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Federal Reserve Bank of Atlanta

EconSouth
STAFF

In This Issue
Volume 1, Number 2, Second Quarter 1999

Pierce Nelson
Editorial Director

CURRENT ISSUE

Lynn Foley
Managing Editor

Distinguishing Fact From Fiction in Y2K

Jean Tate
Lee Underwood
Staff Writers
Carole Starkey
Kristin Shelton
Designers

COVER STORY

EDITORIAL COMMITTEE

Exterminating the
Y2K Bug in Banking

Bobbie H. McCrackin
Vice President and
Public Affairs Officer
B. Frank King
Vice President and
Associate Director
of Research
Thomas J. Cunningham
Vice President
Research Department
Regional Section

Separating fact and fiction about Y2K is not
an easy task — so much information, so
many differing opinions and, now, so little
time. But, as this article indicates, banking
regulators have a consistent message: while
there may be some isolated, temporary
glitches, the U.S. banking industry will be
prepared for the rollover to the Year 2000.

FEATURES
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and additional copies are
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104 Marietta St., N.W.
Atlanta, GA 30303-2713
or by calling 404/521-8020
Change of address notices, along with a current
mailing label, should be sent to the Public Affairs
Department.
The views expressed in EconSouth are not
necessarily those of the Federal Reserve Bank
of Atlanta or the Federal Reserve System.

Southern Suitors:
Wooing Foreign Investment
Foreign investors have held a special place
in the hearts of Southern policymakers for
decades. Why? Because foreign investment,
as this article discusses, has brought the
South a rich dowry: new industries, jobs and
productivity advances as well as an
unquantifiable commodity — prestige.

Reprinting or abstracting material from this
publication is permitted provided that EconSouth is
credited and a copy of the publication containing
the reprinted material is sent to the Public Affairs
Department.
ISSN 0899-6571

Responding to Global Crises:
Dollarization in Latin America

A hot topic in Latin America is
dollarization, a policy stance whereby a
country makes the U.S. dollar its official
currency. Dollarization can bring a country
a number of benefits, like a lower-inflation
environment. But these benefits come at a
price; for instance, a totally dollarized
country essentially forfeits control of its
monetary policy. This article examines both
sides of the dollarization issue.

DEPARTMENTS
Research Notes
Dollar Index
The State of the States
Southeastern Economic Indicators
Southeastern
Manufacturing Survey

CURRENT ISSUE

Distinguishing Fact
From Fiction in Y2K
ometimes you find yourself in a bad situation and wonder, "How did I get here?" I
think many of us may be asking that very question when it comes to Y2K.
Whether we work for a business, government or a
nonprofit organization, we routinely grapple with
strategies, budgets, finding qualified workers and
developing more efficient ways of doing business —
or achieving our own career goals. We've found
countless ways to use computers to speed up or
improve these tasks, but until fairly recently we never
gave a thought to whether these computers would
read the Year 2000 as 1900. Still, here we are trying to
work through a problem that is time-consuming and
very expensive to fix.
Without question, the Y2K issue is serious, and if nothing were being done
to fix the problem, it would have the potential to severely paralyze critical
electrical, communications, transportation and financial services systems.
Fortunately, this serious problem is receiving some serious attention from
these and other industries worldwide.

The good news
While I can't speak for all industries or all countries, I can tell you that the
U.S. banking system, including regulators and individual banks, has devoted
a large amount of resources to eradicate the Y2K bug. Because of these
comprehensive efforts, I believe the U.S. banking system is in good shape to
enter the Year 2000. That's not to say that we won't encounter some
temporary problems, but overall I believe the system will be well prepared.
How can I offer this opinion? In my work as chief operating officer of the
Federal Reserve Bank of Atlanta, I have been quite involved with the Y2K
preparations of our bank, the Federal Reserve System and the U.S. banking
industry. Thus, my opinion on the U.S. banking system's Y2K readiness is
based on facts, not fiction.
Those facts are that the Federal Reserve is committed to doing all it can to
safeguard the nation's financial system and that, through our efforts and
those of other banking regulators and individual banks, the U.S. banking

system should be well prepared for the century rollover. You can read more
about these Y2K initiatives in this issue of EconSouth.

