The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Economic
Review
FEDERAL RESERVE BANK OF ATLANTA
|
IBRÄRY
- _ immjl
|FfB 15
RESERVE
4fL
-
* Ii
WMW"
The Southeast
in 1985
FEBRUARY 1985
President
Robert P. Forrestal
Sr. Vice President and
Director of Research
Sheila L Tschinkel
Vice President and
Associate Director of Research
B. Frank King
Financial Institutions and
Payments
D a v i d D. W h i t e h e a d , R e s e a r c h O f f i c e r
L a r r y D. W a l l
Robert E
Goudreau
Macropolicy
Robert E Keleher, Research Officer
M a r y S. R o s e n b a u m
J o s e p h A. W h i t t , Jr.
P a m e l a V. W h i g h a m
Regional
Economics
G e n e D. S u l l i v a n , R e s e a r c h O f f i c e r
Charlie Carter
W i l l i a m J. K a h l e y
B o b b i e H. M c C r a c k i n
Joel R Parker
Communications Officer
Donald E Bedwell
Public Information Director
Duane Kline
Publications Coordinator
Cynthia Walsh-Kloss
Graphics
E d d i e W . L e e , Jr.
C h e r y l D. B e r r y
The E c o n o m i c Review seeks to inform the public
a b o u t Federal Reserve policies a n d the economic
environment and, in particular, to narrow the g a p
b e t w e e n specialists a n d c o n c e r n e d laymen. Views
expressed in the Economic Review are not necessarily
those of this Bank or the Federal Reserve System.
Material m a y b e reprinted or abstracted if the Review
a n d a u t h o r are c r e d i t e d . P l e a s e p r o v i d e t h e B a n k ' s
Research Department with a copy erf any publication
containing reprinted m a t e r i a l Free subscriptions a n d
additional c o p i e s are available from the Information
Center, Federal Reserve Bank of Atlanta, P O. Box
1731, Atlanta, G a 3 0 3 0 1 ( 4 0 4 / 5 2 1 - 8 7 8 8 ) . Also contact the Information Center t o receive S o u t h e a s t e r n
E c o n o m i c Insight, a free newsletter on e c o n o m i c
trends published by the Atlanta Fed twice a month.
The Review is indexed online in the following datab a s e s ABI/lnform, Magazine Index. M a n a g e m e n t
Contents, PAIS, and the Predicasts g r o u p
ISSN 0 7 3 2 - 1 8 1 3
Overview
4
Florida
12
Lively in-migration s h o u l d c o n t i n u e to foster growth
in the S u n s h i n e State, offsetting weaknesses in
sectors s u c h as agriculture.
Georgia
^
With brimming tax coffers, Georgia appears to be
p o i s e d for further e c o n o m i c expansion in 1985.
Tennessee
T h o u g h its performance largely mirrors the nation's,
Tennessee has a greater stake in manufacturing,
particularly of g o o d s sensitive to interest rates a n d
foreign competition.
Louisiana.
47
Will growth in local a n d international trade be
sufficient to revive Louisiana's e c o n o m y ? Prospects seem little i m p r o v e d over 1984.
Alabama.
58
Critically sensitive to c o m p e t i t i o n from imports,
Alabama's e c o n o m y may strengthen if the dollar
declines.
Mississippi
69
Recovery in the nation's h o u s i n g markets c o u l d
help drive a turnaround in Mississippi's sputtering
economy.
Statistical Summary
79
Overview
SOUTHEASTERN E C O N O M I C
OUTLOOK
Will the southeastern economy continue to
grow in 1985? The answer to that question
depends on the national economy. Because
most of the region's products rely on national
and even international markets, growth in
demand at those levels is vital to the Southeast's
economic performance. W e expect that the
region will experience moderate growth in the
new year, following the lead of the national
economy.
By the close of 1984, the southeastern economy had begun to regain m o m e n t u m after a
slowdown during the second half of the year.
Total employment resumed its growth in November, more than recouping October's downturn.
The number of unemployed also declined and
the jobless rate was retreating again as the year
ended. Even though weaknesses persisted in
the energy, export marketing, textile and apparel,
and agricultural sectors during 1984 and apparently will carry over into 1985, strengths in
other areas should be sufficient to maintain the
regional economy's upward growth through
coming months.
After surging forward early in 1984, the Southeast's economy slackened in the summer when
rising interest rates quickly depressed residential housing sales and construction. The building
materials industry soon felt the drop-off in
activity as inventories accumulated. In turn,
the Southeast's substantial lumber-producing
sector began t o lay off workers and close down
operations in response to declining demand.
As the summer wore on, a slump in consumer
demand for a broad array of products besides
housing became apparent. Because a lull in
consumer spending typically occurs after a
period of rapid growth, some analysts feel the
slowdown was merely a normal consumer
reaction t o the brisk growth of late 1983 and
early 1984. However, it is also possible that the
interest rate spurt made consumers hesitant to
obligate themselves for additional purchases
when faltering economic growth could threaten
the income stream they depended on for credit
payments.
In addition to reductions in home purchases,
softening began in sales of furniture, appliances,
and other household furnishings. Eventually
automobile sales, unusually brisk early in the
year, began to falter as well. The changeover in
models and brief auto strikes that accentuated
shortages of certain popular vehicles apparently
contributed to the slack sales. However, rising
credit costs also may have caused consumers
to delay auto purchases. Fortunately for the
region's auto-related manufacturing plants,
employment held up and activity has remained
relatively vigorous in anticipation of continuing
strong markets for automobiles during 1985.
Despite the abatement in economic activity,
retail sales in the Southeast fared better than in
the nation as a whole. The Sixth-District states
continued to outperform the national average,
with Florida and Georgia leading the way. In
the first ten months of the year, for instance,
Florida posted a 14 percent gain over the same
months of 1983, compared with an 11 percent
gain for the nation as a whole. Tennessee was
running slightly ahead of the national average
for those ten months, while Louisiana lagged
slightly behind. Holiday shopping apparently
also ran ahead of 1983 in all six District states,
with Florida Georgia, and Tennessee again
taking the lead.
Y
Thanks t o the manufacturing expansion
along w i t h continuing growth in service-related
employment, the region's total employment
grew at a rate averaging nearly 4 percent during
1984 as compared w i t h only 2 percent the
previous year. During 1984 the number of jobs
increased by more than a half-million, while
slightly fewer than 300,000 workers were added
during 1983. Although j o b growth continued
through most of the year, the rate dropped in
the fourth quarter, no doubt reflecting a slackening of the economy's overall growth during
the second half.
The region's unemployment also mirrored
these developments. The rate dropped to 8
percent in February 1984, after averaging nearly
10 percent during 1983. Despite small monthto-month variations, the average jobless rate
held near the 8 percent level from February
forward. Average rates for Georgia and Florida
slipped well below the region's, but Mississippi
and Alabama continued to experience doubledigit jobless rates throughout the year. Continuing problems in Mississippi and Alabama,
plus weak growth in Louisiana, probably will
make it difficult for the region to reduce its
jobless rate for 1985 much below the current
level, even though continuing overall economic
growth is expected.
The region's anticipated economic strength
in 1985 will differ sharply among individual
states and sectors. Unless mortgage interest
rates turn up again, the construction sector is
expected to continue invigorating the Southeasfs economy. Following the rise in the second
quarter of 1984, rates had begun to edge back
downward by late summer. Realtors reported increased residential housing sales once rates had
returned to the levels of early 1984. Even though
much of the pent-up demand for housing had
been satisfied by late in the year, the construction
industry expects activity to remain reasonably
strong during 1985, barring further setbacks.
Thanks partly t o tax incentives directed toward
multifamily housing, 1984's residential construction reached a post-1973 peak. Just maintaining
that pace in 1985 would constitute an impressive
performance.
Nonresidential construction also grew energetically in 1984 despite the upturn in interest
rates. In this sector, too, the past year's activity
peaked at a level not exceeded since the early
1970s. Accelerated depreciation write-offs and
other tax laws favorable to investment no
doubt stimulated this burst of construction
activity. Clearly, some markets have been saturated with new buildings and, in fact, may now
be overbuilt. Although growth is unlikely to
maintain its current rate through 1985, nonresidential construction may remain near recent
peak levels if economic expansion continues.
For example, public works spending on highways and bridges will be helped by an influx of
matching funds from a 1983 increase in the
federal gasoline tax.
Strong performance is anticipated in the
service sector in the year ahead. The flow of
businesses and residents into the region should
heighten demand for service industries, particularly in Florida and Georgia. Moreover,
business and tourist travel to the region seems
likely to advance during 1985. An expansion of
convention facilities in several cities will accommodate numerous business travelers, and new
facilities apparently are being booked nearly as
quickly as they become available.
The region's plane-passenger traffic grew
more slowly in 1984 than in 1983, but airports
maintained their positive position in spite of
lackluster performance in the tourist sector.
Competition from the Los Angeles Olympics, a
strong dollar that encouraged U.S. citizens to
travel abroad and discouraged foreign visitors
to this country, consumer belt-tightening during
the summer, and special problems at some
regional attractions all combined to depress
the Southeast's tourist activity in 1984. The
New Orleans World's Fair, once envisioned as
the focal point of the region's tourist activity for
1984, proved to be a disappointing moneyloser instead. Tourist flows are expected to
revert t o more normal patterns during 1985 if
the nation achieves the moderate economic
growth projected.
The financial segment of the services sector
underwent significant upheavals in 1984 that
seem certain to affect both the industry and its
customers in the new year. Geographic banking
frontiers were broadened with the opening of
Georgia's Avail, an automated teller machine
network modeled after Florida's Honor system;
w i t h passage of a Louisiana bill permitting
multi-parish bank holding companies; and most
importantly, with the creation of a regional
reciprocal interstate banking pact among Florida
Georgia, North Carolina, and South Carolina.
The legislatures of these states agreed that
their institutions could be acquired by those
headquartered in reciprocating southeastern
states, and that banks from outside the region
would be barred from such acquisition. As a
result, Sun Banks of Florida and Trust Company
of Georgia, both among the top three banks in
their home states, have proposed a merger. The
reciprocal pact p r o b a b l y will generate considerable activity in 1985 unless the Supreme
Court prohibits such agreements in ruling on a
similar pact in New England.
Early in 1984, Citicorp of New York, the
nation's largest banking organization, gained
entry into one of the fastest-growing markets
by acquiring the failed New Biscayne Federal
Savings and Loan Association of Miami. Also in
Florida, U.S. Trust Corporation of New York
received approval to convert its trust office
into a " n o n b a n k bank," an insured and regulated
institution that, because of its limited services,
circumvents the geographic constraints of
commercial banks. In the Sixth-District states,
102 applications f o r " n o n b a n k bank" status
were filed as of year-end 1984; at least some of
these are likely to begin operation in 1985.
While some financial institutions were seizing
new opportunities, others were confronting
severe problems in 1984. As of mid-December,
16 commercial and mutual savings bank failures
occurred in the Southeast notably in Tennessee
as it continued t o feel the aftereffects of the
6
Butcher organization's collapse. The coming
year may begin to ease the plight of that state's
ailing institutions.
This year's manufacturing activity in the Southeast depends heavily on the auto and building
sectors. Defense-related manufacturing, especially electrical and electronic machinery and
equipment, also should exhibit solid growth as
will the region's substantial paper manufacturing
industry. Unfortunately, not all the region's
manufacturing will fare as well. M u c h of the
apparel and textile manufacturing sector has
undergone a dismal year because of keen
competition from imported products that realized a substantial price advantage from the
dollar's unusually high exchange value. Unless
the dollar declines sharply in value against
other currencies, pressures on the domestic
textile industry will continue to mount. The
displacement of low-skilled textile workers
poses an absorption problem for the southeastern economy for years to come.
The textile industry is not the only sector
troubled by intense foreign competition. Virtually every industry that depends on foreign
markets for a significant share of its output has
seen that market share shrink during the past
year. For instance, the agricultural sector has
been especially beset by reductions in foreign
demand. Weather-related problems have kept
crop yields below expectations, but farm production generally has attained levels far in
excess of those needed to satisfy domestic
demands. Low prices for farm products, heavy
indebtedness, and persistently high credit costs
remain major hurdles facing southeastern producers. Prospects appear unpromising for substantial early relief as the new year begins.
Failures and liquidations of deeply indebted
farming operations seem likely to continue in
1985.
The Southeast's energy-producing sector
also remains stressed. Little recovery reached
this sector in 1984 and the new year bodes
poorly for it The worldwide market for petroleum
and natural gas is abundantly supplied, even
though some producers have slashed output to
shore up prices. Regional production of oil and
gas cannot rebound until global market conditions improve. Coal producers, w h o have enjoyed lively export markets in times past, find
their current opportunities limited by similar
surpluses. In addition, they are plagued by the
FEBRUARY 1985, E C O N O M I C
REVIEW
high-valued dollar, which reduces the competitiveness of domestically produced coal in international markets.
Southeastern seaport facilities and businesses
dependent on export marketing find themselves stricken with the aggregate effects of
declining exports suffered in all major sectors.
Rising imports have offset the downslide somewhat for a number of traderelated businesses;
yet the value of total trade remains below
levels attained at the beginning of the decade.
A realignment of the dollar with other world
currencies appears t o be a prerequisite to
restoring the health of most of the Southeast's
international trade sectors.
In summary, moderate economic g r o w t h signaled late in 1984 by an upturn that brightened a dull second-half economy—is expected
for the Southeast throughout the year. Not all
sectors of the region's economy will participate
in this growth, but construction, services, and
manufacturing of auto parts, building materials,
defense equipment, and paper should enjoy a
good year. Textiles, apparel, and other manufacturing sectors handicapped by the reduced
prices of imported products will continue to
struggle in 1985. Nor are domestic industries
that depend on export markets likely t o see
much growth in market shares. Agriculture,
energy, and export-related businesses will fare
better as 1985 progresses only if the dollar
declines to a substantially lower exchange
value against other major currencies of the
world. Even if such realignment should occur,
the lag in adjustments is likely to delay any
favorable impact on regional manufacturers.
NATIONAL E C O N O M I C O U T L O O K
The fundamentals seem to be in place for
healthy, though slower, growth in 1985. Consumer purchases, investment by businesses,
and expenditures by the government all should
contribute to making this a good year, with real
gross national product (GNP) probably advancing
in the range of 3 to V k percent Consumer
spending is already rebounding from 1984's
third-quarter slowdown. Business s p e n d i n g
on capital goods should continue to fuel expansion, even though the growth rate in business investment, like that of consumer spending,
probably will fall short of last yeaKs.
In 1984, legislative modifications of the tax
treatment of business investment did little to
FEDERAL RESERVE B A N K O F A T L A N T A
alter the favorable climate for spending on
capital goods that had been established by
Congress and the administration a few years
ago. Recently, the Treasury Department proposed tax reform to eliminate many special
provisions legislated earlier to spur investment
Ironically, such reform could catalyze investment in equipment this year, as businesses try
to take advantage of the provisions before they
are rescinded. On the other hand, uncertainty
about potential tax changes may cause some
businesses t o defer planned investment.
Another source of short-term strength is
government fiscal policy, which remains highly
stimulative Defense expenditures, in particular,
should help maintain substantial m o m e n t u m
in the nation's factories, even if cuts are applied
to defense as well as other federal programs.
Military projects approved in the past few years
should foster strong activity at least through
1985 and possibly into 1986.
An additional stimulant to the economy is
the interest rate decline of late 1984. Reduced
credit costs should spark at least a temporary
revival in residential housing by attracting buyers
back into the market and making it relatively
cheaper for builders to undertake new projects.
Finally, while monetary growth did weaken for
several months, particularly in the case of M1,
recent numbers show a substantial rebound. M l
is a monetary measure of the most liquid
assets, including cash, checking accounts, and
travelers' checks from nonbanking institutions.
M2 and M3, broader measures of the money
supply, have been expanding very rapidly in
the past few months.
Of course, some potential problems and
weaknesses loom in the months ahead, and
certain economic sectors are less likely to
thrive in the coming year. At this mature stage
of a business expansion, the anticipated resurgence of growth possibly could produce a
somewhat higher rate of inflation, probably in
the neighborhood of 4 1/2 to 5 percent Furthermore, real interest rates remain high by historical
standards, and most forecasters believe that
the huge federal deficit will continue to apply
upward pressure on rates. If this happens,
capital investment could suffer as businesses
and other private investors are crowded out of
the market for funding.
The construction industry may show mixed
patterns in 1985, since much of the pent-up
7
demand for housing has been filled. Consequently, we are unlikely to see a return to the
booming single-family housing construction that
emerged during the early recovery. The remaining
housing demand probably will be rather sensitive t o mortgage rates. Multifamily building
may have grown faster than demand in 1984,
as apartment vacancy rates and the stock of
unsold condominium units are substantial in
many areas. Nonresidential construction should
continue its momentum, but office vacancy
rates are worrisome in many cities.
A final area of continuing weakness, and
perhaps one of the most important, is the
international sector. The high exchange value
of the dollar and the slower recovery abroad
have weakened markets for American manufacturing. Producers of textiles, apparel, lumber,
and other goods sensitive to foreign competition experienced weak growth in 1984, and
their prospects probably will not improve in
1985. In addition, industries heavily dependent on exports, such as agriculture and machine
tools, cannot hope for much stimulus from
foreign demand.
Because of these weaknesses and the likelihood of slower growth in consumer spending
and business investment unemployment probably will decline much less this year than it did
in 1984. Still, we believe it could fall below the
7 percent mark Moreover, the weakness in
certain sectors, such as construction, should
not be exaggerated: we are now entering the
mature phase of an expansion, in which construction typically contributes much less to
growth than it does earlier. Overall, then, we
look for respectable economic growth consonant with this stage of the business cycle.
Our projections for the new year are based
on the course of the recovery and expansion
since the end of the nation's last recession. The
U. S. economy has experienced an impressive
rebound since the recession reached its cyclical
low in November 1982. During most of the
expansion, growth in broad measures of aggregate economic activity, such as real GNP, industrial production, and employment has been
more rapid than in most recoveries since the
Korean conflict. Aggregate economic growth,
however, decelerated last summer and trends
are now about equal to those of the average
recovery.
This slowdown should not have been surprising. First, sizable demands for both consumer
8
durables and business investment had built up
during the years preceding the current expansion. As the recession ended and the recovery
gained momentum, the fulfillment of these
pent-up demands gave a one-time boost to
economic growth, raising it to better-thanaverage rates. Once these demands were satisfied, though, growth rates slowed. A second
factor in the slowdown is that lagged effects of
spending, spurred both by the substantial stock
market rally of mid-1982 to mid-1983 and by
capital gains related to the appreciation of
owner-occupied housing, dissipated. Inventory
adjustments of the type experienced in late
1984 thus were predictable. Accordingly, a
moderation in growth from the rapid pace
registered in early 1984 should have been no
surprise.
Despite this slowdown, however, fundamental factors underlying the longer-term outlook remain healthy. W e see no imbalances of
the type that normally presage a recession, for
instance, severe inventory imbalances or balance
sheet distortions. Furthermore, the interest
rate declines that took place last fall should set
the stage for improved monetary and economic
growth. Consequently, economic activity should
maintain its forward m o m e n t u m in 1985.
Our outlook for 1985 is premised on several
key assumptions about monetary and fiscal
policy. W e assume, for example, that monetary
growth will remain around the middle of the
tentative ranges adopted by the Federal Open
Market Committee. Additionally, w e assume
an essentially unchanged growth of government expenditures and receipts, which necessarily implies a federal deficit in the neighborhood of $200 billion for fiscal 1985. Since last
yeaKs deficit also was large, and since the
composition of both government spending
and tax revenues generally is expected to
remain about the same in fiscal 1985, it is
reasonable to assert that fiscal policy will not
contribute to any change in the 1985 outlook.
Consumption
Although consumption expenditures slowed
substantially in the second half of 1984, they
should regain some of their earlier strength this
year, because the fundamental factors influencing consumption expenditures are positive.
Real personal income growth, for example,
should continue at moderate rates through
FEBRUARY 1985, E C O N O M I C
REVIEW
1985, and employment gains are unlikely to be
reversed. O n the other hand, those increases in
wealth attributable to stock market gains and
t o capital gains from appreciation of owneroccupied homes that helped propel consumer
spending in 1983 and 1984 probably will not
play as much of a role in 1985.
Specific c o n s u m p t i o n categories should
reflect these considerations. Purchases of both
consumer durables (autos and major appliances,
for example) as well as nondurables (such as
food and clothing) are expected to show reasonable growth. Auto sales, in particular, have
already begun to rebound from the lower,
strike-related levels of last autumn, when shortages in the supply of autos depressed sales.
While showing improvement, spending on
housing-related items will track housing. Services
expenditures—the most stable category of consumption— have become a growing portion of
total household spending. Such expenditures
(for instance, owner-occupied housing services,
utility consumption, medical care, education,
and transportation) should continue to provide
stable growth during the year.
Business Investment
Business fixed investment contributed significantly to economic activity in 1984, with
both its major components—expenditures for
producers' durable equipment and for plant
facilities—advancing at rates faster than experienced in the average recovery since the
Korean conflict. This investment boom was
fueled by a number of factors. Technological
innovations in areas such as information processing and communications encouraged many
businesses to increase their investment in equipment. M o r e o v e r , rising capacity utilization,
healthy profits, stock market advances in 1983,
and changes in tax laws favorable to investment
in plant and e q u i p m e n t p r o v i d e d sufficient
incentive and means t o invest, despite historically high real interest rates.
Not all these favorable factors, however, will
be bolstering investment in 1985. Consequently,
growth of business fixed investment this year
likely will slow from 1984's pace. Many of the
influences promoting investment in 1984 already
have weakened or expired. Capacity utilization,
for example, actually fell during some months
in the latter half of the year. The decline was
partly strike-related, but it also was attributable
FEDERAL RESERVE B A N K O F A T L A N T A
to inventory corrections that occurred at that
time. This adjustment, and the more moderate
overall growth expected for 1985, should lessen
capacity shortages and thus moderate investment needs.
Similarly, because vacancy rates of office
buildings increased in 1984, fewer office buildings may be constructed in 1985. Profits declined
in mid-1984 and are expected to continue
deteriorating, since cost pressures normally
build up at this stage of the business cycle.
Such profit deterioration typically works against
the stock market which remained flat throughout 1984. Profit increases and stock price
advances thus may not work to reinforce investment as they did in early 1984. As a result,
investment in plant and equipment is likely to
be somewhat weaker in 1985. Nonetheless,
moderate overall growth will encourage some
further growth in business fixed investment
Inventories
Inventory adjustments played a major role in
the modest growth experienced in the third
quarter of 1984. Retailers, and subsequently
wholesalers and producers, were left with unwanted inventory when consumers slowed their
spending somewhat unexpectedly at midyear.
Fortunately, improved inventory controi procedures allowed rapid adjustment before substantial imbalances developed.
In the past because of longer response times,
changes in sales led t o proportionately larger
adjustments in inventories and p r o d u c t i o n
levels. Now, a combination of improved physical controls of inventory stocks (made possible
by new computerized information systems, for
example) and higher costs of inventory financing
have worked t o keep inventory-to-sales ratios
relatively low compared with past expansions.
In addition, low inflation rates have reduced
incentives for speculative inventory accumulation, reinforcing the impact of higher carrying
costs that normally accompany a period of
disinflation.
The lower inventory-to-sales ratios for this
year's outlook hold some important implications.
Specifically, while inventory investment may
provide less stimulus to GNP than in the past, it
also should not create the imbalance that it has
historically. In short, inventory cycles are likely
to be less important in the future than previously.
Inventory adjustments, therefore, should have
9
little impact on economic activity in 1985.
Nonetheless, as household and business spending expand, inventory investment should add
modestly to GN P growth over the course of the
year.
Housing
Housing activity declined steadily during
1984, w i t h both the single-family and multiunit categories showing weakness. Contributing
to the decline were increases in mortgage rates
at m i d y e a r a n d t h e p r e v i o u s s a t i a t i o n of
pent-up demands for housing. Despite these
adverse factors, other considerations should
bode well for housing and contribute to stabilizing activity in 1985. First, mortgage rates
declined during the latter part of last year,
which may foster additional growth in 1985.
Second, w i t h the removal of most interest rate
ceilings, the sort of classic credit crunch often
associated with sharply declining housing activity is unlikely to develop. Innovative mortgage
financing methods such as adjustable rate mortgages have worked t o stabilize housing activity
as well. Generally, housing will be weaker than
it was in early 1984, but is expected to stabilize
at moderate levels.
The International Sector
During 1984, U. S. exports remained in the
doldrums while imports, lifted by strong demand
in this country, soared. As a result, the nation
registered a record deficit in its balance of
trade.
Two factors appear to have caused the sharp
increase in imports and slow growth of exports:
the strength of the dollar in foreign exchange
markets, and the unbalanced nature of the
current world recovery. During 1984, the trade
weighted value of the dollar skyrocketed to its
highest level in the foreign exchange markets
in over a decade, increasing 14.3 percent The
strong dollar stimulated imports by lowering
the prices of foreign-made goods in U. S. stores,
and also reducing the cost to Americans of
vacations abroad. At the same time, the strong
dollar dampened U- S. exports by rendering
American-made goods more expensive in foreign
markets.
The current world recovery is unbalanced:
aggregate demand and employment have recovered fairly sharply in the United States and
10
in certain Asian countries (such as Japan, South
Korea, and Taiwan), but the rebound has been
disappointingly slow in Europe and Latin America
Strong demand in the United States has helped
to stoke the surge in imports to this country,
while weak demand in our traditional Latin
American and European markets has tended to
hold down U. S. exports.
For the past t w o years, many analysts have
been predicting that the dollar would weaken;
some even have predicted its sudden collap.se.
A decline in the dollar would, after a lag,
stimulate U. S. exports and make foreign goods
less competitive in U. S. markets. However, the
dollar has held firm moving into the new year.
The 1985 outlook is for another troubling
deficit in the U. S. balance of trade. A decline in
the dollar, even if it comes, would have a
substantial impact on U. S. exports and imports
only after a time lag of many months. Given the
continuing strength of the dollar recently, it
seems safe to predict that imports into this
country will remain heavy and exports weak
during 1985.
Inflation
Price increases were moderate during 1984
as measured by all general gauges of inflation.
Consumer prices rose 4 percent on a yearover-year basis, while the GNP deflator ended
the year with an average increase of less than 4
percent. Producer prices were even more subdued, merely rising less than 2 percent above
the 1983 average. The only sector showing
significant price increases was services, which
are less vulnerable to import competition than
merchandise.
Although inflation is determined primarily by
average long-run growth in the money supply,
other forces unrelated to the money supply
may temporarily displace prices from trend. In
the mid- and late 1970s, for example, adverse
shocks in the supply of goods, an undervalued
dollar, and a series of bad harvests produced
more inflation than the trend in monetary
growth indicated. More recently, the strength
of the dollar—which has experienced greater
appreciation than fundamental factors would
suggest—has worked t o moderate price increases in several ways.
First, dollar appreciation directly lowers
import prices and, consequently, also constrains
FEBRUARY 1985, E C O N O M I C
REVIEW
price increases for import-competing goods as
well as prices of the materials and components
that go into them. Second, since dollar appreciation also makes U. S. exports more expensive
to foreigners, it reduces foreign demand for
these products and thus exerts downward
pressure both on the products' prices and their
inputs. Third, because the prices of raw materials
and other industrial commodities traded in
world markets (such as oil) often are denominated in dollars, dollar appreciation increases
the prices of these commodities in terms of
foreign currencies, thereby lowering demand
in foreign countries. Recently, this relationship
has been especially important in curbing European demand for commodities, which in turn
has helped weaken the dollar price of important
commodities, notably oil. Finally, abundant
harvests and agricultural surpluses in the United
States and elsewhere have kept food and foodrelated prices low, and productivity increases
that have matched or equaled wage increases
FEDERAL RESERVE B A N K O F A T L A N T A
have restrained unit labor costs. As a consequence, during the past year w e experienced
somewhat less inflation than implied by the
trend in monetary growth.
Certainly, a continuation of the within target
monetary growth of 1984 will help keep price
increases modest in 1985. The inflation outlook
for the year is therefore quite favorable. On the
whole, w e anticipate moderate inflation during
1985 consistent with slowly rising capacity
utilization, mid-target monetary growth, and a
healthy dollar. Price pressure in the services
component likely will continue to be higher
than in sectors subject t o direct import competition. Nonetheless, overall price increases will
remain tempered by import competition.
The Atlanta Fed's regional economics
team, headed
byCene
Sullivan, is responsible
for this special issue. William I. Kahley
served as its coordinator.
Members
of the financial
and
payments
system team and the macropolicy
team
also
contributed.
11
Florida: Sunny
With Few Clouds
David Avery and B. Frank King
Sizable employment gains and income growth
s e e m likely t o maintain Florida's e x p a n s i o n s
a rate surpassing the n a t i o n ' s Expected imp r o v e m e n t s in L a t i n A m e r i c a n e c o n o m i e s
promise t o reinforce this t r e n d by stimulating
the state's international t r a d e a n d tourism.
Despite some troubles in i m p o r t a n t parts of
Florida's economy, the state's recent record of
relatively fast growth is likely to extend through
1985. The rapid movement of people into the
state should boost incomes, consumer spending
and construction. Florida's manufacturing sector
will profit from continued national growth and
from liberal defense expenditures, and a healthy
public-sector fiscal position will promote construction spending further. These factors should
largely overcome weakness in the tourism,
manufacturing, and agricultural sectors induced
by the high foreign exchange value of the
dollar, overbuilding, and a plague of troubles in
the citrus industry including last month's freeze
Key Economic Sectors
Florida's major income generators historically
have constituted an interesting mix of volatility
and stability. Tourism, touted as Florida's largest
industry, is highly sensitive to the overall health
of both the national and international economies
and to the value of the dollar. Employing an
estimated 9 percent of the state's payroll workers,
The authors are, respectively,
research analyst
director of the Research
Department
12
and
associate
tourism cuts across sector categories and represents a prominent income source for various
retailers and transportation companies as well
as for the familiar recreational and lodging
service groups.
Migration, which provides a major portion of
the state's income growth and demand, rises
and falls with the nation's economy. Construction, another important underpinning of Florida's
economy, likewise reacts in concert with the
nation, partly because of its close relationship
to migration and partly because it is influenced
by interest rates and income. In addition to
residential and commercial builders and developers, the financial community, real estate
workers, and the state's many manufacturers of
building products are affected directly by changing factors in the construction industry. The
industry has been an engine of growth in
Florida's economy, particularly during the past
year. As of November, construction employment stood at 36,200 jobs above the level of a
year earlier. International trade also is a leading
component of the state's economy, especially
for south Florida. The $18 billion sector is
linked closely to Latin American countries and
reacts quickly to their economic health.
Florida's economy has some major stabilizing
influences as well. M u c h of the state's income
is in the form of retirement pay. At 11.3 percent
of total personal income, Florida's retirement
income outranks that of any other southeastern
FEBRUARY 1985, E C O N O M I C
REVIEW
state and is 3.6 percentage points above the
national figure. Retired citizens, finding Florida
amenable t o their needs, continue to move to
the Sunshine State from other areas of the
country. The steady employment and payrolls
of the state's many military bases provide for
further stability.
Florida's agribusiness constitutes another significant and relatively stable component of the
economy. About 11 percent of statewide income
flows from agribusiness, with fruits and vegetables accounting for most of the farm revenue.
The food processing industry, an additional
stabilizer, employs approximately 48,000 workers; because imported goods can make up for
crop shortfalls, the industry does not hinge on
domestic production.
Finally, Florida's industrial sector has shifted
from being a construction-driven and therefore
volatile sector to one driven by technology
closely allied to the recession-immune defense
industry. Although defense spending is volatile
from the political side, it tends to be less
volatile than construction in terms of economic
development. In 1983, the state ranked among
the top three in the value of Department of
Defense prime contract awards for missile and
space systems and aircraft engines. The largest
sources of manufacturing industry employment
in Florida, at 122,000 workers, are the electrical
and electronic and machinery industries, which
typically list defense contractors as their largest
customers.
