n d in the state's e c o n o m y limits i n c o m e and s p e n d i n g growth. Labor Struggles Mississippi's labor force grew by o n l y 0.2 percent last year, even slower than the 0.3 percent growth rate the year before. Job o p p o r tunities remain scarce. The number of jobs declined last year, marking the t h i r d consecutive year that Mississippi employers have pared their payrolls. However, the state gradually began t o emerge from the p r o l o n g e d recession late last year. U n e m p l o y m e n t remained high, at 11.2 percent in N o v e m b e r . Yet manufacturing e m p l o y m e n t , w h i c h e n d e d 1982 at its lowest level since the depths of the 1974-1975 recession, was up 2 percent from the year before, with hefty increases in most industries. L u m b e r a n d p l y w o o d industries have 11 percent m o r e e m p l o y e e s on their payrolls than in late 1982. Manufacturers of industrial machinery and h o u s e h o l d appliances are pacing the state's recovery, w i t h jobs up 12.3 percent over t h e year. After falling in 1982 and through the first 67 Chart 2. Mississippi Lumber and W o o d Employment 4 6 ,—Thous. Chart 3. Mississippi Apparel Employment _ Thou& 44 42 38 34 30Ii i I I I I 69 71 73 I I I 75 I 77 I I 79 I I I 81 I I 83 Source: Federal Reserve Bank of Atlanta seven m o n t h s of last year, apparel e m p l o y m e n t , centered in t h e northeastern corner of the state, j u m p e d nearly 4 percent in S e p t e m b e r over the same m o n t h 1982. Textile e m p l o y m e n t , w h i c h also d e c l i n e d in 1982 a n d t h r o u g h July 1983, grew in S e p t e m b e r a n d O c t o b e r , only t o fall again in N o v e m b e r . M o s t sectors in t h e state are registering j o b g r o w t h in contrast t o declines t h e year before. W e e x p e c t c o n t i n u e d i m p r o v e m e n t in labor market conditions in 1984. E m p l o y m e n t growth, w h i c h began t o exceed labor force increases late in 1983, should c o n t i n u e i n t o 1984, reducing the state's u n e m p l o y m e n t . M a c h i n e r y e m p l o y m e n t will c o n t r i b u t e t o g r o w t h as industries install n e w e q u i p m e n t t o reduce labor costs. The state's building materials manufacturers can anticipate i m p r o v e m e n t t h r o u g h o u t the year if mortgage rates remain stable. Producers of a u t o m o b i l e parts a n d accessories should benefit f r o m a g o o d auto sales year. Energy Remains In Slump The oil and gas industry in Mississippi experienced hard times in 1983 because of soft d e m a n d and flat oil prices. As a result, state drilling activity last year s l u m p e d b e l o w even 1982's depressed level, w i t h the state's rig c o u n t for the first half of 1983 nearly 35 percent b e l o w the previous year. O n l y a b o u t 550 wells w e r e c o m p l e t e d d u r i n g t h e year, a 12 percent decline f r o m 1982's poor record. 68 I 70 I I I 72 I I 74 I I I 76 78 I I I 80 I I I I 82 84 Source: Federal Reserve Bank of Atlanta The industry slump contributed to the depressed state e c o n o m y ; lower industry o u t p u t led companies t o cut e m p l o y m e n t . D u r i n g t h e first t e n m o n t h s of 1983, the average e m p l o y m e n t level was 10,200, a 12 percent decline f r o m the previous year. Severance tax revenues, w h i c h generate nearly o n e - t e n t h of the state's revenue, also fell. In recent months, severance tax collections were consistently b e l o w state projections. For the fiscal year e n d i n g last June, state severance tax collections w e r e off 2 percent f r o m a year earlier. For 1984, t h e industry foresees t h e possible r e i n t r o d u c t i o n of a tax proposal, defeated in 1982, t o increase the severance tax rate f r o m 6 to 9 percent, based o n the v o l u m e of oil and gas p r o d u c e d . But t h e industry's overall o u t l o o k is b r i g h t e n e d by a p r o j e c t e d increase in energy d e m a n d resulting f r o m the national r e b o u n d in industrial production. C r u d e oil prices, however, are e x p e c t e d t o remain stable through 1984, thus limiting t h e prospect for revenue growth. C o m p e t i t i v e pressure from oil and coal is likely t o restrain t h e rise of natural gas prices in 1984. In turn, stable natural gas prices will limit incentives for gas drilling activities, particularly for the vast but deep and costly, deposits discovered recently in the state. Turmoil in the Public Sector As the 1984 fiscal year matures, prospects for e n d i n g the fiscal year w i t h o u t a deficit look FEBRUARY 1984, E C O N O M I C REVIEW ! brighter. Tax collections fell $57 million short of projections for the first four m o n t h s of t h e 198384 fiscal year, p r o m p t i n g o u t g o i n g Governor William W i n t e r t o cut $43.6 million f r o m the budget in September. As N o v e m b e r revenue collections also fell short of estimates, the governor took unilateral action to balance the budget by using a $10 million cash reserve a p p r o p r i a t e d by the 1983 legislature. In m i d - N o v e m b e r , the governor and state budget commission a t t e m p t e d t o d e v e l o p a tax plan t o ease a p r o j e c t e d $122 million budget deficit for fiscal 1984. Cuts of $53.6 million had already b e e n made, leaving a p r o j e c t e d shortfall of $68.4 million. The governor argued that additional b u d g e t c u t t i n g c o u l d impair the state's ability t o provide basic services. Consequently, in a special session held in N o v e m b e r , the legislature d e c i d e d t o a d d one-half percent t o the sales tax, and required that corporate i n c o m e taxes be paid quarterly instead of annually. If revenue equals expectations, t h e n this year's budget deficit p r o b l e m should be resolved. The p u b l i c sector will not be a positive force in the state's recovery this year. During most of 1983, state e m p l o y e e s w o r k e d u n d e r a freeze that p r e v e n t e d p r o m o t i o n s or transfers, and available jobs in the p u b l i c sector will remain scarce. Finance C o m m e r c i a l banks e n j o y e d a good year in 1983; savings and loan associations did less well. The m o n e y market deposit account ( M M D A ) proved t o be a bigger b o o n for Mississippi banks than it did for most banks in the region. Through August, t h e banks w e r e relatively flush w i t h funds that t h e sluggish state e c o n o m y a f f o r d e d few profitable means of investing. The m o n e y was c h a n n e l e d i n t o investments such as governm e n t securities, b u t the d e m a n d for loans, t h e traditional o u t l e t for a bank's funds, was not strong. Mississippi banks increased their deposit holdings by 9 percent as of D e c e m b e r from the same m o n t h of 1982. The popularity of M M D A s cont r i b u t e d t o a 201 percent growth in the savings category. The g r o w t h of M M D A s came partly at the expense of each bank's o w n t i m e deposits, but attracted considerable n e w funds, as is evidenced by t h e gain in total deposits. Savings a n d loans e n d e d t h e December-toD e c e m b e r period w i t h 4 percent more deposits FEDERAL RESERVE B A N K O F A T L A N T A than at the beginning. M M D A s c o n t r i b u t e d t o a 106 percent boost in t h e S&Ls' savings deposits, but the gain was m o r e t h a n offset by heavy losses from t i m e deposits to banks and m o n e y market mutual funds. The slow progress of the state's recovery also caused some d r a w d o w n of savings by those o u t of w o r k or o n short hours. S&Ls loaned $19 million for mortgages in N o v e m b e r 1982; w h e n the state's housing market was flat. In N o v e m b e r 1983, S&Ls m a d e $57 million in mortgage loans, a 200 percent improvem e n t This translates into 700 t o 1,000 mortgages in N o v e m b e r , n o t m a n y for a state w i t h a w o r k force of over a million people. A comparison of mortgage lending activity in Mississippi w i t h the Southeast and the nation reinforces this point. Mississippi S&Ls m a d e mortgage c o m m i t m e n t s in September a m o u n t i n g t o 1.9 percent of savings capital c o m p a r e d w i t h 5.6 percent f o r t h e Southeast a n d 5.3 percent for the nation. Mortgage brokers a n d bankers from California, Louisiana, and Texas recently have shown interest in acquiringS&Ls in Mississippi. S&Ls in the state, typically small, w e r e w e a k e n e d further by their low profitability in the early 1980s. Thus, S&Ls in need of capital infusions a n d mortgage brokers planning t o expand their business seem to be c o m p l e m e n t a r y enterprises. A f e w state S&Ls have actually been purchased by out-ofstate mortgage companies. The near future p r o b a b l y will not bring a significant expansion of employment at Mississippi depository institutions. In-migration provides the most fertile environment for an expansion among depository institutions. But the kind of population growth that fueled the expansion of Florida's financial institutions is unlikely in Mississippi w i t h i n t h e next five years. The groundswell toward interstate banking will cause some mergers and acquisitions of the state's financial institutions. M a n y such consolidations c o u l d reduce employm e n t because of the centralization of certain functions and the elimination of others. Construction: Growing But Weak A l t h o u g h residential housing construction a n d sales i m p r o v e d t r e m e n d o u s l y through the third quarter of last year, Mississippi's construction recovery remains t h e weakest in the Southeast. Jackson has been the state's strongest area for construction and sales of single-family residences. Realtors also report an unusual level of condom i n i u m activity on the Gulf Coast. 69 Chart 4. Mississippi Residential Building Permits The value of construction contracts should grow m o d e r a t e l y in 1984, b u t the f o u n d a t i o n for this g r o w t h is not solid. W i t h a relatively high p r o p o r t i o n of its w o r k force in manufacturing, Mississippi is vulnerable to the malaise that has afflicted all U. S. manufacturing since 1979. A n e w e c o n o m i c s l o w d o w n w o u l d l i k e l y cause greater u n e m p l o y m e n t in the state than in the nation as a w h o l e . A n d this translates into high risk for the state's residential construction industry. Those w i t h o u t jobs, or in fear of losing t h e m , are hesitant t o b u y homes. The Ports: A Bright Future? Source: Federal Reserve Bank of Atlanta E m p l o y m e n t in t h e construction industry, in late 1983, has not yet returned t o the 1982 level. As of November, the construction sector counted 37,800 employees, a b o u t 7 percent b e l o w construction e m p l o y m e n t in N o v e m b e r of 1982. The p r o p o r t i o n of construction e m p l o y m e n t t o t o t a l n o n a g r i c u l t u r a l e m p l o y m e n t has b e e n t r e n d i n g d o w n since m i d - 1 9 7 9 . An easing of this trend began late in 1982, b u t a reversal is not yet in sight. G r o w t h of construction permits in Mississippi has been primarily in residential structures and is d i v i d e d almost evenly b e t w e e n single-family and m u l t i f a m i l y units. A n increase in mortgage rates w o u l d threaten Mississippi's construction recovery because it is c o n c e n t r a t e d in the highly interest-sensitive single-family residential area. The revival of the state's construction industry has p u l l e d a l o n g t h e closely allied lumber, forest products, and furniture industries. Based o n anticipated d e m a n d , mostly f r o m construction, several n e w forest products plants are planned. By o n e estimate, these operations w o u l d create 1,000 jobs over the next t w o years. A l t h o u g h n e w e m p l o y m e n t of this magnitude is not t o be scoffed at, m a n y taking these n e w jobs may find their j o b security tied t o the prosperity of the housing industry. Some fear these plants may increase the recession-related risk of the state's j o b p o r t f o l i o rather than lessening it. 70 A successful e x p o r t trade is i m p o r t a n t to t h e economy of Mississippi. For example, one-eleventh of the state's manufacturing jobs r e p o r t e d l y d e p e n d s u p o n export sales. The agricultural sector relies heavily on foreign d e m a n d for its health and well-being. Falling U. S. agricultural exports slowed the f l o w of c o m m o d i t i e s through Mississippi ports in 1983. The Port of Pascagoula handles a b o u t 90 percent of Mississippi's foreign commerce. From January to N o v e m b e r , exports of corn, wheat, sorghum, a n d rice w e r e off sharply f r o m a year earlier. That decline is attributable, in part, t o rising d o m e s t i c farm c o m m o d i t y prices that w e r e pushed even higher for export customers by the strong value of t h e U. S. dollar. Furthermore, record crops produced outside the United States offered stiff c o m p e t i t i o n . A rising v o l u m e of i n c o m i n g shipments, however, more than offset the reductions in Pascagoula's export tonnage. D u r i n g the first ten m o n t h s of 1983, a large increase in imports of r u b b e r and chemical products spurred business g r o w t h at the port. Port revenues in the fiscal year e n d i n g in S e p t e m b e r w e r e up 1 2.5 percent from the year before. The v o l u m e of trade f r o m January t o N o v e m b e r increased by 9 percent over the same period in 1982. I n contrast, fiscal 1983's trade volume at Gulf port, the state's other major port, was a b o u t 8 percent b e l o w 1982's level. G u l f p o r t is the nation's major port of entry for bananas a n d tropical fruits i m p o r t e d from t h e Caribbean a n d southeast Asia. Port officials r e p o r t e d that, in spite of the p r o m o t i o n a l efforts of Central American and Caribbean countries, trade failed t o i m p r o v e in 1983 as had b e e n e x p e c t e d . O n e study does indicate, however, that banana imports t h r o u g h Culfport are e x p e c t e d t o increase an average of 2 percent per year until the e n d of this century. 