We all have a role to play
But beyond the Federal Reserve's and the banking industry's preparations,
there is a role for each of us to play in getting ready for Y2K.
If you are a business owner or government official, that role is to let the
public know what steps your organization is taking in advance of the rollover to the Year 2000. I strongly believe that public understanding of Y2K
preparations, particularly in the many businesses and industries that have
fully developed plans, will help to maintain public confidence, which is a
critical element in successfully navigating into the Year 2000.
In addition to making your own Y2K plans, you should also find out what
your bank, electrical provider, communications provider and the many other
critical businesses you interact with are doing to ready themselves for the
Y2K rollover. Remember that being informed is one of the first steps in
being prepared.

Keeping perspective
Also, we must all maintain perspective and remember that overreaction to
the Year 2000 phenomenon will simply create additional problems.
The United States has worked to meet important challenges in the past, with
a lot less lead time. Y2K is simply another challenge that I believe we will
meet and pass with flying colors.

By Patrick Barron, first vice president and chief operating officer of the
Federal Reserve Bank of Atlanta

Y2K READINESS DISCLOSURE

ow do you plan to spend Dec. 31, 1999? Not so long ago, many people believed that the eve of the
Year 2000 would represent the largest party the world had ever seen. Now, however, some people are
thinking about anything but partying.
Why? The answer lies with a once small bug that has grown into a very large pest. This pest, referred to
as the Y2K or millennium bug, was given little, if any, thought in the early computer age in the 1950s.
Today, however, large and small businesses and governments are spending what some experts have
estimated to be as much as $300 billion worldwide to exterminate the bug.
Since virtually all of the world's major power, communications, transportation and banking systems are
now controlled by computers, many of which are linked together, the stakes in the race to exterminate
the Y2K bug are extremely high. The stakes are so high, in fact, that some people are literally heading
for the hills, stockpiling food, fuel and cash.
But are these alarmists basing their Y2K perceptions on hard facts, including the large-scale
preparations that are under way to address the problem, or on sensational fiction from magazine racks at
the local supermarket's checkout line? To answer this question, it helps to understand the problem, its
origin and, more importantly, some of the efforts going into addressing the problem, particularly those
of the U.S. banking system, which is a keystone of the U.S. economy.

How did we get here?
Simply put, the Y2K problem is the risk that computers will read the two-digit date code "00" as 1900
instead of 2000. The problem stems from a computer programming convention from the punch-card era
that abbreviates dates by their last two numbers.

The reason the two-digit code was created in the first place was to conserve computer memory, which
was substantially more expensive back in the dark ages of computer technology. Companies ran
programs on enormous, and enormously expensive, mainframe computers that they leased or bought by
the byte. According to the Gartner Group, an information technology consulting firm, one megabyte of
magnetic disk storage in 1965 cost approximately $750 compared with about 75 cents today.
The code is still around today because computer software has proved to
be surprisingly durable. Following the maxim "If it ain't broke, don't fix
it," many organizations are still relying on computers and software that
have not been replaced or updated to be Y2K compliant, and this
hardware and software may not function effectively, or at all, beginning
Jan. 1, 2000.
With the ultimate expiration date rapidly approaching, individuals,
businesses and governments are working to correct the problem. This
process involves identifying where the two-digit year code is found in computer systems and then fixing
the code, testing systems and software, and developing contingency plans in case a system does not
work temporarily at the rollover.
But fixing the Y2K problem is far more complicated than updating stand-alone computer systems. The
linkages between computer systems in today's high-tech world are quite complex, and locating, fixing
and testing problems can be difficult, time-consuming and expensive.

Linkages can seem endless
Just consider the computer linkages involved in processing a direct deposit transaction from a company
to one of its employees. For example, suppose ABC Co. pays Jane Smith every month by directly
depositing funds into her bank account. This transaction would pass through not only ABC Co.'s
computer systems but also the systems of ABC's payroll service company and its bank. The bank's
computer systems, in turn, might connect with the systems of other organizations, like the Federal
Reserve, that would process the payment for deposit into Jane Smith's bank account. To complicate
matters, for all these organizations to connect with one another, they must rely on electrical power and
telecommunications systems, which also are dependent on computers.
This simple example represents only one of the myriad possible computer system scenarios, but it gives
an idea of how interconnected our technology has become and how potentially disruptive the Y2K bug
can be.