FEDERAL RESERVE B A N K O F A T L A N T A
Most of Florida's key sectors should contribute to continued growth in 1985 unless the
national economy slows markedly. Migration
t o the state probably will accelerate as people,
especially retirees, find themselves able to sell
their homes in other parts of the country more
easily. In-migration is expected to boost the
state's population 2.5 to 3 percent, or 250,000
to 300,000, further strengthening housing and
retail sales as personal income growth outpaces
that of the nation. Also, military payrolls and
retirement pay t o Florida residents, which rose
16 percent from 1982 to 1984, are expected to
post notable growth in 1985.
Military spending will exert a powerful influence on the state's economy this year and
should engender further growth in its defenserelated manufacturing sectors. Defense-generated growth also will stimulate migration into
the state as corporate transferees arrive to fill
positions in expanding businesses. For the
second year in a row, Alexander Grant and
Company of Chicago ranked Florida first in the
nation for business climate, a fact that will not
be overlooked by firms conducting location
studies for new or expanding industries.
The vigorous construction industry is expected
to slow somewhat this year, but activity will
remain high by historical standards, especially
if mortgage interest rates do not turn up significantly. Increased government spending on
public facilities will bolster the construction
sector and ancillary industries. A projected
13
surplus in the state's treasury should encourage
spending for public works projects. The boom
in office space construction will slow, however,
in part because of high vacancy rates.
The tourist sector should show renewed growth
this year. The growth could be quite strong if
exchange rates become more favorable to foreign
tourists and less so to Americans traveling abroad.
A number of competing events, such as the
World's Fair, lured visitors away from Florida's
attractions last year, but higher attendance can
be expected in 1985. Economic recovery in the
Latin American countries should boost tourism
and the international trade sector and encourage
visits by Latin American business people.
The agricultural sector received a shock with
the outbreak of citrus canker following t w o
years of damaging freezes. As a result, imports
from Brazil are taking a greater share of the
state's $1 billion citrus industry. In 1984, the
orange crop remained 30 percent below the
last normal year of production. Another severe
freeze in mid-January and the relatively long
period required to return to full production
dim prospects for citrus producers in 1985.
Florida's economic performance during the
1981-83 recession bettered that of the nation.
Its unemployment rate was lower, and the
downturn in the rate of change in personal
income and nonfarm employment was less
severe (Chart 1). The superior performance of
Chart 1. Unemployment Rates, Florida and
the United States
Florida's key sectors was largely responsible for
the state's favorable showing compared with
the national economy during the recession and
in the expansion of 1984 (Table 1). This year,
the state's major income generators are expected
to record continuing strength in most areas.
Population, Income, and
Consumer Spending
Typically, Florida's economy is the fastestgrowing among the states of the Southeast. In
the 1981-82 recession, Florida's personal income
growth led the region's, and rose faster than the
national average. Since 1982, the state's economic growth has accelerated, outpacing the
nation's by a substantial margin and standing
second in the region only to Georgia. Florida's
strong and rapidly advancing economy now
accounts for more than one-third of the region's
income.
So far in the 1980s, the state's pattern of
economic growth marks a break from its usual
cyclical volatility. Florida generally has entered
into and emerged from recessions later and
has varied more than the nation. This lag and
greater variability are linked to the importance
of population migration, tourism, and construction to the state's economic well-being Migration
and tourism, major sources of Florida's income
growth and demand, rise and fall with the
T a b l e 1. Change in Nonagricultural E m p l o y m e n t
Florida and the United States,
November 1 9 8 3 to November 1984
Percent Change
Florida
United States
Total Nonfarm Employment
Construction
Transportation
Trade
Finance
Services
Government
Manufacturing
Durables
Nondurables
Source: U.S. Department of Labor, Bureau of Labor Statistics
14
5.7
12.8
0.3
6.7
7.2
5.2
3.3
4.1
8.4
4.1
5.1
3.5
5.1
1.3
7.0
3.7
5.3
1.1
Source: U.S. Department of Labor, Bureau of Labor Statistics,
a n d Florida Department of Labor a n d Employment Security.
FEBRUARY 1985, E C O N O M I C
REVIEW
nation's economy, affecting both the state's
volatile construction sector and its dominant
service industries. (Chart 2 clearly illustrates
the importance of the employment shares of
the service and construction sectors to Florida
relative to the nation.) Since 1980, however,
Florida manufacturing jobs in recession-immune
defense and related industries, such as electronics, have grown rapidly, perhaps making
the state's economy more resistant t o national
business cycles.
Florida's economy did slow sharply in the
1981-82 recession, for migration dropped just
as it had in previous slumps. By 1984, however,
migration again was providing a strong boost to
the state's economy. Moreover, the outlook for
a growing national economy in 1985 points to
accelerating population gains for Florida, which
suggest continued vigorous growth of personal
income, construction, and retail sales in the
Sunshine State.
Florida's strong population and income growth
over the past two years was reflected in unusually
robust spending by consumers. From late 1983
to late 1984, monthly increases in retail trade,
compared with the previous yea/s, were about
double the increases nationwide. W i t h i n the
state, however, south Florida lagged in the
growth of population, income, and retail trade.
If the Latin American economies rebound in
1985 as expected, and if effects of the Carib-
bean Basin Initiative prove t o be stimulative,
the Miami area should catch up with the rest of
the state this year.
Heavy migration also has magnified the importance and volatility of construction in Florida's
economy. High interest rates and poor economic
conditions in other parts of the country slow
home sales and tie more potential migrants to
their current locations. Slack in Florida's economy
may diminish its pull on working-age migrants
as well. As the overall economy improves,
however, potential migrants are able to loose
their ties to home and seek housing and other
services in Florida.
Construction
Residential With the return of rapid, migrationinduced population gains, the overall construction and real estate outlook for Florida is
excellent. A major national recession or sharply
higher interest rates w o u l d cloud this outlook,
but most forecasters expect neither.
It is doubtful that residential construction
activity in the Sunshine State will outpace the
rapid growth of last year. Prospects for a surge
in demand as potential homebuyers rush to
make purchases postponed by the recession
are minimal. Rather, it is more likely that growth
will be driven by advances in current income,
employment, and population.
Chart 2. Nonfarm Employment Share by Sector, Florida and the U.S, November 1 9 8 4
United States
Florida
Transportation
5.5%
Transportation
5.5%
Construction
7.5%
Other
0.2%
Construction
4.8%
Other
0.9%
Nondurables
5%
Nondurables
8.3%
Service
24.3%
Government
17%
: U.S. Department of Labor, Bureau of Labor Statistics, a n d Florida Department of Labor and Employment Security.
Source:
15
FEDERAL RESERVE B A N K O F A T L A N T A
Nonresidential Florida is in the midst of an
office construction boom that w e expect to
moderate in 1985. Through the first nine
months of 1984, the overall value of office
building permits increased by 21 percent over
the previous year. Miami recorded a 25 percent
rise in this category, while Tampa's office building
permit dollars rose a w h o p p i n g 80 percent.
Florida's strong economic growth has created expansion opportunities for existing businesses
and fertile ground for new ones. The growth is
heightening demand for white-collar professionals (doctors, lawyers, and so forth) who
also need offices for their work.
However, the state's commercial construction
is likely to slow in 1985 for two important reasons. A
key feature of recent federal tax legislation
lengthened the average depreciation period
on commercial structures, decreasing income
coverage and increasing the potential tax liability
to owners and investors. In addition, all major
Florida cities have a large stock of unleased
office space that will deter some developers,
especially in the unexpected event that business
expansion falters. In Miami, for instance, despite
an increase in commercial activity the downtown vacancy rate is around 18 percent, up 3.5
percent from 1983. Local experts project that it
will take three to five years to lease fully the
office space being constructed today. Even so,
commercial developers often have proved willing to suffer through periods of sparse leasing
and slow cash flow if the local business climate
promises—as Florida's does—demand for their
structures in the near future.
O n the brighter side, the construction of new
industrial buildings, particularly warehouses, is
likely to expand markedly in 1985. In many
cities in the state, the ability to produce goods
has far outpaced local capability to ship them;
however, a nationwide move toward decentralized distribution is continuing. This trend will
especially benefit Florida with its sizable, ready
markets.
Tourism
Tourism is a $15 billion business in Florida, a
state outranked only by California in 1984
travel expenditures. The industry accounted
for almost 340,000 jobs in 1982, or 9 percent of
Florida's payroll employment, which gives the
16
state nearly twice the average share of travelrelated jobs nationwide and places it sixth
among the 50 states. Tourism also generated
almost $700 million in state and local tax
revenues, a figure exceeded only by those for
California and New York.1 Two of Florida's
attractions are among the top six in North
America in terms of attendance. 2 Florida ranked
eleventh in national park visitations, and Miami's
airport handled more passengers than all but
seven other U.S. cities.
In 1984, the advantages of strengthened
business and convention travel were largely
wiped out by reduced foreign travel to the
state and competition from the Olympics, the
World's Fair, and foreign vacation destinations
made cheaper for U.S. tourists by the persistently high value of the dollar. The result was a
mixed year for Florida's tourist industry. Auto
travel, as reflected in welcome center registrations, was up 6 percent through the first three
quarters. Air travel increased sharply in most
major cities after the first quarter, offsetting
early declines that occurred in the wake of
discount fare cutbacks. This increase is all the
more notable since, nationally, plane-passenger
volume was virtually flat for the year owing to
losses in the first quarter.
Miami's weak 1984 performance was attributable primarily t o reduced foreign travel.
International departures slumped 3 percent
through August and foreign arrivals were down
1 percent, while domestic volume was almost
unchanged. The economic impact of reduced
foreign travel to Florida is difficult to estimate,
but it clearly has been important since the state
claims a large share of the nation's international
visitors. In addition to 1.7 million overseas and
Mexican visitors, Florida attracted 1.4 million
Canadians in 1983. New York and Washington
hosted more Canadian tourists, but no state
attracted a greater number of overseas visitors
as a primary destination. 3 Nearly half of all Latin
American travelers are bound for Florida as
their primary destination, and one-fifth of overseas air arrivals in the nation visit the state.
Nationwide declines in Canadian, South American, Central American, and Caribbean visitors,
and in total alien air arrivals, suggest that the
impact has been substantial. 4
Despite the decline in foreign travel, Florida's
lodgings sector enjoyed improved business in
1984. Statewide lodgings tax receipts moved
upward 12 percent through the first three
FEBRUARY 1985, E C O N O M I C
REVIEW
quarters. Occupancy rates generally rose as
well, with the upturn being most noticeable in
the south Florida market which has experienced
several successive years of declining or flat
occupancy rates. In this respect the state's
experience follows the nation's, where occupancy increased through midyear after declining for several previous years.5
Orlando, however, experienced declining
occupancy rates in 1984, reflecting a supply of
hotel rooms that has grown by 9,000 in the past
year to around 44,000—more than Atlanta or
Chicago. Thousands of these rooms have opened
recently and, although the number of rooms
occupied has grown 4 percent, attendance at
nearby attractions has not risen sufficiently to
match demand with the new supply. Tampa
faces a similar situation.
Attendance at Florida's principal tourist attractions was mixed in 1984. Walt Disney World's
attendance through the first three quarters was
down 7 percent; total state park attendance
was up 8 percent, but overnight stays declined
more Other private-sector attractions reportedly
did at least as well as in 1983, if not better, and
national park visitations increased 21 percent
through the first three quarters, a rise that is
quite significant since park attendance was
nearly flat in the nation as a whole.
Miami's cruise ship business expanded as
large increases in the number of ships and
berths -have p r o m p t e d some lines t o offer
substantial discounts. Cruise lines serving
Miami, the nation's busiest cruise port, have
increased their capacity more than one-third in
the last t w o years, to t w o million passengers in
1983; major lines are building more large ships
to serve this port.
The outlook is favorable for Florida tourism
in 1985. Continuing, though gradual, improve
ments anticipated in total economic output,
employment, and personal income bode well
for consumer spending, including spending for
travel. Moreover, as consumers' pent-up demand
for durables approaches satisfaction, a larger
portion of household budgets should be available for discretionary spending on travel. In
addition, the absence of major c o m p e t i n g
events should stimulate renewed interest in
Florida vacations. Only uncertainty about the
dollar's exchange rate clouds this outlook: if
travel abroad remains cheap for Americans
relative t o domestic travel growth, many of
Florida's travel-related businesses could suffer.
The outlook for foreign travel to Florida also
hinges largely on the exchange rate of the
dollar and on the pace of recovery in Latin
American countries, which account for the
majority of the state's international travelers.
Improved economic performance is expected
in most Latin A m e r i c a n countries. W h e t h e r
that will translate into increased vacation or
business travel is uncertain, because currency
controls in many countries make it difficult for
travelers t o bring money out. The Commerce
Department projects no growth in South American visits to the United States in 1985; however, it
foresees a 2 percent increase in Canadian
travelers and a 7 percent rise in Western
European arrivals. If these projections prove
accurate, international travel t o Florida should
advance, but only moderately.
South Florida should benefit from expected
continuing growth in convention and business
travel, with Greater Miami's convention bookings up around 20 percent for 1985. The area's
longer term outlook as a convention center has
been revived by plans to expand Miami Beach's
convention center t o a half-million square f e e t
Jacksonville's convention center should be completed in 1986, boosting tourism in that city.
Agriculture
Recent years have been unkind to Florida's
agricultural sector, whose largest revenue earner,
citrus production, has experienced considerable
adversity. The industry suffered severe freeze
damage in 1981 and 1982, and then the worst
freeze of the century until that time dashed
growers' hopes in December 1983. Only last
month, still another freeze of even greater
severity settled on most of the state, causing
untold damage.
Last August, a new threat to the industry
appeared. Citrus canker, a disease found in
citrus-producing parts of the world but unseen
in Florida for approximately 60 years, was
discovered in a major nursery. The state government imposed shipping restrictions, established
quarantines, and mandated inspection of citrus
groves. In the end, nurseryowners and growers
destroyed nearly five million nursery trees. The
rapid action apparently prevented an outbreak
of canker in mature groves. Inspectors are still
at work and will be throughout 1985 t o ensure
17
F E D E R A L RESERVE B A N K O F A T L A N T A
containment of the disease. Officials are hampered by the sale of many trees for residential
use, which are almost impossible t o trace.
Whether the disease will reappear cannot be
determined for many months.
The outlook for the important citrus industry
was mixed even before the latest punishing
cold wave. The orange crop, while exceeding
earlier expectations, was expected to remain
a p p r o x i m a t e l y 30 percent b e l o w the last
normal production year, 1980-81. Grapefruit
production, on the other hand, seemed likely
to increase substantially above 1983-84 before
the freeze clouded producers' prospects for
this year. The grapefruit industry has been
suffering from over-production in recent years,
but 1985 production remains uncertain as a
result of the freeze. Orange growers in southern
Florida, w h o experienced only minimal damage
from the 1983 freeze, did not escape the midJanuary 1985 blast. Even so, they may fare
relatively well as higher prices improve revenue
prospects for the remaining crop. Growers
farther north, however, may have little crop to
harvest and could find prices too low to offset
their lost production.
The state's second major "off-season" crop,
vegetables, earns Florida's farmers approximately
$800 million each year. Vegetable farms suffered
severe damage from the harsh freeze that
stretched all the way into south Florida late in
1983. Fortunately, vegetables can be replanted
to produce another crop quickly. For growers
able to replant the higher prices received
helped balance the earlier losses incurred.
Other growers found it more difficult t o raise
the necessary capital to replant.
Prior to the latest freeze, prospects for this
season appeared favorable, with vegetable
prices running approximately 5 percent higher
than a year ago. The volume of imports from
Mexico seems certain to increase to offset the
second consecutive loss of Florida's winter
vegetable crops. The strong dollar makes such
imports cheaper and increases their competitiveness even when crops are normal.
Although sugar cane provides only a small
portion of Florida's agricultural revenue, it is
especially important in the south Florida counties
of Palm Beach, Martin, Hendry, and Glades.
The sugar produced from cane earns growers
there approximately 5 percent of the state's
farm revenue. Yields in 1984 were up moderately, production was 2 percent greater than
the year before, and prices remained stable
18
because of government support Growers should
have earned profits based on yield and price.
Prospects for 1985 are clouded by the uncertainty of the extent of cold weather damage.
The cattle industry comprises an important
part of Florida's agricultural economy, earning
over 10 percent of all cash receipts. The industry
benefited in the early months of 1984 from a
seasonal rise in prices, but the balance of the
year saw prices fall. Even though the average
1984 price exceeded that of 1983, cattle producers likely still found profit margins tight. In
1985, a decline in beef and pork production
nationwide should give additional support to
cattle prices, increasing revenue prospects
slightly. No substantial increase in profitability
is likely, however.
Industrial Activity
Far fewer manufacturing jobs were lost in
Florida during the 1981-82 recession than during
the mid-1970s slump, most probably because
of the shift away from construction-related
manufacturing and toward "high-tech" manufacturing. Florida's manufacturing employment
grew faster than that of the nation for each of
the first nine months of 1984. Most of the
state's manufacturing sectors have posted
considerable employment growth, far outperforming other southeastern states, since the
1981-82 recession. Employment in durable
goods manufacturing registered particular
strength, led by a double-digit growth rate in
machinery employment. As of last September,
machinery employment, which includes electronic and high-tech industries, stood 12,800
workers above the September 1983 level.
Employment by producers of computer systems
and equipment and communications equipment reached all-time highs. Military contracts
in the assembly stage added significantly to
these contractors' employment rolls.
Electrical equipment production ranks as
Florida's largest manufacturing employer, with
components such as electrical instruments,
computers, missiles, and other space equipment exhibiting the fastest growth. Defense
contractors such as McDonnell Douglas and
United Technologies provide ready markets
for electrical equipment produced by firms
including Martin Marietta in Orlando, Harris
Corporation in Melbourne, IBM in Boca Raton,
and Honeywell in Tampa.
In 1983, Defense Department awards of prime
contracts totaling more than $25,000 in Florida
FEBRUARY 1985, E C O N O M I C
REVIEW
Table 2. Net Value of Defense Department Prime Contract Awards Over $25,000, Sixth-District States and U.S.,
Fiscal Years 1981, 1982, and 1 9 8 3
State
1981
1982
1983
Percent Change
1981-83
Absolute Change
1981-83
847,752
953,011
1,127,027
32.9
279,275
Florida
3,169,443
4,118,823
4,650,187
46.7
1,480,744
Georgia
1,334,188
1,700,689
2,449,101
83.6
1,114,913
Alabama
Louisiana
3,045,133
1,621,600
1,484,285
-51.2
-1,560,848
Mississippi
1,442,704
1,410,735
1,840,321
27.6
397,617
Tennessee
521,071
701,438
828,315
59.0
307,244
87,761,000
103,858,000
118,744,000
35.3
30,983,000
United States
Source: Department of Defense, Directorate for Information Operations a n d Reports.
accounted for nearly 40 percent of all such
contracts awarded in the six District states
(Table 2). With 22 percent of the U.S. total, the
state ranked second only to Connecticut in the
value of contracts for aircraft engines and
related spares; it ranked third behind California
and Massachusetts in missile and space systems,
with over 6 percent of the national total. Florida,
with 400 defense-related businesses, will draw
about $6 billion in government defense spending
this year, when a 5 percent growth rate is
projected for such firms in the state.
Employment reached record highs in the
transportation e q u i p m e n t industry, helped
especially by space vehicle production. Building
materials industries such as lumber and w o o d
also surged in response t o expanding housing
starts. The printing and publishing industry has
added significantly to j o b rolls, as have paper
producers responding to packaging needs for
items such as auto parts and forms used w i t h
computers.
Notable exceptions to the rapid manufacturing
employment growth have been the food processing and phosphate mining industries. The
strength of the dollar has sapped food exports,
and the general maturity of that industry limits
prospects for future growth. Troubles in the
phosphate industry have hampered the state's
producers in generating new jobs. The federal
Payment-In-Kind program (PIK) reduced domestic demand for phosphate fertilizer; however,
the termination of that program is currently
FEDERAL RESERVE B A N K O F A T L A N T A
stimulating domestic demand for fertilizer as
farmers return to former planting levels. Likewise, phosphate exports appear to be regaining
lost momentum.
The outlook is positive for further manufacturing growth, primarily because of expansion
in the electronics sector. Large companies
continue to expand near the Kennedy Space
Center on the east coast, where one aerospace
firm is building a satellite assembly plant and
another is gearing up to produce cruise missiles.
The Space Shuttle program plans on one launch
a month, ensuring activity in nearby support
industries. Near Orlando, construction of a
$400 million semiconductor plant—on hold
since 1981 —has been resumed. W h e n complete, this plant will employ 2,500 workers.
Public Sector
While national lawmakers sought ways to
resolve the federal budget deficit, Florida's
lawmakers convened in January with revenues
anticipated to exceed expenditures by a margin
of $122 million at the end of fiscal 1985. That
surplus comes in the aftermath of a combined
$282 million surplus in fiscal 1984 and 1983.
Florida's fiscal house is sound even though
state spending rose 13.6 percent in fiscal 1984
and is expected t o climb 12 percent in fiscal
1985. The favorable financial position has
occurred on the revenue side of the income
statement. In 1983, the state raised its general
19
Table 3. Full-Time Equivalent Public-Sector Employment in Florida
Number
Per 10,000 Population
Year
Total
State
Local
Total
State
Local
1983
467,821
110,085
357,736
438
103
335
1982
467,396
111,787
355,609
449
107
341
1981
461,614
106,410
355,204
453
104
349
1980
458,804
104,664
354,140
471
107
364
1979
441,350
104,037
337,313
498
117
381
1978
438,682
101,846
336,836
510
119
392
1977
429,709
97,371
332,338
508
115
393
1976
406,796
96,675
313,121
487
115
372
Source: U.S. Department of Commerce, Bureau of the Census, Public Employment
sales and gross receipt tax from 4 percent t o 5
percent. The projected $12 million surplus for
fiscal 1985 assumes that strong economic growth
also will boost revenues from the sales taxes.
Florida's strong revenue growth and demand
for public services are reflected in government
hiring. Unlike other states in the Southeast,
whose public employment declined during the
1981-82 recession, Florida's public work force
continued t o grow. That growth occurred at the
local level while state payrolls declined. Nearly
three-fourths of all public-sector workers in
Florida are now with local governments, compared with about two-thirds for neighboring
Alabama and Georgia
Florida's population has grown even faster
than its public employment, reducing the ratio
of public workers per capita. In October 1983,
for instance, there were 438 public employees
per 10,000 residents, a figure 16.4 percent
below the 510 employees per 10,000 five
years earlier (Table 3).
Aside from public-sector j o b growth, another
primary beneficiary of Florida's strong fiscal
position is public works projects. State and
local governments began borrowing heavily at
the end of the 1981-82 recession, but they
held onto the funds until the winter of 1983. In
the first half of 1984, however, they apparently
began making up for lost time.
State and local government spending to
improve public facilities tripled from $15 million
in the first seven months of 1983 to $45 million
in
1976-83.
in the same period last year. In Orlando, perhaps
the fastest growing area in the Southeast spending for public works increased from $625,000
in 1983 to almost $8 million in 1984. Sharp
increases also occurred in Miami, Ft Lauderdale,
Daytona, Melbourne, Tampa, and West Palm
Beach. Public works spending slowed, however,
in Tallahassee, Sarasota, and Jacksonville.
International
The strengthening of the U.S. dollar in world
currency markets and sluggish global trade
influenced the state's international trade performance during 1984. Import growth at the
ports of Miami, Tampa, and Jacksonville reached
an all-time peak, helping to make up for lost
export sales to Latin America. In Miami, the
state's main seaport, export activity for the year
ending last December was off 2.5 percent from
depressed 1983 levels. The economic weaknesses of Florida's major trading partners have
altered the structure of the state's international
trade substantially. While total trade volume in
1984 was about the same as in 1981, its
composition has changed w i t h slackening
exports and surging imports (Chart 3). South
Florida ports and airports exported over $10
billion worth of goods during the 12-month
period ending September 1984.
M u c h of the deterioration of export activity
was concentrated in shipments to Latin America
of machinery, electrical and electronic products,
4
,
Chart 3. Florida Exports and Imports
(12-Month Moving Average Totals)
Source: U.S. Department of Commerce, Highlights
Export and Import Trade.
of U.S.
transportation equipment, and other manufactured products. Together, these shipments
accounted for more than one-third of Miami's
exports in 1984.
Phosphate and allied products, comprising
nearly 90 percent of Tampa's export tonnage,
carried much of Port of Tampa's improved
performance in 1984. But in large part, the
invigorated trade activity at Tampa and the Port
of Jacksonville was credited to rising import
demand..The strong U.S. recovery greatly favored
automobile, steel, and lumber imports, which
posted additional gains from rising 1983 levels.
The state's $18 billion international trade
sector should continue to grow during 1985.
Unless the dollar weakens substantially, a continued import drive will be fueled by a growing
domestic economy. State exports should experb
ence a mild recovery even if the dollar remains
steady. State exporters are comforted by recent
reports of better economic conditions in Latin
America resulting from the renegotiated debts,
and by improving financial and economic conditions of some major trading partners. The
favorable impact of the U.S. economic recovery,
already expressed in strong import demand,
should also gradually brighten the new year's
trade outlook.
The state's foreign commerce has had a
significant impact on other sectors of Florida's
economy. During the last decade, for example,
trade activity facilitated the establishment of
an international banking center in Miami, bringFEDERAL RESERVE B A N K O F A T L A N T A
ing the city new commercial construction
development and investment. In recent years,
Miami's international banking has burgeoned
into a diversified network serviced by a conglomerate of local, regional, and major domestic
and foreign money center banks. The nearly
100 banking institutions involved in international
activities should greatly benefit from expanded
trade in 1985, particularly as Latin America
emerges from its financial crisis.
Another factor enhancing the state's international outlook for 1985 is increasing foreign
investment, which provides more than 30,500
jobs and $500 million in annual wages. Currently,
there are 342 foreign companies in Florida
involved in manufacturing and commercial
operations. Besides taking advantage of the
state's wide marketing opportunities, these
companies use its six foreign trade zones and
diversified port facilities.
The flow of new and expanding international
firms to Florida is expected to accelerate with
the Florida legislature's recent repeal of the
controversial unitary tax, which had taxed the
worldwide earnings of companies and their
units.
Labor Market
Continuing strength in migration and electronics manufacturing and moderate growth in
tourism and some other industries will usher
more jobs into most sectors of Florida's economy
in 1985. Last year, the second year of economic
expansion, Florida's labor market experienced
steady improvement. The state's employers
added 229,900 more workers t o their payrolls,
not only absorbing new entrants into the work
force but also finding jobs for 86,800 of the
406,800 w h o were unemployed at the end of
1983. Strong employment growth reduced the
statewide jobless rate from an annual average
of 8.6 percent in 1983 to 6 percent late in 1984.
Persisting advances in construction will be another
important factor this year. Throughout 1984,
construction employment grew five times faster
than the year before. Since the end of the
1981-82 recession, more than 75,000 new
construction workers have been added to the
state's labor force.
Florida's attractive markets both for savings
and for lending continue t o encourage growth
of its financial services industry, while sizable
advances in home sales and businesses have
provided solid j o b expansion for the insurance
21
Chart 4. Annual Percent Change in Retail Trade,
Florida and the United States
Source: U.S. Department of Commerce, Monthly
Retail
Trade.
and real estate industries. These sectors have
added over 25,000 new jobs since 1983 and
yearly growth through much of 1984 was twice
the 1983 rate. Migration, which had slowed in
1981-82, will be stronger in 1985 and construction jobs should continue to rise as employers
try to fill the needs for more business services
and housing.
As Floridians went through a second year of
expansion, consumer spending remained strong
(Chart 4), providing more jobs in the retail
sector. Trade employment grew 8 percent on
average in 1984, well above the 4.5 percent
increase in 1983, and added 72,400 new jobs
to the state's economy. Automobile dealers,
eating and drinking places, furniture stores,
and general merchandise stores enjoyed a
positive year. Growth of consumer durables
spending is expected to slow this year as most
of the pent-up demand for these goods is
satisfied. W e anticipate that retailers and wholesalers will add fewer jobs in 1985 than last year.
Florida's marked growth in services has been
concentrated primarily in the medical and healthcare fields. Continuing in-migration of elderly
citizens virtually will ensure employment advances
in these sectors. However, potential drawbacks
for health-care workers inhere in programs aimed
at containing medical costs and in impending
federal legislation designed to slow the growth
of Medicare spending.
Apparently, the wave of interest in downsizing the government's role also is affecting
the Sunshine State. Despite strong gains in
revenues from the one-cent-on-the-dollar
increase in Florida's sales tax and anticipation
of a budget surplus by the end of the 1985
fiscal year, the state's hiring policy remains
conservative. At the state level, at least e m p l o y
ment growth has been too small to keep pace
with a rapidly growing population. Thus residents
may find it more difficult to secure public
services this year.
At the local level, the problem could be even
more severe. Although public employment has
continued t o increase in absolute terms, it has
declined relative to the population growth.
Local government seems to be the area where
public services are needed most to service a
rapidly expanding elderly population.
Conclusion
Florida should continue to experience greaterthan-national growth in most of its major incomeproducing sectors in 1985. Employment gains
will keep the jobless rate low, and income
growth will stimulate many of the state's service
and service-related industries. Although 1984's
manufacturing j o b growth will be difficult to
sustain, the durable goods sector producing
military equipment and supplies should continue to bolster manufacturing e m p l o y m e n t
Other sectors seem poised for renewed growth.
For example, improvement in the economies
of the Latin American countries should foster
higher levels of international trade and tourism.
Also, migration to the state is expected t o pick
up, stimulating retail trade and residential construction. The outlook for Florida agriculture is
clouded, with still another freeze compounding
the troubles of vegetable, sugar cane, and
especially citrus producers w h o already faced a
rebuilding process in 1985.
NOTES
1
Economic Impact ot Travel on State Economies, 1982, (Washington, D. C.:
U. S. Travel Data Center, 1984), pp. 8, 31, 40.
Tourism's Top 7Vvenfy(Universityof C o l o r a d o a n d U. & Travel Data Center,
1984), p 86.
3
U. & Department of Commerce, U. S Travel a n d Tourism Administration,
Irr Flight Survey, Table YOS1, p p 9 - A 13-A, idem. Summary and Analysis of
International
Travel to the United States, p. 29; Don Wynegar, "Inter-
2
22
national Travel to a n d from the United States, 1985 Outlook," U. S.
Department of Commerce, U. S. Travel a n d Tourism Administration,
S e p t e m b e r 14, 1984.
4
Summary and Analysis of International
Travel to the United States, J u n e
1984, Table A
5
H o t e l o c c u p a n c y data are provided by Laventhol a n d Horwath; Pannell,
Kerr, a n d Forster, and the Orlando C h a m b e r of Commerce.
FEBRUARY 1985, E C O N O M I C
REVIEW
Georgia Strong But
Moderating Growth
Joel Parker and Mehmet llgaz
In-migration, an appealing business climate, and
an extensive d e f e n s e e s t a b l i s h m e n t point t o
c o n t i n u i n g t h o u g h s o m e w h a t slower g r o w t h
for Georgia this year.
Georgia's e c o n o m y is expected t o build on
its fine 1984 performance this year, even though
all major state industries are likely to experience
somewhat slower growth. Commercial construction
and retail trade could face the most abrupt
adjustments, while residential construction and
services should expand at slightly reduced rates.
The restructuring of Georgia's textiles industry
will continue to burden manufacturing, but the
public sector should perk up this year with tax
coffers replenished. Georgia's farm outlook is
barely better than last yeaKs mediocre showing.
Still, Georgia's overall e c o n o m i c m o m e n t u m
should remain a m o n g t h e strongest in the Southeast, and in the national context the state should
continue to make relative gains.