1 While Culfport handles a m u c h smaller portion of the state's foreign trade than Pascagoula, its capabilities a n d prospects are improving. Port renovation, begun in 1982, was virtually completed last year w i t h i m p r o v e d roads, rebuilt storage, and a variety of other changes. I n addition, port authorities are aggressively seeking new business for the port. A major plus, a n d g o o d news for its workers, was an a n n o u n c e m e n t last February that U n i t e d Brands, a major banana importer, w o u l d greatly increase the size of its operations at Gulfport. State officials are increasing their efforts at p r o m o t i n g Mississippi's goods t o foreign buyers. In N o v e m b e r , the M a g n o l i a State was o n e of a group of southern states to undertake a trade mission t o various Latin American countries. Approximately 40 in-state companies participated. The trade o u t l o o k for Mississippi ports in 1 9 8 4 is linked closely t o the prospects for U. S. agricultural exports. M a j o r i m p e d i m e n t s t o imp r o v e d agricultural exports are the strong dollar, increased foreign c o m p e t i t i o n , a n d financial distress in m a n y Third W o r l d countries. W h i l e the dollar is likely t o remain strong, its value may decline slightly in 1984 relative t o major foreign currencies. If crops are normal, t h e c o m b i n a t i o n of higher p r o d u c t i o n and a slightly less expensive dollar should make farm products m o r e competitive in international trade. Increased foreign c o m p e t i t i o n will be most effective during t h e early m o n t h s of the year as foreign p r o d u c t i o n of several c o m m o d i t i e s reached record levels in 1983. Third W o r l d financial distress will c o n t i n u e t o h o l d d o w n that source of d e m a n d for farm products. Even so, the more developed countries of Europe a n d Asia, major importers of U. S. agricultural goods, are experiencing a recovery. It appears, therefore, that exports of farm products from Mississippi ports, after a slow start early in 1984, have the potential for increasing activity as the year progresses. Overall, m o d e r a t e g r o w t h in farm exports is p r o b a b l e for the year. O n e factor that may impact on foreign trade and industrial d e v e l o p m e n t at G u l f p o r t was the approval in late 1983 of a foreign trade z o n e (FTZ). The i m p a c t will be d e t e r m i n e d by the success in attracting to t h e z o n e industries that A 1982 study by Wilbur Smith and Associates ol Columbia, S. C„ cited in Mike McCall, "The Port of Gulfport is Flexing Its Muscle. C l a r i o n L e d g e r Jackson Daily News, Nov 13, 1983, pp. 1 & 2F. ! FEDERAL RESERVE B A N K O F ATLANTA w o u l d benefit f r o m duty-free i m p o r t a t i o n of goods for further processing. The FTZ, the only one in Mississippi, should prove a b o o n over t i m e t o the G u l f p o r t area. Tourism a Plus in '84 Tourism is increasing in i m p o r t a n c e in Mississippi although it has b e e n a m i n o r segment of the state's e c o n o m i c activity. Representatives of the state's g o v e r n m e n t a n d business recently have recognized t h e potential of t h e tourist industry t o attract revenues f r o m outside the state to generate jobs and stimulate e c o n o m i c development The Magnolia State leads its southern neighbors in plans a n d f u n d i n g to take advantage of the 1984 World's Fair in N e w Orleans. Mississippi's tourist industry e x p e r i e n c e d a better year in 1983 than in 1982. A l t h o u g h plane passenger arrivals have yet to reach peaks attained in the 1970s, t h e y increased t h r o u g h o u t the year in b o t h Jackson a n d Gulfport-Biloxi. Economic recovery spurred more air travel a n d encouraged carriers t o offer services t o smaller cities that had lost airline service in the w a k e of deregulation. A u t o travel is up as well. Economic recovery stimulated c o n s u m e r spending o n travel nationally, and the slight decline in gasoline prices through t h e s u m m e r encouraged auto travel. A p p r o x i m a t e l y 7 percent m o r e visitors, mostly from out of the state, registered at state w e l c o m e centers during the first three quarters of 1983 relative t o t h e same p e r i o d in 1982. Visits t o the state's National Park Service facilities increased 14 percent o n a year-to-date basis. The N a t c h e z Trace Parkway a c c o u n t e d for 86 percent of this use and, concomitantly, m u c h of t h e increase, but the Gulf Islands National Seashore also attracted 12 percent more visitors than in 1982. State parks in Mississippi also e n j o y e d a 28 percent increase in attendance through September relative t o the first nine m o n t h s of 1982. The o u t l o o k for Mississippi's tourist industry is quite promising for 1984, largely because of the W o r l d ' s Fair, w h i c h will c o n t i n u e from M a y 12 through N o v e m b e r 11. In order t o achieve the fullest potential f r o m this event, the state appropriated $4 million to p r o m o t e Mississippi's tourist attractions t h r o u g h a pavilion at the fair a n d increased advertising. The fair should draw 1.4 million visitors through Mississippi on their w a y t o N e w Orleans. They are e x p e c t e d t o generate $ 2 0 0 - $ 2 8 0 million in n e w business, a d d $11$15 million to sales tax revenue, a n d create as 71 many as 8,800 n e w jobs in the state. Mississippi's potential gains are largely a result of demographics and geography: t h e majority of those w h o visit t h e fair by car are likely t o pass t h r o u g h t h e state. However, t h e future of tourism in Mississippi does not hinge exclusively on the N e w Orleans World's Fair. Jackson recently created a Convention and Visitors Bureau t o capture a p o r t i o n of the m u l t i b i l l i o n dollar n a t i o n w i d e c o n v e n t i o n trade. Several n e w hotels being planned or built will e x p a n d Jackson's current stock of lodgings f r o m the present level of almost 5,000 rooms. A $1 6 million, 3 0 0 - r o o m Ramada Inn is to be built, a $3 million Best W e s t e r n is under construction, and several other inns are under consideration. A p l a n n e d $50 million resort and marina developm e n t at Bay St. Louis (near Gulfport) is e x p e c t e d t o be finished w i t h i n t h r e e years. A n o t h e r developer is w o r k i n g o n plans for a resort comm u n i t y w i t h golf and possibly horse racing at Eagle Lake, north of Vicksburg. Drought vs. Payment-in-Kind For Mississippi agriculture t h e o u t c o m e for 1983 rests o n a test of strength b e t w e e n t h e positive effects of the federal p a y m e n t - i n - k i n d (PI K) program and the negative impact of d r o u g h t At year's end, the farm e c o n o m y appeared t o be d i v i d e d b e t w e e n farmers heavily involved in the PIK program a n d those not. For the former, sharply higher net incomes w e r e the rule, w h i l e the success of the latter related directly to t h e extent of d r o u g h t damage. The success or failure of individual farmers varied considerably by product. As w i t h many of its neighboring states, o n e of Mississippi's most i m p o r t a n t cash crops is soybeans, w h i c h account for over a fifth of farm cash receipts (Chart 5). Also like many o t h e r states in 1983, Mississippi experienced substantial drought conditions; soybean yields fell by nearly onethird statewide. Despite an a p p r o x i m a t e 4 0 percent rise in price, the state's soybean farmers e n d u r e d an overall reduction in revenue as a result of the large decline in production. Conditions varied considerably t h r o u g h o u t the state, however, w i t h some areas p e r f o r m i n g better than others. Southeast Mississippi, for example, e n j o y e d almost normal yields, and farmers in that area earned a c o m f o r t a b l e p r o f i t For 1984, 72 Chart 5. Percent of Cash Receipts by Commodity Poultry/Egg 19.9% Source: Federal Reserve Bank of Atlanta soybean farmers are likely t o receive a profitable return on their crops as high prices and a r e d u c e d supply favor producers. C o t t o n , of prime i m p o r t a n c e t o the state's farm e c o n o m y , generates a p p r o x i m a t e l y 25 percent of Mississippi's farm income. Unlike soybeans, m u c h of t h e c o t t o n crop is c o n c e n t r a t e d in the Delta area. I n contrast t o the record yields of 1982, c o t t o n p r o d u c t i v i t y in 1983 was m u c h b e l o w normal. Adverse spring weather, w h i c h delayed planting, c o m b i n e d w i t h m i d s u m m e r drought t o knock d o w n the average yield by 20 percent. Fortunately for some farmers, however, c o t t o n was i n c l u d e d in t h e PIK program and farmers w h o participated received payments in c o t t o n for idling acreage. As a result, net revenue is estimated t o have risen in 1983 by almost 1 5 percent The o u t l o o k may not be as bright in 1984. W o r l d p r o d u c t i o n last year remained stable w i t h increases in foreign p r o d u c t i o n offsetting declines in U. S. production. W i t h the absence of a PIK program in 1984, c o t t o n acreage is likely to increase, returning p r o d u c t i o n t o near normal levels. The potential for w e a k e r prices by the last half of 1 9 8 4 suggests the year is unlikely to be as good as 1983 for c o t t o n farmers. For Mississippi cattlemen, prices began to falter last spring. Higher feed grain prices severely s q u e e z e d returns. In response to higher costs, meat producers increased slaughtering t o lower FEBRUARY 1984, E C O N O M I C REVIEW their inventories. Unfortunately, there is little likelih o o d of an i m p r o v e m e n t before m i d - 1 9 8 4 , if at all. In a d d i t i o n t o c o n t i n u i n g efforts t o reduce herds t h r o u g h o u t the first half of the year, cattlem e n face the prospect of increased slaughter of cull dairy cows. Thus, revenue prospects for the state's cattlemen remain unfavorable. For the forest industry, 1983 was a good year. The sharp p i c k u p in d e m a n d e x p e r i e n c e d in the first half of the year led t o a flurry of t i m b e r harvesting and increased mill operations. Dem a n d for pine t i m b e r by t h e l u m b e r industry was strong w i t h prices rising. W h i l e d e m a n d for hardwood by the furniture industry also increased, the supply remained small. The recession thinned the n u m b e r of h a r d w o o d mills, typically small operations, making it difficult for t h e industry t o m e e t p r o d u c t i o n needs. In 1984 conditions should not change substantially, w i t h m o d e r a t e d e m a n d for w o o d products as t h e recovery continues. Prices should m o v e little in either direction, b u t d o w n w a r d m o v e m e n t is possible if inventories should accumulate. Severe f l o o d i n g in Louisiana and Mississippi in early 1983 triggered a large runoff of fresh water into the Gulf of Mexico. This seriously h a m p e r e d shrimp d e v e l o p m e n t last spring. In turn, shrimp landings by Mississippi's fishermen fell 14 percent in 1983. Since shrimp are the major cash Here is a capsule look at h o w various regions of Mississippi are sharing in the recovery. Southeast Mississippi Although academic institutions p r o t e c t some of the southeastern p o r t i o n of the state against recession, unemployment still reached high levels in certain counties. Stone, for example, a t o n e point in 1983 had an u n e m p l o y m e n t rate in excess of 20 percent. The area, benefiting from increasing d e m a n d for l u m b e r and o t h e r w o o d products, m o r e recently has e x p e r i e n c e d rising e m p l o y m e n t in t h e w o o d industry. Steady d e m a n d and new plants opening in 1984 are likely to c o n t i n u e a revival of this industry. I m p r o v i n g tourism and port activity will lend additional support t o the area. N e x t September, Great N o r t h e r n Nekoosa Corporation is s c h e d u l e d t o o p e n a n e w p u l p mill at N e w Augusta in Perry County. The $ 5 6 0 million plant will e m p l o y a b o u t 4 0 0 people. In order t o supply a p o r t i o n of its t i m b e r needs, the ! FEDERAL RESERVE B A N K O F A T L A N T A p r o d u c t for t h e state's fishermen, this was a serious decline. Summary The p e o p l e of Mississippi have e n d u r e d a serious e c o n o m i c slump that lasted longer than the national recession. U n e m p l o y m e n t peaked at 13.8 percent in June before declining to near 10 percent by yeaKs end. The precise impact of the recession varied greatly by location and e c o n o m i c sector. As the state moves into 1984, however, prospects have i m p r o v e d dramatically. Virtually every p o r t i o n of the state's e c o n o m y is in better c o n d i t i o n than a year ago, t h o u g h still generally b e h i n d o t h e r states in the region. Perhaps t h e most significant trend is not t h e short-term e c o n o m i c recovery b u t the g r o w i n g indications that t h e state is positioning itself for major advances in the future. Educational reform, greater interest in international markets, and the utilization of t e c h n o l o g y t o assist industrial dev e l o p m e n t are a m o n g t h e features which, over time, should prove of great benefit t o the state's residents. T h e M a g n o l i a State faces n o t o n l y brighter e c o n o m i c circumstances in 1984, but a favorable e c o n o m i c f u t u r e in t h e years beyond. — W. Gene Wilson and