What could happen?
The stakes in the race toward Y2K become significantly higher when one considers the U.S. and
international financial system, in which the U.S. banking system plays a critical role. In this arena, the
scenarios for Y2K-related disruptions seem endless, and some sources — not just the tabloid headline
seekers — are forecasting severe circumstances.
Edward Yardeni, chief economist and global investment strategist for Deutsche Bank, believes the Y2K
bug poses a serious threat to the U.S. economy. He said, "Currently, I believe there is a 70 percent
chance of a worldwide recession, which could last 12 months starting in January 2000."
Federal Reserve Governor Edward W. Kelley Jr., who leads the Fed's Y2K efforts, however, takes a
more pragmatic view. "A few economists are suggesting that Y2K-related disruptions will induce a deep
recession. That is probably a stretch, but it is unlikely that we will escape unaffected," he said. "I
anticipate that there will be isolated production problems and disruptions to commerce, and perhaps
some public services, that could reduce the pace of economic activity early in 2000. But, just like the
shocks to our nation's physical infrastructure that occur periodically, I would expect the Y2K impact to
our information and electronic control infrastructure is likely to be short-lived."

Preparing the banking system

The performance of the banking and financial system is critical to ensuring a successful transition to the
Year 2000. Banking regulators, including the Federal Deposit Insurance Corp. (FDIC), the Federal
Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and state
banking regulators, have been working intensively with domestic and foreign financial institutions
operating in the United States for the past several years to help them prepare their systems for Y2K.
(See the sidebar on international Y2K issues.)
Y2K experts, including John A. Koskinen, chair of the President's Council on the Year 2000
Conversion, has named the financial industry among the best prepared for the Y2K rollover. The
President's Council, formed in early 1998, is responsible for coordinating the federal government's and
major industries' efforts to address the Year 2000 problem.

A few economists are suggesting that Y2Krelated disruptions will induce a deep
recession. That is probably a stretch, but it is
unlikely that we will escape unaffected.
– EDWARD W KELLEY JR., GOVERNOR, FEDERAL RESERVE BOARD
As of March 31 of this year, federal regulators had examined each banking organization twice for Y2K
compliance. The most recent evaluations showed that, of the 10,000 FDIC-insured banks and thrifts,
over 97 percent rated satisfactory, 3 percent rated needs improvement and less than one-half of 1 percent
rated unsatisfactory, according to Donna Tanoue, chairman of the FDIC. Federal regulators have taken
public enforcement actions against some institutions. But regulators believe that banks understand the
reputational importance of the Y2K problem and thus that market pressure will be more effective than
regulation in spurring compliance.
Federal banking regulators are also requiring banks to develop Y2K contingency plans just in case of a
temporary disruption in banks' computer systems. Contingency plans are nothing new for banks. In fact,
most already have plans in place to deal with disruptions such as power outages or natural disasters.
Banking regulators are also developing their own Y2K contingency plans.

Evaluating International Y2K Efforts
There are many unknowns when it comes to determining Y2K
preparedness on the international front. Fed Governor Roger
Ferguson, who serves as chairman of the Joint Year 2000 Council, has
worked with representatives from the international banking
community to evaluate and promote Y2K readiness. The Joint Year
2000 Council is made up of central banks, insurance and securities
regulators, and banking supervisors from throughout the world.
In a recent speech, Ferguson described the difficulty of getting
concrete information on the preparedness of the banking community
in some countries. "As you can understand, it is difficult to measure
accurately the level of international Year 2000 readiness, and
certainly no one can predict with confidence exactly how the century
date change will unfold internationally. . . . With that said, I believe
that, as with the United States, in most countries the financial sector
was probably somewhat ahead of other sectors in recognizing the
Year 2000 problem and is probably somewhat more advanced in
testing and business continuity planning."

In the absence of concrete information, it seems reasonable to assume
that some nations and institutions will not be as well prepared for
Y2K as the United States is. However, it is important to note that
most internationally active banks have been preparing for Y2K for
quite some time.

Such plans will help to ensure that banks continue to function despite any disruptions, which Fed
Governor Roger Ferguson said are likely. "Nothing this large and complex can be perfectly faultless. We
should remember, however, that there have been serious disruptions to service in daily life before, from
storms, temporary power outages, disruptions of telephone service, etc. In general, these prove to be
annoying and inconvenient, but nothing more."