Georgia and the Nation
The Georgia and U.S. economies differ substantially, but in some ways are remarkably
similar (Table 1). Georgia's single largest area of
employment, like that of the U.S., is in the
wholesale and retail trades. However, the wholesale segment employs 7.5 percent of Georgia's
nonagricultural workers, compared w i t h 6 perThe authors are, respectively,
on the Research Departments
economist
regional
and student
team.
intern
cent for the nation. Atlanta's role as a regional
distribution center partly explains the state's
relatively high proportion of employment in
wholesale trade. Georgia and the nation have
comparable proportions of workers in retail trade,
but the state, and particularly Atlanta, has experienced explosive growth in this area over the
past year.
It still may surprise some that Georgia's 22
percent of workers in manufacturing exceeds
the countrywide average of 21 percent The
majority of Georgia manufacturing is in nondurables such as textiles and apparel, compared
with a much higher concentration of U.S. manufacturing in the production of durable goods
such as automobiles and machine tools. From
1979 t o 1984, the percentages of jobs in manufacturing in the nation and in Georgia both fell
almost 3 percent The national proportion of jobs
in durables manufacturing fell faster than in
Georgia, and the state's percentage of nondurables manufacturing jobs dropped off more
quickly than the nation's. Manufacturing e m p l o y
ment is expected to continue declining as a
proportion of total jobs in Georgia and the nation
during 1985.
Government employs a larger percentage of
Georgians than of workers nationwide. Nearly 4
percent of the state's nonagricultural workers are
employed by the federal government compared
w i t h 3 percent for the whole country. Like many
southern states, Georgia has welcomed large
23
FEDERAL RESERVE B A N K O F A T L A N T A
T a b l e 1. Georgia and U.S Employment, 1 9 7 9 and 1984
(in percent)
1984*
Georgia
United States
—4
4.8
25.0
9.0
16.0
6.4
23.0
7.3
15.7
5.0
15.4
20.0
4.0
16.0
Georgia
1.0
5.0
23.5
14.0
9.0
5.7
23.0
5.7
16.7
5.5
19.0
17.4
3.0
14.0
United States
Nonfarm Employment
Mining
Construction
Manufacturing
Durables
Nondurables
Transportation & Public Utilities
Trade
Wholesale
Retail
Finance
Services
Government
Federal
State & Local
.3
5.5
22.0
8.4
13.8
6.4
24.5
7.5
17.0
5.3
17.6
18.1
3.7
14.5
1.0
4.6
21.0
12.4
8.5
5.5
23.0
6.0
17.0
6.0
22.0
17.0
3.0
14.0
• E m p l o y m e n t percentages as of October of the year.
Sources: Georgia Department of Labor, a n d United States Department of Labor, Survey of Current
federal military complexes as steady sources of
jobs and income. Atlanta serves as a regional
center for several federal government agencies,
further boosting government employment in the
state. The relatively high state and local government employment may be partly attributable to
the abundance of counties in Georgia, each
requiring separate government services. Georgia's
nonfederal public sector employment stood at
352,000 in November 1984 and is expected to
grow in 1985.
Georgia's relatively large construction work
force is certainly consistent with its reputation as
a rapidly growing Sunbelt state. During the first
nine months of 1984 the percentage of Georgians
in construction grew at t w o to three times the
annual rate of the U.S. construction work force.
Service employment in the state is decidedly
smaller than in the nation. Although the state
encompasses Atlanta, Savannah, and other metropolitan areas, Georgia also has a sizable rural
agricultural-based area, which tends toward selfsufficiency in the service market. Around 80,000
people live and work on farms in the state
24
Business.
according to one estimate. City dwellers
such as Atlantans are heavier consumers of
service-sector products than those in rural areas.
Probably because of the size of the rural economy,
Georgia's service g r o w t h lagged b e h i n d the
nation's from 1979 to 1984. However, the proportion of service employment should approach
that of the nation as metropolitan areas become
a more prominent part of Georgia's economy.
The Atlanta metropolitan area's significant contribution to Georgia's economy helps explain
some major employment differences between
the state and nation. The Atlanta area is home to
almost 40 percent of the state's populace, has
nearly half of the state's nonfarm jobs, and
generates 43 percent of its personal income. Yet
Atlanta is not necessarily a barometer of job
markets in the rest of Georgia.
White collar and service jobs predominate in
Atlanta, making the metropolitan area's economy
faster growing and more recession-resistant than
that of the rest of the state and the nation. I n large
part, the rapid service industry employment
growth in Georgia has been caused by this
FEBRUARY 1985, E C O N O M I C REVIEW
sectors large size and quick expansion in Atlanta
Manufacturing jobs are more heavily concentrated in Georgia outside of Atlanta, making the
rest of the state relatively less resistant to national
business cycle slowdowns. The strength of Atlanta's
labor market tends to pull up the state's employment growth relative t o the nation, sometimes
masking employment weakness in the rest of
Georgia
Because of strong in-migration, a favorable
business environment, and a wealth of defense
installations and industries, Georgia's economy
likely will grow faster than the nation's in 1985,
and probably beyond. For the last decade or
more, the state, and particularly its capital, Atlanta
have been a magnet for in-migration, surpassed
in the Southeast only by Florida Net in-migration
to the state is estimated conservatively to have
been 50,000 people in 1984, o r a l m o s t l percent
of the state's population. 1 Another study found
that from last April 1 t o October 1, the Atlanta
Metropolitan Statistical Area gained 52,453 residents from natural increase plus migration, making
it the nation's third fastest-growing MSA over this
period. 2 Half or more of Georgia's total inmigrants settle in the Atlanta metropolitan area
and the remainder locate mostly in other population centers. Atlanta also attracts new residents
from other Georgia locations.
The 50,000 or more in-migrants t o Georgia
settled into about 17,000 houses, condominiums,
or apartments, substantially magnifying the housing
need that w o u l d have resulted simply from
natural increase in the population. The many
new households' total spending greatly stimulated
the state's economy, generating more demand
for goods and services, indirectly creating more
'jobs, and in turn generating more income that
fed back into the economy. Migration will remain a
primary factor in the state's faster-than-national
growth. However, as growth of the state's economy moderates and the rate of new employment
opportunities slackens later in 1985, the strength
of the migrant flow also may begin to subside.
Georgia's economy showed an almost unparalleled ability t o generate jobs for its fast-growing
population during 1984. While its labor force
increased about 3 percent, total employment
forged ahead at a 4 percent annual rate, more
than double the 1983 pace. Georgia and Atlanta
absorbed the new workers with relative ease,
registering seasonally adjusted unemployment
rates of about 6 and 4.5 percent, respectively,
late last year. The rates mark a significant imFEDERAL RESERVE B A N K O F A T L A N T A
C h a r t 1 G e o r g i a a n d Atlanta U n e m p l o y m e n t Rates
(seasonally adjusted)
Percent
12
10
•
8
Georgia
6
•
4
-
2
-
Atlanta
i
o
N D
1983
J
•
F
•
M
i
A
i
M
i
J
i
i
J
1984
i
A
•
S
•
O
N
Source: Georgia Department of Labor, seasonally a d j u s t e d by the
Research D e p a r t m e n t Federal Reserve Bank of A t l a n t a
provement from Georgia's 7 percent and Atlanta's
6 percent unemployment figures in effect at the
close of 1983. Georgia unemployment seems to
have b o t t o m e d - o u t a t a b o u t 6 percent (Chart 1).
The state's jobless rate is expected to decline
little in 1985 because of continuing in-migration
and slower employment growth in the construction,
retail sales, and manufacturing sectors But Atlanta's
unemployment rate could come down somewhat with continued strong employment gains by
the metropolitan area's large service sector.
An excellent business climate also should
enable Georgia t o exceed the national employment and personal income growth rates in 1985.
A 1984 study placed the state fourteenth from
the top in overall business climate, but ranked it
sixth according t o its level of business activity. 3
Although such rankings are highly subjective,
they do indicate that those polled felt the state
was a better site for their businesses than most
other states. Georgia's rankings also suggest that
businesses outside the state have more interest
in expanding into or wholly relocating in Georgia
than in most other states. The number of out-ofstate firms incorporating in Atlanta increased in
fiscal 1984 by 17.5 percent over 1983, and was
still increasing late in 1984. 4
Georgia's attractiveness to out-of-state businesses and business people, including foreign
investors, contributes to its rapid growth. Employees transferring to Georgia w h o account for
an important segment of in-migration, are generally
25
well above average in skill level and income
compared with the native population, and usually
contribute positively to the state's economy.
Businesses moving to the state produce an even
more dramatic benefit, because they can create
jobs directly and contribute generously to state
and local government tax coffers. These are
qualitative factors in the state's favor.
Georgia seems well positioned to benefit from
the $292 billion in national defense spending
now in the pipeline for 1985. W i t h over 2
percent of state personal income attributable to
military salaries, the 4 percent pay raise already
approved for the military in 1985 will add approximately $67 million to the $1.67 billion in
wages paid t o military personnel in Georgia in
1984. Construction and staffing of the $1.4
billion Kings Bay Trident submarine base will
continue in 1985. Production of C5-B military
airlift jets by Lockheed-Georgia in Marietta will
p u m p additional dollars into the state this year.
Commercial Building To Abate
Employment expansion in construction led all
Georgia industries last year, with almost 15
percent growth. Much of the added employment
was in Atlanta, where commercial construction
has been booming while residential construction
has held steady. There are t w o principal reasons
why this rate of employment growth probably
cannot continue through 1985. First, both residential and commercial buildingare expected t o
grow more slowly this year. Second, w i t h most
skilled construction labor already on the j o b
somewhere, most additions to the work force
must come from workers now employed elsewhere. The limited mobility of these skilled
workers from other states points t o a tapering off
in the growth rate of the Georgia construction
work force into 1985. Upward pressure on construction wages can be expected if the building
industry continues its 1984 growth pace.
Reductions in the Accelerated Cost Recovery
System (ACRS) write-off provisions and other tax
changes in the Tax Reform Act of 1984, rising
vacancy rates in office buildings, and expected
moderation of growth in the national economy
account for the anticipated slower pace of commercial construction activity. The Tax Reform Act
provides for an increase from 15 to 18 years in
the ACRS depreciation write-off period for real
property. This provision will reduce the incentive
to o w n or invest in commercial real estate and
could lead t o the shelving of marginal projects
made less attractive by lower after-tax profits.
Although this three-year extension and other
changes in the act will have a less overwhelming
effect, they will inhibit investment in commercial
structures.
Last year, office building permits in Georgia
were strong, as evidenced by the phenomenal
rate of office construction in Atlanta and elsewhere. The dollar volume of permits in 1984 was
42 percent above its level of a year earlier (Table
2).5 Most Atlanta office construction took place
in the suburbs, resulting in a climb in suburban
office vacancy rates from about 7 percent at
midyear 1983 to over 10 percent by mid-1984. 6
Atlanta's overall office vacancy rate likely will rise
in 1985 because commercial construction will
remain strong, and office space absorption probably will moderate as the rate of new business
incorporations and expansions declines.
Institutional investors are bullish on the Atlanta
office market because of its excellent business
climate. They believe that within 18-24 months
of a building's completion they will be able to
lease or sell their investment at an acceptable
rate of return. A cooling national economy could
lessen office construction by slowing leasing
schedules and thus reducing expected return.
Although developers and leasing agents remain
optimistic about near-term opportunities in the
market, Atlanta office construction could begin
slowing in the second half of 1985.
Last year, the value of nonresidential construction
in Georgia was 25 percent above its 1983 level.
Among Georgia's major cities, only in Savannah
and Columbus was nonresidential construction
relatively weak. Atlanta experienced a strong 30
percent increase, which was greatly assisted by
the office boom. In particular, the Perimeter
Crescent area, ranging along I-285 from I-85 to I75, is growing rapidly. Some developers are
buying properties currently zoned residential,
expecting to construct office complexes on the
land after the properties have been rezoned to
commercial status.
The industrial leasing and construction market
also is vigorous in Atlanta, as it has been for the
past year. If its normal performance lag relative to
the general economy holds, activity will be even
stronger this year. Especially in the bulk warehouse market, the historically low vacancy rates
of less than 2 percent will facilitate the translation of expected new demand into new conFEBRUARY 1985, E C O N O M I C
26
REVIEW
income, and a low level of unsold new home
inventory. However, the expected slower expansion of Georgia's economy and of in-migration
late in 1985 probably will hold residential construction growth below 1984's rate.
Robust in-migration drives the Atlanta housing
market and, to a lesser extent, housing markets
elsewhere in the state. A significant portion of
that migration is due t o businesses relocating
here from out of state, bringing employees with
them. The flow of people and firms is expected
struction or higher rents. The business park
market reports vacancy rates of 5 to 6 percent,
which approximate historical averages.
H o m e Market Growth Likely
The residential real estate market probably will
advance in 1985, but at a reduced pace. Most of
the ingredients for a healthy housing market
appear intact: strong in-migration, declining
mortgage rates in late 1984, expanding personal
T a b l e 2. Construction in Georgia
Value of
Nonresidential Building
Permits ($000)
Value of
Nonresidential
Construction (Millions $)
Residential
Construction Units
Augusta
Total 1 9 8 4
Percent change*
49,343
9.7
80.1
25.5
3,849
15.2
Atlanta
Total 1984
Percent change*
1,306,150
54.0
1-136
30.4
42,877
6.8
Columbus
Total 1 9 8 4
Percent change*
62,110
62.8
51.2
-12.9
1,409
10.1
Macon
Total 1 9 8 4
Percent change*
52,508
62.3
100.5
58.5
2,711
29.7
Savannah
Total 1984
Percent change*
51,978
-3.0
39.7
-21-9
1,337
-6.1
1.712,121
1.99S.3
66,493
^ TotaM 984
4 1 6
Percent change*
1984**
2 5
7
1983*
Percent
Change*
Atlanta
Single-family building permits
Multifamily building permits
28,898
17,413
27,034
13,689
6.9
27.2
Georgia
Single-family building permits
Multifamily building permits
41,275
25,138
39,120
23,321
5.5
7.8
Total b e t w e e n January a n d November 1 9 8 4
•Percent c h a n g e from ' 8 3 =
Tota
j b e t w e e n January a n d November 1983
-1.
«•The figures for each year are January-November cumulative.
Sources: U. S. Department of C o m m e r c e a n d F. W. D o d g e - M c G r a w Hill.
27
FEDERAL RESERVE B A N K O F A T L A N T A
t o diminish slightly this year as a result of the
slower growth rate foreseen for the Georgia and
U.S. economies.
Declining mortgage rates in the last five months
of 1984 will help stimulate market demand by
enabling more potential homeowners to qualify
for loans. From mid-July to early December, the
effective interest rate on conventional 25-year
fixed-rate mortgages made in Atlanta declined
by more than a full percentage p o i n t The rate on
adjustable-rate mortgages (ARMs) has retreated
as well, but to a lesser extent Some new housing
demand also has arisen from the rapid increase
in personal income in Georgia. Housing demand
sparked by in-migration and higher personal
income should manifest itself in faster home
sales in the first half of 1985.
Despite their decline, construction financing
rates remain high enough to inhibit builders from
increasing their now moderate home inventories
for speculative purposes. The speed with which
houses can be built today—often within the span
of a month—combined with high carrying costs
apparently encourages builders to build to order.
W i t h the resulting low inventory of unsold new
homes, construction will accelerate quickly if
housing sales pick up as expected in the first half
of the year.
Residential construction units, the gauge of
actual housing construction activity, increased in
all major Georgia cities in 1984 except Savannah.
Macon led the way with a 30 percent increase in
units for the first eleven months over the same
period in 1983.
Atlanta also has been doing well in adding
single-family housing. Through the first nine
months of 1984, total single-family starts in the
Atlanta area were exceeded by only t w o U.S.
metropolitan areas (Chart 2). This activity was
spurred by declining home prices in Atlanta: the
average price for new and existing homes for the
metro area in the second quarter of 1984 was
$96,000, 7.8 percent below the level a year
earlier. 7 Both the moderation in housing material
costs and last summer's soft housing market
contributed to this decline in average sales price.
Brake on Trade Sector Growth
Georgia's retail sector growth could slow significantly in 1985. From January through August
1984, state taxable sales grew at an average
annual rate of 17 percent compared with state
personal income growth of 12 percent through
28
Chart 2. Housing Starts in Major U.S. SMSAs
(January - September 1984)
Thousand Units
100 r
lllllllii
<*+
.o* J . J * J >
v<f
#
.6°
Source: Chicago Title Insurance Company.
midyear. Growth in Atlanta convention attendance
contributed to Georgia's taxable sales surge but
was not its primary cause. Sales growth cannot
continue indefinitely t o exceed personal income
growth by such a margin, and so sales advances
can be expected t o line up more closely w i t h
income gains during the first half of 1985.
Strong 1984 retail employment gains were
attributable partly to the opening of t w o large
shopping centers in Atlanta; t w o more will follow
in 1985. However, experienced retail personnel
are, for the most part, already employed. In
1985, high-quality sales people for new Atlantaarea retail establishments probably will command
higher wages than were offered to similar new
workers in 1984.
Georgia trade employment grew at an 8 percent annual pace in 1984, or roughly double the
national rate. M u c h of this growth was in the
A t l a n t a area, w h e r e retail sales s t r e n g t h
has achieved a high national ranking. Retail
employment expanded in response t o more
generous spending in the state. Atlantans and
Georgians have been spending a high proportion
of their personal incomes, which have grown
faster than in any other southeastern state over
the last t w o years.
Services: Steady Ahead
With Georgia's economic growth expected to
moderate and in-migration likely to taper off,
FEBRUARY 1985, E C O N O M I C REVIEW
1985 service employment growth is projected to
slow, but probably less than that in the construction and retail sectors. Staffing of major
additions to Atlanta's convention facilities will
contribute to some growth as several hundred
service jobs are added.
x
Services is the state's third fastest expanding
employment category, averaging 7 percent annual
growth for t h e first t e n months of 1984. The
increase in Atlanta's service employment has
outpaced the rest of the state because of the
city's mushrooming tourism and convention trade
and the many service professionals, such as
doctors and accountants, required to meet the
needs of its surging population and businesses.
Georgia's service sector tends to maintain its
m o m e n t u m when other components of the
economy are slowing, thus enhancing the total
Georgia economy's recession resistance. Service
professionals and hotel and convention workers
constitute a major proportion of Atlanta's service
e m p l o y m e n t Legal and accounting firms are less
likely to lay off staff during a business slowdown
than are manufacturing concerns. Similarly, the
army of service workers required to run a business
such as a large hotel cannot be reduced drastically
if the establishment is to run at all. The service
industry thus carries considerable forward inertia
Banking and Finance Revolution
•
'
The same -growth, diversification, and integration that characterized the 1984 banking and
finance industries could well continue this year.
In fact, 1985 could also bring a siege of bank
mergers and acquisitions, both within the state
and with institutions in Florida and North Carolina
Unquestionably, Georgia's passage of a reciprocal regional interstate banking law in 1984
altered strategic thinking among the state's financial institutions more than any development
since the Monetary Control Act of 1980. The
merger of Trust Company Bank of Georgia with
Sun Banks of Florida proposed last year christened
the new Southeast banking region. Suddenly,
every banking organization in the state felt compelled t o decide whether it would serve its
stockholders better if it survived as a distinct
organization or if it was absorbed by merger or
buy-out in the future. Once the interstate consolidations begin in earnest, they could run their
course fairly quickly. Industry analysts believe
that institutions absorbed first will command
substantially more than those selling out later,
which could create a strong incentive for institutions to be among the first to do so.
Avail, the state's new automated teller machine
(ATM) network, will enhance intrastate financial
integration, just as Georgia's interstate banking
law promotes integration across the state line.
The800-machine system, operating since October,
ranks fifteenth in size nationally. The network
was expected to exceed 700,000 transactions
per month by year-end 1984, a rate that compares favorably with larger and longer-established
networks elsewhere in the country. 8 Avail links
the ATMs of 79 Georgia financial institutions;
over 10 percent of the participating ATMs belong
t o nonfinancial institutions. The number and
proportion of Avail-affiliated ATMs at retail locations
could expand dramatically in the years ahead.
Consistent with Atlanta's role as a financial and
business center in the fast-growing Sunbelt, both
total loans and deposits in Georgia expanded
more rapidly than the national rate in 1983.
Preliminary information for 1984 indicates that
Georgia extended its growth rate advantage over
national averages for both categories. In 1984,
mortgage lending at state savings and loan associations has been particularly strong compared
with the nation's.
Employment expansion last year among Georgia
finance, insurance, and real estate (FIRE) firms
has not been surpassed since 1973. A substantial
proportion of 1984 FIRE growth reflects hiring by
financial institutions to service new products and
to market old ones more intensively. Without a
massive bank or S& L consolidation wave in 1985,
financial institutions employment in Georgia likely
will continue 1984's strong pace. A series of
consolidations could slow employment growth
in this industry, as some redundant functions
are merged within combining institutions.
Leisure Travel: An Uncertain Year
Georgia's tourism industry turned in a good
performance last year, with visitor center registrations, lodgings tax receipts, and air travel in
1984 all up over 1983, in contrast to a relatively
flat year-over-year performance nationally. The
1985 outlook will be poorer in Georgia, however,
if slower growth of the national economy persuades households to postpone vacations or
spend less on their trips.
Transportation, the linchpin of any tourism
industry, will be generally cheaper and more
efficient in Georgia in 1985. The price of regular
29
FEDERAL RESERVE B A N K O F A T L A N T A
gasoline in Atlanta hovered around $1 a gallon
for most of 1984, and prospects are good for
some continuing decline. This is good news for
tourist attractions positioned away from commercial air service, such as much of the coast,
Callaway Gardens, and the north Georgia mountains. Air fares rose substantially in 1984, as most
airlines reduced oreliminated discounts that had
caused them financial trouble. Early in 1985,
however, air carriers again offered discount fares
on a large scale, from which Georgia tourism will
benefit. Airline connections t o Atlanta are among
the easiest to make in the country because of
Hartsfield International Airports role as a national
air transportation hub. Less expensive gasoline
and bargain airline tickets will boost the number
of tourists and business people traveling to
Georgia this year.
Atlanta, the state's most popular destination,
will be easier for out-of-town visitors t o traverse
for shopping and sightseeing because of recent
improvements in its mass transit system. The
city's subway system extended its north and
south lines in December, facilitating fast and
inexpensive access t o shopping and cultural
activities in north Atlanta Although incomplete,
improvements to Atlanta's interstate highway
system will make travel more convenient for
visitors to the city.
The expected slowdown in personal income
growth nationwide in 1985 could limit both
household vacation plans and the growth of
business travel budgets. Throughout the recovery,
leisure travel never regained the priority from
households that the recovery's strength should
have warranted. Some analysts have suggested
that "make-up" purchases of household durables
deferred during the recession may have derailed
household vacation expenditures temporarily.
and meeting capacity as well as the air transportation necessary to snare large, national-draw
conventions. The city's convention infrastructure
will expand markedly in 1985 when almost
2,000 new hotel rooms will become available in
the central business district, mostly at the new
Marriott Marquis Hotel. This development, coupled w i t h an expansion that doubled the W o r l d
Congress Centers floor space, will permit Atlanta
to host more large meetings, which in the past
had no choice other than New York or Chicago.
Overthe longhaul, hundredsof jobsand millions
of dollars will accrue to the state's economy from
this growth. Over the short term, the expanded
meeting and lodging space may cause some excess capacity and lower hotel occupancy, particularly at older properties that rely on spillover
from prime convention facilities.
While Atlanta will boast plenty of hotel rooms,
meeting-room space, and good restaurants in
1985, it still can be criticized for lacking a highquality attraction, such as San Francisco's Fisherman's Wharf or Baltimore's waterfront, for the
amusement of convention visitors. The Rouse
Company's proposed $120 million redevelopment of Underground Atlanta could help fill this
void and, if successful, assist in bringing more
and larger conventions t o the city. However,
financing arrangements for the project were still
a question mark at the beginning of 1985.
Chart 3. Convention, Trade Show, and Corporate
Meeting Attendance in Atlanta,
Chicago, and New York
(in thousands)
Atlanta Advances As Convention Center
Atlanta has moved firmly into third place
among U.S. convention centers w i t h 1.3 million
delegates in 1983, following only Chicago with 3
million and New York with 4.3 million (Chart 3).
The Atlanta convention trade should improve in
1985 if the national economy achieves the
generally expected moderate growth rate. A
significant national slowdown would cut convention attendance across the country.
Although other locations in Georgia have convention facilities, Atlanta alone has the lodging
30
Atlanta
Chicago
New York
Source: A t l a n t a Chicago, a n d N e w York Convention and Visitors
Bureaus
FEBRUARY 1985, E C O N O M I C
REVIEW
Public Sector A Positive Force
Georgia's public sector, one of the largest in
the country in comparison w i t h state population,
experienced a surge in 1984 tax revenues and
seems poised to make largeroutlays in 1985. The
state exercised tight spending controls in 1982
and 1983. But last year, the maturing expansion
rewarded the state with an almost 15 percent
increase in sales tax receipts over 1983. The
revenue from personal income taxes expanded
by slightly over 9 percent because of the 5
percent increase in nonfarm employment and 6
percent rise in average wages.
The state's $4 billion budget for the 1984 fiscal
year, which ended last June, was only 7.7 percent
more than the $3.7 billion appropriated for fiscal
1983. W i t h the tax windfall gained last year,
Georgia can be expected to replenish a reserve
fund depleted during the recession and to fund
more programs.
Georgia has a large menu of new programs
requiring funding. Spending on education will
increase sharply as the state strives to raise the
quality of its schools in order to attract industry.
But the major thrust of 1984-85 state and local
spending will be in public works. Statewide
spending on infrastructure projects, such as parks,
water and sewage treatment plants, electric
utilities, and state and local office buildings,
totaled $29 million in the first seven months of
1984, compared with $5 million in the same
period of 1983. Although the lion's share of
public works spending is confined to the Atlanta
metropolitan area, and mainly t o MARTA (the
Metropolitan Atlanta Rapid Transit Authority),
other areas increased spending as well. Columbus
spent $312,000 from January to July of 1984,
compared w i t h nothing in the first half of 1983;
Savannah doled out close to $900,000, compared
with nothing the previous year; and Augusta'
spent $61,000 in the first seven months, compared with nothing in the same period a year
earlier.
Wage increases for most Georgia public sector
employees were modest in 1983 and 1984,
although educational employees fared slightly
better. Employment, particularly in education
and private jobs to expand highways and other
projects, will rise sharply in 1985. Moreover,
federal government grants will help boost spending on Georgia roads and bridges this year. The
state's budget, which calls for an 8 percent
increase in the 1985 fiscal year, should enter
FEDERAL RESERVE B A N K O F A T L A N T A
fiscal 1986 with a hefty surplus despite all of
these spending increases.
Fairer Weather for Georgia Farmers
Georgia's 1985 farm outlook can be viewed
optimistically as " b e t t e r " or conservatively as
"unchanged." Either description is an improvement over the last few years when, owing to
droughts, rising farm loan delinquency rates, and
the end of the federal Payment-In-Kind (PIK)
peak. In addition, owing to bountiful soybean
production nationwide, prices have been weak,
the resulting lower prices for crops will depress
farm revenues t o Georgia farmers as they did last
year.
The most encouraging trend is that Georgia's
farm economy as a whole saw some improvement in 1984. True, the financial viability of some
farmers either failed t o improve or deteriorated
last year. Yet many farmers were able to reestablish credit, which had tightened in several earlier
years, t o reduce some loans, and to refurbish or
replace aging plant and equipment. From this
firmer foundation, these farmers have the liquidity
to take advantage of opportunities to cut costs
and improve revenues.
Peanuts, the Georgia farm economy's largest
revenue producer, showed record yields in 1984,
following a severe drought in 1983. This crop
generates as much as 15 percent of the state's
farm receipts. Farmers can expect firm peanut
prices in 1985, primarily because of an effective
U.S. government price support program. W i t h
careful management and some help from the
weather, peanut farmers can expect another
good year.
Georgia broiler producers also profited in 1984,
assisted by higher prices and declining feed
costs. Crops aside, broilers produce the most
revenue for the state's farm economy. Feed costs
are expected to decline. Weak production by
chicken's primary competitors, pork and beef,
could pull up broiler prices through mid-1985.
Possible overproduction in the second half of the
year poses the primary risk to profitability; however, the overall prospects for Georgia's broiler
industry are good.
Soybeans tell the major disaster story for 1984.
This crop, which is planted on more Georgia
acres than any other, was curtailed severely by
drought in the late summer and fall. In fact,
Georgia soybean farmers have lost so much yield
31
in the past few years because of drought that
many have either quit growing the crop or
reduced theiracreage planted. As a result 1984's
soybean acreage dropped 17 percent from 1980's
peak. In addition, owing to bountiful soybean
production nationwide, prices have been weak.
The price picture is unlikely to be brighter in
1985, further d i m m i n g prospects for improvement for soybean producers.
Manufacturing Growth To Decrease
Georgia's manufacturing sector probably will
bear the brunt of any slowing of economic growth
within the state in 1985. Employment growth will
lessen for durables manufacturers, such as the
state's auto assembly plants and lumber mills, as
smaller increments to national personal income
moderate the growth of demand and as the
general economic expansion matures. Nondurable
goods producers, accounting for 14 percent of the
state's jobs, could be especially hard h i t Foreign
markets for the state's textile output are already
weak, and softening domestic markets could test
textile producers' ability t o maintain their yearend 1984 employment levels.
Manufacturing employed 22 percent of Georgia's
nonfarm workers last year, down 3 percentage
points from 1979. However, this sectors work
force grew by 5 percent from September 1983 to
September 1984, w i t h most of the additions
going t o durable goods producing industries
such as automobile assembly plants, and lumber
finishing and paper mills. Transportation equipment manufacturers increased their manpower
at an 18 percent annual rate as Atlanta's Ford and
General Motors plants recalled virtually all furloughed workers. Lockheed-Georgia the Mariettabased contractor for the Air Force's C5-B cargo
plane, added to its staff of engineers and technicians steadily through 1984. Hiring at Lockheed
will slow in 1985 as the airplane goes into actual
production. The lumberand wood industry thrived
on the strong 1983-84 housing market but recently has begun to face severe competition
from Canadian imports.
The state's chemical industry, which employs
fewer than 20,000 people, cut back on its employment growth as the year progressed. Chemical firms started the year hiring at a 5 percent
m o n t h - o v e r - m o n t h rate that tapered almost
monthly, declining to slightly over 2 percent
growth late in the year. In 1985, Georgia chemi-
32
cal producers can expect slower growth of demand for their output, since the national manufacturing sector is expected to buy chemical
inputs at a slower pace.
Foreign Competition
Competition from imported goods helped by
the strong dollar and the relatively high wages of
some U.S. producers will continue to harry the
Georgia textiles and apparel industries, employers
of 7.4 percent of the state's work force. The val ue
of all foreign goods imported into the state
soared last year, with a January-through-September import value of $3.5 billion matchingthe
activity for all of 1983. 10 Textiles and apparel are
restructuring industries in the United States, as
lower wage structures have shifted the comparative advantage to such countries as South Korea,
Taiwan, and China Georgia textile operations
spent an estimated $225 million on productivityenhancing improvements last year alone. 11 However, the upgrading of textile plant and equipment over the last few years has only slowed the
industry's employment decline. The long-run
employment trend in these industries seems to
be down, reflecting both the substitution of
capital for labor in domestic manufacturing and a
loss of world market share.
Foreign competition also has limited growth in
Georgia's agriculture, wood products, and domestic tourism industries. The strong dollar has
stifled foreign demand for Georgia's crops, keeping
down domestic prices and, thus, farm revenue.
Georgia's wood products suffered from slackened
demand when the housing industry weakened in
the summer of 1984. In addition, Canadian
competition in lumber and other building materials
has added to the sluggishness of this sector.
While tourism in the state did well in 1984, its
performance did not equal that of the rest of the
economy. Part of this lost performance probably
was owing to vacationers taking advantage of the
favorable exchange rate by traveling abroad
instead of domestically.