Gene D. Sullivan c o m p a n y purchased 136,000 acres of southeastern Mississippi forest land. For the oil a n d gas industry ( i m p o r t a n t in the Laurel area), 1983 p r o v i d e d little g o o d news. D e m a n d remains weak, a n d prices give no indication of rising significantly. Exploration for energy resources seems unlikely t o increase this year. Laurel did receive some good news. A refrigerator manufacturing company, T h e r m o - K o o l / M i d South Industries, began e x p a n d i n g its existing facilities late in the year. The expansion, costing $1.5 million, will e m p l o y an additional 4 0 workers. Northwest Mississippi In northwest Mississippi, the base of t h e e c o n o m y is agriculture, as this area includes t h e rich soil of the Mississippi Delta. Last year, w i d e s p r e a d participation in g o v e r n m e n t farm programs idled thousands of acres. The i m p a c t on farm suppliers was severe, w i t h sharply reduced d e m a n d for fertilizer, chemicals, and o t h e r supplies. The m a n y farmers w h o 73 Chart 6. Pascagoula-Moss Point Unemployment Rate Chart 7. Jackson Unemployment Rate 20 16 12 1 I 76 I I 78 J L 80 I L 82 Source: Federal Reserve Bank of Atlanta participated in PIK or w h o m a d e good crops despite t h e d r o u g h t generally harvested m u c h higher net income. For o t h e r farmers, profits w e r e l i m i t e d by d r o u g h t damage. As t h e 1 9 8 0 census results b e c a m e available, t h e y dramatized a significant p o p u l a t i o n t r e n d in many Delta counties. Because of increased agricultural mechanization and poor returns to farming, substantial out-migration has r e d u c e d the population of most of the Delta significantly. M a n y residents have m o v e d seeking increased opportunities in urban areas of the state. Recently, this area has b e n e f i t e d substantially from the increased interest by w o o d p r o d u c t companies. Both Georgia-Pacific a n d LouisianaPacific began construction in 1983 on n e w plants in the Grenada area that together will e m p l o y over 400. An u p c o m i n g film a b o u t the Mississippi River and its environs, heralded by the arrival of Jacques Cousteau's ship at Greenville, c o u l d cause a r e n e w e d interest in the river, possibly increasing tourism. Southwest Mississippi Southwestern Mississippi p r o b a b l y had more reason for cheer in 1983 t h a n any o t h e r section of the state. A l t h o u g h f l o o d damage in the millions of dollars o c c u r r e d last spring, the area's e c o n o m y was bolstered by considerable business activity. M a d i s o n C o u n t y , north of the state's capital city of Jackson, was the center of much economic 74 76 78 80 Source: Federal Reserve Bank of Atlanta a c t i o n in e x c e s s o f $ 7 5 m i l l i o n in b u s i n e s s d e v e l o p m e n t occurred last year, creating n e w jobs rapidly. The Ridgeland area in t h e southern part of t h e c o u n t y appears t o have b e n e f i t e d the most, gaining a n u m b e r of n e w businesses. As a result, residential construction in the c o u n t y is p r o c e e d i n g at a vigorous pace. The county, lying north of Hinds a n d Rankin counties, also b e c a m e part of the Jackson SMSA. The Jackson area increasingly is b e n e f i t i n g f r o m its location, w h i c h allows it t o serve as a crossroads for m u c h of t h e f l o w of goods in the Scuth. An e x a m p l e is t h e o p e n i n g in early 1983 of a freight distribution center in Madison C o u n t y w h i c h will handle a p p r o x i m a t e l y 1.5 million p o u n d s of freight each day. The center, o p e r a t e d by C o n s o l i d a t e d Freightways Inc., e m p l o y s over 100 p e o p l e and may help attract o t h e r industries to the area C o n t i n e n t a l W o o d s Products plans t o o p e n a n e w facility in Jackson in 1984. The plant will make d o o r a n d w i n d o w fittings. Southwestern Mississippi received additional good news in 1983 w i t h the a n n o u n c e m e n t by Crown Zellerbach of a new solid w o o d conversion plant near M c C o m b . The plant, e x p e c t e d t o e m p l o y 165 p e o p l e w i t h an annual payroll of nearly $3 million, should be a positive force in the area's e c o n o m y in the years t o come. N o t only will its e m p l o y m e n t boost retail sales, b u t a host of o t h e r jobs will be created t o provide the FEBRUARY 1984, E C O N O M I C REVIEW resources a n d t r a n s p o r t t h e f i n i s h e d p r o d u c t s . In addition, the plant's principal sources of timber will be privately o w n e d forest land in the area. Extensive f l o o d i n g was a major p r o b l e m for the region in 1983. A p p r o x i m a t e l y 5,000 p e o p l e were forced to flee their h o m e s in the face of floodwaters last spring. Damage was estimated in excess of $20 m i l l i o n for Hinds C o u n t y alone. N e i g h b o r i n g M a d i s o n a n d Warren counties saw p r o p e r t y damage m o u n t t o over SI 3 million. A n u m b e r o f o t h e r c o u n t i e s also e x p e r i e n c e d flooding. Northeast Mississippi While the northeastern section of the state is perhaps m o r e diversified than any other, it does possess a concentration of light industry. M u c h of the state's apparel industry, for example, is located in this area. This industry remained in the d o l d r u m s t h r o u g h o u t m u c h of 1983 but by year's e n d was showing considerable activity. E m p l o y m e n t rose sharply in the last quarter of 1983. W i t h strong consumer spending underway, the apparel industry should prosper in 1984. As is typical, its g r o w t h lagged an u p t u r n in residential construction. Yet i m p r o v e m e n t in the industry was clearly occurring by m i d - 1 9 8 3 and should c o n t i n u e t h r o u g h 1984. In the C o l u m b u s area the p u b l i c sector plays a large role in the area e c o n o m y . The C o l u m b u s Air Force Base and t w o educational institutions p u m p millions of dollars i n t o the area, p r o v i d i n g some security against e c o n o m i c recession. This section of the state has e x p e r i e n c e d considerable g r o w t h since 1 9 7 0 w i t h at least three counties increasing p o p u l a t i o n m o r e than 22 percent. A l m o s t every c o u n t y in the region gained at least 10 percent in residents. W i t h the Tenn-Tom w a t e r w a y d u e t o o p e n in 1985, a t t e n t i o n will be d e v o t e d this year t o the d e v e l o p m e n t possibilities it creates. The waterw a y may prove a b o o n t o farmers in the area, giving their products less expensive access t o Gulf ports and thus t o major markets. It may also serve t o encourage industry t o consider the export market m o r e seriously. The furniture industry, also i m p o r t a n t in this area, experienced a moderate comeback in 1983. Now Available Growth Industries in the 1980s Note Some of the information on specific businesses in this article comes Irom Clarion Ledger-|ackson Daily News. Also Available Supply-Side Economics in the 1980s C O N F E R E N C E PROCEEDINGS C O N F E R E N C E PROCEEDINGS Sponsored by the Federal Reserve Bank of Atlanta Sponsored by the Federal Reserve Bank of Atlanta and the Emory University Law and Economics Center This conference, held in March 1983, explored why some companies thrive even during recessions. Chief executives from some of these companies were joined by experts such as Arthur Levitt, Jr., chairman of the American Stock Exchange, and authors Alvin Toffler and Robert Waterman, Jr. Topics included 'Industries to Accommodate an Expanding Population," "Growth Prospects for Traditional Industries," and "What the Investor Looks For." This c o n f e r e n c e , h e l d in M a r c h 1 9 8 2 , p r o v i d e d a rare forum for the proponents and opponents of supply-side economic theory. The two day meeting brought together speakers such as Nobel laureates Milton Friedman and Lawrence Klein, leading administration policy-shapers, including Beryl Sprinkel, Norman Ture, and Murray Weidenbaum, academicians such as Harvard's Martin Feldstein (now chairman of the Presidents Council of Economic Advisers), and congressional advocates, including Rep. Jack Kemp. G r o w t h I n d u s t r i e s in t h e 1 9 8 0 s $ 3 5 . 0 0 each. S u p p l y - S i d e E c o n o m i c s i n t h e 1 9 8 0 s $ 3 5 . 0 0 each. Send order to: GREENWOOD PRESS • 88 Post Road West • P.O. Box 5 0 0 7 • Westport, Conn. 0 6 8 8 1 the North Carolina: Impressive Growth, Long-Term Questions D u r i n g 1983, t h e N o r t h Carolina e c o n o m y r e b o u n d e d vigorously f r o m o n e of t h e most protracted recessions in recent years. The recession's trough for the state— t h e f o u r t h q u a r t e r of 1 9 8 2 — roughly coincided with the trough of the recession at t h e national level. D u r i n g that quarter, b o t h manufacturing e m p l o y m e n t and real personal i n c o m e in the state reached their cyclical l o w points and the state's seasonally adjusted u n e m p l o y m e n t rate peaked. For the first three quarters of 1983, virtually all of t h e state's e c o n o m i c indicators posted healthy increases over 1982. Consumer confidence, b o o s t e d by increased real personal income and rising e m p l o y m e n t has been demonstrated by an u n p r e c e d e n t e d b u y i n g spree. O n e sector t h a t s h o w e d weakness was agriculture, w h i c h suffered from late spring freezes and the severe drought and high temperatures of the s u m m e r months. Yields of all major field crops w e r e d o w n . Tobacco, t h e state's most i m p o r t a n t cash crop, also suffered a year of decline. Yields of f l u e c u r e d t o b a c c o s l u m p e d nearly 22 percent t o t h e lowest level in over 30 years and burley t o b a c c o p r o d u c t i o n was d o w n 29 p e r c e n t Also, t o b a c c o prices w e r e generally weak, w h i c h industry analysts a t t r i b u t e d t o the freeze in g o v e r n m e n t price supports at t h e 1982 level of $169.90, lower leaf quality because of adverse w e a t h e r conditions, a n d r e d u c e d d e m a n d resulting f r o m the d o u b l i n g of the federal excise tax on cigarettes. The o u t l o o k for t h e state's e c o n o m y in 1 9 8 4 is good. While the impressive g r o w t h rates c o m p i l e d last year in almost every sector of t h e e c o n o m y will be difficult t o sustain, t h e state's e c o n o m y should c o n t i n u e its expansion. . . The longer-term o u t l o o k for t h e state's e c o n o m y is mixed, e s p e c i a l l y in t w o d o m i n a n t i n d u s t r i e s , t o b a c c o a n d t e x t i l e s . In the t o b a c c o industry, the major uncertainties have resulted f r o m federal policies. In N o v e m b e r , President Reagan signed into law major changes in t h e t o b a c c o a l l o t m e n t program and a continuation of the freeze in price supports. Then, in D e c e m b e r , the D e p a r t m e n t of Agriculture a n n o u n c e d an 11.5 percent cut in t h e Off-years for tobacco and textiles failed to prevent North Carolina's e c o n o m y f r o m r e b o u n d i n g s o l i d l y in 1983. T h e new year also looks g o o d as t h e state c o n t i n u e s efforts t o r e d u c e its d e p e n d e n c e o n t h e s e t w o major products. T a b l e 1. Historical Perspective on Growth in the North Carolina Population and Civilian Labor Force, 1967-1983 Average Annual Growth Rate Population Civilian Labor Force Total Employment J 967-72 1972-77 1977-82 1.4 2.3 2.2 1.4 2.9 2.5 1.2 1.9 1.1 1981-82 1.1 1.1 -1.8 1982-83p 0.9 -0.0 0.2 Source: Bureau of Economic Analysis, U.S. Department of C o m m e r c e and Employment Security Commission of North Carolina Preliminary flue-cured t o b a c c o quota. This reduction was nearly twice what many in the industry expected. Similarly, in t h e textile industry, the major uncertainties have resulted from a trade policy in flux. After m o n t h s of negotiation, the U n i t e d States and C h i n a reached a trade agreement in July which, in general, raised quotas in both textiles and apparel. Then, in D e c e m b e r , t h e Reagan administration set n e w t e x t i l e i m p o r t rules w h i c h w o u l d be activated if the g r o w t h in imports creates market disruptions, or the threat of market disruptions. Nevertheless, efforts c o n t i n u e to reduce the vulnerability of the state's e c o n o m y resulting from a high concentration of these t w o traditional industries. The c o m p o s i t i o n of industrial investm e n t in 1983 furthered the diversification of t h e state's industrial base. Based upon data compiled by the North Carolina Department of Commerce, nearly 4 0 percent of total investment in the state during the first nine m o n t h s of 1983 was in " h i g h tech" industries. Labor Force Developments From 1 9 6 7 through 1982, N o r t h Carolina's p o p u l a t i o n grew at an average annual rate of 1.3 percent. O v e r the same period, the civilian labor force and total e m p l o y m e n t increased more rapidly at average annual g r o w t h rates of 2.4 and 1.9 percent, respectively. However, even in light of the fact that 1982 was a year of recession, growth rates in the latter half of this period w e r e well b e l o w those e x p e r i e n c e d earlier in the period (see Table 1). Preliminary estimates for population, civilian labor force a n d total employm e n t in 1983 indicated that growth c o n t i n u e d to lag b e h i n d the 10 y e a r — a n d even t h e most ! FEDERAL RESERVE B A N K O F A T L A N T A recent year's—historical averages. Cyclical factors as well as structural changes in the North Carolina e c o n o m y should influence this progression into 1984. T w o important trends emerge from these growth patterns. First, the labor force participation rate, as measured by the ratio of the civilian labor force to t h e total p o p u l a t i o n , has maintained a long-run u p w a r d trend, increasing from 44 percent in 1972 t o 49 percent in 1982. Second, t h e differential between the growth rate in the civilian labor force and the growth rate in total employm e n t has increased w h a t might be considered t h e structurally u n e m p l o y e d . M o r e recently, however, these long-run structural trends have been o v e r s h a d o w e d by the shorter-run cyclical patterns resulting f r o m the recession in t h e state. During 1982, the civilian labor force increased by only 1.1 percent, w h i l e total e m p l o y m e n t decreased by 1.7 percent. As a result, the state's seasonally adjusted u n e m p l o y m e n t rate rose t h r o u g h o u t the year, reaching a peak of 10.2 percent in N o v e m b e r 1982. H o w ever, by this past N o v e m b e r , the u n e m p l o y m e n t rate had fallen to 8.2 percent (see Chart 1). The decline in the state's u n e m p l o y m e n t during the initial m o n t h s of recovery represented real gains in e m p l o y m e n t ; that is, the increase in the n u m b e r of e m p l o y e d was at least m a t c h e d by a decrease in the u n e m p l o y e d . However, as the recovery c o n t i n u e d , further reductions in the u n e m p l o y m e n t rate may have somewhat exaggerated the improvement in the state's labor market The decline in the state's civilian labor f o r c e — a result of a significant reduction in the n u m b e r of u n e m p l o y e d w i t h o u t the c o n c o m i t a n t increase in total e m p l o y m e n t — s i g n a l e d an increase in the n u m b e r of " d i s c o u r a g e d " workers w h o simply d r o p p e d o u t of t h e labor market. 