The Fed's unique role
In addition to supervising banks' compliance efforts, all of the federal banking regulators have been
working for several years to prepare their own internal computer systems for the Year 2000 rollover.
While fixing the Y2K problem is important to the functioning of each regulator, this effort is even more
important for the Federal Reserve as it provides critical financial services to the federal government and
to many depository institutions, including banks, thrifts and credit unions. In fact, the Fed processes
more than 80 percent of the total dollar amount of U.S. payments — more than $2 trillion per day —
including everything from the settlement of U.S. government securities to private securities, checks,
electronic payments and old-fashioned cash.
The Fed recently confirmed that it has fixed the Y2K problem in its
most critical systems, including those that interact with banks and
with the federal government, to ensure that they will work in the Year
2000. During the remainder of 1999, the Fed will continue to test its
systems. A report from the U.S. General Accounting Office recently
cited the Federal Reserve as having established effective Y2K
management controls for its internal systems.
The Fed has also been working with banks as they test their internal
systems with their service providers' and with the Fed's to ensure
compatibility. As of April, more than 8,000 depository institutions had
already tested their systems with the Fed's — and some of these
institutions had tested numerous times.
Cash availability around the Y2K rollover has been a major concern
of banks and their customers (see the sidebar on page 6). The Fed,
with responsibility for putting cash into circulation in response to
public demand, has worked with the U.S. Treasury to ensure that
ample supplies of currency will be available around the rollover to the
new year.
Federal Reserve Chairman Alan Greenspan discussed the Fed's Y2K cash plans in recent congressional
testimony. "As a precautionary measure, the Federal Reserve has acted to increase the currency in
inventory by about one-third to approximately $200 billion in late 1999 and has other arrangements
available if needed," he said. "While we do not expect currency demand to increase dramatically, the
Federal Reserve believes it is important for the public to have confidence in the availability of cash in
advance of the rollover." According to Fed officials, the Fed has taken these steps to demonstrate its
commitment to protecting the U.S. financial system during Y2K.
As part of this commitment, the Fed also says that it stands ready, if called upon, to perform another of
its central bank roles: lender of last resort, providing lending on a collateralized basis to banks and
thrifts in need of an infusion of cash. Through its discount window, the Fed extends credit directly to
banks and thrifts, which hold reserves with the Federal Reserve. Though the Fed doesn't think that such

Y2K-related loans to banks will be necessary, it has encouraged banking institutions to have their
documents regarding collateral in order. The FDIC has also stated that it is prepared to fulfill its deposit
insurance obligation on deposits held in FDIC-insured institutions.

On a Personal Note, Leave Your Money in the Bank
Worried that they may lose their life savings in a Y2K computer systems outage, some
individuals have announced their plans to take their money out of the bank and put it under
their mattresses. Others may take out several weeks' cash in the event that computer
systems fail and checks, credit and debit cards are of no use. All of this talk raises the
question of whether your money is really safer outside versus inside the bank.
In congressional testimony in February, Fed Chairman Alan Greenspan responded
strongly to questions about what people should do with their money that is in the
bank. "I would say the most feasible thing is to leave it (money) where it is. That's
probably the safest thing. There's almost no conceivable way in which I can envision
that computers will break down and records of people's savings accounts will
disappear."
To withdraw cash from the bank means that people will lose deposit insurance and
would also lose interest income that money might earn. Greenspan also voiced
concern about people taking their money out of the bank and then potentially losing
it in a fire or a mugging.
Though the Federal Reserve is urging consumers to leave their money in the bank, it
is also working to ensure that an ample supply of currency will be available both in
its vaults and in circulation at the century rollover in case the public decides to hold
additional cash. By year's end the Fed estimates that it will have about $200 billion
in its vaults as a cushion to meet any increased demand for currency as the Year
2000 approaches.
The Federal Reserve's message is clear: Your money is safer in the bank.

Reliance on other industries
No matter how comprehensive the banking industry's Y2K preparations have been, the industry doesn't
operate in a vacuum. It depends on other industries, including power, telecommunications and
transportation, to keep the payments system running. Recent data suggest that these other key industries
have also made substantial progress in readying themselves for Y2K.
But Koskinen recently said that key industries, such as power, banking, telecommunications and
transportation, have much more work to do during the remainder of 1999 to prepare for the Y2K
rollover. He said he is pleased, however, with these key industries' overall efforts, and he thinks that
national Y2K failures in these industries are unlikely.