Certainly, Georgians w h o export have had a
harder time doing so w i t h the dollar at current
levels. But the high dollar also makes imports
relatively cheaper. Foreign exporters are exploiting
this advantage to market their goods successfully
in Georgia A trade delegation including Governor
Joe Frank Harris recently traveled abroad to
enlist foreign industries to join the many other
FEBRUARY 1985, E C O N O M I C
REVIEW
Conclusion
foreign-owned businesses that have located in
Georgia in recent years. Many of the same
qualifications that make the state an attractive
site for a foreign-owned business also make it a
desirable market for goods manufactured abroad.
Even if the dollar weakens in 1985, foreign
producers using the strong dollar t o gain greater
access to Georgia markets w o u l d not disappear
from the state. This is particularly true of foreign
exporters w h o were able to expand production
and market penetration significantly through the
favorable exchange rates. Some will be able t o
continue marketing in the state without the
exchange rate advantage and will become a
permanent part of Georgia's economy.
Georgia can expect strong economic growth in
1985, but at a slower pace than last year. The
state has maintained a high level of economic
m o m e n t u m for the past t w o years. The current
forecast anticipates a somewhat diminished impetus this year due t o maturation of the business
cycle and a growing weight of foreign competition
faced by Georgia industries. In-migration, an
attractive business climate, and a large defense
establishment will continue to spark the state's
growth.
The authors
assistance.
are grateful
to Elizabeth
Boyd for her
research
NOTES
' E s t i m a t e d by t h e R e s e a r c h D e p a r t m e n t F e d e r a l R e s e r v e B a n k of A t l a n t a
' P o p u l a t i o n R e s e a r c h Service, Austin, T e x a s
3
B r u c e G. P o s n e r , " R e p o r t o n t h e States," INC., voL 6 ( O c t o b e r 1 9 8 4 ) , pp.
110-12.
• O f f i c e of t h e S e c r e t a r y of S t a t e of G e o r g i a
5
U. S D e p a r t m e n t of C o m m e r c e
6
Coldwell Banker.
' P u b l i c Affairs Division, N a t i o n a l A s s o c i a t i o n of H o m e Builders,
" P e t e r M a n t i u s , " U s e of A v a i l Far o v e r P r o j e c t i o n s , " The Atlanta
Constitution, N o v e m b e r 15, 1 9 8 4 , p. 10.
9
P I K is a U. S. D e p a r t m e n t of A g r i c u l t u r e p r o g r a m t h a t d i s t r i b u t e d governm e n t - h e l d s u r p l u s f a r m c o m m o d i t i e s t o p a r t i c i p a t i n g f a r m e r s in p r o p o r t i o n
t o t h e i r o w n a c r e a g e in e a c h c o m m o d i t y .
' " C e n s u s Bureau, M i c r o f i c h e S e r i e s IA254.
" T e x t i l e M a n u f a c t u r e r s ' A s s o c i a t i o n of G e o r g i a
Housing
Backgrounder.
FEDERAL RESERVE B A N K O F A T L A N T A
33
Tennessee: Slower
Growth Ahead
Bobbie McCrackin
Manufacturing, trade, and perhaps construction
should buttress Tennessee's anticipated 1 9 8 5
growth. Further stimulation may be provided
by public w o r k s spending, tourism, a n d agriculture.
Tennessee's economic performance in 1985
should resemble the anticipated U.S. pattern of
respectable but slower growth. The state's economy is similar to the nation's except that manufacturing is relatively more important, accounting
for over one-fourth of Tennessee's employment
compared with just over one-fifth nationally. In
addition, production of interest-sensitive consumer durable goods and certain nondurable
products especially vulnerable to foreign competition comprises a larger share of Tennessee's
manufacturing sector than the nation's. Consequently, developments that affect manufacturing
industries will play a greater role in determining
the near-term future of Tennessee's economy.
Most sectors of Tennessee's economy probably
will experience moderate growth in 1985. Manufacturing should continue to expand somewhat
through most of the year because of macroeconomic strengths expected from consumer
spending, business investment, and, at least
early in the year, residential construction. As a
result, continuing advances are likely in the
state's personal income, and retail sales should
continue to grow, albeit at a slower pace than in
The author is an economist
regional
team.
34
on the Research
Department's
1984. State and local governments are financially
sound and have contracted so sharply in recent
years that some expansion seems inevitable.
The primary effect of such a trend would be to
boost personal income, especially that of teachers
and public works construction. These t h r e e
sectors—manufacturing, trade, and g o v e r n m e n t account for two-thirds of the state's employment
and so their expected growth should spur healthy
economic expansion across the state.
Tennessee's construction, agriculture, and
tourism industries face encouraging prospects
for 1985. Multifamily and commercial construction
seems likely to maintain considerable momentum
in Tennessee for at least another year. Continuing
economic growth augurs increased deposits and
loans for the state's financial institutions. Tennessee farmers have been less troubled financially
than many of their southeastern peers. Although
reductions in prices received for farm products
make it unlikely that profitability gains will equal
those achieved in 1984, the state's agricultural
sector probably will prosper again this year.
Finally, tourism also may strengthen as ongoing
advances in personal income and the satisfaction
of pent-up demand for some items leave more
room in consumer budgets for discretionary
purchases such as travel and entertainment.
However, each of these sectors is small and their
joint effect will be less than that of manufacturing.
The chief danger on Tennessee's economic
horizon pertains to interest rates. If the federal
FEBRUARY 1985, E C O N O M I C
REVIEW
budget deficit begins to exert renewed upward
pressure on rates, the adverse impact will be felt
severely in Tennessee, whose manufacturing
sector is heavily oriented toward the consumer
and producer durables that thrive on expanding
housing and auto industries. M u c h of the earlier
surge in housing was occasioned by demand
deferred during t w o proximate recessions and
an extended period of high nominal interest
rates. Since such demand may be nearly exhausted, a return to the levels attained earlier in
the recovery is unlikely even though some resurgence is probable. Moreover, residual demand
will remain quite sensitive to changes in credit
costs. The bleak outlook for international trade
also will be troublesome to Tennessee since
one-tenth of its manufacturing jobs are exportrelated, an even larger share are in industries
vulnerable to import competition, and the overall
portion of export-related jobs in Tennessee is
greater than in the nation.
These projections have different implications
for each of the state's three major geographic
divisions. West Tennesseeans and east Tennessee
tobacco growers will be particularly affected by
agricultural developments, especially movements
in the exchange value of the dollar and their
attendant effects on farm exports. Conditions in
the international sector as well as interest rate
movements will be most significant for middle
and east Tennessee because manufacturing is
concentrated in these areas. M i d d l e Tennessee
FEDERAL RESERVE B A N K O F A T L A N T A
should have the best year since its diversified
economy will benefit most from expected strength
in consumer spending, agriculture, and services.
M i d d l e Tennessee also will benefit disproportionately from in-state capital investment:
almost three-fifths of the new jobs and almost
half the dollar value of investment plans announced
in the first nine months of 1984 were in middle
Tennessee.
Labor Market Conditions
Labor markets improved substantially in 1984
although the pace slackened in the second half.
Nonfarm employment grew at an annual rate in
excess of 5 percent for the first eight months and
stood at 1.8 million in November, a record level.
Tennessee's jobless rate fell from almost 13
percent in the spring of 1983 to 8.4 percent in
March 1984. Since then, however, employment
growth has slowed while labor force growth
accelerated. Tennessee's jobless rate stood at
8.7 percent in November, by which time the
national unemployment rate had fallen to 7.2
percent (Chart 1).
Unemployment dropped by the largest margin
in Tennessee's major cities—Chattanooga Knoxville, Memphis, and Nashville; the decline was
smaller in the Tri-Cities (Johnson City-KingsportBristol) and in nonmetropolitan areas (see Table
1). More than one-fifth of the work force in seven
of Tennessee's 95 counties was unemployed in
35
Table 1. Tennessee Labor Markets, November 1984
Nonfarm
Employment
Labor
Force
Unemployment
Unemployment
Rate
(in thousands)
(in thousands)
(in thousands)
(in percent)
8.2
Tennessee
Percent Change*
1,822.9
3.3
2,258.1
2.8
185.6
-7.6
Chattanooga
Percent Change*
173.0
3.2
202.5
2.8
14.4
-14.8
7.1
Knoxville
Percent Change*
203.9
-0.7
232.6
0.4
17.1
-13.6
7.4
Memphis
Percent Change*
364.0
2.0
417.6
-4.0
27.9
-22.5
6.7
Nashville
Percent Change*
402.0
4.1
477.8
5.1
22.7
-21.2
4.8
Tri-Cities
Percent Change*
154.2
3.5
214.5
5.6
16.4
-3.2
7.6
•Relative to November 1983.
Source: Tennessee Department of Employment Security, Tennessee Labor Market
(November 1984); data are preliminary a n d not seasonally adjusted.
November. Employment growth held up best in
Nashville and Chattanooga as the year progressed.
Nashville's diversified economy accounts for its
healthy labor market conditions. For Chattanooga
which had yet t o return to its previous peak of
nonfarm jobs, gains in 1984 reflect a belated
recovery from a sharply reduced level of activity.
Chart 1. Unemployment Rate,
Tennessee and United States
Source: U. S. Department of Labor, Bureau of Labor Statistics, a n d
T e n n e s s e e Department of Employment Security; Tennessee
rates seasonally adjusted by Federal Reserve Bank of
Atlanta
36
Report
One-fourth to one-third of the employment in
east Tennessee's three major cities is in manufacturing, and labor market conditions largely
reflect the strengths and weaknesses of particular
industries concentrated in each. For example,
textiles and apparel, which comprise almost onethird of Knoxville's industrial jobs, have been
affected adversely by foreign competition.
In Memphis j o b growth was slow during 1984
and as of November had not regained its earlier
peak. Indeed, according to a separate employment survey that canvasses households and
includes the self-employed as well as those
working for establishments, employment declined
in Memphis in 10 of the first 11 months of last
year. Memphis' weaker performance bespeaks
the agricultural orientation of its many transportation and distribution businesses and the troubled
condition of farming nationally.
Manufacturing created the largest number of
new jobs in the state in 1984 (Chart 2), and even
in relative terms it outdistanced most other
major sectors. Twenty-eight percent of all new
employment through the first 11 months was in
factories, slightly more than manufacturing's portion
of total jobs. Services, transportation, and construction also contributed a disproportionate
share of new jobs. Government and finance, in
FEBRUARY 1985, E C O N O M I C
REVIEW
Chart 2. Distribution of New and Total Jobs
•Through November
Source: C o m p u t e d by Federal Reserve Bank of Atlanta from data released
by T e n n e s s e e Department of Employment Security.
contrast, accounted for a much smaller employment boost than their share of total employment.
Conditions are ripe for improved labor markets
in 1985, even though j o b growth and unemployment rate declines probably will take place
much more slowly than in the first half of 1984.
Producers were able to trim inventories when
consumer spending decelerated in 1984, and
inventory-to-sales ratios remain low by historical
standards. Hence, layoffs are unlikely, and stillexpanding industries and services should create
new jobs.
Industrial Activity
Manufacturing employment growth in Tennessee outpaced the nations in the first quarter
of 1984 but slowed more sharply than elsewhere
in the second and third quarters. The durable
goods sectors employment grew in the doubledigit range for the first seven months. Boosted by
the first-quarter strength of residential construction,
Tennessee industries associated with building
materials, home furnishings, and appliances posted
especially good j o b gains. Through November,
employment in stone, clay, and glass manufacturing was up 11 percent from the year-earlier
period (Chart 3).
Increases of equal or greater magnitude in
machinery employment were attributable to the
strong nationwide growth in business fixed investment and the boom in housing construction.
FEDERAL RESERVE B A N K O F A T L A N T A
O n e of machinery production's largest components in Tennessee is household appliances.
Its share of electrical and electronic equipment
manufacturing is four times as large as in the
nation. The other large component of Tennessee's
machinery m a n u f a c t u r i n g produces heating,
cooling, laundry, and other service equipment
for commercial use, and its share of nonelectrical
equipment manufacturing is overrepresented by
a similar margin. 1 The sustained increase in auto
sales nationally boosted transportation equipment employment 15 percent.
Not all durable industries sustained strong
growth into the fourth quarter. Although the rate
of j o b growth in primary and fabricated metals
averaged 3 t o 5 percent for the first 11 months, in
November employment in both industries was
less than the level a year earlier. This drop was
largely a response to oversupply and imports of
low-priced foreign aluminum. Imports and the
sharp slowdown in housing during the second
and third quarters also slowed growth in the
lumber and wood industry from the pace attained
early in 1984.
The nondurable sector did not fare as well in
the second year of expansion as in the first (Chart
3). The only nondurable industry with growth
comparable to most durable industries was rubber, which was spurred by strong auto sales
through most of 1984. Employment in the textile
and apparel industries grew at an average rate of
2 and 3 percent, respectively, through the first 11
months, but as of November, employment in
both industries was below the year-earlier level.
Some apparel plants closed permanently. Job
growth in chemicals was weak all year. Employment in this industry seems to be undergoing a
secular decline; jobs number 6 percent less than
in the previous pre-recession peak and almost
15 percent below 1969 levels.
Import competition and the export-inhibiting
effects of the exchange rate of the dollar contributed to the poor performance of Tennessee's
nondurables. Apparel and chemicals are the
state's t w o largest industries, and their shares of
industrial employment—1 3 percent and 11 percent, respectively—are more than twice their
proportions of manufacturing jobs nationally. 2
Moreover, large components of these t w o industries are concentrated in products especially
vulnerable to competition from lower-cost foreign
producers. O n e t h i r d of the jobs in Tennessee's
chemical industry involve production of synthetic
fibers used t o make textiles, which is three times
37
Chart 3. Employment Changes in Tennessee Industry^
Percent Change
Durables
18 r
15
12
9
6
3
0
&
Percent Change
¿y
A
&
&
Nondurables
9r
6
-
3
-
0
-3
<f
* 1984 v. 1983, average through November. Bar widths denote relative size of industry.
Source: Computed by Federal Reserve Bank of Atlanta from data released by Tennessee Department of
Employment Security.
38
FEBRUARY 1985, E C O N O M I C
REVIEW
the proportion nationally. The largest share of
Tennessee's apparel employment, men's and
boys' furnishings, is more than twice as large as
the corresponding national proportion.
Developments in Tennessee's manufacturing
sector will play a large, if not the largest, role in
determining the state's economic health in 1985.
The outlook for Tennessee manufacturing in the
face of a slowing economy is less encouraging
than last year but still fairly bright. Anticipated
renewed strength in auto sales and residential
construction, even at a lower level than in early
1984, would reaccelerate growth in many of the
state's durable goods factories, although such a
trend could be modest and of limited duration.
Continuing business investment probably will
benefit Tennessee's machinery and industrial
inorganic chemical producers. Moreover, business fixed investment within Tennessee should
contribute to continuing expansion. The announcements of capital expansion plans and
intended new investment in manufacturing during
the first 11 months of 1984 promise over 1 7,000
new manufacturing jobs, 8 percent more than
the number generated by investments announced
in the 1983 period. 3 For example, Nissan's $85
million project to add car assembly to its Smyrna
truck plant should boost the state's transportation
equipment industry when production begins in
1985, and ultimately increase the company's
local work force by 50 percent.
Despite worldwide competition, major Tennessee manufacturers are reaffirming their faith
in the future of Tennessee's favorable economic
environment by expanding into new product
lines or retooling existing facilities. In Kingsport,
for instance, Tennessee Eastman is adding a
production unit for hydroquinone, a product
used in film manufacturing. Operations are scheduled to begin by 1986. This Kodak division just
completed a major capital investment in Tennessee to produce feedstock chemicals from
coal for the first time on a commercial basis.
A growing world economy in 1985 could
increase the state's bulk chemical exports moderately. A decline in the value of the dollar would
bring some improvement, but the outlook is dim
for a substantial gain in manufacturing exports or
for a decline in imports. Even if exchange rates
become more favorable to the United States,
there is usually a lag of six months or so before
demand rises substantially.
FEDERAL RESERVE B A N K O F A T L A N T A
The discouraging international prospects may
prove especially burdensome to Tennessee. Although the 10 percent share of manufacturing
jobs attributable to exports is less than the
nation's 13 percent, more Tennessee industries
are vulnerable to foreign competition and 5.3
percent of total employment is export-related
compared with 4.7 percent nationally. 4 One
source of national strength that will be relatively
limited in Tennessee is defense. From 1981 to
1983, Tennessee producers w o n less than 1
percent of all military contracts, a much smaller
share in dollar value than any other southeastern
state.5
Personal Income and Consumer Spending
Fast personal income growth in Tennessee
during the last two years contributed to unusually
robust consumer spending that boosted the
state's second most important economic sector,
trade. Tennessee's personal income grew at an
annual rate of 12 percent in the t h i r d quarter
compared with about 10 percent nationally
(Chart 4).
Retail trade activity on a per capita basis was
even more impressive in relation to other southeastern states and the nation in 1984, reversing
the state's performance in 1981 and 1982 (Chart
5). Through October 1984, the pace of Tennessee
sales growth was well ahead of the rate nationally.
Not surprisingly, furniture and home appliances
Chart 4. Annual Percent Change
in Quarterly Personal Income,
Source: Calculated by Federal Reserve Bank of Atlanta from data in U . S
Department of Commerce, Bureau of Economic Analysis,
Quarterly Personal Income, various i s s u e s
39
Chart 5. Annual Percent Change in Retail Trade,
U.S. and Tennessee, 12-Month Moving Total
Without the prop of population growth, prospects for income and spending gains in 1985 will
depend largely on the national and international
economic outlook and concomitant demand for
Tennessee goods and services. If the national
economy settles into a moderate, sustainable
growth path this year as expected, Tennesseans
can anticipate continued healthy income and
spending growth, albeit at a less robust pace than
in 1984. Ongoing gains in income and consumer
spending should buoy the state's economy in
general, and its financial, public, and service
sectors in particular, by generating increased
loans, deposits, tax revenues, and demand for
personal and business services.
Public Sector
Source: U.S. Department of Commerce, Bureau of the Census,
Retail Trade, various i s s u e s
Monthly
posted the strongest sales gains during the first
11 months, but automobiles and building materials
also advanced dramatically. 6 Reflecting this
growth in consumer spending, trade e m p l o y ment expanded more rapidly than in 1983 (4 to
5 percent versus 2 percent) despite a contraction
in wholesale trade jobs.
The rate of expansions and contractions in
personal income, like that of unemployment, is
greater in Tennessee than in the nation because
of the state's heavier reliance on manufacturing.
The most striking differences have occurred
when Tennessee's cyclically sensitive durable
manufactured goods industries were expanding
or contracting. Spending by businesses on capital
goods was very strong in 1984, while housing
and auto-related manufacturers posted an excellent year. As a result, Tennessee's personal
income grew faster than the nation's.
Increased personal income was especially vital
because the state's population growth probably
was slower than in the past. It grew only 2
percent from April 1980 to July 1983, the lowest
rate of any southeastern state except Alabama
and less than two-thirds as fast as the nation. A
sharp decline in net migration contributed to the
deceleration of the state's population growth. 7
The number of Tennessee residents grew almost
50 percent faster than nationally in the 1970s,
although growth was concentrated in the state's
middle and eastern urban and suburban areas.
40
Tennessee's state government has been financially sound for several years, ending each of the
last three fiscal years with a budget surplus. A
one-cent increase in the state's sales tax and the
broadening of its base swelled coffers last year. A
$51 million surplus, the equivalent of 2 percent
of expenditures, is projected for fiscal 1985.® The
higher sales tax and an anticipated fiscal 1984
surplus have revived state and local government
j o b growth. Government employment climbed
about 2 percent through the first 11 months of
1984, reversing a downward trend during the
previous three years. Nonetheless, the number
of public sector workers still was below the peak
attained in 1980. The per capita ratio of full-time
equivalent state and local government workers is
9 percent lower than three years earlier and 2
percent below the national average.9 Of the six
southeastern states, only Florida has proportionately fewer state and local government workers
than Tennessee.
It is likely that employment and spending in
Tennessee's public sector, especially at the state
and local levels, will increase in 1985. The fiscal
1985 state budget represents a nominal increase of
16 percent Substantial job increases also may occur
at the local level, where the decline has been
greatest. A recent state emphasis on education
also should stimulate local government e m p l o y
ment. In fiscal 1984, the Tennessee legislature
appropriated $1 billion over the next three years
to improve the state's educational system. M u c h
of the increased funding will improve financial
incentives for teachers. Thus, this government
stimulus should be felt mainly on personal incomes and concomitantly on consumer spending.
FEBRUARY 1985, E C O N O M I C
REVIEW
T a b l e 2. Tennessee Construction, 1984 vs. 1983
Single-Family Permits
January-November
Multifamily Permits
January-November
Value of
Nonresidential Construction*
January-November
1983
Tennessee
1984
Percent
Change
1983
1984
Percent
Change
1983
1984
Percent
Change
-3.4
15,239
21,304
39.8
1,053.3
1,300.8
23.5
13,059
12,622
Chattanooga
1,016
1,128
11.0
795
585
-26.4
70.5
119.1
68.9
Knoxvilie
1,442
1,262
-12.5
660
601
-8.9
166.3
151.8
-8.7
Memphis
3,786
3,903
3.1
1,223
4,197
243.2
255.7
325.6
27.3
Nashville
3,866
3,894
0.7
6,854
12,754
86.1
349.6
468.7
34.1
' M i l l i o n s of dollars
Source: C o m p u t e d by Federal Reserve Bank of Atlanta f r o m data in U.S Department of Commerce, Bureau of the Census,
Housing Units Authorized by Building Permits and Public Contracts (C-40), a n d F.W. Dodge, Dodge Construction
Potentials.
The recent end of a freeze on hiring further
suggests that increased state spending will stimulate employment and income. However, improved productivity afforded by office automation as well as efficiencies achieved during an
extended austerity period make it unlikely that
government employment, which consists largely
of white-collar workers, will rebound quickly to
its previous peaks as a result of revenue and
budget increases. Thus, government employment should grow only modestly, as should the
attendant consequences of that j o b expansion
on the rest of the state's economy.
Federal j o b growth averaged 4 percent during
the first 11 months but seems unlikely to be a
source of growth in Tennessee in 1985. The TVA
which employs one-third of Tennessee's federal
workers, will increase its budget only modestly.
Yet, at least until the start of the next federal fiscal
period in October, neither should federal government employment shrink, as in the past, since
most of the substantial cutbacks and layoffs the
TVA began several years ago have been completed. Thereafter, proposed federal budget cuts
could necessitate further paring of the TVA's
staff.
year. The growth rate of construction employment averaged around 16 percent in the first
half. Although the pace slowed toward the end of
the year, construction accounted for more than
one in 10 new jobs through the first 11 months,
over twice the industry's share of jobs overall
(Chart2). Multifamily and nonresidential building
sustained construction activity and employment
after higher interest rates dampened singlefamily home building.
Construction
Single-family building permits soared in the
first quarter but then began to decline, on a
seasonally adjusted basis. Through November,
single-family building permits declined 3 percent
from the first 11 months of 1983 (Table 2).
Although multifamily construction fell in several
months, growth rates tended to be quite high,
and multifamily permits rose40 percent through
November. The rise in interest rates early in 1984
made apartments and condominiums more attractive or affordable for many buyers. Duplex
town houses were an especially popular alternative
to single-family homes. Chattanooga enjoyed
the largest rate of increase in single-family houses,
an indication of the sharp improvement in its
labor markets. M u l t i f a m i l y construction was
strongest in Nashville, reflecting that city's disproportionate share of the state's population
growth, particularly of newcomers.
After three years of sharp declines, Tennessee's
construction industry improved considerably last
Nonresidential construction increased substantially statewide. Industrial construction in
FEDERAL RESERVE B A N K O F A T L A N T A
41
Tennessee experienced strong and fairly steady
growth. As a result of sharply increased manufacturing and consumer spending, many businesses required additional warehouse space to
store inventory; others responded t o the invigorated economy and tax incentives by investing in
plant expansions. Office construction, which
accounts for a larger share of nonresidential
building, also rose considerably.
The strength of building in Nashville and
Memphis helped to pull up the statewide average
as fewer new projects were undertaken in
Knoxville than in the first 11 months of 1983.
Strong gains in manufacturing absorbed a 9
percent increase in Nashville's industrial space,
and the occupancy rate rose from 77 to 84
percent. 10 However, absorption of the large
volume of new office space has been slower,
causing a drop in occupancy to 84 percent.
Two years ago, only 5 percent of Nashville's
office space was vacant. 11
Total residential construction should increase,
at least early this year, as a result of lower interest
rates, which have reduced builders' costs and
drawn customers back into the market Construction of moderately priced single-family homes
should be stimulated by the flow of $150 million
in housing funds at 11 5/8 percent from a bond
offering by the Tennessee Housing Development
Authority. Applicants, w h o may earn no more
than $30,000 a year, must apply the funds t o
single-family residences in the $40,000 range.
Despite the bonds, single-family buildings are
expected to grow more slowly than multifamily
dwellings. M u c h of the deferred demand for
single-family homes already has been met, and
Tennessee has been experiencing modest population growth compared with the 1970s. Without
the catalyst of population growth, especially by
in-migrants, the demand for single-family homes
at this mature stage of the business cycle is
unlikely t o equal that attained earlier in the
expansion.
Growth in nonresidential construction probably
will continue at a strong pace in 1985 because of
corporate relocations. Memphis' central business
district should increase its office space by onethird over the next few years, and Nashville has a
large number of new office projects on the
drawing boards. High vacancy rates may be a
harbinger of a mild deceleration by the end of
1985. Commercial construction often is driven
more by the availability of financing than by the
market, and there is no reason to expect that
42
institutional sources, which provide much of the
capital for office construction, will stop funding
prospective builders since offices remain a profitable long-term investment.
Government expenditures could stimulate construction, especially in the nonbuilding category.
The state government's emphasis on improving
water quality should spur construction of new
sewage systems, and some bridge construction is
contemplated. Expected growth in construction
is likely to stimulate certain building-related
industries, especially stone, clay, glass, lumber,
and fabricated metals. However, considering the
moderate growth anticipated and construction's
relatively small share of the state economy, this
industry's gains are unlikely t o propel other
economic sectors significantly.
Finance
Tennessee bank deposits showed moderate
to strong growth throughout 1984. As of December, commercial bank deposits were 10 percent ahead of the year-earlier level of $22 billion.12
Tennessee's deposit growth was only slightly less
brisk than the nation's. Time deposits grew
rapidly, in contrast to 1983, when rising rates led
savers to favor money-market deposit accounts.
After growing only modestly in the second half of
1983, loans closed by Tennessee banks increased
sharply in 1984, standing 19 percent above the
year-earlier level in September. 13 The statewide
loan-to-asset ratios rose from 49 to 56 percent,
reflecting the rapid growth in lending by Tennessee
banks. In November, mortgage commitments by
Tennessee thrift institutions were over 65 percent ahead of the comparable 1983 level. 14
The strongest employment growth in several
years in the state's financial services industry is
further evidence of its underlying strengths. These
measures point to Tennessee's energetic growth
in personal income and industrial production in
1984. The healthy gains posted by all these
financial services industry indicators is especially
noteworthy in view of Tennessee's two-year
spate of bank failures. Of more than 70 failures
nationwide, 11 were in Tennessee, primarily in
the central and eastern portions of the state.
The outlook for Tennessee's financial sector in
1985 hinges largely on the state's economic
health. It is not likely on its o w n to contribute
significantly to growth in other sectors. Since
statewide economic prospects are for respectable
FEBRUARY 1985, E C O N O M I C
REVIEW
advances, the financial services industry probably
will experience continuing expansion. Healthy
deposit growth should persist into 1985, given
the anticipated increases in personal income.
Loan volume and mortgage commitments also
should strengthen as long as interest rates remain in their present range.
No simple explanation exists for the large
number of bank failures in 1984. Deregulation of
the banking industry will make exit, by failure or
merger, generally more common than in recent
decades, but that does not account for the fact
that Tennessee has had far more failures than
other states with similar economic structures.
Thus, it is difficult to forecast whether 1985 will
bring more failures.
It is likely, though, that competitive pressures
on Tennessee banks will intensify in the next few
years. Passage of regional interstate banking laws
by several nearby states will increase demands on
the Tennessee legislature to do the same. The
Tennessee Bankers Association has endorsed
the governor's legislative proposal to allow statewide branching as well as reciprocal interstate
banking w i t h a number of regional states. The
strong performance by the state's financial services industry last year suggests that the economic
impact of any future failures will not be substantial.
The main adverse effect of a smaller bank failure,
aside from the loss to its stockholders, is the
disruption of established relationships between
loan officers and the businesses they have served,
and this disruption is mitigated when a failure is
resolved through acquisition rather than liquidation.
Services
Tennessee's service sector, like those of other
states in the Southeast, has resumed steady
growth after slowing during the 1981 -82 recession.
Miscellaneous services contributed more than
one-fifth of the new jobs added t o Tennessee's
economy last year (Chart 2). Health services
compose the largest component of this sector in
Tennessee, accounting for slightly over a third of
service employees. Another third work in hotels
or provide business and personal services.
Tourism is an important service industry in
Tennessee, accounting in 1983 for $3 billion in
expenditures, 4 percent of all payroll employment, and over $150 million in state and local tax
revenues. 15 Tennessee's state and national parks
rank in the top 10 nationally in the number of
visitors. Tourism is important not only in terms of
FEDERAL RESERVE B A N K O F A T L A N T A
size but also in its "export" quality, since twothirds of all tourist revenues derive from out-ofstate visitors. By bringing revenues to Tennessee
from elsewhere, tourism fuels the local economy
t o supplement gains from population growth
and increased personal income. In this respect,
tourist-related services are more like manufactured
goods, reaching a market far beyond the state's
borders; markets of many services are limited to
the needs of local consumers and businesses.
Tourist industry conditions in Tennessee were
mixed in 1984, although somewhat better than
in 1983. In the earlier year most indicators
registered declines relative to 1982 levels, which
were boosted by the World's Fair in Knoxville. Air
travel increased substantially in most Tennessee
cities, but declined in Memphis, by far the
busiest airport. Judging by visitor center registrations, the level of auto travelers to the state
dropped 12 percent through the first 11 months.16
Most attractions had only slightly higher attendance than the previous year.
Hotels and motels enjoyed the strongest surge
as lodgings tax receipts j u m p e d 35 percent, a
sharp rise even factoring out the sales tax increase.17
Moreover, occupancies were up 8 percent through
October. 18 This growth was primarily the result of a
higher volume of business and convention visitors,
w h o form a larger share of hotel guests than d o
vacation travelers. Competition from the Olympics,
purchases of durable goods deferred for years
because of recessions and high interest rates,
and the strong dollar that reduced the cost of
foreign travel for many Americans all helped
tarnish the performance of vacation travel in
1984. In addition, Louisiana's World Fair in New
Orleans failed t o give Tennessee tourism the
expected boost in bus tours; many travelers with
intermediate stops in the state cancelled when
the fair's shaky financial situation was published.
The outlook for Tennessee's tourist industry in
1985 hinges largely on macroeconomic factors,
which appear more positive than negative. Tourism
should benefit from anticipated increases in
personal income and consumer spending. Indeed, vacation travel might increase considerably if
consumers' pent-up demand for housing has
been largely met, leaving more in household
budgets for discretionary goods and services
such as travel. The absence of major competing
events also bodes well for 1985 tourism.
On the other hand, if the value of the dollar
remains high, more Americans likely will travel
abroad, possibly diminishing domestic travel.
43
The dollar7 s effects on foreign travel to the United
States will have little impact on Tennessee,
though, since foreign travelers typically compose
only a small portion of the state's visitors.