77 Chart 1 . Seasonally Adjusted Employment Rate 1983 12 Percent Table 2. The North Carolina Labor Force 1 1983.111 1982.111 Absolute Change Percent Change North Carolina Civilian Labor Force Total Employment Total Unemployed Unemployment Rate (%) 2,958.3 2,722.2 236.1 8.0 2,975.2 2,698.0 277.2 9.3 -16.9 24.2 -41.1 -1.3 -0.0 0.9 -14.8 Asheville S M S A Civilian Labor Force Total Employment Total Unemployed Unemployment Rate (%) 94.4 88.2 6.2 6.6 93.5 86.1 7.4 7.9 0.9 2.1 -1.2 -1.3 1.0 2.4 -16.2 388.3 363.0 25.3 6.5 384.8 355.8 29.0 7.5 3.5 7.2 -3.7 -1.0 0.9 2.0 -12.8 460.8 428.7 32.0 6.9 453.5 416.0 37.5 8.3 7.3 12.7 -5.5 -1.4 1.6 3.1 -14.7 329.6 315.3 14.3 4.3 317.5 302.8 14.7 4.6 12.1 12.5 -0.4 -0.3 3.8 4.1 -2.7 Charlotte/Gastonia S M S A Civilian Labor Force Total Employment Total Unemployment Unemployment Rate (%) Greensboro/Winston-Salem/ High Point S M S A Civilian Labor Force Total Employment Total Unemployment Unemployment Rate (%) R a l e i g h / D u r h a m SMSA Civilian Labor Force Total Employment Total Unemployment Unemployment Rate (%) In c o n t r a s t , A s h e v i l l e , C h a r l o t t e / C a s t o n i a , Raleigh/Durham, and Winston-Salem/Creensb o r o / H i g h Point, the state's largest four SMSAs, e x p e r i e n c e d d i s p r o p o r t i o n a t e i m p r o v e m e n t s in the recovery relative t o the non-SMSAs. W h i l e nearly 75 percent of the r e d u c t i o n i n t h e n u m b e r of u n e m p l o y e d was a c c o u n t e d for in t h e nonSMSAs, t h e r e was an actual e m p l o y m e n t loss of 10,300 jobs outside of these four major SMSAs. This indicates that the "discouraged worker effect" has been felt more acutely in the areas outside these SMSAs (see Table 2). M o r e o v e r , after nearly nine m o n t h s into the recovery, t h e unemp l o y m e n t rate in the state's least p o p u l a t e d counties remained significantly above t h e une m p l o y m e n t rate in t h e state's most p o p u l a t e d counties. This suggests that t h e pattern of geographic imbalance in e m p l o y m e n t g r o w t h b e t w e e n metropolitan and non-metropolitan areas, w h i c h apparently began at t h e onset of t h e most recent recession, has c o n t i n u e d t h r o u g h this recovery. 1 Employment Trends Total nonagricultural e m p l o y m e n t increased, o n a seasonally adjusted basis, by 62,500 jobs, or ' S e e Edgar Bergman and Harvey Goldstein, " N o r t h C a r o l i n a : Diversification Slowed by Recession, E c o n o m i c Review, Federal Reserve Bank of Atlanta, February 1983, Volume LXVIII, Number 2 78 Source: Employment Security Commission of North Carolina 'Seasonally unadjusted data for the civilian labor force, e m p l o y m e n t and u n e m p l o y m e n t expressed in thousands. 2.7 p e r c e n t , b e t w e e n N o v e m b e r 1 9 8 2 a n d N o v e m b e r 1983 (see Table 3). Fifty-two percent of this increase occurred in the nonmanufacturing sector, w i t h the largest absolute gains in services, trade a n d government. In terms of absolute e m p l o y m e n t gains, almost all of t h e increase in the manufacturing sector was in t h e textile and apparel industries ( u p 13,700), and in t h e furniture industry ( u p 4,200). The i m p r o v e m e n t in these industries was largely a result of t h e rapid g r o w t h in t h e national e c o n o m y , especially in interest-sensitive industries like autos and housing. The strong r e b o u n d in U.S. retail sales also b e n e f i t e d these traditional c o n s u m e r goods industries. Losses a m o n g n o n d u r a b l e goods were in t o b a c c o and miscellaneous n o n d u r a b l e goods ( p e t r o l e u m and coal products and leather and leather products), w h i l e a m o n g durable goods manufacturing losses were confined to fabricated metal products. Despite the yearly decline in e m p l o y m e n t for several industries in the statistics for last November, all industries, b o t h in manufacturing and nonmanufacturing, gained d u r i n g t h e third quarter compared to their low points in the recent recession. FEBRUARY 1984, E C O N O M I C REVIEW T a b l e 3. Employment Change by Industry in North Carolina 1 Manufacturing Durable Goods Lumber and Wood Products Furniture and Fixtures Stone, Clay and Glass Products Primary Metals Fabricated Metal Products Machinery, Except Electrical Electrical and Electronic Equipment Transportation Equipment Other Durable Goods Nondurable Goods Food and Kindred Products Tobacco Manufacturers Textile Mill Products Apparel and Other Textile Products Paper and Allied Products Printing and Publishing Chemicals and Allied Products Rubber and Miscellaneous Plastic Products Other Nondurable Goods Nonmanufacturing Mining Construction Transportation and Public Utilities Wholesale and Retail Trade Finance, Insurance and Real Estate Services and Miscellaneous Government November, 1983 (000s) November, 1982 (000s) Percent Change 795.7 302.4 33.6 82.8 17.5 8.9 23.1 51.4 53.9 16.6 14.6 765.4 286.1 31.0 78.6 15.5 8.1 23.6 49.6 51.1 14.7 13.9 4.0 5.7 8.4 5.3 12.9 9.9 -2.1 3.6 5.5 12.9 5.0 493.3 42.9 21.4 227.9 89.5 21.6 21.7 36.4 26.4 5.5 479.3 42.6 22.7 218.1 85.6 21.6 21.2 35.8 25.4 6.3 2.9 0.7 -5.7 4.5 4.6 0.0 2.4 1.7 3.9 -12.7 1594.3 4.9 105.7 115.5 487.6 100.7 372.6 407.3 1562.1 4.6 102.1 115.0 476.1 98.4 364.8 401.1 2.1 6.5 3.5 0.4 2.4 2.3 2.1 1.5 Source: Employment Security Commission ot North Carolina 'Seasonally Adjusted W h i l e 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 grew less than 1 percent f r o m its cyclical trough through N o v e m b e r 1983, manufacturing e m p l o y m e n t grew nearly 5 percent. Five manufacturing industries (lumber, furniture, nonelectrical machinery, r u b b e r and electrical machinery) had e m p l o y m e n t gains in excess of 5 percent of their troughs. Based u p o n preliminary estimates, employm e n t in the manufacturing sector d u r i n g t h e fourth quarter of 1983 reached the average level of e m p l o y m e n t attained during the four years following the 1974-75 recession. Some impressive gains w e r e made in printing and publishing ! FEDERAL RESERVE B A N K O F A T L A N T A ( u p 16 percent), electrical machinery ( u p 15 percent) and non-electrical machinery (up 3 0 percent). Nevertheless, this essentially no-growth situation in t h e manufacturing sector was a result in part of significant e m p l o y m e n t losses in t w o traditional North Carolina industries, textiles (down 11 percent) and t o b a c c o ( d o w n 16 percent). In contrast, e m p l o y m e n t in the n o n - m a n u f a c t u r i n g sector rose 10 percent above the post 1974-75 recession average. O n l y o n e m a n u f a c t u r i n g industry, construction, failed t o achieve its previous average ( d o w n 7 percent). A l t h o u g h the manufacturing sector staged a strong comeback, as might be e x p e c t e d in a 79 and permanent layoffs. During the first 10 months of 1983, some 104 firms announced plant closings or p e r m a n e n t layoffs involving a loss of over 10,500 jobs. This compares t o a loss of m o r e than 21,100 jobs in 21 7 plants d u r i n g the same period in 1982. Losses continue in textiles and fabricated metals. In particular, the W i l m i n g t o n SMSA was hard hit by the announced closing of the Babcock and W i l c o x plant, a p r o d u c e r of heavy fabricated metals. Investment activity in the state was up significantly in 1983. For the first nine m o n t h s of the year, industrial investment t o t a l e d SI.3 billion, rising 45 percent over the same period in 1982. The n e w s p e n d i n g generated a b o u t 20,700 n e w jobs. Personal Income cyclical upturn, manufacturing's share of total nonagricultural e m p l o y m e n t continues t o decline (see Chart 2). A p p r o x i m a t e l y 64,000 jobs lost in textiles since t h e peak level achieved in 1973 have not b e e n r e c o u p e d by gains in o t h e r manufacturing industries. In the nonmanufacturing sectors, construction was t h e only industry w i t h a steadily d e c l i n i n g share. Sectors s h o w i n g steady increases in e m p l o y m e n t shares include trade a n d services. W h i l e government's share of emp l o y m e n t is beginning to level off, the finance, insurance and real estate sector is slowly beginning t o increase. Signs of recovery w e r e also reflected in the r e d u c e d n u m b e r of a n n o u n c e d plant closings 80 By m i d - 1 9 8 3 , N o r t h Carolinians w e r e e n j o y i n g an increase in personal i n c o m e of $4.5 billion, or 8 percent, c o m p a r e d w i t h the second quarter of 1982. O v e r the same period, total personal i n c o m e in the U n i t e d States grew by 6 percent. Even m o r e impressive for the N o r t h Carolina e c o n o m y w e r e t h e d o u b l e - d i g i t g r o w t h rates during t h e second quarter of 1983 in b o t h durable and n o n d u r a b l e goods manufacturing relative t o the modest single-digit gains for the nation. Real personal income, w h i c h reversed its downward t r e n d late in 1982, has posted gains in three successive quarters (see Chart 3). In fact, these gains were sufficient t o raise real personal income t o its highest level since the third quarter of 1981. G r o w t h in real personal i n c o m e in N o r t h Carolina d u r i n g 1984 should be healthy. M o r e over, there are several reasons w h y it should exceed the g r o w t h in the nation's real personal income. First, steady g r o w t h in e m p l o y m e n t t h r o u g h o u t 1984 will enhance wages, salaries and other labor income. Second, the diversification of nonagricultural e m p l o y m e n t from lowwage to higher-wage industries will be of particular importance. A n d third, efforts t o m o d e r n i z e plants in the manufacturing sector, especially in textiles, will increase productivity, generatingthe potential for relative wage increases. These e c o n o m i c factors, together w i t h the realization of some anticipated changes in the occupational mix of the state's population, should reflect favorable g r o w t h in per capita income relative t o the rest of the country. Since 1978, FEBRUARY 1984, E C O N O M I C REVIEW Chart 3. Real Personal Income* in North Carolina (in 1972 dollars) 28 (000s) 27 26 25 n80 a n 81 82 83 • A d j u s t e d by Implicit Personal Consumption Expenditures Deflator N o r t h Carolina's per capita i n c o m e relative t o the nation and t o t h e Southeast has steadily declined. By 1982, it had reached its lowest level, 81 percent of the U.S. and 94 percent of the Southeast, in over a decade. The n e w e c o n o m i c factors currently at w o r k in the state's e c o n o m y should have arrested that d o w n w a r d t r e n d in 1983 and should provide for a m o d e s t increase in 1984. Retail Trade Buoyed by increased real personal income, lower interest rates and heightened c o n s u m e r confidence, retail sales in the first nine m o n t h s of 1983 posted their strongest real gains since 1976, advancing 10.8 percent over the same period in 1982. In S e p t e m b e r 1983, for example, constant dollar retail sales in N o r t h Carolina increased 17.5 percent f r o m a year earlier w h i l e national retail sales posted a 7.3 percent gain. In addition, t h e r e b o u n d in the state's retail sales far o u t p a c e d t h e nation's in each m o n t h of 1983 w h e n c o m p a r e d w i t h the same m o n t h in 1982. Auto sales, as reflected in a 34 percent increase in n e w car registrations through September, represented a major c o m p o n e n t of these gains. Moreover, weather conditions remained favorable in the state d u r i n g the Christmas season and Tar Heel merchants indicated no interruptions in this growth pattern in year-end sales. In general, they w e r e d e l i g h t e d w i t h the results, a n d w e r e ! FEDERAL RESERVE B A N K O F A T L A N T A looking f o r w a r d t o a c o n t i n u a t i o n of strong retail sales in t h e beginning m o n t h s of 1984. It n o w appears that t h e increased real disposable personal income, resulting f r o m b o t h t h e i m p r o v i n g state e c o n o m y a n d the last installm e n t of the