Nothing this large and complex can be
perfectly faultless. We should remember,
however, that there have been serious
disruptions to service in daily life before, from
storms, temporary power outages, disruptions
of telephone service, etc. In general, these
prove to be annoying and inconvenient, but
nothing more.
– ROGER FERGUSON, GOVERNOR, FEDERAL RESERVE BOARD

The Year 2000 and beyond
Without question, the Y2K bug is a serious problem. As the Year 2000 approaches, increased attention
will be focused on Y2K preparations, and rightfully so, since there are many governments, businesses
and entire industries worldwide whose performance is critical to ensuring that business as usual remains
the norm and not the exception.
The banking system, including individual banks, central banks, regulators and payments system
providers, ranks among the most important in keeping the U.S. and world economies running smoothly.
While glitches may occur, such as an isolated automated teller machine outage or a temporary power
outage, the banking system is taking the necessary steps to ensure that transactions continue to take
place and that funds continue to flow during the Y2K rollover and beyond.
Y2K READINESS DISCLOSURE

Southern Suitors:
Wooing Foreign Investment
Since the mid-1970s, the South has courted foreign companies and become a favorite
locale for foreign investment. For southern states and these International investors,
the courtship and ongoing relationship appears to be worth the effort.
match made in heaven — that's the dream of state economic development officials as they woo
foreign investors to set up housekeeping in their states. Alabama and American Honda Motor Co.
recently culminated a successful courtship as Honda announced that it will begin construction of a
$400 million sport utility vehicle assembly plant in Lincoln, Ala., next year.
Foreign investors have held a special place in the hearts of Southern policymakers since at least 1974, when
Japanese-owned YKK opened a zipper manufacturing plant in Macon, Ga. Two years later, then-Georgia Gov.
George Busbee formed the Japan-Southeast U.S. Association with Norishige Hasegawa, chairman of
Sumitomo Chemical.
Since then, competition to win the hand of foreign investors has become
increasingly intense among regional policymakers, culminating in the
estimated $250 million package of tax abatements and incentives the state of
Alabama offered Mercedes-Benz in 1993 to build its plant in Tuscaloosa
County, Ala. But while the Mercedes deal can hardly be considered typical,
the aggressiveness demonstrated by Alabama policymakers — then and
today — certainly is.

Foreign investment in the South

"FOREIGN INVESTMENT
HELPED US (GEORGIA)
ATTRACT A LOT OF
COMPANIES FROM THE
NORTHEAST. IT CHANGED
THEIR PERCEPTION."
George Busbee,
Former Georgia Governor

By the numbers, however, foreign-owned projects make up only a small
percentage of development throughout the South. According to Site Selection magazine, from 1991 to 1998
new facility and expansion announcements by non-U.S. entities accounted for slightly over 8 percent of
announcements in Georgia, which led Sixth Federal Reserve District states in its percentage of foreign
announcements. (See the sidebar on page 11 for more on how announcements are tallied.)
But attracting investments from foreign-owned companies remains a high priority for policymakers
throughout the region. Why?
The most obvious reason is that new investments spur job growth. For much of its history, the South has
trailed the nation in just about every measure of economic development. In a recent interview with EconSouth,
Busbee spoke about the region's economic condition in the '70s: "We didn't have a lot of capital in the
Southeast. There was not much incentive for industries in the United States to move from North to South." For
elected officials throughout the region, then, foreign companies were simply one more source of desperately
needed capital and employment.

But the first wave of foreign investment in the '70s brought
something else that had been in short supply in the South:
prestige. If a global manufacturer saw fit to locate a facility in
the South, the thinking went, then reluctant U.S. investors
outside the region ought to as well. "Foreign investment helped
us attract a lot of companies from the Northeast," Busbee said.
"It changed their perception."
As the region has experienced explosive job growth and massive
in-migration during the past two decades, these initial
motivations for attracting foreign companies are no longer as
urgent. Now states tend to look for foreign investment that will
introduce new industries and the productivity advances these
industries may bring. For instance, Alabama attracted the
Mercedes plant, which paved the way for Honda and dozens of
other auto-related employers that, in an earlier time, would
scarcely have considered locating in the region.

Doing business in the South
But apart from the existence of an industrial critical mass — or
governments' commitment to creating it with incentives — there
must be more fundamental reasons for a firm to invest in an area.
For most foreign firms, locating a facility in the United States
provides marketing and operational advantages. The United
States is the world's biggest economy — larger than the world's second- and third-largest economies, Japan
and Germany, combined — so it affords a foreign firm vast marketing opportunities. Locating in the United
States can also, for some industries, produce operational advantages such as cost savings for production, tariffs
and transportation.