Local factors will influence the performance of
Tennessee tourism this year. A 27 percent increase in the state Tourism Department's budget
should improve that agency's ability to market
Tennessee's tourist industry. New attractions
and convention facilities scheduled to open this
year in Nashville, Chattanooga, and Memphis
will enhance those cities' appeal as tourist and
convention destinations. If tourism grows as
expected, it will benefit the retail and public
sectors by boosting merchandise and restaurant
sales and generating tax revenues beyond those
expected from in-state growth in personal income
and spending.
The outlook for other major service industries
should track in-state economic developments
because their demand derives primarily from local
markets. Since the statewide outlook is positive,
services should continue to expand at a healthy
pace. One service that might grow more slowly
than in the past is health care Many southeastern
hospitals have excess capacity relative to local
markets, and new federal and private-sector
efforts to control costs already have led some to
furlough employees.
though Tennessee's agricultural sector is too
small to be a significant driving force in the state's
economy. If the state's farmers can avoid severe
setbacks in 1985, most should remain in better
financial shape than those elsewhere in the
region. Improved profits are likely for corn, dairy,
and pork farmers in 1985. However, the most
important crops, soybeans and tobacco, as well
as other crops and livestock are unlikely t o
repeat last yeaKs strong performance.
Tennessee crop farmers experienced a relatively
good year in 1984, as yields of every major
commodity exceeded both the previous fiveyear average and the yield in 1983, when weather
played havoc w i t h productivity. Total revenue
fell (Chart 6) as a result of lower prices and
reduced acreage, but prices did not drop as low
as in 1982. Tobacco, corn, soybeans, and cotton
were especially profitable. W i t h the exception of
tobacco, these crops are grown largely in west
Tennessee, whose economic conditions consequently were better than in recent years.
Yields of soybeans, the most important Tennessee crop with respect to share of cash receipts,
returned to normal in 1984 from severely reduced
1983 levels; 1985 should reflect a general downward trend in soybean prices. Given large production nationwide, there is little indication
soybean prices will strengthen substantially this
year. Hence, the state's soybean farmers may
find 1985 a more difficult year in which to profit.
Agriculture
Tennessee has more farms (95,000) than any
other state in the region, ranging from one- and
two-acre burley tobacco farms in the mountains
of east Tennessee to expansive cotton and
soybean fields in the west Although an estimated
80 percent of these are in small holdings that
jointly produce less than 40 percent of the state's
farm cash receipts, 19 such farms constitute an
important auxiliary source of employment and
income, especially in east Tennessee. Total
revenue from farming varies from year to year
but has approached $2.5 billion. Approximately
40 percent of that revenue typically is earned by
the livestock sector, while nearly 60 percent is
derived from crop sales.
Tennessee's farmers have remained in the best
overall financial condition of all southeastern
farmers, although poor weather in 1983 increased
the financial plight of some. Last year appears to
have been favorable, though, and the farm sector
may be improving its financial health, even
44
Chart 6. Tennessee Cash Receipts
from Farm Marketings
(Crops, Livestock, and Products)
Billion $
2.0
Livestock
15 u
•
Crops
mm
1980
1981
1982
1983
1984
Estimated
Source: U.S Department of Agriculture, Agricultural Statistics 7983;
1 9 8 4 figures estimated by Federal Reserve Bank of
Atlanta
FEBRUARY 1985, E C O N O M I C
REVIEW
Tobacco, a traditional mainstay of middle and
east Tennessee agriculture and the state's secondranking cash crop, produced a near-record yield
in 1984, exceeding 1983 performance by onethird. Because of good quality, prices were also
favorable, generating profits for Tennessee's
50,000 tobacco growers. Still, slack demand may
cause a quarter of the crop to be purchased by
the U.S. Burley Stabilization Corporation. Uncertainty concerning the value of the dollar
clouds the outlook for tobacco growers this year
since foreign markets constitute a large share of
consumption.
Tennessee's farmers earn approximately 15
percent of their total revenue from the production
of cotton, wheat, and corn. Despite probable
further price declines in 1985, corn farmers still may
be able to turn a profit provided the weather is
favorable. Prospects for cotton farmers this year
are dim. Supplies substantially exceed demand,
causing prices t o remain low. In addition, Tennessee cotton yields often fall below yields in
other southeastern states, making it more difficult
to profit from the crop. Wheat prices were
mediocre in 1984 and are unlikely to improve in
1985, and so wheat farmers cannot expect substantial profits.
Despite marked increases in pork revenue,
declining dairy and beef production led to an
overall reduction in 1984 cash receipts from
livestock (Chart 6). The dairy industry, concentrated in south central Tennessee, cut production
approximately 10 percent as a result of government incentives to reduce output and the closing
of unprofitable operations. Many in the industry
have been experiencing financial difficulties in
recent years as a consequence of high costs and
poor returns. Because of substantial production
cutbacks in the Southeast, consumer milk prices
edged upward last fall. The current outlook for
the dairy industry is improved over 1984, since
lower feed costs and higher revenues should
increase profits for most dairy producers.
Cattle production, concentrated in central Tennessee, fell roughly 5 percent in 1984 in response
to mediocre prices. Reduced supplies of pork
and beef may cause prices to edge upward
slowly, but beef industry profits are likely to
remain low in 1985. Declining feed costs and
higher hog prices should give pork farmers a
better return than in 1984, when profits were
squeezed, but the impact will be minor since
pork is the smallest of the three major livestock
components.
FEDERAL RESERVE B A N K O F A T L A N T A
Mining
Coal production in Tennessee rose 16 percent
through November 1984 from the same period
in 1983. 20 M u c h of the increased coal mining
activity resulted from fears of a strike and heightened demand from electrical utilities. The number
of kilowatt hours used in Tennessee rose 9
percent through the first three quarters of 1984
compared with a 7 percent increase nationwide. In
1983, total electrical power usage rose only 2
percent all year. The largest increases last year
derived from residential and industrial use, which
moved upward in the double-digit range in most
months. 21 However, the growth rate of electrical
power use slowed progressively in 1984.
Tennessee coal producers have been handicapped by regulatory inertia in taking advantage
of recent stronger demand. Supervision of surface
mines was returned to the states in 1982, but
because the state government has lacked sufficient staff and other resources to assume the
responsibilities formerly performed by the federal
Office of Surface Mining, permits issued to
Tennessee producers have been delayed.
The improved coal production of early 1984 is
unlikely t o continue in view of slumping world
energy prices, which encourage the substitution
of better quality energy sources for high-sulphur
Tennessee coal. Opening of the TennesseeTombigbee Waterway probably will have only a
limited initial impact on coal exports from Tennessee because nearby coal-producing states
such as Alabama have a comparative advantage.
In the longer term, Chattanooga's expansion of
port facilities related t o the Tenn-Tom promises
to boost that city's employment and its share of
exports upon the project's completion in 1986.
Local utilities will continue to be the main
buyers of Tennessee coal, and demand is unlikely
to increase from 1984, owing to the expected
slowing of economic growth. However, energy
no longer stimulates Tennessee's economy as it
did when the TVA's hydroelectric-based power
system's low rates attracted energy-intensive
industries. Once the TVA reached the limits of
local hydroelectric capacity and shifted toward
greater reliance on coal and nuclear power, it lost
much of its rate advantage. The state has a much
smaller comparative advantage with respect to
coal, and the cost of building nuclear power
plants has risen dramatically since the early
1970s.
45
State and local governments may provide
modest growth independent of national economic
developments. Finance, services such as tourism,
and agriculture probably will register a good year
in 1985, but these sectors are too small to
generate much statewide growth. Moreover, t o
a large extent the performance of finance and
many services mirrors rather than drives changes
in other economic sectors.
The weakest areas in Tennessee's economy
probably will be import-sensitive nondurables,
such as textiles, apparel, and chemicals, and
divisions of manufacturing, trade, and agriculture
that depend heavily on exports. Construction
and related durable manufacturing also will suffer
if interest rates rise substantially.
Summary
In conclusion, 1985 promises to be a year of
respectable economic growth in Tennessee as in
the nation. The factors contributing to the state's
economic expansion are largely macroeconomic
Expected nationwide growth in consumer spending
and business fixed investment should stimulate
demand for Tennessee's important durable manufacturing industries and thereby fuel gains in
employment and personal income. Lower interest
rates should revive singl^family building, at least
early in the year, as well as reaccelerate growth in
the production of building materials, furniture,
and home appliances. Thus, the strongest sectors
in Tennessee in 1985 probably will be manufacturing, trade, and perhaps construction, with
the first t w o contributing most to the state's
continuing expansion.
The author gratefully
assistance provided
acknowledges
by Ms. Betty
the outstanding
Bradfield.
research
NOTES
9
' C o m p u t e d by Federal Reserve Bank of Atlanta from data in U. S.
Department of Commerce, Bureau of the Census, County
Business
Patterns, 1981, T e n n e s s e e (January 1983) a n d U n i t e d S t a t e s (July
1983), Table 1 - B
2
1 bid.
' T e n n e s s e e Department of Economic D e v e l o p m e n t
«U.S Department of Commerce, Bureau of the Census, Origin of Exports of
M a n u f a c t u r e d Products,"?981 Annual Survey ot Manufactures
(January
1982), p p 14, 16.
5
U. S Department of Defense, Directorate for Information, Operations a n d
Reports, Prime Contract Awards by Region and State, Fiscal Years 1981,
1982, a n d 1983, Table 1-1.
«Tennessee Department of Revenue, Monthly Statement of Revenue
Collections, January t h r o u g h November issues. 1 9 8 3 a n d 1984; taxable
sales in each of these c a t e g o r i e s g r e w by more than one-third, but s o m e of
that growth reflects a one-cent sales tax hike.
7
U. S Department of Commerce, Bureau of the Census, Current
Population
Reports, Series P-25, N o 944, (January 1984), p. 2; The Number News,
April 1984.
"National Governors Association a n d National Association of State
Budget Officers, Fiscal Survey of the States, Tables A-1, A-2, J u n e 1984.
46
U. S Department of Commerce, Bureau of the Census, Public Employment,
1976-1983, GE80, No. 1.
'"Aladdin Resources, Inc.
" C o l d w e l l Banker, Office Building Real Estate Data ( S e p t e m b e r 3 0 , 1 9 8 4 ) ,
p 11.
" F e d e r a l Reserve Board, Report of Transaction Accounts, Other Deposits,
and Vault Cash (FR 2900).
" F e d e r a l Reserve Board, Report of Condition, J u n e 30, 1 9 8 3 and 1984;
December 31, 1 9 8 3 a n d 1984.
" F e d e r a l H o m e Loan Bank Board.
15
Economic Impact of Travel on Tennessee Counties. 1983 (Washington,
D. C : U. S Travel Data Center, July 1984), p p 9, 32, 41.
'"Tennessee Department of Tourist D e v e l o p m e n t
" T e n n e s s e e Department of Revenue.
•8Trends in the Hotel Industry (Memphis, Tenn.: Pannell, Kerr, & Forster,
November 1984), p 2.
" G e o r g e Smith, Tennessee's Agriculture (Knoxville: University of Tennessee Institute for Agriculture, 1984), p. 4
20
U. S. Department of Energy, Energy Information Administration, Weekly
Coal Production
D O E 1 EIA-0218 (84/50).
21
U. S Department of Energy, Electrical Power Division, Energy Information
Administration.
FEBRUARY 1985, E C O N O M I C
REVIEW
Louisiana: Slow
Speed Ahead
William J. Kahley and Gustavo A. Uceda
Chiefly because of the continuing decline in
oil prices, Louisiana's e c o n o m y partook only
meagerly of the nation's expansion during
1984. The state likely will experience more
robust growth in 1985, but soft energy prices
threaten to sap the recovery's vigor.
Local and international trade growth are two
important keys to Louisiana's economic prospects
in the new year. A pickup of growth in these
sectors, and perhaps in residential construction
and manufacturing as well, will be needed to
help offset the state's dependence on an energy
sector likely to remain weak in 1985. Even with
the expected acceleration of trade, housing, and
some manufacturing industries this year, Louisiana's economy probably will expand more
slowly than the nation's.
Early in 1984, the outlook for Louisiana's economy was cloudy but seemed to be brightening.
The energy and international trade sectors, both
crucial to the Pelican State's health, were expected
to rebound moderately. With growth from these
sectors, plus an expected rebound in manufacturing, housing construction, and a strong push from
the Louisiana World Exposition, the state's economy was expected to gain momentum as the
year unfolded. Yet, for a variety of reasons, actual
The authors are, respectively;
economist
and research
on the Research Department's
regional
team.
analyst
growth turned out to be weaker than anticipated.
Moreover, the state's economic advance began
to reverse around midyear and showed continuing
signs of weakness at year-end.
Sinking worldwide demand for energy, coupled
with the price-depressing effects of new supplies,
has cut deeply into Louisiana's oil-dominated
economy. The worldwide oil glut largely explains
the state's weak recovery relative to the nation's.
A decline in oil demand, attributable to the
global recession in 1981 -82 and to conservation
efforts following the early 1970s and 1979-80
jump in fuel prices, has reduced employment in
industries directly and indirectly related to energy.
Weak growth of the economies of major U.S.
trading partners and continuing strength of the
dollar also have limited growth of Louisiana's
export-oriented economy relative to that of other
states. Weak recoveries abroad limited the growth
of world trade last year, preventing Louisiana's
important seaport activity from contributing much
economic strength. Furthermore, the strong dollar
has favored import growth during the recovery
relative to exports of domestically produced
goods, stallingthe growth of Louisiana-produced
agricultural and manufactured exports.
Statewide Labor Market Developments
As has been noted elsewhere, the United
States staged a powerful rebound in 1983 and
1984 from one of its worst recessions since
47
FEDERAL RESERVE B A N K O F A T L A N T A
Chart 1. Unemployment Rate,
United States and Louisiana
Source: U.S. Department of Labor a n d Louisiana Department of
Labor data; seasonally adjusted by the Federal Reserve
Bank of A t l a n t a
World War 11. By the fourth quarter of 1984 nonagricultural employment was 6.6 million above
its level in the final quarter of 1982. But in
Louisiana, nonagricultural employment actually
was lower in the fourth quarter of 1984 than two
years earlier, and the state had regained only
one-third of the jobs it lost in the recession.
Since the early 1970s Louisiana's unemployment rate has been out of step with that of the
nation, largely because energy looms so important
in its economy. Rising energy prices and domestic
demand spurred j o b expansion in Louisiana in
the 1970s while exerting a drag on the national
economy. But since 1983, Louisiana's unemployment rate has averaged about 2 percentage
points higher than the nation's, and the gap
began t o widen last summer (Chart 1).
Louisiana's d i s a p p o i n t i n g e c o n o m i c performance in 1984 is linked to weaknesses in the
energy, petrochemical, and international trade
sectors, and t o a less-than-expected boost from
the World's Fair in New Orleans. These misfortunes showed up vividly in an annual nonfarm
j o b growth rate that was barely positive late last
year while the nation's employment was growing
at a 4 percent rate.
Greater improvement also was anticipated in
1984 for some less important sectors of the
state's economy. Continuing economic recovery
nationally and a rebound of Louisiana's mainstay
industries were expected t o generate jobs in
48
manufacturing, wholesale and retail trade, and
services. Job growth did occur in these industries,
but the state's dominant industries were so weak
that the economic advance reversed when the
national recovery slowed.
The sectoral distribution of Louisiana's employment has been working against the state since
1981. Compared with the nation, Louisiana has
a relatively high proportion of its employment
concentrated in mining, construction, and transportation (Table 1). Within manufacturing, petroleum refining and chemicals production account
for an unusually high share of Louisiana jobs
relative to the nation. Employment declined in
all of these Louisiana specialties last year. The
state's relatively undiversified economy simply
cannot advance robustly without strength in
the petrochemical, oil, gas, and transportation
industries.
Weakness in such major industries also is
largely responsible for the slackened pace of
construction activity. The absence of a good
push from new industrial chemical plants, oil
refineries, pipelines, and heavy waterway related
projects has caused the whole construction
industry to sag. Construction employment has
been declining since mid-1981. Nearly 30,000
construction jobs were lost during the recession
and few have been recovered.
A major increase in Louisiana's employment
in 1985 seems unlikely. The service-producing
sector and some manufacturing industries will
continue to expand if the national economy
grows for a third successive year as expected.
Continued expansion of world trade this year
also should add buoyancy. Unfortunately, the
state's heavy dependence on growth of the oil,
gas, and petrochemical industries makes it
unusually vulnerable when energy prices drop.
Even with stabilized energy prices at current
levels, Louisiana is likely to grow more slowly
than the nation in 1985 because of continuing
sluggishness in the oil and gas industry.
Local Labor Market Developments
Among Louisiana's metropolitan areas, Shreveport benefited greatly from the national expansion in 1984. Employment growth relative t o
labor force expansion was particularly rapid
there in 1984, sharply reducing its unemployment rate (Table 2). An increase in industrial
employment in the area's metal, electrical, and
FEBRUARY 1985, E C O N O M I C
REVIEW
T a b l e 1 . Employment Shares and Growth,
U. S. a n d Louisiana
Percent Growth, 11 /83-11 / 8 4
Percent Share, 11 / 8 4
Louisiana
U.S.
Louisiana
U.S.
Manufacturing
Construction
Trade
Finance
Services
Mining
Government
Transportation
3.6
8.4
5.1
3.5
5.1
4.7
1.3
4.1
1.2
-6.8
0
0.4
2.1
-0.3
1.1
-1.4
20.5
4.8
23.4
5.9
21.9
1.0
17.0
5.5
Total Nonfarm Employment
4.1
Source: U.S. Bureau of Labor Statistics, The Employment
Situation,
a n d Louisiana Department of Labor, Louisiana
11.6
6.9
23.8
5.3
19.7
5.0
20.5
7.3
Labor
Market
Information,
November 1984.
nonelectrical machinery industries influenced
by improvement in the nation's auto and housing
sectors more than offset the dampened demand
for energy-related supplies.
Baton Rouge registered fast employment
growth in 1984, led by gains in wholesale and
retail trade, services, and government employment The relative strength of the state capital's
economy also attracted workers from elsewhere
in Louisiana, expanding its labor force faster
than any other metropolitan area Consequently,
Baton Rouge's steady performance was masked
by an unemployment rate that showed little
improvement.
The Lafayette metro area, which has enjoyed
the lowest unemployment rate in the state for
years, c o n t i n u e d along that path in 1984.
Although its unemployment rate doubled in
the recession, its rate was the only one in the
state that compared favorably to low unemployment areas elsewhere in the country last year.
Lafayette is the educational, cultural, and service capital of Acadiana (Cajun territory) and
the center for petroleum operations in the
state. While hard-hit by the softening oil sector,
the city benefited somewhat last year from its
role in providing diversified services. Moreover,
whitecollar administrative jobs related to the
oil industry have not been as adversely affected
as production workers' jobs, and renewed drilling
activity has supported the demand for geologists,
engineers, and other technical workers.
The u n e m p l o y m e n t rates of Alexandria,
Monroe, and New Orleans were similar t o the
state's last year. All three areas exhibited a mix
of strengths and weaknesses. By late spring, the
three had achieved unemployment rates that
were about 3 percentage points lower than a
year earlier. However, as in the state, unemployment rates in those areas began t o drift upward
in the second half of 1984 as the economy
softened.
The trade, services, and government sectors
dominate New Orleans' economy, accounting
for two-thirds of employment. W i t h nearly
o n e t h i r d of all the jobs in Louisiana located in
the New Orleans metro area economic developments in the Crescent City have a strong
influence on the state's overall performance.
Slow improvement in the oil and gas sector and
in foreign trade in 1984 prevented both the
metropolitan area and the state from rebounding.
The continuing doldrums in the energy sector
were felt most acutely in Lake Charles, however.
That former beehive of oil, gas, and petrochemical
activity continued to suffer an unemployment
rate around 13 percent late in the year, with
both employment and labor force still declining.
Economic conditions in Louisiana's nonmetropolitan parishes varied widely in 1984. Unem49
FEDERAL RESERVE B A N K O F A T L A N T A
T a b l e 2. Labor Market Conditions, U. S. and Louisiana*
(in thousands)
Percent
Change
1983/1984
November
1984
November
1983
United States
Civilian Labor Force
Employed
Unemployed
Rate (percent)
114,115
106,246
7,869
6.9
112,147
103,018
9,129
8.1
1.8
3.1
-13.8
Louisiana
Civilian Labor Force
Employed
Unemployed
Rate (percent)
1,964.7
1,773.4
191.3
9.7
1,901.8
1,698.4
203.4
10.7
3.3
4.4
-5.9
Alexandria
Civilian Labor Force
Employed
Unemployed
Rate (percent)
79.0
70.9
8.1
10.3
77.1
69.6
7.5
9.7
2.5
1.9
8.0
Baton Rouge
Civilian Labor Force
Employed
Unemployed
Rate (percent)
252.9
231.0
21.9
8.7
241.8
220.4
21.4
8.9
4.6
4.8
2.3
Lafayette
Civilian Labor Force
Employed
Unemployed
Rate (percent)
98.2
92.3
5.9
6.0
94.9
87.4
7.5
7.9
3.5
5.6
-21.3
Lake Charles
Civilian Labor Force
Employed
Unemployed
Rate (percent)
74.1
64.4
9.7
13.1
78.0
66.6
11.4
14.6
-5.0
-3.3
-14.9
Monroe
Civilian Labor Force
Employed
Unemployed
Rate (percent)
60.0
54.3
5.7
9.5
58.4
52.4
6.0
10.3
2.7
3.6
-5.0
New Orleans
Civilian Labor Force
Employed
Unemployed
Rate (percent)
539.9
489.4
50.5
9.4
530.1
479.3
50.8
9.6
1.8
2.1
-0.1
Shreveport
Civilian Labor Force
Employed
Unemployed
Rate (percent)
172.4
159.2
13.2
7.6
170.0
152.7
17.3
10.2
1.4
4.3
-23.7
Area & Employment
*Data not seasonally adjusted
Source: U.S. Bureau of Labor Statistics, The Employment
Situation-,
Louisiana Department of Labor, Louisiana Labor Market Information, November 1984.
50
ployment generally tended t o be higher there
than in metropolitan areas, reflecting the
paucity of stable and growing service industries
in rural areas. Parishes in rural southern and
northeastern Louisiana posted unemployment
rates in the 10 to 15 percent range. Most south
Louisiana parishes are critically dependent on
energy, although a strong fishing industry has
helped that region and weakness in rice farming
has hurt it. In the northeast, troubles in agriculture and shippingactivity in the Mississippi River
slowed that area's economic advance. Unemployment in the northwest tended to fall below
9 percent, helped by defense spending and a
more manufacturing-based economy utilizing
forest products.
Population, Income, and
Consumer Spending
Louisiana's relatively poor economic performance since mid-1982 is reflected in its pattern
of income and spending growth. For example,
year-over-year growth of personal income on a
quarterly basis has been consistently below
that of the nation and the Southeast since that
time (Chart 2). In 1983, income grew by little
more than half the national rate, placing Louisiana
among the half dozen worst performing states.
As of mid-1984, Louisiana's personal income
growth continued to rank among that of the
bottom 10 states.
These income comparisons are even more
unfavorable when income growth is considered
on a per capita basis. Nationally, per capita
income increased more than 2.5 times as fast as
Louisiana's in 1983 partly because the national
population grew only two-thirds as fast. More
recently, Louisiana's population growth has
slowed dramatically. The state's population
grew by little more than half the rate of increase
nationally, and was the slowest in the region
according t o U. S. Census Bureau estimates, in
the year ending last July.
An examination of the relative growth of
income by major economic sectors for Louisiana
and the nation is revealing. For the year ending
in mid-1984, Louisiana posted faster growth
only for durable goods manufacturing. The
state's poor showing compared with the nation's
is attributable t o relative weakness in income
growth from mining, construction, state and
local government, wholesale and retail trade,
and transportation and public utilities. These
FEBRUARY 1985, E C O N O M I C
REVIEW
Chart 2. Annual Percent Change in Personal Income,
Louisiana, Southeast and United States
Chart 3. Annual Percent Change in Retail Trade,
United States and Louisiana
(3-month moving average)
Percent
20
18
/\
Louisiana
16
14
12
-
/
1/
10 • { _ /
\
\
/
V \ United States
8
6
4
\
w
\ y \V
2
0
—2
Source: Calculated by Federal Reserve Bank of Atlanta from data in
U.S. Department of Commerce, Quarterly Personal Income,
various issues
weaknesses are linked strongly to the energy
bust and the lackluster performance of port
activity.
Weak income growth since mid-1982 also is
reflected in Louisiana's retail trade data In
nearly two-thirds of the months from January
1982 to mid-1983, consumer spending growth
in dollars, before adjusting for inflation, was
below or only up negligibly from the corresponding month of the previous year. Meanwhile,
real consumer spending was increasing nationally. As a consequence, Louisiana's spending
growth since mid-1983 overstates the strength
of its consumer spending relative to the nation's
(Chart 3).
Louisiana's outlook for consumer spending
in 1985 is positive, but only moderately so. At
year-end, retailers anticipated that the good
holiday sales they were experiencing would
spill over into 1985's retail sales. However,
they also were concerned about the potential
effects of weak oil prices and a slow-moving
petrochemical industry in 1985.
O i l and Gas
Louisiana's oil and gas industry began a shaky
recovery in 1984, thanks to moderately higher
U.S. energy consumption and sharply lower
drilling costs. But the industry is still adjusting
to the price shocks of the past few years, an
aftermath of the recession, and from sputtering
A^f
V \
V
\
^
J \\J/
/
111111111111
1981
A
/ ^ / ^ A V
11111111111
1982
1983
1984
Source: U.S. Department of Commerce, Monthly Retail Trade,
various issues
production attributable to dwindling resources.
There is a good chance that real energy prices
eventually will stabilize and even rise in the
years ahead, despite the current softness in
world energy markets. But Louisianians face
the pressing need to diversify their economy
away from its reliance on an industry that, in
the absence of significant new discoveries, is
bound to shrink as the resource pool is depleted.
The Hughes Tool Company's oil rig count for
Louisiana increased nearly 10 percent in 1984
from 1983's depressed level, although the
number actually working was still one-third
fewer than the peak number of 487 reached in
December 1981. Energy use in the United
States reversed a four-year decline in 1984.
Increased use of energy more than offset lower
energy use per dollar of GNP, which resulted
from ongoing conservation efforts. Based on
permits issued by the state, expectations are
that oil and gas drilling will continue to grow,
albeit at a much more subdued pace than
during the energy boom five years ago. Offshore
drilling, which has rebounded more than onshore
activity and accounts for the bulk of exploration,
is likely to register most growth.
The effect of the oil and gas industry's volatile
performance on Louisiana's economy is well
understood in the state. Likewise, it is understood that the state's economy must diversify
further to provide higher living standards to
residents. Troubles in the industry have rippled
51
FEDERAL RESERVE B A N K O F A T L A N T A
throughout the state, just as good times rolled
across the " o i l patch" earlier. M u c h of the
construction industry and related oil and gas
service supply industry cannot grow without
expanded oil and gas drilling activity. Moreover,
downstream use of natural gas in the petrochemical industry has been crucial to the state's
major manufacturing industries. Like the chemical plants that originally located in Louisiana to
be close t o its natural gas feedstock, petroleum
refineries need oil to make fuel. Increasing
competition from foreign oil and gas producers
w h o are expanding their o w n downstream
refining and chemical production capacity poses
a severe threat to Louisiana's future growth
prospects.
The impact of a shrinking energy-based
economy has intensified in recent years beyond
declining employment in related industries.
For example, the fiscal health of Louisiana's
state government is tied closely to the price
and production of energy. State severance
taxes on oil and gas have dropped substantially
in recent years. At times, the energy sector has
provided perhaps as much as 40 percent of the
state's tax revenues, including lease and royalty
income. A continuing decline in energy revenues eventually could threaten state programs
designed to provide new jobs to replace those
lost because of oil and gas depletion.
Manufacturing
Louisiana was one of only t w o states where
nondurable goods manufacturing outperformed
durable goods in 1983, the first year of the
national recovery. Unfortunately, employment
decHned in both of these sectors in Louisiana
The relatively greater weakness experienced
by durable goods firms in 1983 reflects the
spillover effects from the energy glut The
state's metals, machinery, and transportation
equipment durable goods industries depend
upon orders from energy mining firms and
upon petroleum refiners and chemical manufacturers (who are counted as nondurable
goods producers).
The slow recovery of oil and gas exploration
and extraction in 1984, combined with the
continued loss of jobs in the chemicals and
petroleum refining industries, prevented Louisiana manufacturing employment from improving
much again last year. Nationally, the number of
m a n u f a c t u r i n g jobs a p p r o a c h e d t h e pre52
recessionary peak, while the number in Louisiana
was still nearly 20 percent lower in late 1984
than in mid-1981.
The few gains in manufacturing employment
during 1984 were concentrated in the electrical
and electronic machinery, e q u i p m e n t , and
supplies industries (Table 3). These durable
goods producers have benefited from recovery
of the auto and housing industries. However,
slowing construction after midyear reversed
employment growth in the lumber, furniture,
and stone, clay, and glass industries earlier in
the year. Growth was flat in metals and transportation equipment employment in part because
shipyards are not building oil field tenders as in
the past. Employment levels in these industries
remain about one-third lower than in late
1981.
Nondurable goods production accounts for
about 55 percent of Louisiana's manufacturing
employment. Employment growth was even
flatter than production growth in most of these
industries in 1984, as chemical, petroleum, food,
apparel, and paper producers tried to fend off
foreign competition by installing more efficient
equipment and by trimming employment.
For Louisiana, world oil prices and the foreign
exchange value of the dollar are more important
than the growth of the national economy.
Ongoing efforts by manufacturers to boost
productivity or change product mix to become
more competitive should help somewhat For
the longer haul, these efforts are crucial to
maintaining and improving Louisianians' living
standards.
One of the stronger stimulants to national
growth this year will be spending for national
defense. Louisiana's share of defense e m p l o y
ment and production is below average compared with the state's share of all national e m p l o y
ment and production. But the benefits of defense
dollars to Louisiana's economy are substantial
and of growing importance, particularly t o New
Orleans' economy. The military, including the
Corps of Engineers, is a major employer in that
city, and numerous companies in the area, both
small and large, s u p p l y local bases or military
needs elsewhere. The Avondale Shipyard and
Bell Aerospace Textran are t w o of the largest
suppliers, with contracts from the Navy to
build troop and fleet oiler ships and coastal
mine sweepers. This work helps cushion the
still declining employment in shipbuilding and
repair from lost energy-related business.
FEBRUARY 1985, E C O N O M I C
REVIEW
T a b l e 3. Manufacturing Wage and Salary Employment in Louisiana
(in thousands)
November
1984
182.9
84.1
13.4
0.8
7.7
3.6
12.6
10.2
11.2
21.9
2.7
98.8
23.3
9.0
11.9
9.9
28.4
12.3
4.0
Manufacturing
Durable Goods
Lumber and W o o d 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
Source: Louisiana Department ot Labor, Louisiana
Labor Market
Information,
Signs of a rebound in housing and in consumer spending nationally began to show up at
the end of 1984, helped by lower interest rates
and growing incomes. A sustained revival of
construction activity this year would stimulate
construction-related industries that faltered
last year. Greater demand for lumber and
wood products would increase activity and
employment at logging camps, sawmills, and
planing mills across the state. Producers of
concrete, gypsum, and plaster products would
benefit as well. Healthy spending by consumers
would boost numerous auto industry suppliers
of rubber, glass, and electrical and other components
around the state. Firms producing metal and a
variety of machinery also would add to their
payrolls. But job gains in durable manufacturing
industries in Louisiana from increased construction and consumer spending will not be large.
Combined, these industries account for a relatively low share of manufacturing employment
in Louisiana (45 percent) compared with their
share nationally (60 percent).
November
1983
180.8
79.0
13.4
0.8
7.6
3.5
13.6
9.4
8.1
20.6
2.0
101.8
25.5
8.5
11.7
9.8
29.6
12.8
3.9
Percent
Change
1983/1984
1.2
6.5
—
—
1.3
2.9
-7.4
8.5
38.2
6.3
35.0
-2.9
-8.6
5.9
1.7
1.0
-4.0
-3.9
2.5
November 1984.