Reagan tax cuts, p r o m p t e d a consumer s p e n d i n g spree d u r i n g the second half of 1983. Increases in unit v o l u m e associated w i t h the improvement in real retail sales have bolstered e m p l o y m e n t in the retail trade sector. Retail sales should c o n t i n u e t o enjoy strong g r o w t h in 1984, b u t at rates b e l o w last year. W i t h scheduled tax cuts n o w history a n d w i t h t h e i m p l e m e n t a t i o n of tax increases at the state level, sustained g r o w t h in retail sales d u r i n g 1984 will have t o d e p e n d entirely u p o n g r o w t h in e m p l o y m e n t and real income. Housing Activity and the Savings and Loan Industry The steady decline in effective mortgage rates in North Carolina from an average of 15.5 percent in 1982 t o an average of 13.1 percent through this past September sparked a recovery in housing. For t h e first nine m o n t h s of 1983, single family construction authorizations t o t a l e d 30,381 units w i t h a value of SI .1 3 billion. C o m p a r e d w i t h the first nine m o n t h s of 1982, this represents an increase of 56 percent in the n u m b e r of units authorized, a n d an 86 percent increase in t h e c o n t r a c t e d value. In addition, m u l t i f a m i l y authorizations totaled 11,000 units, u p 60 percent, for a value of $234.4 million, up 51 percent. The d e c l i n e in mortgage interest rates c o u p l e d w i t h increased e c o n o m i c activity in t h e state during 1983 stimulated mortgage lending activity at t h e state's savings and loan associations. For t h e first nine m o n t h s of 1983, o u t s t a n d i n g a n d n e w loan c o m m i t m e n t s increased 209 percent and 195 percent, respectively, over the same period of 1982. By comparison, o u t s t a n d i n g and n e w loan c o m m i t m e n t s in the Fifth Federal Reserve District increased by 73 a n d 1 2 0 percent respectively. The beginning of the 1980s, w i t h interest rates at record level highs, has been a difficult t i m e for S&Ls. W h i l e t h e y w e r e l o c k e d in o n t h e asset side of the balance sheet, their liability side was plagued w i t h increasing costs of funds a n d regulations that p r o h i b i t e d t h e m f r o m c o m p e t i n g for savings. Profitability at t h e state's S&Ls was red u c e d sharply. Mergers b e c a m e c o m m o n p l a c e and, in N o r t h Carolina, the n u m b e r of S&Ls 81 d e c l i n e d f r o m 176 in 1981 t o 160 in 1982. By N o v e m b e r 1983, this n u m b e r had decreased further to 151 institutions. However, these mergers should be v i e w e d positively as a conscious effort by the S&Ls t o strengthen their financial position as well as to expand their market services statewide. In a d d i t i o n t o the merger activity a m o n g S&Ls, the industry has b e n e f i t e d f r o m financial deregulation, increased savings incentives a n d lower market interest rates. Through September, net savings flows i n t o N o r t h Carolina S&Ls totaled S813.7 million c o m p a r e d w i t h $263 million for the same period in 1982, up 209 percent. Another positive factor for S&Ls in N o r t h Carolina is that the spread b e t w e e n t h e mortgage yield and savings costs d u r i n g t h e first half of 1983 was an annualized 0.47 percent, c o m p a r e d w i t h -0.89 percent for the same p e r i o d a year earlier. Nevertheless, net i n c o m e before taxes d u r i n g t h e first half of 1983 was -$1.76 million for m e m b e r savings institutions in t h e state. This represented a marked i m p r o v e m e n t over the net i n c o m e of -$11.45 million r e c o r d e d for t h e first half of 1982. W h i l e the possibility of higher interest rates creates uncertainties for the S&L industry, industry analysts believe that thrift institutions will c o n t i n u e t o strengthen as long as Treasury bill rates remain b e l o w 10 percent. Tourism Ranking third b e h i n d the textile and t o b a c c o industries, tourism c o n s t i t u t e d a $3.5 billion industry in 1983 and should c o n t r i b u t e $ 2 0 0 million in tax revenues. E m p l o y m e n t directly related t o travel a n d t o u r i s m totaled 154,000 jobs, or a p p r o x i m a t e l y 6 percent of t h e state's nonagricultural e m p l o y m e n t In addition, each dollar in tourist expenditures turns over in the local e c o n o m y an estimated 3.5 times. . North Carolina's tourist industry in 1983 showed strong gains over 1982. Visitors t o t h e state's seven w e l c o m e centers totaled nearly 4.8 million, up 8 percent over 1982. Hotel and motel receipts for the first eight m o n t h s of 1983 w e r e up almost 12 percent t o $378 million over the 1982 level. Even m o r e significant was the fact that receipts for June, July a n d August, representing nearly one-half of t h e e i g h t - m o n t h total, w e r e up over 17 percent w h e n c o m p a r e d t o the s u m m e r m o n t h s of 1982. This g r o w t h is particularly impressive following a year of double-digit increases in w h i c h m a n y visitors traveled t h r o u g h the Tar Heel state en route to the World's Fair at Knoxville. 82 A c c o r d i n g t o Blue Ridge Parkway officials, 10.5 million visitors traveled o n t h e N o r t h Carolina p o r t i o n of the parkway t h r o u g h O c t o b e r , up 3.6 percent over t h e previous year. However, this g r o w t h masked a healthier 12 percent gain during the summer months because poor weather d u r i n g the popular leaf change w e e k e n d s in O c t o b e r actually r e d u c e d visitors for that m o n t h . From t h e Atlantic Coast to t h e Blue Ridge Mountains, North Carolina is gaining the reputation as a four-season vacationland. Moreover, w i n t e r sports, usually associated w i t h Colorado and N e w England, are increasing their popularity in N o r t h C a r o l i n a . W i t h r e s o r t areas w i t h i n a day's drive from many of the Southeast's metropolitan areas, skiing has b e c o m e a major industry in the n o r t h w e s t mountains of the state. W i t h rising e m p l o y m e n t and increased disposable income at both the state and national level, tourism should c o n t i n u e its strong g r o w t h in 1984. State Revenues and the Public Sector Perhaps the most dramatic e v i d e n c e of the vigorous u p t u r n in N o r t h Carolina's e c o n o m y is in the g r o w t h in state general f u n d revenues. For t h e first quarter of the fiscal year, collections w e r e 10.7 percent ahead of the same period in 1982. These increased tax collections w e r e led by advances in i n c o m e and sales tax revenues of 9.4 percent and 15.9 percent, respectively. Emp l o y m e n t in t h e state g o v e r n m e n t has increased since the beginning of the 1 9 8 3 - 1 9 8 4 fiscal year, and is up 2 percent in t h e third quarter of 1983 over the c o m p a r a b l e p e r i o d in 1982. However, this g r o w t h in state revenues cannot be attributed solely to the improving state economy. It also reflects several major tax increases enacted by t h e 1983 General Assembly. The largest increases came f r o m changes in the sales tax laws. The major elements i n c l u d e d an increase in the tax rate on the sale of m o t o r vehicles to 2 percent, up to a m a x i m u m of $300, and expansion of state sales tax coverage t o i n c l u d e the rental of condominiums, cottages, and houses. Additionally, the state legislature gave c o u n t y governments the o p t i o n of enacting a o n e h a l f cent increase in the local sales tax, with a portion of the collections being used for capital needs of the public schools. By N o v e m b e r , 85 of the state's 100 counties had enacted the increase. Other tax increases included the repeal of the $ 2 0 0 interest (paid by North Carolina financial institutions) exclusion, and the phase-in of quarterly i n c o m e tax payments for F E B R U A R Y 1 9 8 4 , E C O N O M I C REVIEW Chart 4. Export-Related Employment as a Percent of Total E m p l o y m e n t by Industry B Kindred 1976 1981 Food and Products Tobacco Textiles Apparel Lumber and Wood Products Furniture and Fixtures Paper and Allied P r o d u c t s Printing a n d Publishing ^J Chemicals Rubber Stone, Clay a n d Glass Primary Metals Fabricated Metals Machinery, except Electrical Electric and Electronic Equipment Transportation Instruments Miscellaneous 10 15 20 Source: U. S. Bureau of the Census, Annual Survey of Manufactures: Origin of Exports of Manufactured Products, (various issues). corporations w i t h estimated tax liabilities of $5,000 or more. This action by the General Assembly is estimated t o generate $242 million in additional state revenues. From 1976 t o 1981, the e x p o r t share of t h e state's manufacturing value of shipments rose from 10.3 percent t o 12.5 percent. O v e r the same period, export-related e m p l o y m e n t in the state's manufacturing sector rose from 8.4 percent t o 9.8 percent. O f particular significance is the fact that, in nearly half of the state's manufacturing industries, over 10 percent of the emp l o y m e n t is related to exports. M o r e o v e r , the i m p o r t a n c e of exports is increasing as e v i d e n c e d by the fact that, in all but six industries, this share has increased (see Chart 4). The value of m a n u f a c t u r e d exports in 1981 rose nearly 6 percent from the 1 9 8 0 level. However, total e m p l o y m e n t involved in exportrelated activity fell nearly 9 percent, a d e c l i n e of 7,600 jobs. W h i l e decreasing e m p l o y m e n t was recorded in most industries, nearly three quarters of this d e c l i n e was in the t o b a c c o industry alone. Interestingly, the high-tech industries n e t t e d an increase of 1,000 n e w export-related jobs in 1981. This s l o w d o w n in e x p o r t activity was a result of b o t h w e a k e n i n g foreign e c o n o m i e s a n d the sharp appreciation of the U.S. dollar from early 1 9 8 0 to early 1981. The c o n t i n u e d high value of the dollar as w e l l as the depressed e c o n o m i c conditions abroad suggest little i m p r o v e m e n t in t h e trade statistics for 1982. However, w i t h the upswing in economic activity in foreign economies w h i c h began in 1983 and is forecasted t o continue through 1984, exports from North Carolina began t o show increases in some sectors of the state's e c o n o m y during the second half of 1983 a n d should continue to strengthen in 1984. However, in addition to the concerns over the trade policies, the high value of the U.S. dollar relative t o major foreign currencies continues t o be of concern for all exporters. A n y depreciation in the value of the dollar w o u l d be a positive factor a n d w o u l d t e n d to have a favorable i m p a c t on the state's exports. International trade has b e c o m e increasingly i m p o r t a n t t o the e c o n o m y of N o r t h Carolina. 2 T h e t i m i n g o f t h e s e gains is i m p o r t a n t in sustaining the strength of the e c o n o m i c recovery in the state. As the initial m o m e n t u m of t h e recovery slows, t h e n the c o n t i n u e d expansion of trade will p r o v i d e the state's e c o n o m y w i t h the added boost t o sustain economic growth througho u t 1984. 'See William J Kahley and Gary W. Tapp. Structural Changes in Southeastern States The Road Ahead, E c o n o m i c Review Federal Reserve Bank of Atlanta, September 1983, Volume LXVIII, Number 10. "Appalachian State University. The author wishes to acknowledge the helpful comments of C harles Spouill, associate professor of economics, Appalachian State University, and William J. Kahley. International Trade — Rickey C Kirkpatrick* ! FEDERAL RESERVE B A N K O F A T L A N T A 83 South Carolina: A Strong Recovery, But Problems Remain The extent of South Carolina's recovery f r o m the recent recession has surprised many. H o w ever structural problems remain, and the state is seeking new sources of long-term e c o n o m i c expansion. O n e year ago, the South Carolina e c o n o m y was beset w i t h significant structural as w e l l as cyclical problems. The mainstay of the e c o n o m y , textiles and related products, was in trouble, w i t h m o r e than 4 0 p r o d u c t i o n facilities closed d o w n in 1982 alone. G r o w t h in personal i n c o m e and retail sales was sluggish at best State revenues had fallen substantially b e l o w expectations, requiring the state t o cut s p e n d i n g across the board. The u n e m p l o y m e n t rate stood w e l l above t h e national average and, perhaps most important, the anticipated recovery was e x p e c t e d t o be m o d e s t in comparison w i t h prior upswings. F o r t u n a t e l y , c o n d i t i o n s b r i g h t e n e d c o n s i d e r a b l y in 1 9 8 3 . Whereas in past cycles t h e state has lagged national t u r n i n g points by o n e t o t w o quarters, this t i m e the m o v e m e n t s have been simultaneous. M o r e o v e r , the burst of c o n s u m e r spending in the second quarter of 1983 brought t h e state's c o n s u m e r - o r i e n t e d manufacturing sectors a n e e d e d boost as retailers rushed t o replenish inventories. In general, t h e historical " r u l e " that South Carolina fares worse than the nation during a recession and better in a recovery appears t o be holding. However, structural problems remain that cannot be neglected in the current o p t i m i s m over t h e recovery. The state is m o v i n g aggressively t o stabilize existing industries and attract new sources of e m p l o y m e n t The lessons of 1982 have not been forgotten, and 1984 should be a year of general i m p r o v e m e n t . Despite the recession's severe effects on some c o u n t i e s , S o u t h C a r o l i n a as a whole recovered faster t h a n u s u a l last year. T h e state's e c o n o m y has been s t a g n a t i n g f o r t h r e e years, b u t s i g n s of l o n g - t