ALABAMA ATTRACTED THE MERCEDES PLANT
(SHOWN BELOW), WHICH PAVED THE WAY FOR
DOZENS OF OTHER AUTOMOBILE-RELATED
EMPLOYEES THAT, IN AN EARLIER, TIME, WOULD
SCARCELY HAVE CONSIDERED LOCATING IN THE
REGION.
PHOTO COURTESY OF MERCEDES-BENZ U.S.
INTERNATIONAL

The South offers a number of marketing
advantages. Recent migration patterns in the
United States generally have been from the
Northeast and Midwest to the Southeast and
Southwest, and the Southeast has dominated in
housing starts and job creation. This economic
boom is giving the South a marketing edge over
other regions. For example, newly prosperous
Southerners have shown a propensity, despite
the near total absence of snow in the region, to
snap up the latest sport utility vehicles. So it
simply makes good sense, from a marketing
standpoint, for Mercedes, BMW and Honda to
manufacture SUVs in the South.

It makes sense from an operational standpoint
too. For one thing, despite its recent economic
growth spurt, the South remains among the
nation's least expensive regions for doing
business. Unions have a much smaller presence
here than in the rest of the country, and labor
costs are lower although real wages are good.
Also, because much of the South remains rural
and agricultural, land costs and taxes —
especially property taxes — are lower too. But these lower economic costs have not come at the expense of a
degraded physical infrastructure. In fact, trucking and rail services are highly competitive throughout the
South, and each of the Sixth Federal Reserve District's six states has at least one inland or coastal port.

Let's make a deal
In those few instances when the South hasn't measured up — economically or otherwise — its policymakers
have shown a remarkable willingness to do whatever it takes to get the deal done. Exhibit A is Alabama's $250
million incentive package to Mercedes in 1993. And while the state's offer to Honda didn't match the
Mercedes package, it simply didn't have to. The Mercedes deal had already succeeded in bringing more of the
automobile industry into Alabama, and that industry presence and infrastructure, as much as the government
incentive program, surely played a part in Honda considering a presence there in the first place. So Alabama's
lower dollar offer to Honda does not signal a drop-off in interest. Indeed, Southern development officials
remain as zealous as ever in their courtship of foreign investment.

Worth the effort
Is foreign investment worth the efforts states are making to attract
it? For the South, the answer is "yes." But states seeking foreign
investors need to be aware of the potential downside. The socalled winner's curse may still afflict states that have overpaid for
jobs and investment, whether foreign or domestic. In addition, the
arrival of high-tech foreign employers, coinciding as it has with
declining employment in traditional industries like apparel, has
made for some very uncomfortable choices for congressional
leaders in the area of trade policy. From a trade policy
perspective, comparative advantage is an all-or-nothing
proposition: one cannot welcome the jobs created by foreign
investment and at the same time demand that foreign firms not
compete with U.S. firms. But many political and business leaders
are still trying to have it both ways.

Ultimately, despite these potential drawbacks, the case for foreign
direct investment is strong, and the attention given it two decades
ago by Gov. Busbee and others now appears prescient. Although
foreign firms still account for only a small percentage of businesses in the United States, the cumulative
impact of foreign development has far exceeded mere numbers. Foreign investment has transformed the South
in the eyes of the world and brought new industries into the region.

The Problem of Scorekeeping
or many Southern economic development officials, attracting foreign investment may seem less like a
courtship and more like a contact sport — one that's very difficult to score. State economic
development agencies generally count development announcements. While a company is more likely than
not to herald a new project or expansion, in some cases plans are not announced, especially if additional
real estate investment is required. These unannounced projects, of course, won't be counted, and sometimes
even announced projects can be overlooked.
CHART 1
Foreign-Owned Development Annoucements as a Percentage
of Total Annoucements, Average 1991–98*

*Include facilities that meet at least one of these criteria: (a) involve a capital
investment of at least $1 million, (b) creat at least 50 new jobs or (c) add at least
20,000 square feet of new floor area.
Source: Site Selection magazine

CHART 2
Foreign Affiliate Employment as a Percentage of Total Private
Industry Employment, Average 1991–96*

*1996 is the last year data were available from the Department of Commerce.
Source: Department of Commerce