The state's largest industrial employer is the
chemical industry. It accounts for one out of
eight manufacturing jobs in the state and 30
percent of all nondurable manufacturing jobs.
Workers certainly would benefit from a third
year of national expansion. Continued national
growth would increase the amount of chemicals
needed to produce industrial products used to
make cars, houses, and consumer goods. Paper
and textile material suppliers would benefit in
a similar way. But it is unlikely that the moderate
pace of growth nationally will ensure an equally
healthy nondurable manufacturing sector in
Louisiana Too much manufacturing in the
state is linked to the energy sector, which is
likely to remain relatively weak.
A drop in the cost of gas feedstock t o the
chemical industry and the cost of a dollar to
foreigners w o u l d sharply improve chemical
producers' ability to sell in world markets as
well as at home. But at year-end, the outlook
for the price of gas and the dollar in 1985
remained uncertain. Longer term, many of the
53
FEDERAL RESERVE B A N K O F A T L A N T A
state's big chemical companies are gearing up
to produce more engineering-intensive specialty
chemicals to skirt growing foreign competition
in the production of low-cost bulk chemicals.
Rapid growth of cheap imported ammonia
for use in producing fertilizers is one example
of the declining competitiveness of Louisiana's
bulk chemical producers. Manufacturers of
agricultural chemicals claim that these imports
seriously threaten the future of this industry in
the United States. Moreover, U.S. producers
assert that foreign nations subsidize their
chemical industries via artificially low prices for
nationalized natural gas feedstock. Domestic
producers are pressing for legislation to halt
such imports.
A positive factor for fertilizer producers this
year will be the expected increase in demand
from farmers in the United States and abroad.
W i t h the cancellation of the federal Payment-1 nKind (PIK) program that encouraged farmers
to reduce cultivated acreage, farmers should
plant more crops and use more fertilizer. Expanding food production worldwide likewise should
help stimulate fertilizer, pesticide, and herbicide sales t o foreigners, particularly if the dollar
loses some of its current strength against other
currencies.
Government
Real spending by state and local governments
nationally was flat in the first year of recovery
but increased at a healthy pace in 1984. Moreover, an increase in federal grants, strengthened
state fiscal positions, and continued expansion
of economic activity portends further growth in
the state and local sector this year. Real spending
in Louisiana also is increasing, but the state's
fiscal health has eroded dramatically since oil
prices t u m b l e d in 1983. Another sustained
price drop this year would be bad news for the
state's precariously balanced b u d g e t
Data from the National Governors Association
and National Association of State Budget Officers
show that the state started the 1983 fiscal year
(in July 1982) with a $271 million surplus, or
close to 7 percent of expenditures and transfers
made in the 1982-83 fiscal year. This fiscal year,
which ends in June 1985, started off about $30
million in the red, according t o the state legislative fiscal office.
M u c h of the state government's revenue
comes from the energy sector in the form of
54
severance taxes, royalties, and bonuses from
oil and gas production. Fiscal 1983 revenue
from the severance tax alone dropped by more
than $130 million from the previous year, to
about $860 million, according t o the Louisiana
Department of Revenue. This revenue source
was off another $57 million in the fiscal year
that ended last June. The recession and weaker
than expected recovery last year also has
caused the important alcohol, tobacco, and
corporate income taxes to decline or fall short
of projections.
State government employment, which grew
rapidly in the late 1970s, has grown more
slowly since 1982 because of these budget
difficulties However, spending is growing, helped
by tax increases passed last year that were
projected to add $900 million in revenue. Even
so, Louisiana's public sector will provide little
growth impetus this year. If oil prices should
drop more, the state estimates it would lose
about $21.6 million in revenue for each dollar
decline in the price of oil at current production
levels. In the longer term, the state's new
spending to underwrite an economic diversification plan may help to lessen reliance on the
energy sector.
The state's plan to end its heavy dependence
on the oil and gas industry is, perhaps, the most
comprehensive economic development program in Louisiana's history. The plan aims t o
make venture capital more available, liberalize
state banking laws, build Louisiana universities'
research capabilities, use new biotechnologies
to enhance natural resources, improve industrial
recruitment efforts, seek international business
more aggressively, and provide more business tax
incentives.
Construction
Employment in the nation's construction
sector approached a historical high in 1984. By
contrast Louisiana's construction employment
remained nearly 20 percent below the peak
level reached in 1980. Total construction activity
turned out to be even weaker than was expected
when the year began, largely because of the
disappointing performance of the energy sector.
Stimulus from the World's Fair also came to an
end as that construction project was completed,
and a commercial building boom was winding
down. In addition, slower-than-expected growth
FEBRUARY 1985, E C O N O M I C
REVIEW
of the entire state economy prevented residential construction from growing more.
Total construction activity dropped in Louisiana in 1983 and 1984 while it was rising
nationally, a reversal of 1982. In 1982, Louisiana
was benefiting simultaneously from construction
activity associated with the energy sector and
from preparations for the World's Fair. W h e n
the impetus from these forces dissipated in
1983 and 1984, respectively, the state's construction sector nosedived.
Total construction this year is unlikely to
match the moderate growth expected for the
nation. However, the worst of the slowdown
associated with the troubled oil and gas industries is probably over, unless oil prices fall
further. Thus, the state may regain some of the
almost 30,000 jobs lost in the construction
trades over the past few years. But the gains
probably will be modest in the aftermath of the
World's Fair and the slowing of office and hotel
construction.
The industry's best prospects for growth this
year are in the housing and nonresidential
building that would accompany a continuation
of growth nationally. Compared with the nation's,
Louisiana's housing construction was relatively
weak last year, consistent with its slower pace
of economic advance. The state's building
activity is likely to continue advancing at a
slower pace than the nation's again this year.
Tourism
Tourism, though a small sector of Louisiana's
entire economy, is an important activity in
New Orleans, where millions of visitors flock to
the city yearly. Some visit on convention business or to view sporting events or Mardi Gras,
while others come simply to enjoy the unique
cuisine, music, and general cultural ambience.
Seeking t o capitalize on New Orleans' lures, a
World's Fair was held last year to showcase the
city and the state. It also was hoped that
investment generated by the fair would produce
long-term economic benefits. Yet attendance
was disappointing and the fair was forced to
file for protection under federal bankruptcy
laws in its last week to prevent creditors from
seizing its property.
Fewer than 7.5 million attended the fair,
which was to attract 12 million. Attendance
was so far below the break-even level that the
FEDERAL RESERVE B A N K O F A T L A N T A
fair ended its run with a net loss of $110
million, according to the bankruptcy proceedings report filed in December. Numerous reasons
have been suggested to account for the financial
losses, including competition from the Olympics
and f o r e i g n travel, p o o r m a n a g e m e n t a n d
marketing, bad weather, adverse publicity, and
other factors that either boosted costs or
decreased demand.
Louisianians still hope that the more enduring
goal of increased business activity, particularly
in New Orleans, will be achieved. A revitalized
riverfront warehouse area, with adjacent ongoing
commercial development, is one permanent
improvement. Another is the new convention
center that was used as the state's pavilion
during the faiKs run. The eventual economic
benefits that these and other fair-related investments bring to New Orleans and the state
surely will be positive, although their magnitude
is uncertain.
Services employment related to increased
convention business and the new commercial
developments may offer additional j o b opportunities, particularly for less-educated Louisianians. A host of new jobs in hotels, stores, and
other businesses related to the convention and
tourism industries is sure to result from the
enlarged capacity. But these benefits will be
less positive this year than the employment
boost from the fair in 1984. As a result, 1985
service employment is likely to languish in
New Orleans and to grow only slowly at the
state level.
Finance
Although Louisiana's economy has suffered
from declining oil prices, the national economy
as a whole has benefited. Of course, that is
small consolation to the many energy industry
suppliers who have gone bankrupt in recent
years or to their creditors w h o could not collect
on loans. Similarly, the potential long-run benefits from the improvements brought by the
World's Fair still entail losses to creditors as a
result of the fair's bankruptcy. Louisiana financial
institutions are counted among those who
stand to lose from both developments.
So far, most loans provided by banks to
energy-related companies have not proven
fatal. Fair-related lending likely will prove to be
even less damaging to bank profits. The one
55
bank failure in the state last year was caused in
part by a downturn in the local economy
associated w i t h troubles in the oil exploration
industry. Loan losses as a percentage of interestearning assets also rose substantially in the
state in 1982 and 1983. However, Louisiana's
commercial banks' percentage return on assets
was above average for Sixth-District states.
Louisiana registered
slower-than-national
growth of bank deposits last year. That slower
deposit growth is consistent with the relatively
weak growth in income and the state economy
in 1984. Major state legislation was passed last
year enabling bank holding companies t o cross
parish boundaries to seek mergers and deposits
from around the state. Bank merger and acquisition activity is likely to be heavy in 1985.
Currently, Louisiana banking organizations are
relatively small: only t w o banks in the state
have assets in excess of $2 billion and the top
six banks have combined assets of less than $9
billion. The small size of Louisiana banks certainly
is due in part t o the pre-1984 prohibition
against inter-parish banking. Now, mergers will
allow them to grow.
The expected growth in the size of banking
organizations in the state should prove mostly
positive for customers. The new law allows
banks greater freedom to compete. Thus, institutions in poorly served markets may face
increased competition. Louisiana institutions
also should be in a better position t o serve
larger companies, and to provide a wider range
of services, than is typical now. This increased
capacity may swell financial employment as
well, but employment growth is likely to be
gradual. Consolidation could mean even a
short-term decline in employment as duplication is eliminated.
International Trade
Louisiana's ports began a sluggish recovery
last year from a sharp decline in the volume
and value of foreign trade shipments in 1982
and 1983 (Chart 4). Thousands of jobs were
lost in this period in the New Orleans Customs
District, which encompasses the state's largest
ports, and most have yet to be regained. Total
trade remains sharply below the peak attained
in 1981 and the unusually strong value of the
dollar has greatly skewed the pattern of recovery.
The Port of New Orleans is one of the
nation's busiest and most important Its health,
56
Chart 4. Exports and Imports,
New Orleans Customs District
Source: U.S Department of Commerce, Highlights
and Import Trade, various i s s u e s
of U.S
Export
as well as that of the entire port system in the
state, is vital to the health of the state's economy.
Many of the nation's ports were hurt by the
slowdown in world trade in the recession, but
the mix of New Orleans' cargo shipments
made it especially vulnerable to the decline in
trade. New Orleans leads the nation in the
export of bulk commodities, and it and other
ports along the Mississippi are major handlers
of oil imports. The strong dollar and weaker
recovery abroad compared with that of the
United States cut purchases of these commodities in particular.
The rebound in shipments that New Orleans
is now experiencing also is unbalanced. Imports
of manufactured goods are growing much faster
than exports, as foreign steel producers, machinery manufacturers, and others find U.S.
markets easier to penetrate. But exporting
United States agricultural and manufactured
goods has become more difficult.
The major effect of the current trade imbalance
occurs away from the ports, however. Louisiana
farmers have become less competitive in foreign
markets for soybeans, cotton, and corn. In
manufacturing, where export-related production accounts for one out of eight jobs, chemical
producers and others also find it more difficult
to penetrate foreign markets. If this year unfolds
as expected, continued world growth will boost
activity at Louisiana's ports more than in 1984.
If the dollar were to undergo a sustained
FEBRUARY 1985, E C O N O M I C
REVIEW
decline it would, over time, cause an acceleration in the growth of exports and a slowing of
import growth.
Agriculture
Farm income as a percentage of total personal
income is minimal both in Louisiana and the
nation. However, this measure greatly understates the economic importance of the agricultural sector. Like other businesses, farms engage
in numerous purchase and sale transactions
that further stimulate activity. In addition, farmrelated activity is the dominant economic base
in many local areas.
Most Louisiana crop farmers, who generate
nearly three-fourths of the state's farm income,
should be able to look back on last year
favorably, even though termination of the PIK
program reduced cash income. All major crop
yields increased, with the exception of sugar
cane, and prices generally held at profitable
levels. Many crop prices are in danger of
slipping, though, and foreign markets for U.S.
products are weak, partly because of record
crops abroad. Rapid growth in agricultural
exports is unlikely until the dollar declines in
value.
Although rice production increased last year
and generated profits for the most efficient
producers, income fell far short of the peak
level reached in 1981. Prices are under downward pressure because of weak foreign sales,
and improved crop yields have contributed to
large rice inventories. The soybean crop, which
FEDERAL RESERVE B A N K O F A T L A N T A
generates the most income for Louisiana farmers,
actually declined last year due to reduced
acreage. As with rice, growers are threatened
with falling prices.
In spite of weaker prices, Louisiana cattlemen, w h o generate nearly one-fourth of the
state's farm income, were able to increase their
revenues last year by increasing sales. Although
profit margins were negligible on the higher
marketings, cattlemen reduced their inventory,
hoping to improve their prospects for higher
cattle prices and revenue this year.
The overall outlook for Louisiana's agricultural
economy is much the same as last year. The
typical farmer is unlikely to achieve high profits,
but efficient producers should earn normal
returns if the weather cooperates. The outlook
is a bit more favorable for the livestock sector
because feed costs should be steady t o lower
and cattle prices should advance because of
reduced supplies.
Conclusion
Louisiana's 1984 economic performance
represents an extreme example of the consequences of d e p e n d e n c y u p o n a volatile
economic sector. The state's weak growth during
the current national economic expansion is
related largely to the drop in oil prices from levels
that prevailed in the pre-recession boom period.
The state's economy should improve this year,
but it probably will not keep pace with the
nation's rebound because of continued softness
in energy prices.
57
Alabama: "Heart of
Dixie" Slackens Beat
Charlie Carter
This year Alabama's e c o n o m i c expansion is
unlikely to match the pace set in 1984. But
energetic growth in industries related to automobiles and defense should help counter the
drag from import-sensitive s e c t o r s
The general pace of the Alabama recovery, which
quickened in 1984 despite lingering weaknesses
in services, apparel, agriculture, and textiles, is
expected to moderate in 1985 as the nation's
economic growth slows. Alabama's economic
recovery has been less spectacular than those in
some other southeastern states because of the
state's closer link to industries susceptible to
import competition. Employment and income
growth will be spurred by increased defense and
investment goods spending, However, expansion
of industries that compete with foreign manufactured goods or that look to export markets is likely to
be retarded by the high foreign exchange value
of the dollar and weaker economies abroad.
On balance, we look for growth of employment
income, and consumer spending from several
sources: commercial, industrial, and office construction; production of machinery and equipment; defense-related manufacturing; and state
and local spending on public works. W e believe
The author is a senior economist
ment's regional
team.
58
on the Research
Depart-
these growth areas will marginally overshadow
lingering weakness in import-sensitive sectors,
giving rise to a more moderate expansion in the
state's economy in 1985 than occurred in 1984.
Alabama's unemployment remains stubbornly
high. The state's unemployment rate is down
appreciably from 16 percent at the trough of the
last recession; however, in spite of two years of
recovery it remains well above the national rate
of 7.2 percent (Chart 1). In 1984, employment
grew by 4.8 percent from the previous year while
the state's labor force increased by only 1.6
percent. Yet the state's jobless rate lingered at
11.2 percent in December.
Economic conditions improved last year in all
eight of the state's major metropolitan areas
(MSAs), yet these improvements varied widely.
Huntsville, Montgomery, Tuscaloosa and Birmingham boasted expansions strong enough to give
them single-digit unemployment rates by December. On the other hand, Florence, Gadsden,
Mobile, and Anniston still were suffering with
double-digit rates (Table 1).
A favorable mix of automobile parts, high
technology, defense, and space-related manufacturing benefited Huntsville's economy. Employment grew 7.2 percent from December
1983 to December 1984. However, the area's
unemployment rate rose to 9.4 percent, as the
labor force increased 8.2 percent
Montgomery enjoyed the state's lowest unemployment rate at the end of last year and
continuing strong office and commercial construction reduced Birmingham's jobless rate. With a
FEBRUARY 1985, E C O N O M I C
REVIEW
large portion of Montgomery s work force associated with state government and the military, jobs
grew 3.9 percent last year, lowering unemployment to 8.9 percent. Commercial, office, and
highway construction in and around Birmingham
boosted employment 5 percent last year, cutting
the jobless rate t o 9.4 percent
Economic conditions in the northern areas of
the state remained depressed as of late last year.
Florence, with an economy heavily reliant on
electrical wiring used in building, suffered the
highest jobless rate in the state, as rising longterm interest rates in the first half of last year
weakened the industries on which it depends.
The performance of LTV, the largest employer in
Gadsden and Anniston, has a pronounced impact
on those cities' economies. Continuing uncertainty over the future of Gadsden's huge steelmaking facility has kept economic conditions
depressed in the area. As of December, unemployment rates were 14.6 percent in Gadsden
and 10.2 percent in Anniston.
role of manufacturing in Alabama, where factories
accountforalmost26 percent of all nonfarm jobs
versus 21 percent for the nation (Table 2).
Contrary to the popular perception, however,
the state's economy is not more dependent on
heavy industry than is the nation's. Durable
goods manufacturers account for only 12.4 percent of the state's nonfarm jobs, about the same
as the nation's, but nondurables are proportionately
more important to Alabama. Slightly more than
13 percent of Alabamians are employed in nondurable manufacturing versus just over8 percent
Chart 1. Unemployment Rates, United States
and Alabama
Economic Structure and Performance
The lurching course of Alabama's economy
relates to its industrial structure. Compared with
the national economy, proportionately more of
Alabama's workers earn a living from cyclically
sensitive goods production. Nearly a third of the
state's nonfarm jobs are involved w i t h goods
production in contrast to slightly more than a
fourth in the nation. Greater reliance on goods
production is attributable to the more important
FEDERAL RESERVE B A N K O F A T L A N T A
Source: U.S. Department of Labor, Bureau of Labor Statistics.
59
T a b l e 1 . Employment Gains Exceeded Labor Force Growth in Alabama's MSAs in 1984
(in thousands)
December
1983
December
1984
Absolute
Change
Percent
Change
Alabama
Labor Force
Employment
Unemployment
Rate (percent)
1,732.8
1,535.8
210.6
11.4
1,806.2
1,595.6
197.0
11.7
73.4
59.2
13.6
4.2
3.9
6.9
Anniston
Labor Force
Employment
Unemployment
Rate (percent)
46.5
41.3
5.2
11-3
49.1
43.8
5.3
10.8
2.1
2.6
0.1
5.6
6.2
1.2
Birmingham
Labor Force
Employment
Unemployment
Rate (percent)
385.8
344.1
41.7
10.8
397.2
359.9
37.3
9.4
11.4
15.8
-4.4
3.0
5.0
-10.6
Florence
Labor Force
Employment
Unemployment
Rate (percent)
57.9
49.3
8.6
14.9
59.1
50.1
9.1
15.3
1.2
0.8
0.4
2.1
1.6
5.1
Gadsden
Labor Force
Employment
Unemployment
Rate (percent)
41.4
35.8
5.6
13.5
43.0
36.8
6.3
14.6
1.7
1.0
0.7
4.0
2.7
12.6
Huntsville
Labor Force
Employment
Unemployment
Rate (percent)
159.7
146.0
13.7
8.6
172.9
156.5
16.3
9.4
13.2
10.6
2.6
__
8.2
7.2
18.8
192.7
168.2
24.5
12.7
203.1
178.0
25.1
12.4
10.5
9.8
0.6
5.4
5.8
2.6
128.5
116.5
12.0
9.3
132.8
121.0
11.8
8.9
4.3
4.5
-0.2
3.4
3.9
-1.9
56.4
50.6
5.8
10.3
59.2
53.6
5.6
9.4
2.8
3.0
-0.3
4.9
6.0
-4.3
Mobile
Labor Force
Employment
Unemployment
Rate (percent)
Montgomery
Labor Force
Employment
Unemployment
Rate (percent)
Tuscaloosa
Labor Force
Employment
Unemployment
Rate (percent)
Source: Alabama Department of Industrial Relations, Research a n d Statistics U n i t
60 F E B R U A R Y 1 9 8 5 , E C O N O M I C
REVIEW
Table 2. Greater Reliance on Goods Production Makes Alabama's Economy More Volatile
(Employment in thousands)
(September 1984)
Sector
United States
Percent
Employment
Total Nonfarm Employment
Goods Producing
Manufacturing
Durables
Nondurables
Construction
Mining
Service Producing
Trade
Financial
Transportation
Government
Services
94,671
24,996
19,601
11,680
7,921
4,371
1,024
69,675
21,956
5,682
5,175
16,033
20,829
Alabama
Percent
Employment
100.0
26.4
20.7
12.3
8.4
4.6
1.1
73.6
23.2
6.0
5.5
16.9
22.0
1,346.4
427.4
345.8
167.3
178.5
67.2
14.4
919.6
285.6
62.1
72.0
281.9
218.0
100.0
31.7
25.7
12.4
13.3
5.0
1.1
68.3
21.2
4.6
5.3
20.9
16.2
Source: U. S. Department of Labor, Bureau of Labor Statistics, a n d Alabama Department of Industrial Relations.
in the nation. Greater reliance on nondurables in
Alabama can be traced to textile and apparel
manufacturing, which are responsible for nearly
half of nondurable jobs in the state.
The services sector, considered t o be a stable
source of income and employment, is less important in Alabama's economy. While services
account for 22 percent of national employment,
only 16 percent of Alabama's nonfarm jobs are in
services.
The goods-production orientation of Alabama's
economy makes it more vulnerable to downturns
in the national economy and to the high exchange
value of the dollar. Declines in consumer spending
affect the goods-producing sector more adversely
than they do the service sector. As orders for
consumer durables decline, production cutbacks
and layoffs occur in Alabama t o a greater extent
than nationwide.
Movements in the dollars value also strike a
sharper blow to goods-producing establishments,
which are forced to compete more directly w i t h
low-cost imports than are service-producing firms.
W i t h its greater reliance on goods production
particularly textiles and apparel production, Alabama's overall economy is more sensitive to the
negative effects of the dollars high value.
At least one favorable long-run result may flow
from the short-run adversities of the current
trade imbalance. If the dollar's present strength
speeds the state's transition away from import-
sensitive industries, Alabama's economy could
grow more stable in years to come.
Income, Population, and
Consumer Spending
Alabama's ties to national economic growth
worked t o its favor in 1984, but its sensitivity to
foreign markets was a negative influence. A sharp
increase nationally in consumer purchases of
homes and autos sparked the U.S. economic
recovery in 1983 and 1984, and boosted income
in Alabama at an above-average pace. Recent
income gains are quite impressive in light of
Alabama's belov^average population growth and
the dramatic slowing of inflation in recent years.
Along with the recall of workers and expanded
production in the state's steel, rubber, and other
heavy manufacturing industries, a new emphasis
on diversification of the state's economy also has
helped spur nominal income growth.
Alabama's population growth was slower than
that of any state in the region in the 1980-83
period and, in contrast to the 1970s, population
increased more slowly than nationally. Net outmigration of workers trained in the state contributed to the slow population growth. Alabama
lost 19,000 people from migration in the 198083 period, which is three times the number lost
in Mississippi, the only other regional state t o
61
FEDERAL RESERVE B A N K O F A T L A N T A
suffer a migration loss. With continuing economic
recovery and growth, the state can expect at least to
retain population as it did in the 1970s. Along
with rising pay scales, moderating inflation and
slower population growth have helped raise the
state's real income per capita, both absolutely
and relative to the nation.
Advances in retail spending are linked closely
to population and income growth. Strong increases
in income and employment were sufficient t o
encourage Alabamians to spend more freely in
1984, after forgoing purchases of homes, automobiles, and major household appliances for
several years. Retail sales, as measured by sales
tax collections, rose 12 percent in the first eight
months of last year over the same period of 1983.
In response to strong spending growth, Alabama's
19,000 retailers increased hiring 4.7 percent, on
top of a 3 percent rise the previous year (Table
3). However, Alabama's consumers turned more
cautious later in the year as the national expansion
abated. Indeed, yearly increases in sales tax
collection slowed from close to a 1 5 percent
annual growth rate in the first quarter to about 11
percent early in the second half. Yearly employment increases in the trade sector slowed commensurately. Therefore, unless the state econ-
omy' s growth rate turns more positive in the first
half of 1985, w e doubt that the trade sector will
supply as many new jobs as it did in 1984.
The 1985 outlook for income growth and, thus,
for consumer spending in Alabama hinges importantly on outside factors. National recovery is
important to continued growth, but international
forces can impose severe limits.
Industry Analysis
What follows is an overview of major trends in
1984 and a review of growth prospects for 1985
within specific industries in the state The ordering
of our industry discussion is not arbitrary. Instead
our industry analysis is arranged beginning with
the industry considered to have the brightest
prospects for growth in 1985 to those likely to
aid least in the economic expansion. W e begin
with a review of 1984's developments and outline
1985's prospects for the construction industry.
Our review of construction is followed by an
analysis of the manufacturing sector. Machinery
manufacturing, p r o d u c t i o n of transportation
equipment, and output of materials used for
national defense will serve as engines of growth
in 1985. Strength in these sectors is expected to
Table 3. Alabama's Recovery Has Been Weaker Than the Nation's
(Employment in t h o u s a n d s except absolute changes)
Alabama
Industry
Total Nonfarm Employment
Goods Producing
Manufacturing
Durables
Nondurables
Construction
Mining
Service Producing
Trade
Wholesale
Retail
Finance and Banking
Transportation
Government
Services
u. S.
November
1983
November
1984
Absolute
Change
Percent
Change
Percent
Change
1,336.6
422.9
346.3
162.6
183.7
63.0
13.6
913.7
278.0
70.8
207.2
59.6
70.9
286.6
218.6
1,356.0
424.2
345.3
166.6
178.7
64.7
14.2
931.8
289.2
72.3
216.9
62.3
71.8
290.2
218.3
19,400
1,300
-100
3,700
-5,000
1,700
600
18,100
11,200
1,500
9,700
2,700
900
3,600
-300
1.5
0.3
-0.3
2.2
-2.8
2.6
4.4
1.9
3.9
2.1
4.7
4.5
1.3
1.3
-0.2
4.9
5.5
4.0
5.6
1.6
12.6
5.1
4.7
6.0
5.7
6.1
3.3
5.0
2.8
5.1
Source: U. S. Department of Labor, Bureau of Labor Statistics, a n d the Federal Reserve Bank of A t l a n t a
62
FEBRUARY 1985, E C O N O M I C
REVIEW
overshadow anticipated weaknesses in apparel,
textiles, and basic steelmaking. While w e expect
banking and finance, services and tourism, and
the public sector to grow in 1985, such growth is
anticipated to be less robust than in construction
and overall manufacturing. Our industry-b>Mr>
dustry analysis concludes with mining, agriculture,
and international trade. These three industries
are expected to retard growth in 1985. The
article concludes with a summary of important
developments in 1984 and offers an outlook for
the state's economy in 1985.
Construction
Alabama's construction industry enjoyed
strong growth last year. Although the residential
sector was sluggish in comparison with its
exceptional growth in 1983, construction of
offices, industrial buildings, and stores was
vigorous. Falling long-term interest rates in
1983, low vacancy rates in office buildings, and
strong growth of retail spending were fundamental factors behind the increased building
activity. Employment in building trades, generally reflecting construction activity, rose more
than 3 percent in 1984 (Table 3). The number
of permits issued to build office and industrial
structures in the state rose threefold. W h i l e
industrial construction was strongest last year,
major construction planned for office buildings,
shopping malls, and a new horse race track in
Birmingham will create jobs in 1985.
Large increases in the dollar value of commercial, office, and retail permits also attest t o
the strong growth of construction. For the nine
months ending last September, $74 million in
permits was authorized for office construction
throughout the state—more than double the
$36.5 million in the same period of 1983
(Chart 2). Building contractors also received
$166 million in permits to build manufacturing
plants and warehouses in the state during the
first nine months. In the comparable 1983
period, industrial permits came to only $14
million. Last year's sharp increase in retail trade
and employment encouraged merchants to
add space as well. Through September, $107
million in permits was issued to build retail
stores in the state—up 48 percent from the
$72.5 million issued during the like period in
1983.
FEDERAL RESERVE B A N K O F A T L A N T A
Residential construction, although d o w n
slightly from 1983, continued to be healthy in
Alabama last year. Permits were authorized for
construction of 6,242 single-family homes and
5,655 multifamily units from January through
September, respectively a 2 percent increase
and a 3.6 percent decline over the same period
in 1983. However, 1984's overall decline in
residential construction should be considered
in light of prior activity: in 1983, singl^family
and multifamily building permits rose 69 percent
and 85 percent, respectively, from depressed
1982 levels.
While it would be difficult for the state's
construction sector to match the torrid growth of
the last t w o years, w e are optimistic that this
sector will expand in 1985. Our optimism is
based largely on recent declines in long-term
interest rates, which are likely to encourage
additional developments, as well as on the
future impact of the many contracts awarded
in 1984. F. W. Dodge counted 770 major
construction contracts in Alabama in 1984 with
a combined value of almost $3 billion. The lag
between the time those projects are announced
and the expected completion date bodes well
for construction activity this year. Construction
on the I-459 artery around Birmingham will be
continuing in 1985. The $135 million Riverchase
Galleria complex, new headquarters buildings
for the SouthTrust Corporation and Alabama
Power Company, the horse race track, and the
Chart 2. Value of Construction Permits for Stores,
Offices and Industrial Buildings in Alabama
1/83 - 9/83
1 /84 - 9/84
400 300
200
100
Stores,
Offices,
Industrial
Industrial
Stores
Offices
Source: U S Bureau of the C e n s u s
63
Chart 3. Alabama Durables Employment
Source: State of Alabama, Department of Industrial Relations.
renovation of hotels in Birmingham are among
the major projects also expected to fuel construction in the state.
Manufacturing
The outlook for Alabama's manufacturing
industries is tied more closely to economic
conditions outside the state than are those of most
southeastern states. The state's relatively high
concentration in manufacturing makes it especially
sensitive both to cyclical forces in the national
economy and to foreign competition. A decline
in the value of the dollar would benefit the steel,
apparel, and textile industries, while renewed
economic growth would bolster the state's durable
goods producers.
Manufacturing employment growth was sluggish in Alabama for the first nine months of
1984. Durable goods industries added workers,
owing to exceptional performance in transportation equipment and machinery production,
but sharp declines in textiles and apparel
reduced nondurables employment.
Durable manufacturing was Alabama's second
largest provider of jobs last year, behind retail
trade. By November, firms in this industry
counted 3,700 more people on their payrolls
than in September of 1983 (Chart 3). The primary
metals and metal fabrication industry has enjoyed
a recent upturn in employment (nearly 5 percent
64
Chart 4. Alabama Nondurables Employment
Source: State of Alabama, Department of Industrial R e l a t i o n s
from September a year earlier), but the number
of jobs remains well below its 1979 peak.
Alabama's durable manufacturing is not limited
to the making and fabrication of steel, but
includes industries that manufacture defense
m a t e r i a l s a n d a u t o m o b i l e parts. N a t i o n ally, 1984 was an excellent year for the defense
products industry, from which several large
firms in the Huntsville area profited significantly.
A u t o m o b i l e industries also experienced a
prosperous year, with surging new-car sales
keeping plants in Alabama, which produces
more tires than any other state, operating at
capacity. Employment in transportation equipment also grew 11 percent last year.
While 1985's auto sales are unlikely to exceed
1984's levels, they are expected to remain
strong. Defense industries also are expected to
do well if the Reagan Administration carries
through with planned defense spending. Overall, auto-related and defense-connected firms
will contribute heavily t o growth in Alabama's
durable goods industry in 1985.