e r m improvement are on the horizon. The Recession and Recovery in South Carolina The d e p t h a n d duration of t h e 1 9 8 1 - 1 9 8 2 recession caused significant cyclical disturbances in the South Carolina e c o n o m y a n d 84 F E B R U A R Y 1 9 8 4 , E C O N O M I C REVIEW Table 1. South Carolina Recession and Recovery 1 9 8 1 - 1 9 8 3 Peak Recovery 4 1983:4 % Change Value Series Date Trough Value Date Value Composite Index of Coincident Indicators Total'Nonfarm Employment 1 Manufacturing Employment 1 Textile Employment 1 Unemployment Rate Real Per Capita Income Real Retail Sales 2 Housing Starts 3 81:3 168.8 82:4 145.7 -13.7 83:4 158.6 8.9 1,207.4 393.9 134.4 8.2 4,209.0 8,970.0 22,764.0 83:1 83:1 83:2 83:1 83:1 83:1 82:2 1,148.4 349.1 111.0 11.4 4,107.0 7,695.6 16,908.0 -4.9 -11.4 -17.4 3.2 -2.4 -14.2 -25.7 83:4 83:4 83:4 83:4 83:4 83:4 83:4 1,197.3 371.1 114.4 8.3 4,167.0 9,474.4 26,409.0 4.3 6.3 3.1 3.1 1.5 23.1 56.2 81 81 81 81 81 81 81 3 3 1 2 3 2 1 % Change Date 'In thousands of workers ln millions of dollars, annual rate 3 Number, annual rate 4 Forecasted values 2 Source: Division of Research, College of Business Administration, the University of South Carolina Other Sources: S o u t h Carolina Employment Security Commission: B E A U.S. Department of C o m m e r c e exacerbated the structural problems, particularly in the textile and related sectors. The state's e c o n o m y has essentially been stagnating since the e n d of 1979. Before the onset of the "official" recession in the third quarter of 1981, many key e c o n o m i c statistics had been in a period of decline for several quarters or longer (Table 1). The state's c o m p o s i t e index of coincident indicators " p e a k e d " in the t h i r d quarter of 1981 at 168.8 ( 1 9 7 2 = 1 0 0 ) , b e l o w t h e level of 1 74.3 in the same quarter of 1979. The u n e m p l o y m e n t rate had risen f r o m 4.8 percent t o 8.2 percent over the same period. M a n u f a c t u r i n g e m p l o y m e n t had d e c l i n e d f r o m 4 0 1 , 9 0 0 jobs in the fourth quarter of 1979 t o 3 9 3 , 9 0 0 in thirdquarter 1981. Textile e m p l o y m e n t also had declined. Thus South Carolina was particularly vulnerable w h e n the general e c o n o m i c d o w n t u r n began. The recession's costs t o the South Carolina e c o n o m y w e r e high. The c o m p o s i t e index of coincident indicators fell 13.3 percent. Total nonfarm e m p l o y m e n t p l u m m e t e d by 60,000 jobs. The d o m i n a n t manufacturing sector lost 45,000 jobs (75 percent of t h e total), w i t h textile e m p l o y m e n t alone a c c o u n t i n g for a b o u t half of the losses. U n e m p l o y m e n t soared t o a recessionary peak of 11.4 percent, well above the national rate. Real per capita i n c o m e fell 2.4 ! FEDERAL RESERVE B A N K O F A T L A N T A percent, real retail sales w e r e off by 14.2 percent, and housing starts d r o p p e d 25.7 percent. O n a relative basis, the construction industry performed reasonably well. Vigorous activity along the coast for the resort market served to lessen the severity of the recession. Despite their significance, these aggregate econ o m i c losses mask m o r e serious conditions in some substate regions, particularly those that were affected by plant closures. The 1982 une m p l o y m e n t rate averaged over 15 percent in eight South Carolina counties, five of w h i c h are in the textile belt that had suffered m a n y plant closings (Table 2). O n e c o u n t y averaged 21.5 percent u n e m p l o y m e n t for the year. Fifteen additional counties had rates ranging from 12 percent to 14.9 percent. In contrast, only six counties averaged b e l o w 9 percent u n e m p l o y e d for the year. N o t surprisingly, five of the six counties were located in the Columbia or Charleston SMSAs. The e c o n o m i e s in these t w o areas benefit from the relative stability of large governm e n t sectors, trade, a n d services, a n d from reasonably diversified manufacturing. N o t e that the state's planning districts run roughly west to east, or from t h e textile belt to the coast. Table 2 also shows that most counties in the state should have significantly lower u n e m p l o y m e n t rates in 1984. However, the general state pattern remains 85 T a b l e 2 . Unemployment Rates in South Carolina Counties 1982 1984 Projection PLANNING DISTRICT I Anderson Cherokee Greenville Oconee Pickens Spartanburg 11.0 12.0 11.8 8.9 9.7 9-5 10.1 8.1 15.6 10.8 10.7 12.7 8.8 8.7 P L A N N I N G D I S T R I C T II Abbeville Edgefield Greenwood Laurens McCormick Saluda 13.4 13.2 9.7 12.4 14.7 17.0 16.6 10.8 10.6 7.7 9.9 11.9 13.8 13.4 P L A N N I N G D I S T R I C T III Chester Lancaster Union York 14.3 16.9 14.9 21.5 11.2 11.8 14.0 12.3 18.1 9.2 P L A N N I N G D I S T R I C T IV Fairfield Lexington Newberry Richland 7.5 10.0 7.6 10.9 6.8 PLANNING DISTRICT V Aiken Allendale Bamberg Barnwell Calhoun Orangeburg 12.2 10.1 12.4 16.4 11.9 1 2.3 9.3 10.3 13.7 9.8 10.2 "7.6 12.1 10.0 6.2 8.3 6.3 9.0 5.6 unchanged. O n l y t w o counties will exceed 15 percent, and nine will range b e t w e e n 12 percent and 14.9 percent. Furthermore, 12 counties will have an u n e m p l o y m e n t rate b e l o w 9 percent, d o u b l e the n u m b e r in 1982. To c o m p r e h e n d fully the e c o n o m i c p r o b l e m s of the distressed counties, w e need look only at e m p l o y m e n t trends in the textile industry (Table 2). Following a d o w n t u r n in the early 1970s, textile e m p l o y m e n t e x p a n d e d t o a peak of 160,000 jobs by the e n d of 1973. Unfortunately, this level is unlikely to be realized again. Following the recessionary trough of 128,000 jobs early in 1975, textile employment bounced up t o 150,300 in 1976's second quarter. From this point, however, the decline has b e e n nearly continuous, and 86 P L A N N I N G D I S T R I C T VI Clarendon Kershaw Lee Sumter 11.8 11.7 9.8 9.8 12.2 10.2 13.6 11.1 11.4 9.2 P L A N N I N G D I S T R I C T VII Chesterfield Darlington Dillon Florence Marion Marlboro 12.9 12.6 12.0 13.4 11.0 14.9 19.3 10.6 10.4 9.9 11.1 9.1 12.4 16.1 P L A N N I N G D I S T R I C T VIII Georgetown Horry Williamsburg 12.3 16.4 10.6 14.1 10.7 14.3 9.1 12.2 P L A N N I N G D I S T R I C T IX Berkeley Charleston Dorchester 8.1 8.8 7.8 8.4 7.2 7.9 6.9 7.5 PLANNING DISTRICT X Beaufort Colleton Hampton Jasper 9.5 6.7 13.0 12.7 10.8 8.5 6.0 11.7 11.5 9.8 Source: South Carolina Employment Security Commission. Research and Analysis textile e m p l o y m e n t hit a l o w of 111,000 in last year's second quarter, or nearly 50,000 jobs b e l o w the 1973 peak. These losses, w h i c h have had their primary effect in t e x t i l e - d e p e n d e n t counties, result f r o m t w o primary factors: First, textile imports from Latin A m e r i c a and Asia (most recently China) have risen substantially in the past decade. Since the d o m e s t i c market for textiles is characterized by slow growth, domestic producers lost market share: accordingly, t h e least efficient operations w e r e pared. The second factor is that d o m e s t i c producers have invested heavily in n e w e q u i p m e n t t o c o m p e t e w i t h imports. N e w air a n d water jet looms are several times more efficient than the old technology. The long-term result f r o m this trend F E B R U A R Y 1984, E C O N O M I C REVIEW Employment in Apparel (SIC 23, in thousands) T a b l e 3 . Employment in Textile Mill Products (SIC 22, in thousands) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 I II III IV 150.8 146.5 150.7 157.1 158.0 128.0 149.3 147.1 144.5 142.5 142.3 134.4 124.7 11 1.9 148.1 146.9 153.7 158.1 159.1 133.3 150.3 148.0 144.1 143.0 137.0 133.6 117.3 111.0 148.1 146.9 154.5 156.7 156.7 140.8 148.6 144.9 141.6 140.9 133.2 132.6 112.9 147.3 149.9 157.2 160.0 148.2 147.1 149.9 145.2 143.2 142.0 134.9 129.8 113.5 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 I II III IV 43.1 44.4 44.9 46. 46.2 38.6 46.1 44.9 47.4 48.6 46.3 45.9 45.2 44.1 44.7 45. 45.8 47.6 45.1 40.5 47.1 45.8 48.3 48.2 46.8 46.6 45. 44.6 44.7 44.4 45.4 47.2 43.5 42.9 45.8 45.6 48.2 47.3 46.1 47.5 44.8 44.5 44.4 45.8 47.1 42.4 45.3 45.8 46.6 49.3 46.9 46.3 47.8 44.5 Source: South Carolina Employment Security Commission promises t o be a c o m p e t i t i v e , efficient, and profitable d o m e s t i c industry, b u t o n e that req u i r e s f e w e r w o r k e r s — a classic e x a m p l e of capital-labor substitution. The apparel industry, also vulnerable t o imports, has remained relatively stable over t h e past decade. Excluding cyclical variations, the employm e n t level in this industry is a b o u t w h e r e it was in the early 1970s. Since apparel p r o d u c t i o n is highly labor intensive, this might appear surprising. The primary reason for this relative strength is that manufacturers have placed an increased emphasis o n marketing. The advantage of responding quickly to changing tastes has mitigated labor cost disadvantages. Fortunately, although this is a low wage industry, its stability has p r o v i d e d some support in counties w h e r e textile e m p l o y m e n t has declined. Despite substantial increases in textile p r o d u c t i o n in the first half of 1983, textile e m p l o y m e n t c o n t i n u e d t o decline through the second quarter. Conversely, employm e n t in the apparel industry had begun to increase in that quarter. manufacturing w o r k w e e k averged 40.5 hours, in contrast t o 38.2 hours in 1982. Accordingly, average w e e k l y earnings in manufacturing rose a solid 8.5 percent. C o m p a r a b l e earnings for the nation grew only 5.4 percent. Therefore, the surprising strength of the recovery in South Carolina came despite continuing e m p l o y m e n t weakness in the textile and related sectors. Several factors account for this apparent contradiction. First, since the state's manufacturing sector is sensitive to national consumer spending, hours and earnings in manufacturing picked up sharply in 1983. Through O c t o b e r , the average A final factor that should be n o t e d is the d e v e l o p m e n t and growth of tourism and related activities in the state. Coastal d e v e l o p m e n t was strong even d u r i n g the recession, and t o u r i s m has p r o v i d e d an i m p o r t a n t source of e c o n o m i c activity. Also b e c o m i n g significant is the establishm e n t of r e t i r e m e n t - o r i e n t e d c o m m u n i t i e s that will m o d e r a t e tourism's seasonal fluctuations. ! FEDERAL RESERVE B A N K O F A T L A N T A A second factor is diversification of the state's e m p l o y m e n t over t i m e t o w a r d national norms. M a n u f a c t u r i n g e m p l o y m e n t in South Carolina totaled 4 0 percent of all n o n f a r m e m p l o y m e n t in 1970, and by 1983 this share had fallen t o 31 percent, which only modestly exceeds the national share of 28 percent. The c o m p o s i t i o n of manufacturing also has changed significantly over this period. The share of textile e m p l o y m e n t to total nonfarm e m p l o y m e n t has d e c l i n e d from 18 percent in 1 9 7 0 t o less than 10 percent in 1983, and f r o m 4 4 percent of total m a n u f a c t u r i n g t o 3 1 p e r c e n t Diversification has b e e n c o n c e n t r a t e d in metals, machinery and chemicals. Thus, since the composition of e m p l o y m e n t in South Carolina more closely resembles national .trends, it reflects the stronger than e x p e c t e d national recovery. 87 These indigenous factors c o m b i n e d w i t h a strong national recovery t o boost substantially the state's e c o n o m y in 1983 (Table 1). This is best illustrated by a rise of nearly 9 percent in the state's c o m p o s i t e index of c o i n c i d e n t indicators. Total nonfarm e m p l o y m e n t f o l l o w e d a typical cyclical pattern a n d r e c o u p e d a b o u t 80 percent, or nearly 50,000, of t h e jobs lost d u r i n g the course of the recession. M a n u f a c t u r i n g employm e n t t u r n e d around in the second quarter and gained 22,000 jobs by the e n d of 1983. A l t h o u g h durable goods c o m p r i s e d only one-third of total manufacturing e m p l o y m e n t , that c o m p o n e n t a c c o u n t e d for nearly 13,000 of those n e w jobs. Fabricated metals and machinery s h o w e d most of the i m p r o v e m e n t Although textile production recorded significant increases during t h e year, e m p l o y m e n t rose a slight 3,400 jobs c o m p a r e d w j t h 24,400 jobs lost during the recession. W i t h the u p d a t e d and highly efficient e q u i p m e n t i n t r o d u c e d into textile plants, increased p r o d u c t d e m a n d can be m e t w i t h o u t hiring additional workers or, in many cases, recalling those w h o have b e e n laid off. Of course, this is the pattern of many basic industries in the nation. Construction, trade and services accounted for the most significant e m p l o y m e n t growth in nonmanufacturing sectors, and t h e reasons for this are not difficult to ascertain. Housing starts in 1983 rose by 56 percent. This g r o w t h fell short of the national increase of around 65 percent, b u t housing starts in South Carolina had not fallen as m u c h d u r i n g the recession because o f coastal d e v e l o p m e n t The trade sector b e n e f i t e d f r o m a surge in retail sales, w h i c h rose 23 percent on a trough t o peak basis. C o m p a r i n g annual totals, real retail sales w e r e up 9 percent in 1983 over the previous year. This exceeds the national increase of a p p r o x i m a t e l y 7.5 percent after inflation. Finally, gains in the service sector w e r e attributable t o the general e c o n o m i c recovery, c o n t i n u e d p o p u l a t i o n growth, and strength in tourism and related sectors. The expansion in e m p l o y m e n t pushed the state's u n e m p l o y m e n t rate d o w n sharply. From a recession peak of 11.4 percent, t h e rate had fallen steadily t o less than 8.5 percent by the e n d of 1983. This e x c e e d e d the i m p r o v e m e n t in the national u n e m p l o y m e n t rate, w h i c h fell f r o m a peak of 10.8 percent almost to South Carolina's level. Finally, increased earnings and e m p l o y m e n t boosted real total personal i n c o m e by 3 percent. In per capita terms, the gain was 1.5 percent. 