In addition, which announcements are tallied can vary from state to state. New manufacturing
announcements are supposed to be counted, but manufacturing expansions may not be, nor may new
nonmanufacturing announcements. Also, sometimes announcements that have already been counted
are not consummated: as conditions within a company or its home country change, so may the
feasibility of a project in the United States. State development agencies rarely retract an
announcement when a project falls through.
All of these factors make it difficult to determine with precision how successful states have been in
recruiting foreign investment. However, Site Selection magazine's annual state-by-state compilation
of new corporate facilities and expansions, which breaks out foreign investment separately for
analysis purposes, may serve as a general barometer (see Chart 1). The magazine's totals include
nonmanufacturing facilities and other investments not traditionally heralded by development
authorities, but the consistency of the data among states makes this information useful.
The Department of Commerce's Bureau of Economic Analysis does not publish foreign direct
investment data on a state-by-state basis. But the department does publish information on state-bystate employment by foreign affiliates (see Chart 2).
As the charts reveal, the percentage of total private industry employment accounted for by foreign
affiliates in the Sixth Federal Reserve District approximately parallels the percentage of foreign
investment announcements. Georgia ranked first in the region in both of these measures, followed by
Tennessee. Based on the sheer size of its economy, Florida ranked high in the total number of foreign
investment announcements and employees but ranked toward the middle of the pack in percentage
levels in each category. And while Alabama has lured some high-profile foreign companies in recent
years, it still has some ground to make up to overtake Georgia and Tennessee.
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Responding to Global Crises:
Dollarization in Latin America
The Latin American region has been the subject of much conversation
recently as financial crises spread across the globe. In an effort to provide
stability to their economies, several Latin American countries have
considered adopting the U.S. dollar as the official currency. While
adopting the dollar has its benefits, it also has potential drawbacks.
s economists struggle to explain the development and the spillover potential of financial crises,
policymakers and economic advisers search for ways to protect their economies from the devastating
effects these crises can cause. A number of proposals have been put forward. These include creating a
new international financial architecture, instituting capital controls, applying stricter monetary and fiscal
policy regimes, and implementing outright dollarization of an economy. Recently this last proposition has
drawn significant attention as a potential scenario in certain Latin American countries. But there is much to
consider before a country dollarizes its economy.

What is dollarization?
Dollarization is a process in which a country adopts — in whole
Dollarization is a process
or in part — the U.S. dollar as its official currency. In a totally
in which a country adopts
dollarized economy, the U.S. dollar is made the only medium of
— in whole or in part — the
exchange, store of value and unit of account; that country's
U.S. dollar as its official
national currency ceases to exist. Today, Panama is the only
currency.
country in Latin America that is totally dollarized; it has been
since 1904. A country that has totally dollarized has eliminated
the monetary policymaking role of its central bank. Without a
national currency to manage, the country's monetary policy is, in effect, put into the hands of the Federal
Reserve in the United States.
Limited dollarization occurs when U.S. dollars circulate alongside a country's national currency. In this
arrangement, the domestic currency continues to serve to some degree as a medium of exchange, store of
value and unit of account. Limited dollarization exists in many countries throughout the world, notably in
Latin America.
A recent International Monetary Fund study (Occasional Paper 171) estimated that in 1998 dollar deposits
were at least 50 percent of domestic money supplies in seven countries around the world, between 30 percent
and 50 percent in 12 countries, and between 15 percent and 20 percent in several other countries. Outside of
Panama, Bolivia is the most significantly dollarized economy in Latin America, with a ratio of 82 percent;
Argentina is next with a 44 percent ratio.

Paths to dollarization
There are two ways a country's economy can become dollarized. A de
facto dollarization can occur when citizens lose faith in their national
currency and turn away from it toward the dollar. This situation can
develop for any number of reasons, including hyperinflation or a
significantly negative outlook for inflation and suspicion that
economic policies may not safeguard the national currency's value.
This course has occurred in many Latin American countries. Although
most Latin economies are making significant attempts to institute and
solidify policy credibility and have made impressive headway in
limiting inflation, these initiatives are recent, most having been applied over the past decade. Thus, these
beneficial policies simply do not have a long enough track record to wholly convince citizens in these
countries that their national currencies' role as a store of value is permanent. In any of these countries, when
economic conditions worsen or when the political outlook becomes more clouded, doubts may arise regarding
the currency's future value. In other words, the probability of devaluation rises, and more citizens shun the
national currency in favor of the historically more stable U.S. dollar.
Another path to dollarization occurs when a foreign government makes a conscious decision to re-place its
own currency with the U.S. dollar. In a totally dollarized economy, this replacement affects all transactions. In
a country with limited dollarization, this policy shift can take the form of allowing residents to hold dollardenominated accounts.