Manufacturers of machinery and equipment
experienced forceful upward m o m e n t u m in
1984 due to the nation's economic expansion
and strong tax incentives that encouraged heavy
plant and equipment spending. Employment
in the industry rose by 2,800 last year and
accounted for 45 percent of all new jobs in
durable goods manufacturing. Investment
spending is likely to provide support to the
economy in 1985, though gains will not be as
strong as in 1984. Some reduction in tax benefits
goes into effect at the start of the year. Uncertainty about proposed tax changes also may
affect new investment spending. W e therefore
expect equipment spending to expand further
this year, supporting employment and income
growth in Alabama's machinery and equipment
industries.
In contrast to the strong performance by
durable manufacturers, Alabama's nondurable
manufacturers lost 5,000 jobs last year (Chart
4). Most of these declines occurred in textile
and apparel industries, the largest within the
nondurables sector. Textile and apparel employment slumped nearly 7 percent as the rise of
the dollar brought on a large drop in export
demand as well as a strong j u m p in imports.
Banking and Finance
The state's financial services, insurance, and
real estate firms boosted employment sharply
last year after cutting back in 1983. Nearly twothirds of the j o b growth in this industry took
place within real estate firms, which reflects
the marked growth of office, commercial, and
industrial construction. Prospects for another
good year for Alabama construction generate
expectations for continued j o b growth in this
sector.
Interstate banking has not been pursued
aggressively in Alabama, as the state's largest
banks remain divided on the issue. Late last
year, AmSouth Bank Corporation ended its
cross-investment agreements with Atlanta-based
Trust Company of Georgia and South Carolina
National Corporation. However, James Gaskell,
president of the Alabama Bankers Association,
predicts that an interstate banking law will be
passed in the state within the next five years.
He believes that Alabama will be the next to
last southern state (followed only by Mississippi) to allow interstate banking. Alabama
banks generally are optimistic about 1985, however, believing positive developments in a number
of parts of Alabama's economy will overcome
other negatives.
Services and Tourism
The outlook for services and tourism is not
strong unless Alabama's population trends reverse. Alabama's service sector employment has
declined in each of the past t w o years. A closer
FEDERAL RESERVE B A N K O F A T L A N T A
examination of industries within Alabama's service sector reveals the source of the weakness.
While employment in personal and business
services, hotels, and other lodging places and
amusement and recreation services grew by
3,000 last year, the number of hospital workers
declined by 3,300 between November 1983
and December 1984. The Alabama Hospital
Association attributed the reduction to declines in
the number of patients which, in turn, were
undoubtedly linked to the state's slow population
growth and to increases in the number of outpatient clinics c o m p e t i n g against full-service
hospitals.
Tourism is a moderately important service
industry, although Alabama is not widely recognized as a tourist state. However, the state took
advantage of its proximity to the 1984 World's
Fair held in New Orleans. The Alabama Bureau of
Tourism and Travel spent $800 thousand to lure
fair-bound travelers to stop and shop at state
attractions.
Although fair attendance was deeply disappointing t o its N e w Orleans organizers, preliminary reports from tourism officials in Alabama
suggest that the state reaped a substantial economic harvest. Lodging places and major tourist
attractions as far away as Birmingham and Montgomery showed registrations and attendance up
substantially over the previous year. From October
1983 to October 1984, collections of lodging
taxes charged to people staying in hotels and
motels around the state increased 19.3 percent
over the same period in 1983.
While the state's proximity to the fair was
largely responsible for the strength of its tourism,
other activities also boosted the industry. The
1984 Professional Golf Association (PGA) tournament, played in Shelby County during August,
brought many first-time visitors to the state.
September 1984 marked the opening of Victoryland, Alabama's third parimutuel greyhound track,
in rural Macon County. Track attendance reportedly has exceeded expectations.
Horse racing should fortify Alabama's service
sector in 1985. Although the new track in Birmingham will not begin operating until 1986, construction of the track and horse farms should be a
boon t o the area's economy this year. Except for
the new track, however, the state's tourism
industry will be without major attractions comparable to last year's World's Fair and PGA.
Therefore, w e expect tourism to be less of an
engine of growth for Alabama's economy in
1985.
65
T a b l e 4. Fiscal Status of Alabama's State Budget,
1983-1985
(in millions of dollars)
Fiscal Fiscal Fiscal
1983 1 9 8 4 1 9 8 5
Beginning Balance
P l u s Revenues and Adjustments
Equals: Total Resources Available
Less; Expenditures and Transfers
Equals: Surplus (Deficit)
24
11
136
1,922 2,072 2,179
1,946 2,083 2,315
1,935 1,946 2,315
11
136
0
Source: Estimates a n d projections are from the National Governors
Association and the National Association of State Budget Officers,
Fiscal Survey of the
Public Sector
The state of Alabama had a full-time equivalent
payroll of 62,000 in October 1983 and appropriated $2.3 billion in expenditures for the fiscal
year ending in June. School boards, municipalities, and county governments around the
state had an October 1983 payroll of 129,000
and will probably spend three times the state's
total. Public-sector divisions regarding spending
and taxes, therefore, can profoundly affect the
overall economy of Alabama in 1985.
Employment growth in Alabama's public
sector has been sluggish in recent years (Chart
5). The number of full-time equivalent employees remains below the level of five years ago
and has declined in relation to the number of
residents in the state (Table 5). The decline in
government employment has occurred mainly
at the local level. In October 1980, there were
nearly 134,000 local employees, but by October
1982 the number had declined to 129,000 and
declined further in 1983. Further declines could
make it difficult for the state to provide quality
public services.
The state government has a fairly ambitious
budget for fiscal 1985. State expenditures are
projected to increase by 19 percent, to $2.3
billion, for fiscal 1985. But the state began its
1984-85 fiscal year last July with a $136 million
surplus, and so total resources are expected to
match expenditures, leaving the state govern66
States.
ment budget in balance at the end of its 1985
fiscal year (see Table 4).
The expected large increase in tax revenue
apparently is being used t o rebuild the state's
work force. State and local government personnel stood near 225.1 thousand in November
1984. This level was 2,600 higher than in the
previous year.
Many municipalities will continue to spend
heavily on public works. The dollar value of
permits for such public projects as water and
sewage treatment plants, bridges, public utilities,
and public office buildings more than doubled
in 1984, with much of the actual construction
to begin in 1985. Revenue for these projects
derives primarily from state and local bond
issues and from federal distribution of revenue
from the nickel-a-gallon excise tax on gasoline
imposed in April 1983.
Mining
Slightly over 14,000 Alabamians earn a living
from the state's rich mineral deposits. While
industries extracting coal, iron ore, and limestone have long been important t o Alabama's
economy, more recent additions include oil
and natural gas in the southwestern region of
the state. Alabama's mining industry added
1,600 new jobs in 1984, replacing over half the
1,000 jobs lost in 1983. However, we expect
the state's mining sectors will contribute fewer
new jobs in 1985, because much of the 1984
growth involved supplying coal to U.S. Steel's recently reopened Fairfield plant Some of the growth
FEBRUARY 1985, E C O N O M I C
REVIEW
Table 5. Full-Time Equivalent Employment of State
and Local Government Workers in Alabama
Number
Total
State
Local
191,567
189,780
189,422
196,225
191,670
187,394
177,199
166,564
62,151
61,244
60,272
62,530
60,147
62,039
58,955
54,664
129,416
128,536
129,150
133,695
131,523
1 25,355
118,244
111,900
Year
1983
1982
1981
1980
1979
1978
1977
1976
Source: U.S. Department of Commerce, Bureau of the Census,
Employment
in
Public
1976-83.
also reflected stockpiling of coal by apprehensive
utilities in midsummer before a coal miners'
labor contract expired. Alabama Power Company is estimated to have far more coal than is
necessary to meet its customers' electricity
needs. Hence, j o b growth in mining should be
less robust in 1985.
Agriculture
For a variety of reasons including financial
losses, better employment alternatives, and
advancing age, Alabamians are leaving the
farm. The state's farm population has shrunk to
2.3 percent of its total population, down from
nearly 5 percent as recently as 1970. The
primary problem—not unique to Alabama—is
that the state is a marginal production area for
many crops grown nationally at higher yields
and lower production costs. W i t h low product
prices resulting from strong international competition in major export markets, farmers are
hard-pressed to keep marginal operations in
the black.
Even so, Alabama crop farmers experienced
a reasonably favorable year in 1984. Yields of
almost all important crops improved over 1983
and, despite a general weakening in commodity
prices, farmers were able to recover their production costs with some money to spare.
What might Alabama crop farmers expect in
1985? Prices of soybeans, the state's leading
commodity, remained weak in the fourth quarter
of 1984 and little on the horizon indicates
strong prices in 1985. Soybean yields in 1984
were good but not exceptional; the crop level
was exceeded in three of the last five years, and
so production in 1985 may well equal or
surpass the 1984 level. Unless export markets
improve, soybean farmers are not likely to find
further improvement in profits this year; indeed,
they could find it more difficult to break even.
Poultry production is the most important
farm income-producing enterprise in the state.
Alabama's farmers raise 13 percent of the
nation's broilers, exceeded only by Georgia
and Arkansas. Total cash receipts from broiler
sales fluctuate around the half billion dollar
level. During the first three quarters of 1984,
broiler production t o p p e d the same period in
1983 by almost 20 million pounds which, along
with higher prices, sharply increased broiler
income.
Poultry producers can adjust production rather
quickly in response to changing market conditions. The early months of 1985 are likely to
find broiler prices strengthening, as a reduction
in pork and beef supplies is probable. In
addition, feed costs should be lower, on average,
than in 1984. Consequently, the supply of
poultry probably will increase as farmers react
to improved profits. During the latter part of
1985, however, broiler prices may well weaken
as supply outruns demand.
The cattle industry is another important agricultural sector, typically earning 15-20 percent
of total farm cash receipts. Beef production
declined last year as cattle producers endured
prevailing mediocre prices. The decline in cattle
inventories is expected t o persist, with the
supply of beef dropping slightly. Some price
strengthening should occur, but it is doubtful
that individual farmers will make more money
from cattle in 1985 than they did in 1984.
International
Adverse effects of the high value of the dollar
are evident from lingering weakness in Alabama's
textiles, apparel, forest products, and agriculture industries. However, declining exports
and increasing imports through the Port of
Mobile are even more obvious signs of the
exchange rate's unfavorable effects on Alabama
industries (Chart 6). From January through Sep67
FEDERAL RESERVE B A N K O F A T L A N T A
The short-term outlook for coal exports
however, still hinges on the outlook for the
strong dollar, making Alabama's coal more
expensive to overseas customers. The prime
buyer of coal exported out of M o b i l e is Japan,
which will continue t o rely on the state's highquality coal in steel manufacturing and electric
power generation. In recent years, Japan has
been designing and building ambitious port
development projects to accommodate its increasing demands as the world's largest coal
importer. Mobile should continue to benefit
from a steady growth in trade from this important
market.
Chart 6. Mobile Customs District,
Exports and Imports
Source: U.S Department of Commerce, Highlights
Export and Import Trade.
ol U.S.
tember, $832 million in goods was exported
through the Port of Mobile, 19 percent (or $191
million) less than the $1.02 billion exported in
the same period in 1983. Imports, on the other
hand, totaled $2.59 billion from January through
September, representing a 9 percent increase
from the January-September period in 1983.
The excess of imports over exports therefore
rose from $1.4 billion in the 1983 period to
$1.8 billion in the nine-month period ending in
September.
Alabama's major export commodity is coal,
although soybeans and petrochemicals are
becoming more important Long-term prospects
are bright for coal exports out of Mobile, which
recently upgraded its coal handling capabilities
by completing the McDuffie Coal Terminal.
This terminal now can process 23 million tons
of coal exports annually. In addition t o this new
facility for handling more coal shipments, Mobile
should benefit in 1985 with the completion of
the Tennessee-Tombigbee Waterway, an important alternative for transporting coal and other
commodities out of distant mine sites in Tennessee and Kentucky.
68
Imports likely will fuel much of the port's
future growth, offsetting weak export shipments
of agricultural, chemical, and forest products.
An expanding domestic economy and a strong
dollar probably w o u l d result in another good
year for import shipments. As market conditions
improve, grain and soybean shipments into
Mobile also should benefit from the opening of
the "Tenn-Tom" Waterway.
Conclusion and O u t l o o k
Whether Alabama's economic recovery expands at the brisk pace of 1984 or returns to
the moderate pace of 1983 depends on the
third-year strength of the national expansion,
economic growth abroad, and the outlook for
the foreign exchange value of the dollar. A
strong national expansion in 1984, particularly
in the first half, more than offset the repercussions
from the continuing strength of the dollar,
enabling Alabama's economy t o grow as well.
In 1985, however, a more moderate expansion
is expected at the national level. It could prove
difficult for Alabama's government sector, along
with the construction, manufacturing, and tourism industries, to boost income and e m p l o y
ment enough to offset another year of lackluster
conditions in the state's agriculture, mining,
textiles, and apparel industries. Therefore, we
expect the state's economic expansion to slow
from its 1984 pace, perhaps returning to the
sluggish performance of 1983.
FEBRUARY 1985, E C O N O M I C
REVIEW
Mississippi:
Moving Ahead,
But Slowly
Gene Wilson and Gene Sullivan
T h e s t r o n g dollar, w h i c h m a d e U.S. farm
commodities costlier to foreign buyers and
gave a competitive advantage to overseas
producers, raised the major hurdle to growth
in Mississippi last year. The state's modest
hopes for 1 9 8 5 rest on a steady recovery at
the national level.
For the year ahead, Mississippi's economic outlook is less sanguine than prospects for most of the
region. The state's growth should resume in 1985 as
the national economy maintains its strength, but
substantial weaknesses in particular sectors are
likely to continue throughout the year. We anticipate that recovery in national housing markets
will stimulate Mississippi's large lumber-producing
sector and other construction-related industries.
Such a recovery should ensure a positive growth
track for the state's economy in 1985.
Recovery from the past recession came slowly
to Mississippi. Not until late in the second half of
1983 did employment begin to rebound substantially from 1982's unusually low levels. But
job gains showed a strong upward trend as 1984
progressed, and by September total employment had recovered to its highest level since
1981.
Despite the increase in jobs, however, unemployment began to rise sharply in June and
continued at a worrisome rate into the fourth
quarter. The unemployment rate, after falling to
9.5 percent in May from a peak near 1 5 percent
in 1983, had risen to nearly 12 percent by the
fourth quarter. With the labor force growing
rapidly since early 1984, sharp declines in the
The authors are, respectively,
research analyst and
research
officer on the Research Department's
regional
team.
FEDERAL RESERVE B A N K O F A T L A N T A
construction-related manufacturing sectors and
weaknesses in textile and apparel industries
were largely responsible for the renewed deterioration in labor market conditions. Rising interest
rates during the second quarter triggered the
decline in Mississippi's interest-sensitive sectors.
However, rates have moved back down since
last summer, and so observers expect renewed
growth in these sectors in 1985.
Why is Mississippi's economy so vulnerable to
interest rate changes and competitive pressures
that some other regional states seem to withstand
with much less impact? The answer lies in the
state's economic structure.
Mississippi's business activity is heavily dependent on industries utilizing relatively lowskilled labor to produce goods that are highly
interest-sensitive or that are especially vulnerable
to competition from other low-cost producing
areas. The relative abundance of low-cost labor
has, in fact, contributed a comparative advantage
to Mississippi in attracting a number of manufacturing industries. Lumber, apparel, machinery,
and food production, volatile industries that
largely rely on low-cost labor, account for about
70 percent of Mississippi's manufacturing employment (Chart 1). Earnings of Mississippi's
manufacturing workers provides evidence of the
low-cost labor supply. Weekly earnings average
only three-fourths as much as those of the
nation's workers and also rank well below weekly
earnings for the region (Chart 2). Moreover,
industries in which such low-cost labor prevails
typically have rather thin operating margins;
69
Chart 1. Manufacturing Employment Share by Sector,
Mississippi - September 1984
Chart 2. Average Weekly Earnings,
Manufacturing Industries
Apparel 19%
Transportation
Equipment 9.07%
Metals 7%
Source: U. S. Department of Labor, Bureau of Labor Statistics.
therefore, when costs rise or demand falters,
placing downward pressures on prices, these
businesses often are first t o begin losing money
and closing down.
Volatility is accentuated in interest-sensitive
industries such as lumber production. W h e n
interest rates rise sharply, as they did in 1980,
construction activity rapidly slows down, reducing
the d e m a n d for l u m b e r and o t h e r b u i l d i n g
materials. Employment in Mississippi's lumber
industry fell precipitously during the 1980 period.
The apparel and machinery manufacturing industries experienced similar employment declines, though not quite as abrupt as in lumber
production. In the apparel industry, particularly,
the downturn was aggravated by competition
from foreign producers w h o benefited from
selling goods in U.S. markets at the relatively
favorable prices offered by the high exchange
value of the dollar. The loss of market share has
been intensely felt in Mississippi's textile industry.
In an expansion, economic activity must pick
up in most other areas and continue briskly for a
while before marginal production units are brought
back into operation. For example, Mississippi's
apparel employment did not turn up again until
mid-1983, long after employment had begun to
rise for the economy as a whole. In general,
Mississippi's economy responds rapidly to national
business slowdowns and sluggishly to recoveries,
affirming the marginal character of much of the
state's business activity.
70
Source: Mississippi Statistical Abstract, 1983, a n d
U. S Statistical Abstract, 1983.
Judged by almost any measure, Mississippi's
economy has been weak in recent years. Since
experiencing an 11 percent growth in real gross
state product in 1977, the state's economy has
floundered (Chart 3). Beginning in 1980, economic growth turned negative in real terms and
remained that way for four years. Not until 1984
did gross state product show positive growth,
projected at 2.7 percent for the full year.1
Similarly, from a trough in 1979 unemployment
rose from just under6 p e r c e n t t o l 3 percentfour
years later. In fact, Mississippi's unemployment
did not peak until 1983, the first year of national
economic recovery. Last year, the state unemployment rate fell sharply before rising near the
end of 1984, when it remained twice as high as
the level five years earlier (Chart 4).
Mississippi participated in the national economic recovery last year, but much less exuberantly than the nation or region. In measures
indicating economic well-being, such as unemployment, the growth of real disposable income,
or the growth of real gross state product, the state
has consistently underperformed the national
economy from 1980 to the present. This contrasts
markedly to a decade ago when Mississippi's
economy was quite vigorous, mirrored by strong
economic indicators.
Not only has the Magnolia State's economy
failed to match the performance of the general
economy, it has failed to equal its own past
history. For example, the average growth rate in
FEBRUARY 1985, E C O N O M I C
REVIEW
C h a r t 4. Mississippi Unemployment Rate
Chart 3. Growth Rates of Real Gross
State Product for Mississippi
Percent
15
-10L-,
1973
t
T
'75
T
j
j
'77
,
'79
T
,
'81
T
R
'83
Source: Mississippi Econometric Model, Tables of Historical Values
for Years 1973-1982, Table 1 B.
real disposable income from 1973 to 1978 was
2.7 percent; from 1979 to 1984, it was only 1.4
percent. Other measurements point to the same
trend: the state's economy has slowed substantially in recent years.
W e feel that the clearest picture of what lies
ahead for Mississippi's economy may be discerned
from the immediate past The answers to questions
concerning the state's recent economic activity
should contain indications for the future as well.
The first section of this article analyzes Mississippi's economic behavior and offers tentative
explanations for the state's performance. In the
second portion w e draw upon our conclusions
and the recent performance of Mississippi's
economy to present an outlook for 1985.
Structure of the Economy
Mississippi's economy has undergone a major
metamorphosis in the last 30 years, and its
structure has changed radically. In the 1950s,
agriculture employed four out of every ten workers,
a higher proportion than was employed by the
government, trade, and manufacturing sectors
combined. By the 1980s, however, the situation
had altered remarkably, with the latter three
sectors accounting for over 60 percent of employment compared w i t h agriculture's 8 percent
The state's economy may be divided into t w o
major sections, production of goods and of
services. Goods include mining, manufacturing,
S o u r c e : U. S. Department of Labor, Bureau of Labor Statistics.
and construction industries, while the broad
category of services comprises trade, government
transportation and public utilities, finance, insurance and real estate, and miscellaneous services. The broad services sector is the most
important component of the economy, accounting
for almost 70 percent of total nonfarm employment (compared with 73 percent for the nation).2
The goods sector employs the remaining 30
percent The two sectors respond quite differently
to-adverse economic conditions: the services
sector typically is recession-resistant while the
goods sector performs in a much more cyclical
fashion.
The state's economic structure has contributed
to chronic employment problems. One reason
unemployment has climbed so high and has
fended off change is that manufacturing e m p l o y
ment expanded from 220,000 workers in 1974
to 235,000 in 1979. Thus, more people were
susceptible to economic downturns that have a
heavy impact on Mississippi's manufacturing
sector. For example, the durable goods sector
increased employment by 15,000 from 1974 to
1979 but lost 14,000 since 1980.
The importance of construction and lumber
industries to the Mississippi economy also accounts for structural weakness. Together the two
sectors employ 72,000 workers, 4,000 less than
in 1975. Both industries experienced rising employment in the late seventies before sharp
declines occurred beginning in 1980. The con71
FEDERAL RESERVE B A N K O F A T L A N T A
struction industry, for example, lost more employees in 1980 than it had added since 1974.
Perhaps one reason for the lengthy downturn
in Mississippi rests w i t h sluggish performance in
the services sector, an area normally thought to
be recession-resistant. Although services continued to expand in 1979 and 1980, growth
slowed dramatically. Instead of the 5 percent
growth achieved in some years, services employment grew by less than 1 percent in 1980
when employment peaked and then declined
until 1983. The principal drop occurred in the
g o v e r n m e n t s e c t o r , w h i c h f o u n d itself w i t h
increasing revenue problems under state laws
that prohibit deficits from exceeding 2 percent
of projected revenue. As a consequence, spending was cut and additional tax measures were imposed. Employment in the public sector fell by
14,000 from 1980 to 1982 before stabilizing in 1983.
Mississippi's agricultural economy also contributed to the prolonged downturn. In 1980, a
severe drought sharply reduced productivity
and, thus, farm income. This development had
serious economic consequences for rural counties
in the state, especially in the Delta where agriculture is the primary economic activity. Agriculture has remained troubled in the 1980s, with
the farm sector's purchasing power reduced and
the vitality of all farm-related businesses sapped.3
In addition to internal characteristics of the
Magnolia State's economy, external, macroeconomic factors also were involved. Perhaps
foremost was the high value of the dollar during
1982-84, which has sharply reduced demand for
U.S. exports, particularly agricultural commodities.
The strong dollar increased demand for imports
as well, causing problems for various industries
such as apparel.
Demographic Factors
D e m o g r a p h i c factors i n c l u d i n g p o p u l a t i o n
growth, migration, and educational attainment of
the labor force also may have exerted an adverse
influence on the state's economy. Mississippi
never experienced the heavy in-migration that
characterized most other southeastern states
during the past decade, and so its population has
grown more slowly. 4 The in-migration of 81,000
new residents d u r i n g t h e 1970s provided a small
boost to the economy, as these additional residents paid taxes, established residences, and
added to consumer demand. Beginning in 1980,
however, more people left Mississippi than entered,
72
leading to nearly t w o years of net migration
losses. In mid-1982 the trend reversed again, but
overall the generally low population growth left
the state with less economic impetus than most
other states in the region. 5
In educational attainment, Mississippi's populace
fares poorly compared with the nation as a
whole. While 66 percent of the national population has completed high school, only 55 percent
of Mississippi's residents have done so. The
result is a generally less educated work force,
concentrated more in low-skilled, low-wage industries. While the younger generations are better
educated, on average, than older age groups and
subsequently able to handle higher skilled jobs,
the state's overall industrial makeup reflects its
past history of deficient educational resources.6
Labor
Labor market conditions improved late in
1983 after three troublesome earlier years, and
job growth continued into 1984. However, slower
growth of the national economy and continuing
high exchange values of the dollar stalled Mississippi's mini-expansion in 1984.
The labor market is expected to brighten
slightly this year. Should the dollar depreciate
relative t o currencies of major trading partners, it
would enable the state's manufacturers of apparel, building materials, and chemicals to compete better with low-cost imports. Trade and
miscellaneous services also are expected t o
contribute additional jobs this year.
Income As a Factor
Reflecting the severity of the 1981 -82 recession
in Mississippi's economy, personal income and
spending growth in 1983 lagged behind the
healthier advances registered in most other regional
states and in the nation. However, duringthe first
half of 1984, the state's income growth rivaled
that of the region and the nation, suggesting that
Mississippians finally had begun t o share more in
the recovery. Consumer spending failed to increase in proportion, at least as measured by
estimated taxable sales. Spending appeared to
grow more slowly in Mississippi than at the
national level or in the faster growing economies
of such states as Florida, Georgia, and Tennessee.
Unfortunately, the outlook for Mississippi's
income and consumer spending growth in 1985
is gloomier than for most other states in the
FEBRUARY 1985, E C O N O M I C
REVIEW
Southeast and for the nation. The Magnolia
State's economy should share in a continued
improvement of the national economy, but its
advance is likely to be slower. I ncreasing foreign
competition and the strong dollar appear to be
limiting employment which, in turn, retards income and spending growth.
The Goods Sector
Manufacturing employment growth in Mississippi outpaced that of the nation early in 1984.
Durable goods employment, accounting for most
of the state's m a n u f a c t u r i n g jobs, increased
notably. Lumber and w o o d products, stone, clay,
and glass registered significant j o b gains due to
the resurgence of home building. Mississippi's
home appliance industry also enlarged machinery
employment rolls as consumers added or replaced
old appliances. Machinery employment increased
at double-digit rates for the first four months of
1984. The nondurable sector posted sizable j o b
growth over the first t w o quarters compared with
the previous year. Reflecting their close linkage
to the national economy, the apparel and food
industries (two of the state's largest nondurable
employers) provided most of the job gains.
Growth slowed for most industries in the state,
however, toward the end of 1984. By fall, paper,
food, transportation equipment, and apparel
employment had dipped below 1983 levels. The
apparel industries are feeling the impact of
intense foreign competition. In the first eight
months of 1984, apparel imports rose 29 percent
The high value of the dollar in relation to other
currencies is adversely affecting exports, which
are especially important to the food processing
industry. The transportation equipment industry
has experienced rather anemic growth, but the
outlook brightened with the award of new Defense Department contracts late in the year to
Ingalls Shipyard in Pascagoula. This shipyard is
fabricating and assembling cruisers and overhauling other ships for the navy. Employment in
the shipyard is expected t o increase to 13,000 in
1985 from its recent level of 10,600. The prospects for further contracts look good in light of
naval spending intentions. 7
lenges must be overcome before they can enjoy a
truly good year. Construction employment remains far below its 1979 peak and, despite
recovery in the economy as a whole, 1984's
employment continued to drop from year-earlier
levels (Chart 5). The state's housing industry has
largely satisfied the pent-up demand that accumulated during the worst of the last recession,
but the recent drop in mortgage rates increases
optimism that markets may improve in 1985.
Residential sales may pick up because of a state
bond program that provides mortgage funds at a
below-market interest rate. Although the total
amount committed is limited and available only
to first-time home buyers, the program is expected
to increase housing sales significantly. Consequently, 1985 should be a more favorable year
for the state's realtors and its home construction
industry.
Multifamily housing also could continue t o be
a bright spot in the Mississippi construction
industry. Through much of 1984, permits and
contracts for multifamily units were strong. Activity in Jackson was especially brisk as the Department of Housing and Urban Development
made low-interest loans available t o apartment
developers.
By contrast, commercial office construction
seems destined for a year of little advance. The
business climate has been unfavorable for company expansions and new business formation.
Thus, 1985 probably will be a slow year for office
construction, although available space is tightening.
C h a r t s . Mississippi Construction Employment
Thousands
Construction: Possible Upturn?
The outlook for Mississippi's construction and
real estate sectors seems to offer some opportunities for improvement, although several chalFEDERAL RESERVE B A N K O F ATLANTA
Source: U. S. Department of Labor, Bureau of Labor Statistics
73
Services
Finance. In 1985, Mississippi banks should
experience another year of moderate credit
expansion and good earnings. Savings and loan
associations also are expected to do reasonably
well if the housing market continues to grow as
anticipated. The state's S&Ls have been particularly slow to capitalize on expanded lending
powers in the consumer and commercial areas,
and so remain closely tied to the vitality of the
residential housing market. Because residential
construction in Mississippi has displayed sluggish
growth, the state's S&Ls have been slow to add
high-return loans. Consequently, their average
rate of return has climbed less rapidly than that of
institutions in faster-growing states.
Bank liquidity is expected to remain excellent
through 1985. Continued economic growth at
the present modest pace will provide more and
higher quality lending opportunities than existed
in 1984, but deposit growth probably will continue to outstrip desirable loan placements through
the year. Loan officers in Mississippi are holding
the line on loan quality to protect themselves
against another economic downturn. This restrictiveness will reduce the pool of qualified loan
applicants more than in the past because of
financial regulators' concerns over bank capital
adequacy and asset quality. It will dampen the
growth of Mississippi banks in particular because
of their local market focus and the relative
paucity of high-quality borrowers in the state.
Whether banks and S&Ls will be inclined to pay
less for funds, which would tend to decrease
their excess of deposits over what can be safely
lent, remains t o be seen.
Trade. Mississippi's international trade activity
showed substantial improvement during 1984.
Increased international trade activity at its ports
brought some encouragement to the state's
economic recovery last year. Approximately 9
percent of Mississippi's manufacturing workers
are involved in producing shipments for overseas
markets. Port service-related business in the
state enjoyed a turnaround in agricultural shipments during the last half of 1984, partly attributable to increased Russian purchases of grains.
That and other factors are raising state officials'
optimism for better times ahead.
Shipping activity through Pascagoulaand Gulfport facilities during 1984 exceeded 1983 tonnage levels. Gains in agricultural and general
cargo shipments were particularly encouraging
74
at the Port of Pascagoula. Handling over 90
percent of the state's foreign trade, Pascagoula
reported an 18 percent increase in shipments
during the first nine months compared w i t h the
previous year. Wheat and corn exports posted
impressive progress from depressed 1983 levels,
and processed food and petrochemical exports
also moved far ahead of 1983's performance.
Shipments of soybeans and linerboard products
in 1984, however, dropped from year-earlier
levels because of competition from countries
whose currencies were weakening compared
with the dollar.
Mississippi's trade prospects for 1985 will
depend largely on the behavior of the dollar in
world currency markets and on foreign demand
for state products. Brightening the prospects for
exporters is the possibility of additional increases
in shipments of forest products to northern
Europe and Canada A gradually recovering world
economy also should contribute to sustaining
m o m e n t u m for the state's international activity.
Gulfport trade activity in the fiscal year ending
last June was 17 percent ahead of the same
period in 1983. Despite being a relatively small
port, Gulfport handles the largest volume of
bananas and tropical fruit imports of any port in
the nation. Shipping activity in 1984 showed
substantial gains in imports of container cargo;
however, some of this gain came at the expense
of domestic producers as they lost market share
to these imported goods. Expected growth in the
U.S. economy in 1985 should continue t o fuel
the ports' inbound shipments and revenues.
The Public Sector. Government spending in
the Magnolia State is projected to grow only
slightly from fiscal 1984. Even with an austere
budget for 1985, an increase in its sales tax, and a
$15 million surplus left at the end of fiscal 1983,
the state still expects t o end fiscal year 1985
without reserves. M u c h of the added revenue
from the one percent sales tax increase will
underwrite a state-supported kindergarten program.
The small projected increase in nominal state
spending for fiscal 1985 is likely to present
Mississippians with yet another lean budget
year. Public-sector employment is likely t o be
restrained by sluggish growth in revenues, with
scant likelihood of increased employment or
spending.
Tourist Industry. A relatively small segment of
Mississippi's economy, the tourist industry exFEBRUARY 1985, E C O N O M I C
REVIEW
perienced growth in 1984. Although the World's
Fair in New Orleans failed to attract the expected
number of visitors, it had a positive impact on
Mississippi. Visitation at national parks in the
state showed a significant increase relative to
1983, with a 21 percent rise from summer to
summer. Lodging tax receipts climbed 28 percent
through July, almost all of which was accounted
for by a tax increase from 4 percent to 5 percent.