88 In summary, t h e South Carolina e c o n o m y was hit hard by the recession, b u t it has r e b o u n d e d rather well. Essentially, 1983 represented a recovery in the pure sense of the t e r m in c o m p e n sating for most of the aggregate e c o n o m i c losses. However, significant p r o b l e m s still remain, and the state is using this e c o n o m i c u p s w i n g t o establish and i m p l e m e n t policies designed t o i m p r o v e the state's relative position in t h e future. Diversification of Economic Development Efforts This recovery is being v i e w e d by many South Carolina leaders as a " b r e a t h i n g space" that provides an o p p o r t u n i t y to assess b o t h existing and potential n e w approaches t o e c o n o m i c d e v e l o p m e n t . In the past, the major a p p r o a c h to e x p a n d i n g e m p l o y m e n t o p p o r t u n i t i e s centered o n industrial d e v e l o p m e n t . Industrial revenue bonds (IRBs), tax concessions, free labor training provided by the state's technical education system, and a w o r l d - w i d e advertising effort are some of the tools used in the effort t o attract n e w manufacturing establishments. It appears, however, that manufacturing activity as a source of econ o m i c e x p a n s i o n m a y b e less reliable n o w t h a n it was in the past First, it is likely that the Southeast's manufacturing b o o m will slow s o m e w h a t over t h e next d e c a d e because of national e c o n o m i c forces. Further, as this region loses its edge in terms of low-cost labor, housing and land, a n d as other states develop more competitive incentive packages for attracting industry, it will b e c o m e increasingly difficult to encourage the location and expansion of industry in the state. Recognition of these trends plus a c o n t i n u i n g concern over the restructuring of the textile industry has resulted in a growing interest in a more diversified role for state g o v e r n m e n t in the d e v e l o p m e n t process. M a n u f a c t u r i n g employm e n t is o n e area w h e r e recent discussions and activities have centered. The e m p l o y m e n t gains experienced during 1983 were not spread evenly over t h e various manufacturing sectors. The recession fell most heavily o n textiles, w i t h over 24,000 jobs lost This resulted in m a n y plant closings and very high u n e m p l o y m e n t rates in certain parts of the state. As Table 2 and Figure 1 show, u n e m p l o y m e n t rates of 14 percent and higher w e r e c o m m o n in 1982 for many of the textile-dominated northestern counties plus other rural counties t h r o u g h o u t the state. W i t h total textile e m p l o y m e n t g r o w i n g by only 3,400 jobs F E B R U A R Y 1 9 8 4 , E C O N O M I C REVIEW South Carolina Unemployment Rates by County 1982 Annual Average Projects also are u n d e r w a y t o d e v e l o p education, small a n d m i n o r i t y - o w n e d businesses, and high-tech firms in South Carolina. The O u t l o o k for 1984 [ — I I I 14.5% and over 12.5 to 14.4 I 10.5 to 12.4 I less than 4.5% Source: S. C. Employment Security Commission Research and Analysis/LMIA in 1983 f r o m the recession low, recent employm e n t gains clearly are not d e v e l o p i n g w h e r e the jobs w e r e lost. Thus, in spite of the healthy statewide recovery, u n e m p l o y m e n t remains a serious p r o b l e m in many t e x t i l e - d o m i n a t e d rural counties w h e r e marginal older mills have closed their doors. Because of this problem, South Carolina leaders currently are d e v e l o p i n g a plan in w h i c h state government, led in a " t e a m " approach by the State D e v e l o p m e n t Board, responds t o potential o r a c t u a l plant closings w i t h the h o p e o f reducing or avoiding t h e impact of plant closings on local economies. This t e a m effort w o u l d include: a) a central clearing house t o give the State Developh m e n t Board "early warning" signals of a potential plant closing, b) t h e Board's evaluation of t h a t information to d e t e r m i n e w h e t h e r an effort t o avert the plant closing w o u l d be appropriate or possible, c) d e p l o y m e n t of state resources w h e n efforts t o avert a closing are a p p r o p r i a t e and, d) w h e n a plant does close, procedures to assist workers in finding new employment and conversion of the plant facility t o n e w e c o n o m i c uses. ! FEDERAL RESERVE B A N K O F A T L A N T A Given the consensus national forecast of cont i n u e d growth and m o d e r a t e inflation, prospects for the South Carolina economy are quite favorable. M o s t of the e c o n o m i c losses from the recession will have been regained by t h e e n d of 1983. Therefore, 1984 should be characterized by a broad-based expansion of the state's e c o n o m y . Such a t r e n d certainly w o u l d be w e l c o m e in perspective. For South Carolina, 1984 can be interpreted as the first year of general e c o n o m i c expansion since 1979, five years ago. Several factors c o n t r i b u t e t o this positive outlook. First is the relative stabilization of the state's textile industry. This sector clearly is d e p e n d e n t u p o n consumer spending for apparel, b u t it is also sensitive t o changes in housing starts a n d even a u t o m o b i l e production, since it supplies carpeting and seating fabric. A l t h o u g h consumer s p e n d i n g will m o d e r a t e in 1984, a n d housing starts may be slightly lower, the prospects are favorable overall with some gains in e m p l o y m e n t likely. Textile mill products e m p l o y m e n t rose by a b o u t 1,000 jobs over the past year. There should be an increase of a n o t h e r 7,300 jobs by the e n d of 1984 (Table 3). A second favorable factor is the i m p r o v e d probability of capital investment in t h e state. W i t h a t h r e a t e n e d basic industry such as textiles, investment in new plants represents an important source of e c o n o m i c g r o w t h and diversification. In recent years South Carolina's attractiveness has been enhanced by the expansion and modernization of its sea ports. These facilities, in a d d i t i o n t o a good interstate highway network, provide a solid transportation infrastructure. Furthermore, continued improvements in an already respected technical education system plus the developm e n t of t h e " h i g h - t e c h " o r i e n t e d industrial parks b o d e well for future capital inflows. Thus, the state is w e l l positioned t o participate in t h e e x p e c t e d cyclical rise in capital i n v e s t m e n t in 1984. Finally, growth in tourist-related industries and coastal d e v e l o p m e n t has b e e n r o b u s t a n d is expected t o remain so. Tourism p r o v i d e d a buffer t o the construction industry d u r i n g the recession, and marketing efforts directed at Canada 89 T a b l e 4. South Carolina 1984 Forecast ot Key Sectors Series Total Nonfarm Employment 1 Manufacturing Employment 1 Textile Mill Products Employment 1 Unemployment Rate Real Total Personal Income 2 Real Retail Sales 3 Housing Starts 4 1983:4 1984:4 Net Change % Change 1,197.3 371.1 114.4 8.6 13,661 8,885.6 26,409 1,249.0 403.7 121.7 7.6 14,063 9.438.0 24,091 51.7 32.6 7.3 4.3 8.8 6.4 -1.0 2.9 6.2 -8.8 - 402 552.4 -2,318 1 ln thousands ln millions of dollars 3 ln millions of dollars, annual total 4 Number, annual total 2 Source: Division of Research, College of Business Administration, the University of South Carolina. and northern states have paid off well. M o r e o v e r , retirement communities are becoming important in a u g m e n t i n g t h e tourist trade. In general, the 1 9 8 4 forecast of key e c o n o m i c sectors in t h e state is q u i t e favorable. Total nonfarm e m p l o y m e n t is e x p e c t e d t o rise by 51,700 jobs t o just u n d e r 1.25 million, a gain of 4.3 percent. This will substantially exceed the previous n u m b e r of just over 1.2 million jobs recorded in t h e second quarter of 1981. In contrast to 1983, the manufacturing sector should make a strong c o n t r i b u t i o n of 32,600 jobs, w h i c h is almost a 9 percent increase. M o r e o v e r , t h e i m p r o v e m e n t in manufacturing e m p l o y m e n t is e x p e c t e d t o be broad-based. To keep these gains in perspective, however, t h e level of manufacturing e m p l o y m e n t by the e n d of 1 9 8 4 is projected to be a p p r o x i m a t e l y the same that prevailed in the fourth quarter of 1 9 7 9 (403,700 versus 401,900). O n a relative basis, d u r a b l e goods manufacturing will d o m i n a t e the expansion w i t h app r o x i m a t e l y one-half of the projected increase in jobs. As in 1983, the leading sectors will be fabricated metals (3,100 jobs), nonelectric machinery (4,800 jobs), a n d electrical e q u i p m e n t (2,500 jobs). The nondurables sector also is e x p e c t e d t o i m p r o v e in 1984, b u t the gains here are more tenuous. The anticipated rise of over 7,000 jobs in textile mill products depends upon continued increases in production. Yet, the threat of imports continues t o grow, a n d t h e situation is 90 quite unstable. After textile mill products, employm e n t in chemicals should rise by 1,900 jobs and in apparel by 1,300 jobs. The increase in n o n m a n u f a c t u r i n g employm e n t of 19,100 jobs will again be led by trade and services, w h i c h together should increase by a p p r o x i m a t e l y 10,000 jobs. G r o w t h in governm e n t e m p l o y m e n t should be m o d e s t at least because of restraints imposed during the recession. The construction sector ultimately should be flat since housing starts are e x p e c t e d t o d e c l i n e 9 percent t o a r o u n d 24,000 units. However, this is still a high rate by historical standards. The state's u n e m p l o y m e n t rate, w h i c h fell dramatically f r o m 11.4 percent t o 8.3 percent in 1983, should d e c l i n e t o 7.6 percent by the e n d of 1984. This smaller r e d u c t i o n is based u p o n faster g r o w t h in the labor force. D u r i n g 1983 m a n y workers, particularly those affected by plant closures, remained o u t of t h e workforce. These discouraged workers are e x p e c t e d t o reenter t h e labor force in greater n u m b e r s in 1984. Spurred by a p r o j e c t e d 8.6 percent increase in earnings in t h e manufacturing sector, real total personal i n c o m e in 1984 should m a t c h t h e 3 percent increase in 1983. The c o m b i n a t i o n of increased e m p l o y m e n t and income will continue t o foster c o n s u m e r spending in the state, and retail sales adjusted for inflation should rise by 6 percent Thus, the short t e r m o u t l o o k is relatively bright for the South Carolina e c o n o m y in 1984. The FEBRUARY 1984, E C O N O M I C REVIEW state should enjoy its first solid year of g r o w t h since 1979. If t h e r e is o n e area of concern, it is the fact that most of t h e e x p e c t e d capital inflows will be c e n t e r e d in the major m e t r o p o l i t a n areas. Those distressed a n d vulnerable counties that truly bore the b r u n t of the recession will likely not participate in t h e expansion to the degree suggested by the aggregate statistics. Conclusion Like m a n y states that are d e p e n d e n t on a basic industry, South Carolina has been beset w i t h structural and cyclical p r o b l e m s for several years. The cyclical recovery has proven t o be stronger than anticipated, and this has p r o v i d e d t h e state w i t h an o p p o r t u n i t y t o address structural needs. The shakeout in the textile industry has been in progress for the last decade. Firms that survived have emerged as c o m p e t i t i v e a n d profitable entities, and the i n t e r m e d i a t e - t e r m o u t l o o k is b r i g h t e r t h a n in some time. However, the closing of less efficient plants and the i n t r o d u c t i o n of sophisticated e q u i p m e n t have caused severe dislocations in many counties as t h e industry's w o r k f o r c e was reduced. ! FEDERAL RESERVE B A N K O F A T L A N T A Therefore, efforts directed toward diversification are particularly crucial in South Carolina, a n d this diversification will take several forms. First is the typical effort t o diversify away f r o m the textile and related sectors. This t y p e of industrial rec r u i t m e n t has b e e n going o n for a long time. A second effort is t o d e v o t e additional resources t o the d e v e l o p m e n t of small businesses so that more of the benefits of industrial d e v e l o p m e n t will remain in the state. A third aspect of diversification, and perhaps t h e most intractable, is geographic diversification. The state is m a k i n g a concerted effort t o encourage a n d p r o m o t e d e v e l o p m e n t in distressed counties. M o r e o v e r , initiatives to upgrade the state educational system should benefit such areas in the long run. None of these programs and proposed policies will result in overnight success. M a n y states in this region are engaged in similar activities. H o w ever, South Carolina is accelerating its efforts even as a general i m p r o v e m e n t in the e c o n o m y takes h o l d in 1984. — Richard W . Ellson* and Randolph C. Martin* •University oi South Carolina 91 it ix FINANCE Je D ) rmr^C A J U^ 1 LMJ Savings & Loan** 20,233 + 10 22,256 22,136 Commercial Bank Total Deposits 4,201 4,230 - 2 4,145 Demand NOW 1,711 1,659 1,083 + 58 NOW Savings 2,207 + 125 4,961 4,966 Savings Time 12,732 9 11,436 11,586 Time 883 780 + 13 881 Credit Union Deposits Mortgages Outstanding 59 49 + 27 62 Share Drafts Mortgage C o m m i t m e n t s 743 + 12 832 831 Savings & Time Notes: 4.11 deposit data are e x t r a c t e d 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 s t a t e a r e a . The major differences between; this report and the "call report" are size, the t r e a t m e n t of interbank deposits, and the t r e a t m e n t of float. The data generated from the Report of Transaction Accounts is for banks over $15 million in deposits as of December 31, 1979. T h e total deposit data generate from the Report of Transaction Accounts eliminates interbank deposits by reporting the net of deposits "due to" and "due f r o m " other , depository institutions. The Report of Transaction Accounts subtracts cash items 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. * = fewer than four institutions reporting. ** = S ¿c L deposits subject to revisions due to reporting changes. N.A. = not available at this time. Digitized for 92FRASER FEBRUARY 1984, E C O N O M I C REVIEW (2 CONSTRUCTION NOV 1983 ANN % CHG OCT 1983 NOV 1982 12-month Cumulative Rate UNITED STATES Nonresidential Building Permits - $ Mil. Total Nonresidential 51,321 Industrial Bldgs. 5,620 Offices 12,738 Stores 6,976 Hospitals 2,108 Schools 876 50,568 5,640 12,568 6,717 2,062 878 45,460 5,329 11,932 5,131 1,775 800 SOUTHEAST Nonresidential Building Permits -- $ Mil. Total Nonresidential 8,028 Industrial Bldgs. 678 Offices 1,833 Stores 1,280 Hospitals 519 Schools 171 7,845 690 1,797 1,248 518 171 6,262 719 1,343 952 273 83 + Nonresidential Building Permits - $ Mil. Total Nonresidential 535 Industrial Bldgs. 28 Offices 63 Stores 90 Hospitals 25 Schools 9 450 26 59 86 23 8 392 81 60 62 23 8 + I .. • I + + + + + 13 5 7 36 19 10 3,933 376 852 701 294 54 Residential Building Permits Value - $ Mil. Residential Permits - Thous. Single-family units Multi-familv units Total Building Permits Value - $ Mil. 36 65 5 45 9 13 Residential Building Permits Value - $ Mil. Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. + 27 - 0 + 37 + 40 +102 +200 Residential Building Permits Value - $ Mil. Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. 980 135 223 90 3 4 19 + 32 + 34 + 62 + 63 + 3 + 42 Residential Building Permits Value - $ Mil. Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. - + + + + 18 : i NOV 1982 ANN % CHG 65,165 38,213 + 75 870.2 674.2 518.4 429.0 + + 71 62 115,733 83,672 12,452 11,920 6,867 + 182.0 156.7 179.1 149.3 105.7 83.8 72 + 87 20,407 19,692 13,129 + 55 424 397 236 + 80 7.9 7.8 7.7 7.1 4.6 4.3 + 959 847 629 + 7,224 6,860 4,077 + 77 97.2 86.6 95.6 82.5 54.4 50.3 + 79 + 72 11,211 10,793 7,212 + 55 2,398 2,314 1,300 + 84 41.5 25.4 40.5 24.1 25.2 12.0 + 112 3,694 3,586 2,280 + 62 1,085 1,063 638 + 70 16.8 16.6 16.9 16.0 10.8 8.1 + 56 + 105 2,292 2,274 1,576 + 45 317 310 167 + 90 4.9 4.7 4.8 4.5 3.3 2.1 + 48 + 124 502 501 324 + 55 1,004 976 449 + 124 13.7 15.6 13.6 15.1 7.4 7.0 + 85 + 123 1,749 1,691 1,108 + 58 + 41 81 + + 72 81 52 i 1,207 37 366 134 123 70 1,210 46 365 129 123 69 939 88 296 147 29 24 + 29 - 58 + 24 - 9 +324 + 192 Value - $ Mil. Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. Nonresidential Building Permits - $ Mil. 185 Total Nonresidential 7 Industrial Bldgs. 19 Offices Stores 40 Hospitals 18 7 Schools 192 8 19 43 18 7 157 14 18 35 5 3 + 18 - 50 + 6 + 14 +260 + 133 Residential Building Permits Value - $ Mil. Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. Nonresidential Building Permits Total Nonresidential Industrial Bldgs. Offices Stores Hospitals Schools 788 58 150 151 24 5 659 34 106 109 38 11 24 74 37 + 43 - 29 - 64 Residential Building Permits Value - $ Mil. Residential Permits - Thous. Single-family units Multi-family units Total Building Permits Value - $ Mil. 817 59 145 156 27 4 OCT 1983 i 3,135 367 640 509 144 ! i Nonresidential Building Permits Total Nonresidential Industrial Bldgs. Offices Stores Hospitals Schools Nonresidential Building Permits Total Nonresidential Industrial Bldgs. Offices Stores Hospitals Schools Residential Building Permits Value - $ Mil. 66,938 Residential Permits - Thous. Single-family units 884.0 Multi-family units 694.0 Total Building Permits Value - $ Mil. 118,259 28 6 + 36 + 34 + 90 + 106 - H i Nonresidential Building Permits - $ Mil. Total Nonresidential 3,988 Industrial Bldgs. 366 Offices 878 Stores 713 Hospitals 291 Schools 54 + NOV 1983 + + + + 65 NOTES: 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. FEDERAL RESERVE B A N K O F A T L A N T A 93 Bmmmmmmmmm^^^^^rn GENERAL LATEST C U R R . DATA PERIOD SOUTHEAST YEAR AGO ANN. % CHG. DEC 1983 ANN. % CHG. DEC 1982 NOV 1983 — UNITED STATES Personal Income ($bil. - SAAR) Taxable Sales - $bil. Plane Pass. Arr. 000's Petroleum Prod, (thous.) Consumer Price Index 1967=100 Kilowatt Hours- mils. PREV. PERIOD DEC 2,709.1 N.A. N.A. 8,619.3 2.650.6 N.A. N.A. 8.634.7 2,556.1 N.A. N.A. 8,619.8 DEC OCT 303.5 176.3 303.1 201.6 292.4 163.3 + 4 326.8 N.A. 3,821.3 1,400.0 319.5 N.A. 3,268.7 1,398.0 306.4 N.A. 3,763.8 1,367.0 + 7 N.A. 29.0 N.A. 33.5 N.A. 27.7 36.2 35.5 28.1 111.6 52.0 33.9 27.2 97.9 52.0 N.A. 3.7 N.A. 4.5 N.A. 3.6 122.0 73.5 1,804.7 52.0 NOV 164.0 118.8 2Q Personal Income ($bil. - SAAR) 2Q Taxable Sales - $ bil. Plane Pass. Arr. 000's OCT Petroleum Prod, (thous.) DEC Consumer Price Index 1967=100 Kilowatt Hours- mils. OCT 'ersonal Income ($bil. - SAAR) Taxable Sales - $ bil. Plane Pass. Arr. 000's Petroleum Prod, (thous.) Consumer Price Index 1967=100 Kilowatt Hours - mils. FLORIDA Personal Income ($bil. - SAAR) Taxable Sales - $ bil. Plane Pass. Arr. 000's Petroleum Prod, (thous.) Consumer Price Index Nov. 1977 = 100 Kilowatt Hours- mils. 2Q SEPT NOV DEC OCT 2Q DEC OCT DEC Miami Personal Income ($bil. - SAAR) Taxable Sales - $ bil. Plane Pass. Arr. 000's Petroleum Prod, (thous.) Consumer Price Index 1967 = 100 Kilowatt Hours- mils. + 5 + 7 + 5 + 12 - 2 113.4 66.6 1,709.0 52.0 NOV 156.8 +8 8.6 72.1 1,580.7 52.0 SEPT 162.9 9.8 58.2 41.1 1,610.9 N.A. DEC 307.3 4.2 56.6 40.4 1,646.3 N.A. OCT 304.4 4.9 53.5 39.3 1,435.8 N.A. DEC 296.1 4.2 + 9 + 5 +13 45.9 N.A. 272.7 1,211.0 45.3 N.A. 286.7 1,209.0 44.7 N.A. 271.0 1,173.0 + 3 N.A. 5.0 N.A. 5.7 N.A. 5.0 20.8 N.A. 31.4 86.0 20.4 N.A. 35.3 86.0 N.A. 2.0 N.A. 2.4 19.8 N.A. 28.8 90.0 N.A. 1.9 2Q NOV NOV DEC 43.7 37.7 148.6 N.A. 42.9 36.9 160.7 N.A. 41.1 34.8 153.6 N.A. OCT N.A. 5.5 i.A. N.A. 4.9 OCT Personal Income 2Q ($bil. - SAAR) 3Q Taxable Sales - $ bil. NOV Plane Pass. Arr. 000's Petroleum Prod, (thous I Consumer Price Index Atlanta 1967 = 100 Kilowatt Hours- mils. OCT LOUISIANA Personal Income 2Q ($bil. - SAAR) Taxable Sales - $ bil. Plane Pass. Arr. 000's NOV Petroleum Prod, (thous .) DEC Consumer Price Index 1967 = 100 OCT Kilowatt Hours- mils. Personal Income ($bil. - SAAR) Taxable Sales - $ bil. Plane Pass. Arr. 000's Petroleum Prod, (thous ,) Consumer Price Index ' 1967 = 100 Kilowatt Hours- mils. 28.6 109.2 51.0 n z m z z n 2Q NOV DEC OCT 6.2 8.1 + 10 + 6 + 5 + 6 Agriculture Prices Rec'd by F a r m e r s 140 Index (1977=100) Broiler P l a c e m e n t s (thous.) 80,140 60.6 Calf Prices ($ per cwt.) 33.7 Broiler Prices (4 per lb.) 7.61 Soybean Prices ($ per bu.) Broiler Feed Cost ($ per ton)) 240 135 73,141 59.2 33.0 7.80 243 127 79,861 58.8 24.3 5.46 201 + 10 + 0 + 3 +39 + 39 + 19 Agriculture Prices Rec'd by F a r m e r s 129 Index (1977=100) Broiler Placements (thous.) 30,819 58.0 Calf Prices ($ per cwt.) 33.9 Broiler Prices (4 per lb.) 7.79 Soybean Prices ($ per bu.) Broiler Feed Cost —($ per ton) 234 122 27,657 55.6 32.1 7.74 229 113 30,752 54.5 24.1 5.57 189 + 14 + 0 + 6 +41 +40 +24 Agriculture F a r m Cash Receipts - $ mil. 1,419 (Dates: SEPT, SEPT) Broiler P l a c e m e n t s (thous.) 10,475 62.1 Calf Prices ($ per cwt.) 32.5 Broiler Prices (4 per lb.) Soybean Prices ($ per bu.) 7.76 Broiler Feed Cost ($ per ton) 270 9,278 55.7 33.0 7.80 255 1,443 10,263 54.2 24.0 5.51 197 - 2 + 2 + lb +3b +41 +37 Agriculture Farm Cash Receipts - $ mil. 3,305 (Dates: SEPT, SEPT) 1,853 Broiler Placements (thous.) 63.9 Calf Prices ($ per cwt.) 33.0 Broiler Prices (4 per lb.) Soybean Prices ($ per bu.) 7.76 Broiler Feed Cost ($ per ton) 260 1,755 58.8 31.0 7.80 250 3,166 1,863 57.1 24.0 5.51 210 + 4 - 1 + 12 +38 +41 + 24 10,928 51.3 31.5 7.51 +0 + 0 + 6 210 2,140 12,338 51.5 23.5 5.36 185 Agriculture Farm Cash Receipts - $ mil. 817 (Dates: SEPT, SEPT) N.A. Broiler P l a c e m e n t s (thous.) 58.7 Calf Prices ($ per cwt.) Broiler Prices (4 per lb.) 36.0' Soybean Prices ($ per bu.) 7.94 Broil er —Feed Cost - ($ per ton) 290 N.A. 56.5 33.0 7.51 290 904 N.A. 57.2 24.5 5.67 250 + 3 +47 +40 Agriculture F a r m Cash Receipts - $ mil. (Dates: SEPT, SEPT) Broiler P l a c e m e n t s (thous.) Calf Prices ($ per cwt.) Broiler Prices (4 per lb.) Soybean Prices ($ per bu.) Broiler Feed Cost ($ per ton) 1,161 6,153 55.2 37.0 7.77 195 5,695 57.9 32.0 7.83 205 1,207 6,288 52.9 25.5 25.5 161 - 4 - 2 + 4 +45 -70 +21 Farm Cash Receipts - $ mil. 1,230 (Dates: SEPT, SEPT) N.A. Broiler P l a c e m e n t s (thous.) 54.0 Calf Prices ($ per cwt.) 32.5 Broiler Prices (4 per lb.) Soybean Prices ($ per bu.) 7.81 Broiler Feed Cost ($ per ton) 225 N.A. 53.2 30.0 7.99 225 1,178 N.A. 54.4 23.5 5.65 193 + 4 Agriculture F a r m Cash Receipts - $ mil. 2,146 (Dates: SEPT, SEPT) Broiler P l a c e m e n t s (thous.) 12,387 54.4 Calf Prices ($ per cwt.) Broiler Prices (4 per lb.) 33.5 Soybean Prices ($ per bu.) 7.58 Broiler Feed Cost ($ per ton) 215 , + 5 + 9 - 4 + 5 +12 — _ Agriculture - - - - +43 +41 + 16 -10 mzz + 16 - 1 +38 +38 + 17 ? ™ a l Income data supplied by U. S. D e p a r t m e n t of C o m m e r c e . Taxable Sales are reported as^ a 12-month cumulative t o t a l . Plane P ~ e r A r r i v a l f are T l l e c t e d from 26 airports. Petroleum Production data supplied by U. S. Bureau of Mines. C o n s u m e * P r i c e I n d e x T t a supplied by Bureau of Labor Statistics. Agriculture data supplied by U. S. D e p a r t m e n t of Agriculture. F a r m C ^ h R e o e i D t T d a t a a r e reported as cumulative for the calendar year through the month shown. Broiler placements are an average weekly ^ e ? The Southeast data represent the t o t a l of the six s t a t e s . N.A. = not available. The annual percent change c a l c u l a t e is based on most recent data over prior year. R - revised. 94 F E B R U A R Y 1 9 8 4 , E C O N O M I C REVIEW EMPLOYMENT Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA nsured Unemployment - thous. 'iisured Unempl. R a t e - % Mfg. Avg. Wkly. Hours \lfg. Avg. Wkly. Earn. - $ NOV 1983 OCT 1983 112,147 103,018 9,129 8.4 N.A. N.A. 40.8 365 112,042 102,659 9,383 8.8 N.A. N.A. 40.7 363 Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. 'Jnemployment Rate - % SA Insured Unemployment - thous. Insured Unempl. Rate - % Mfg. Avg. Wkly. Hours Mfg. Avg. Wkly. Earn. - $ ALABAMA ' ;ivilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Jnemployment Rate - % SA Insured Unemployment - thous. risured Unempl. Rate - % Mfg. Avg. Wkly. Hours Mfg. Avg. Wkly. Earn. - $ 14,683 13,295 1,388 9.7 N.A. N.A. 41.1 317 Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Jnemployment Rate - % SA tisured Unemployment - thous. nsured Unempl. Rate - % Mfg. Avg. Wkly. Hour. Mfg. Avg. Wkly. Earn. - $ 5,003 4,571 432 Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Jnemployment Rate - % SA nsured Unemployment - thous. nsured Unempl. Rate - % Avg. Wkly. Hours Mfg. Avg. Wkly. Earn. - $ 2,696 2,503 193 7.3 N.A. N.A. 41.8 299 Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA nsured Unemployment - thous. nsured Unempl. Rate - % Mfg. Avg. Wkly. Hours Mfg. Avg. Wklv. Earn. - $ 1,934 1,720 214 11.5 N.A. N.A. 40.2 393 1,775 1,554 221 13.0 N.A. N.A. 41.6 317 8.2 N.A. N.A. 41.0 305 NOV 1982 ANN. 96 CHG. + 4 Notes: Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., <fc Real Est. Trans. Com. & Pub. Util. 92,128 19,253 4,251 20,901 16,018 20,121 5,500 5,048 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. & Pub. Util. N.A. N.A. 39.8 293 16.0 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., las., & Real Est. Trans. Com. & Pub. Util. 4,899 4,435 464 9.3 N.A. N.A. 40.7 295 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. & Pub. Util. 1,738 1,470 268 OCT 1983 NOV 1982 91,693 19,212 4,297 20,738 15,824 20,032 5,487 5,065 89,466 18,299 3,984 20,549 16,003 19,180 5,335 5,051 11,627 2,217 656 2,762 2,176 2,302 669 702 11,399 2,138 638 2,712 3,963 488 ANN. % CHG. 2,161 2,250 651 700 3,794 459 243 1,013 636 917 283 233 262 1,074 649 948 299 234 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. & Pub. Util. 2,680 2,467 213 8.4 N.A. N.A. 40.2 275 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. & Pub. Util. 1,875 1,654 220 12.3 N.A. N.A. 42.9 399 1,609 202 121 370 311 303 Nonfarm Employment- thous. 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 nsured Unemployment - thous. nsured Unempl. Rate - % Vlfg. Avg. Wkly. Hours Vlfg. Avg. Wkly. Earn. - $ Civilian Labor Force - thous. Total Employed - thous. Total Unemployed - thous. Unemployment Rate - % SA nsured Unemployment - thous. Insured Unempl. Rate - 96 Mfg. Avg. Wkly. Hours Vlfg. Avg. Wkly. Earn. - $ NOV 1983 2,214 1,977 217 11.4 N.A. N.A. 40.8 310 2,209 1,999 210 10.5 N.A. N.A. 41.0 310 2,124 1,873 251 12.6 N.A. N.A. 39.5 288 + 4 + 6 -14 + 3 + 8 Nonfarm Employment- thous. Manufacturing Construction Trade Government Services Fin., Ins., & Real Est. Trans. Com. & Pub. Util. 1,720 485 72 371 300 320 80 84 1,713 483 71 366 299 321 80 85 1,673 457 70 368 297 310 79 82 + 3 + 6 +3 + 1 + 1 + 3 +1 +2 All labor force data are from Bureau of Labor Statistics reports supplied by s t a t e 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. F E D E R A L for R E SFRASER ERVE B A N K O F A T L A N T A Digitized 95 Bulk Rate U.S. Postage PAID Atlanta, Ga. Permit 292
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