A number of individual firms did not benefit as
much as expected, however, because so many
had expanded facilities aggressively in anticipation of increased business. For example, the
number of hotel and motel rooms in Biloxi
increased by more than one-third in 1984.
Prospects are poor for the state's tourist industry in 1985. A 3 percent decline in the
tourism budget, the absence of the World's Fair,
and the state's lack of significant attractions are
likely to depress the number of vacation travelers.
Business travel may pick up, however, provided
Mississippi's economy continues t o recover.
Nevertheless, the net effect in 1985 is likely t o
be a decline.
Energy. The nation's strong domestic recovery
stimulated a moderate improvement in Mississippi's oil and gas production. In 1984, the oil
and gas industry was pressed by weakening
prices and the increasing competitiveness from
non-oil sources. Despite these negative factors,
the industry posted some improvement in 1984
from depressed activity levels in 1982-83.
The oil and gas industry provides an important
source of income for the state and a number of
oil-producing counties. The industry employed
an average of 8,300 Mississippians in the extraction
of oil and gas products in 1984, an increase of 4
percent from 1983 levels.
Drilling activity in Mississippi through October,
measured by the average number of rigs in
operation, was only 3 percent ahead of the same
period in 1983. Along with the minor increase in
operating rigs during 1984, the industry managed
to raise the productivity of existing wells. Oil and
gas production in Mississippi during the first
eight months were up 6 and 3 percent, respectively, from the same period in 1983. This was
significant progress since most of the drilling in
the state was done by independent operators
who have been bedeviled by financial constraints
and softening oil prices.
The industry's outlook in 1985 again will be
determined by the economic performance across
the nation. Given the expected increase in doFEDERAL RESERVE B A N K O F A T L A N T A
mestic economic activity, drilling and production
should continue to post moderate increases
unless the price of oil drops further.
An important issue that may alter the outlook is
the potential impact of deregulation of the gas
industry. Most experts are uncertain how implementation of the Natural Gas Policy Act will
affect industries. The complete decontrol of
natural gas might cause only a modest slowdown
in the production of oil and gas in Mississippi.
The Agricultural Sector
While cotton may not be king in the South
anymore, in Mississippi it still ranks as royalty,
providingalmostone-quarterof all farm revenue.
Until last October, cotton farmers anticipated a
record harvest and subsequent high returns for
their efforts. Then abnormally heavy rains in a
season typically known for little precipitation
reduced yields 13 percent below expectations.
However, the realized yield still remained well
above the drought-plagued 1983 crop, and farmers
earned approximately 1 5 percent more per acre
than in 1983.
The outlook for 1985 for cotton growers is
discouraging. Record world production will reduce export demand while bountiful domestic
crops threaten to exceed domestic usage. Inventories will increase, placing downward pressure
on cotton prices. Although government programs
will provide farmers with a price floor, earning a
profit in 1985 quite likely will be more difficult
than in 1984.
Another 20 percent of Mississippi's farm income is derived from growing soybeans. This
crop also suffered late-season damage from
adverse weather, but the realized yield exceeded
the 1983 average by five bushels an acre. Because
of the large supply, soybean prices are unlikely to
show much strength in 1985 as export demand
may remain weak.
As is true of the region, wheat has become a
major Mississippi crop in recent years, soaring
from 2 million bushels in 1978 to a 1982 peak of
48 million bushels. Farmers harvested 24 million
bushels last year. Wheat yields per acre in
Mississippi have been relatively consistent and
the state generally averages better than the
region. Still, large national production has kept
prices at mediocre levels. Wheat has not been an
extremely profitable crop, but it can be grown in
the winter and harvested in the spring, allowing
75
another crop such as soybeans t o be grown in the
summer.
Mississippi and Louisiana are the only SixthDistrict states that produce significant amounts
of rice Rice accounts for approximately 5 percent
of the Magnolia State's revenue. The crop is
grown in the Delta, where yields normally are
sufficient to earn profits. In the absence of the
federal government's discontinued Payment-InKind program, production grew by 100,000 tons
in 1984, largely as the result of increased plantings
although yields did improve moderately. Rice
supplies remain large, with weak export demand.
In 1985, there is little likelihood of substantial
improvement. Although the dollar may weaken,
significantly rising foreign production should keep
pressure on prices.
Cattle production represents another important
segment of Mississippi's farm economy, earning
approximately 10 percent of revenues. Farmers
found 1984 t o be another lackluster year for
cattle prices, continuing a general trend in recent
years of gradually declining prices punctuated by
seasonal upturns. As a result, beef production
has fallen an additional 10 percent from 1983's
reduced level. Production should continue t o
decrease in 1985, and prices should rise slightly
as the national supply of both beef and pork
declines. With reduced feed costs and higher
prices, profits should climb. The outlook, however, is not one of sharply improved conditions.
Summary
The structure of Mississippi's economy and
certain demographic factors placed the state in a
highly precarious position in the 1980s. The
onset of higher interest rates affected the state's
economy severely, triggering a prolonged downturn. W h e n the rest of the nation began an
economic recovery in 1983, Mississippi's economy remained depressed, partly because of a
strong dollar that reduced agricultural exports
and increased competition from foreign manufacturers. The state began to recover substantially
in the first half of the year but turned down again
in midyear.
Mississippi's prospects for 1985 offer only
moderate improvement. As last year ended,
interest rates had declined, encouraging increased
construction activity. The dollar remained quite
strong, however, and only a moderate decline in
its value is anticipated in 1985. The public sector
still faces budgetary problems and will contribute
little toward stimulating the economy. The pace
of the state's economic recovery could pick up if
the national recovery remains strong. The most
probable outlook is for the state's economy t o
continue moving forward, but slowly.
NOTES
'Mississippi's Econometric F o r e c a s t Mississippi Econometric Model,
Tables of Forecast Values for the Years 1983-1988, October 1984, Table
1-a
2
A more in-depth examination of the broad services sector is available in
Bobbie H. McCrackin, "Services: Key to Current Stability a n d Future
Growth," Economic Review, Federal Reserve Bank of A t l a n t a voL 6 8 (July
1983), pp. 36-52.
3
S e e also G e n e Wilson a n d G e n e Sullivan, "A Crucial Yearfor Southeastern
Farmers," Economic Review, Federal Reserve Bank of A t l a n t a v o l 69
(September 1984), pp. 44-50.
«James W.Clay a n d Alfred W . S t u a r t " U n e v e n Growth: Southern Population
Change at the C o u n t y Level," Economic Review, Federal Reserve Bank of
A t l a n t a v o l 67 (June 1982), p p 32-42.
76
5
For further information on migration into the South, see William J. Kahley,
"Migration: C h a n g i n g Faces of the South," Economic Review, Federal
Reserve Bank of A t l a n t a vot 6 7 (June 1982), pp. 32-42.
6
S e e special issue of the Economic Review, Federal Reserve Bank of
A t l a n t a " E d u c a t i o n and Southeastern Economic Growth," vol. 69 (November 1984).
' F o r background information on the impact of defense spending on the
S o u t h e a s t see William J. Kahley, " S o u t h e r n Fireworks: Will Defense
S p e n d i n g Light U p t h e South?" Economic Review, Federal Reserve Bank
of A t l a n t a vol. 6 7 ( D e c e m b e r 1982), pp. 21-31.
FEBRUARY 1985, E C O N O M I C
REVIEW
Please help us update our mailing list A
renewal postcard is being mailed to
you now. If you wish to renew your free
subscription, please fill out the card
and return it to us promptly.
FEDERAL RESERVE B A N K O F A T L A N T A
77
Economic Development
and the Future of
Alabama Communities
March 18
A Seminar on Successful Strategic Planning
for Alabama Communities
Co-sponsored by the Birmingham Branch of the
Federal Reserve Bank of Atlanta and the
University of Alabama in Birmingham Special Studies
This unique seminar will focus on the ins and outs of
community promotion and strategic problem-solving—from
theory to how-to's.
Alabama citizens interested in the economic success of
their communities should attend. The seminar is especially
appropriate for those in the business, industrial, financial, and
public sectors The program includes:
•
•
•
•
Robert P. Forrestal, President of the Federal Reserve Bank of Atlanta
Bill Keleher, Manager of the Community Development Section,
U.S. Chamber of Commerce
Sheila Tschinkel, Director of Research at the Atlanta Fed
Case study of a successful community strategy: Foley, Alabama
The conference will be held at the Great Hall in University Center,
University Boulevard and 14th Street South, Birmingham. Attendance is
limited to the first 250 applicants, so register today.
REGISTRATION FORM
Charge t o my account
• MasterCard
• Visa
PLEASE PRINT OR TYPE
Economic Development
and the Future of
Alabama Communities
March 18
Name
Soc. Security No.
Title
Organization
Firm
Mail to:
UAB Special Studies
1919 University Blvd.
Birmingham, AL 3 5 2 9 4
Exp. Date
Account No.
Address
City
Company Phone
Home Phone
State
Zip
Payment must a c c o m p a n y registration form. All others will b e r e t u r n e d M a k e c h e c k s payable to UAB Special Studies.
Registration fee will be refunded for cancellations before Mar. 10. For more information, call toll-free 1 - 8 0 0 - 2 2 3 - 7 8 1 7 or
205-934-7451.
FINANCE
S
$
millions
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
Savings Sc Time
DEC
1984
NOV
1984
DEC
1983
CHG.
1,441,062 1,431,037 1,304,962
316,536 315,492 291,748
94,049
93,479 84.452
460,560 459,950 342,250
698,497 697,514 603,462
58,264
58,254
60,875
6,461
6,355
5,346
55,543 51,677
49,828
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings Sc Time
165,195
36,948
12,131
42,223
78,404
6,511
581
5,811
163.323
36,344
11,962
41,519
77,760
6,506
589
5,787
148,526
34,600
10,847
38,503
66,652
5,943
450
5,022
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
SavinK^^Time
17,450
3,821
1,141
3,350
9,649
979
99
860
17,368
3,851
1,112
3,315
9,631
979
102
855
15,636
3,632
996
3,138
7,901
897
80
774
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share D r a f t s
Savings Sc Time
58,296
13,083
4,985
19,793
21,930
2,925
294
2,509
57,287
12,725
4,913
19,445
21,501
2,925
299
2,497
52,396
12,292
4,430
17,992
18,454
2,616
221
2,041
Commercial Bank Deposits
Demand
NOW
Savings '
Time
Credit Union Deposits
Share D r a f t s
Savings & Time
25,678
7,434
1,626
6,318
11,654
1,371
93
1,280
25,363
7,360
1,641
6,138
11,611
1,376
94
1,280
21,408
6,599
1.493
4,785
9,348
1,349
64
1,186
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings Sc Time
26,820
5,608
1,562
5,518
14,637
183
16
177
26,650
5,559
1,531
5,451
14,580
183
16
177
. 25,264
5,644
1,409
5,328
12,955
200
23
189
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings Sc Time
12,465
2,373
869
2,346
7,198
12,413
2,338
844
2,324
7,203
11,566
2,288
808
2,294
6,408
*
*
*
24,486
4,629
1,948
4,898
13,336
1,053
79
985
24,242
4,511
1,921
4,846
13,234
1,043
78
978
22,256
4,145
1,711
4,966
11,586
881
62
832
+
+
-
+
+
10
8
11
35
16
4
19
11
Savings Sc Loans**
Total Deposits
NOW
Savings
Time
11
7
12
10
18
10
29
16
Savings & Loans
Total Deposits
NOW
Savings
Time
12
5
15
7
22
9
24
11
Savings Sc Loans**
Total Deposits
NOW
Savings
Time
11
6
13
10
19
12
33
23
Savings Sc Loans**
Total Deposits
NOW
Savings
Time
20
13
9
32
25
2
45
8
Savings Sc Loans
Total Deposits
NOW
Savings
Time
6
1
11
4
13
9
30
6
Savings Sc Loans**
Total Deposits
NOW
Savings
Time
8
4
8
2
12
Savings 3c Loans
Total Deposits
NOW
Savings
Time
*
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings Sc Time
+
+
*
*
*
*
DEC
1984
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
-
+
+
+
-
-
+
+
+
+
+
*
Mortgages Outstanding
Mortgage Commitments
Mortgages Outstanding
Mortgage Commitments
Mortgages Outstanding
Mortgage Commitments
Mortgages Outstanding
Mortgage Commitments
Mortgages Outstanding
Mortgage Commitments
Mortgages Outstanding
Mortgage Commitments
Mortgages Outstanding
Mortgage Commitments
+
+
+
-
+
+
+
+
10
12
14
1
15
20
27
18
Savings Sc Loans**
Total Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage C o m m i t m e n t s
NOV
1984
DEC
1983
717,572
21,494
163,390
535,685
712,158
21,511
163,155
530,517
595,999
17,865
167,402
424,902
597,952
40,618
590,539
40,918
479,026
34,332
95,609
3,429
20,561
72,964
95,239
3,415
20,662
72,514
N.A.
N.A.
N.A.
N.A.
94,009
4,491
93,582
4,691
68,791
4,926
5,998
224
904
4,937
5,963
204
895
4,923
5,143
141
853
4,184
5,082
173
5,739
173
3,791
289
61,445
2,357
14,039
45,192
61,226
2,360
14,158
45,596
53,337
2,152
15,008
36,428
59,770
2,911
58,865
3,091
40,809
3,458
8,222
295
1,823
6,952
8,207
298
1,815
6,226
N.A.
N.A.
N.A.
N.A.
11,515
420
11,425
417
8,259
503
11,067
282
2,272
8,680
10,960
282
2,267
8,572
8,965
193
2,423
6,424
9,304
500
9,214
511
8,109
531
1,611
50
283
1,362
1,627
52
282
1,361
N.A.
N.A.
N.A.
N.A.
2,074
147
2,063
180
2,048
62
7,266
221
1,240
5,841
7,256
219
1,245
5,836
N.A.
N.A.
N.A.
N.A.
6,264
340
6,276
319
5,775
205
ANN.
NOV
NOV
NOV
NOV
NOV
NOV
NOV
NOV
OCT
OCT
OCT
OCT
OCT
OCT
OCT
OCT
CHG.
+
+
-
+
NOV
+
+
NOV
+
+
+
+
+
NOV
+
+
+
-
+
NOV
+
-
NOV
+
+
+
-
+
NOV
NOV
+
-
20
20
2
26
25
18
37
11
17
59
6
18
34
40
15
10
6
24
46
16
39
17
23
46
6
35
15
6
1
+ 137
+
NOV
+
+
8
66
AH deposit data are extracted from the Federal Reserve Report of Transaction Accounts, other Deposits and Vault Cash (FR2900),
and are reported for the average of the week ending the 1st Wednesday of the month. This data, reported by institutions with
over $15 million in deposits as of December 31, 1979, represents 95% of deposits in the six s t a t e area. The major differences betweei
this report and the "call report" are size, the treatment 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. The total deposit data generat
from the Report of Transaction Accounts eliminates interbank deposits by reporting the net of deposits "due to" and "due from" other
depository institutions. The Report of Transaction Accounts subtracts cash 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.
Digitized for ** = S&L deposits subject to revisions due to reporting changes.
FRASER
N.A. = not comparable with previous data at this time.
79
http://fraser.stlouisfed.org/
Notes:
Federal Reserve Bank of St. Louis
CONSTRUCTION
NOV
1984
ANN
NOV
1984
OCT
1984
NOV
1983
Nonresidential Building Permits - $ Mil.
Total Nonresidential
60,962
Industrial Bldgs.
8,569
Offices
14,759
Stores
9,381
1,755
Hospitals
Schools
950
59,673
8,159
14,401
9,201
1,694
916
51,321
5,620
12,738
6,976
2,108
876
+
+
+
+
+
19
52
16
34
17
8
Residential Building Permits
Value - $ Mil.
Residential P e r m i t s - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
Nonresidential Building Permits - $ Mil.
Total Nonresidential
9,388
Industrial Bldgs.
960
Offices
2,313
1,877
Stores
Hospitals
345
117
Schools
9,228
925
2,210
1,820
322
112
8,028
682
1,867
1,280
519
171
+
+
+
+
-
17
41
24
47
34
32
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
Nonresidential Building Permits - $ Mil.
Total Nonresidential
687
181
Industrial Bldgs.
Offices
100
Stores
128
Hospitals
26
Schools
7
745
184
99
130
19
7
535
28
63
90
25
9
+ 28
+546
+ 59
+ 42
+ 4
- 22
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
Nonresidential Building Permits - $ Mil.
4,657
Total Nonresidential
Industrial Bldgs.
468
Offices
1,096
Stores
1,057
Hospitals
153
Schools
49
4,566
441
1,042
1,035
149
48
3,988
366
878
713
291
54
+
+
+
+
-
17
28
25
48
47
9
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
Nonresidential Building Permits - $ Mil.
Total Nonresidential
1,844
Industrial Bldgs.
183
Offices
608
Stores
293
Hospitals
45
18
Schools
1,749
170
589
257
49
14
1,296
181
396
147
35
27
+
+
+
+
+
-
42
1
54
99
29
33
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
Nonresidential Building Permits - $ Mil.
Total Nonresidential
1,169
Industrial Bldgs.
30
Offices
295
Stores
219
Hospitals
96
Schools
34
1,114
29
280
213
80
34
1,207
37
366
134
123
70
+
-
3
19
19
63
22
51
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
Nonresidential Building P e r m i t s - $ Mil.
Total Nonresidential
254
Industrial Bldgs.
15
Offices
39
Stores
54
Hospitals
9
Schools
2
246
15
34
53
9
2
185
7
19
40
18
7
+ 37
+114
+105
+ 35
- 50
- 71
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
Nonresidential Building Permits - $ Mil.
Total Nonresidential
777
Industrial Bldgs.
83
Offices
175
Stores
126
Hospitals
16
Schools
7
808
84
166
132
16
7
817
63
145
156
27
4
+
+
+
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
%
CHG
OCT
1984
ANN
NOV
1983
%
CHG
12-month Cumulative Rate
1
NOTES:
5
32
21
19
41
75
74,554
74,558
66,938
+ 11
898.1
744.9
904.3
743.2
884.0
694.0
+ 2
+ 7
135,515
134,231
118,259
+ 15
13,824
13,968
12,452
+ 11
187.0
171.2
187.8
172.2
182.1
156.7
+ 3
+ 9
23,212
23,197
20,481
+ 13
456
462
424
+ 8
8.0
6.9
8.2
7.2
8.0
7.8
0
- 12
1,143
1,207
959
+ 19
7,946
8,102
7,224
+ 10
102.0
95.4
102.6
95.9
97.2
86.6
+ 5
+ 10
12,604
12,669
11,212
+ 12
2,820
2,818
2,398
+ 18
43.7
27.3
43.7
27.8
41.5
25.4
+ 5
+ 7
4,664
4,567
3,694
+ 26
1,063
1,074
1,085
- 2
14.2
14.0
14.4
14.3
16.8
16.6
- 15
- 16
2,232
2,188
2,292
- 3
376
371
317
+ 19
5.8
5.0
5.7
5.3
4.9
4.7
+ 18
+ 6
629
617
502
+ 25
1,163
1,141
1,004
+ 16
13.3
22.6
13.2
21.7
13.7
15.6
- 3
+ 45
1,940
1,949
1,822
+ 6
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.
80
FEBRUARY 1985, E C O N O M I C REVIEW
Î5g
GENERAL
LATEST CURR.
DATA PERIOD
Personal Income
($bil. - SAAR)
Taxable Sales - $bil.
Plane Pass. Arr. 000's
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
Personal Income
($bil. - SAAR)
Taxable Sales - $ bil.
Plane Pass. Arr. 000's
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
Personal Income
($bil. - SAAR)
Taxable Sales - $ bil.
Plane Pass. Arr. 000's
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
YEAR
AGO
DEC
3,032.7
N.A.
N.A.
8,795.9
2,970.9
N.A.
N.A.
8,849.5
2,753.1
N.A.
N.A.
8,394.0
+ 5
DEC
SEP
315.5
198.6
315.3
208.4
303.4
201.4
+ 4
- 1
3Q
361.8
N.A.
3,853.8
1,505.0
333.7
N.A.
4,045.3
1,438.0
+ 11
OCT
DEC
370.8
N.A.
4,277.0
1,508.0
+ 6
+ 5
SEP
N.A.
33.2
N.A.
34.4
N.A.
34.0
- 2
OCT
DEC
40.5
N.A.
121.6
53.0
39.8
N.A.
110.1
53.0
37.0
N.A.
111.6
48.0
+ 9
+ 10
SEP
N.A.
4.6
N.A.
4.6
N.A.
4.5
+ 2
140.0
84.0
1,870.5
37.0
136.1
83.0
1,708.5
36.0
125.1
73.9
1,804.7
41.0
+12
+ 14
+ 4
-10
168.3
9.8
167.9
9.9
164.0
9.8
+ 3
0
67.7
N.A.
1,724.5
N.A.
65.9
N.A.
1,533.0
N.A.
59.8
N.A.
1,646.3
N.A.
+ 13
318.2
4.8
317.8
5.7
307.3
4.9
+ 4
- 2
48.2
N.A.
311.6
1,326.0
45.6
N.A.
286.7
1,261.0
+ 7
OCT
DEC
49.0
N.A.
343.6
1,329.0
+20
+ 5
SEP
N.A.
5.8
N.A.
5.6
N.A.
5.8
0
OCT
DEC
23.1
N.A.
36.9
89.0
22.6
N.A.
34.4
90.0
21.1
N.A.
35.3
88.0
SEP
N.A.
2.3
N.A.
2.4
N.A.
2.4
OCT
DEC
50.5
N.A.
179.9
N.A.
49.3
N.A.
156.2
N.A.
45.1
N.A.
160.7
N.A.
+ 12
SEP
N.A.
5.9
N.A.
6.2
N.A.
6.6
-11
3Q
3Q
Personal Income
(Sbil. - SAAR)
3Q
Taxable Sales - $ bil.
DEC
Plane Pass. Arr. 000's OCT
Petroleum Prod, (thous.) DEC
Consumer Price Index - Miami
Nov. 1977 = 100
Kilowatt Hours - mils. SEP
Personal Income
($bil. - SAAR)
3Q
Taxable Sales - $ bil.
Plane Pass. Arr. 000's OCT
Petroleum Prod, (thous.)
Consumer Price Index - Atlanta
1967=100
Kilowatt Hours - mils. SEP
Personal Income
($bil. - SAAR)
Taxable Sales - $ bil.
Plane Pass. Arr. 000's
Petroleum Prod, (thous.)
Consumer Price Index
1967=1.00
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.
Personal Income
($bil. - SAAR)
Taxable Sales - $ bil.
Plane Pass. Arr. 000's
Petroleum Prod, (thous.)
Consumer Price Index
1967 = 100
Kilowatt Hours - mils.
ANN.
PREV.
PERIOD
3Q
3Q
3Q
NOV
DEC
SEP
OCT
NOV
DEC
CHG.
+ 10
+ 9
+ 5
+ 9
+ 5
+ 1
- 4
+ 12
DEC
1984
NOV
1984
DEC
1983
ANN.
%
CHG.
Agriculture
Prices Rec'd by Farmers
134
Index (1977=100)
Broiler Placements (thous.) 84,689
Calf Prices ($ per cwt.)
59.4
Broiler Prices (î per lb.)
28.5
Soybean Prices ($ per bu.)
5.80
Broiler Feed Cost ($ per ton) 216
137
77,280
59.4
30.8
6.02
220
140
80,140
60.6
33.7
7.61
240
- 4
+ 6
- 2
-15
-24
-.10
Agriculture
Prices Rec'd by Farmers
Index (1977=100)
124
Broiler Placements (thous.) 32,566
Calf Prices ($ per cwt.)
54.3
Broiler Prices (5 per lb.)
27.5
Soybean Prices ($ per bu.)
5.90
Broiler Feed Cost ($ per ton) 210
130
29,091
54.3
29.5
6.09
211
129
30,819
58.0
33.9
7.79
234
- 4
+ 6
- 6
-19
-24
-10
Agriculture
Farm Cash Receipts - $ mil.
(Dates: SEP, SEP)
1,406
Broiler Placements (thous.) 10,960
Calf Prices ($ per cwt.)
55.5
Broiler Prices (i per lb.)
26.5
Soybean Prices ($ per bu.)
5.89
Broiler Feed Cost ($ per ton) 191
9,568
53.4
29.5
6.12
185
1,390
10,475
62.1
32.5
7.76
270
+ 1
+ 5
-11
-18
-24
-29
Agriculture
Farm Cash Receipts - $ mil.
(Dates: SEP, SEP)
3,272
Broiler Placements (thous.)
2,065
58.4
Calf Prices ($ per cwt.)
27.0
Broiler Prices (S per lb.)
Soybean Prices ($ per bu.)
5.89
Broiler Feed Cost ($ per ton) 235
1,935
57.2
29.0
6.12
235
3,341
1,853
63.9
33.0
7.76
260
- 2
+ 11
- 9
-18
-24
-10
Agriculture
Farm Cash Receipts - $ mil.
(Dates: SEP, SEP)
2,213
Broiler Placements (thous.) 13,022
49.8
Calf Prices ($ per cwt.)
Broiler Prices (t per lb.)
27.0
Soybean Prices ($ per bu.)
5.79
Broiler Feed Cost ($ per ton) 245
11,809
47.3
28.5
6.05
250
2,132
12,387
54.4
33.5
7.58
215
+ 4
+ 5
- 8
-19
-24
+ 14
Agriculture
Farm Cash Receipts - $ mil.
(Dates: SEP, SEP)
841
Broiler Placements (thous.)
N.A.
Calf Prices ($ per cwt.)
54.0
Broiler Prices (t per lb.)
29.5
Soybean Prices ($ per bu.)
5.90
Broiler Feed Cost ($ per ton) 255
N.A.
54.6
30.0
6.05
255
810
N.A.
58.7
36.0
7.94
290
+ 4
Agriculture
Farm Cash Receipts - $ mil.
(Dates: SEP, SEP)
1,173
6,517
Broiler Placements (thous.)
57.9
Calf Prices ($ per cwt.)
29.8
Broiler Prices (; per lb.)
Soybean Prices ($ per bu.)
5.89
Broiler Feed Cost ($ per ton) 160
5,779
58.1
31.5
6.23
165
1,239
6,153
55.2
37.0
7.77
195
- 5
+ 6
+ 5
-19
-24
-18
Agriculture
Farm Cash Receipts - $ mil.
(Dates: SEP, SEP)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (i per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
N.A.
53.4
28.5
5.91
183
1,161
N.A.
54.0
32.5
7.81
225
- 5
1,103
N.A.
49.4
27.0
5.99
185
-
-
-
-
-
-
- 8
-18
-26
-12
- 9
-17
-23
-18
Notes:
Personal Income data supplied by U. S. Department of Commerce. Taxable Sales are reported as a 12-month cumulative total. Plane
Passenger Arrivals are collected from 26 airports. Petroleum Production data supplied by U. S. Bureau of Mines. Consumer Price
Index data supplied by Bureau of Labor Statistics. Agriculture data supplied by U. S. Department of Agriculture. Farm Cash
Receipts data are reported as cumulative for the calendar year through the month shown. Broiler placements are an average weekly
rate. The Southeast data represent the total of the six states. N.A. = not available. The annual percent change calculation is based
on most recent data over prior year. R = revised.
http://fraser.stlouisfed.org/ O F ATLANTA
FEDERAL RESERVE BANK
Federal Reserve Bank of St. Louis
81
EMPLOYMENT
NOV
1984
••••••••••••••
ANN.
96
CHG.
NOV
1983
114,250
7,989
7.4
N.A.
N.A.
40.5
373
112,147
103,018
9,129
8.4
N.A.
N.A.
40.8
366
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. & Pub. Util.
96,215
19,775
4,586
22,475
16,316
21,053
5,714
5,280
95,894
19,851
4,647
22.183
16,196
21,027
5,705
5,272
92,406
19,093
4,231
21,385
16,112
20,024
5,520
5,071
15,120
13,900
1,220
8.3
N.A.
N.A.
40.8
330
14,686
13,387
1,299
9.5
N.A.
N.A.
41.0
319
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. & Pub. Util.
12,297
2,274
747
3,048
2,213
2,464
710
712
12,234
2,279
748
3,001
2,202
2,460
708
710
11,824
2,230
692
2,877
2,174
2,353
675
697
+ 4
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins.. & Real Est.
Trans. Com. & Pub. UtiL
1,35b
345
65
289
290
218
62
72
l,d&4
347
65
286
289
219
62
72
l,Jd/
346
63
278
287
219
60
71
+ 1
- 0
+3
+ 4
+- 1
- 0
+ 3
+ 1
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. <5c Pub. Util.
4,239
509
318
1,158
662
1,031
317
233
4.191
507
318
1.132
658
4,009
483
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est..
Trans. Com. & Pub. Util.
2,481
536
144
2,467
538
142
440
437
131
157
436
130
157
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. 6c Pub. Util.
1,582
183
109
376
324
312
83
116
1,580
182
111
374
322
313
83
116
1,580
181
117
377
321
306
83
117
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. Com. & Pub. UtiL
816
210
32
175
187
129
35
40
816
212
33
173
187
129
34
40
803
210
34
167
183
126
34
39
+2
0
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., 3c Real Est.
Trans. Com. & Pub. UtiL
1,823
491
79
422
310
337
82
94
1,826
493
79
418
308
345
83
93
1,764
488
78
404
301
318
81
86
+ 3
+ 1
+1
+ 4
+ 3
+ 6
+1
+9
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Iasured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mf<r \va- WHu Fnrn - $
114,115
106,246
7,869
7.2
N.A.
N.A.
40.7
379
15,056
13.883
1,173
7.8
N.A.
N.A.
41.3
338
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wklv. Earn. - $
1,798
1,600
199
11.4
N.A.
N.A.
41.4
341
1,800
1,607
193
11.1
N.A.
N.A.
40.9
332
1,752
1,550
202
11.9
N.A.
N.A.
41.0
315
+ 3
+ 3
- 1
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
5,144
4,824
320
5.7
N.A.
N.A.
41.1
322
5,139
4,779
360
6.4
N.A.
N.A.
40.8
316
5,049
4,642
407
7.8
N.A.
N.A.
41.5
310
+2
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
2,791
2,635
156
5.7
N.A.
N.A.
41.0
317
2,820
2,655
165
6.1
N.A.
N.A.
40.7
312
2,731
2,554
178
6.6
N.A.
N.A.
41.8
304
+2
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wklv. Hours
Mfg. Avg. Wkly. Earn. - $
1,965
1,773
191
9.9
N.A.
N.A.
42.5
436
1,993
1,794
199
10.3
N.A.
N.A.
41.1
416
1,902
1,698
203
10.9
N.A.
N.A.
40.2
394
+ 3
+ 4
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Iasured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wklv. Earn. - $
1,100
979
121
12.0
N.A.
N.A.
40.8
286
1,111
993
118
11.9
N.A.
N.A.
40.4
281
1,055
947
108
11.1
N.A.
N.A.
40.6
279
+ 4
+ 3
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Iasured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
2,258
2,072
186
8.7
N.A.
N.A.
40.9
324
2,257
2,072
185
9.2
N.A.
N.A.
40.8
322
2,197
1,996
Notes:
106,262
201
9.6
N.A.
N.A.
41.0
312
+1
+8
+ 4
-21
- 1
+ 4
+ 3
-12
+ 4
- 6
-11
+ 12
+0
+ 3
+ 4
- 7
- 0
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 yea''.
82
ANN.
NOV
OCT
1984
NOV
1984
OCT
628
1,018
316
232
%
CHG.
282
1,086
641
980
295
233
2,331
522
118
565
441
404
+ 4
+2
+ 5
+2
+1;
+6
+ 3
+22
+ 11
- 0
+
122
151
0
- 1
-
6
+ 5
+
@FedFRASER