The benefits of dollarization
Total dollarization nearly eliminates the possibility of a currency devaluation. The threat of devaluation has
been a major concern for many people and businesses holding assets in Latin American currencies in the wake
of recent international financial crises in Asia and Russia. The capital flight from many Latin countries in 1998
and early 1999 came about because asset holders there appeared to believe that these international crises
threatened economic stability. Many of those with access to international financial markets moved to exchange
national currencies for dollars or other foreign currencies.
CHART 1
Spreads Between Brady Discount Bonds and
Five-Year U.S. Treasury Notes

Source: BankBoston and Federal Reserve Bank of Atlanta's Latin America Research
Group

CHART 2
Latin American Trading Partners*

*Percentages include imports and exports

Another reason for purposely dollarizing an economy is to limit the possibility of high inflation. By
dollarizing, a country adopts U.S. monetary policy as its own. As long as U.S. monetary policy is prudently
managed, the inflation environment in the dollarized economy should remain subdued.
A history of high inflation and policy volatility are often prevalent in countries that are partially dollarized and
are main reasons behind their dollarization in the first place. The high interest rates in such countries reflect
inflation expectations and, at the same time, restrain real economic activity. By importing benign U.S.
inflation, dollarized economies also import lower interest rates that often closely track U.S. rates.
Chart 1 shows that interest rates in Latin America skyrocketed in the wake of the Asian financial crisis in the
fall of 1997, again following the Russian default in August 1998, and again in January 1999 as Brazil
devalued its currency. The chart shows the spread between selected Latin American Brady bond yields and
comparable yields on U.S. instruments. An increase in the spread indicates that investors allotted an increased
risk to holding Latin American debt. Dollarization arguably could reduce this spread to nearly zero because
the threat of devaluation and the resulting pressure on international payments would be significantly
diminished.
In addition to deterring devaluation and inflation, dollarization reduces the transaction costs associated with
international trade and finance with the United States, which is the most important trading partner for Latin
America as a whole (see Chart 2). Eliminating currency conversion would allow trade to flow more easily.
Dollarization should not be viewed as a panacea for an environment created by economic mismanagement,
however. Developing policy credibility to a point at which residents have sufficient confidence in the currency
takes decades of prudent fiscal and monetary policies, uninterrupted over many administrations and supported
by major political parties. Since most Latin American nations are in their first decade of real and sustained
economic reform, their policy credibility is still being built. Dollarization in this environment should be
viewed on a case-by-case basis.

The costs of dollarization
Dollarization also implies some costs to the economy of a country that adopts it. A dollarizing country
relinquishes several important policy instruments. For one, monetary policy in a dollarized economy is made
by the Federal Reserve in the United States. The Federal Reserve's policy mandate is domestic, and the U.S.
economic outlook chiefly dictates its policy decisions.
Of course, the United States is not a closed
economy. The Federal Open Market
Committee (FOMC), the Federal Reserve's
policymaking body, cannot ignore
developments in the global economy that
may affect the United States. But the FOMC
bases its decisions on considerations about
the welfare of the United States and its

ATLANTA FED CHIEF ON THE
FEDERAL OPEN MARKET
COMMITTEE'S GLOBAL ROLE

citizens, not about the welfare of countries
that have dollarized. The role of the Federal
Reserve and its domestic mandate in a
highly globalized economy remain important
issues, issues that Jack Guynn, president and
chief executive officer of the Federal
Reserve Bank of Atlanta, noted in a speech
last year (see the sidebar on page 17).
A country's decision to dollarize its economy
does not require the permission of the U.S.
government or the Federal Reserve. But
chief policymakers at both the Fed and U.S.
Department of the Treasury have stated that
the policies of the United States will not be
altered to adapt to the economic
considerations of countries that choose to
dollarize. So foreign governments that may
be considering full dollarization must do so
with the understanding that U.S. monetary
policy will remain focused on domestic
issues.

Jack Guynn, president and chief executive officer of the Federal
Reserve Bank of Atlanta, discussed the Federal Open Market
Committee's policy mandate in a speech to the Money Marketeers of
New York University in September 1998.
Guynn said, "The mandate of the FOMC is chiefly domestic.
We're charged with delivering the best economic conditions we
can as defined by, among other things, the inflation rate, GDP
growth, the unemployment rate and the safety and soundness of
the banking system in the United States. But the policy
environment in which we attempt to achieve this mandate is
global. No economic condition in any part of the world can be
considered exogenous. And any action intended to produce a
strictly domestic result is almost instantly transmitted around the
globe and may or may not be countervailed by a concomitant
change in international economic conditions.
"Globalization complicates the policy environment," he said. "It
presents enormous opportunities for capital. But it also presents
equally formidable challenges for those of us whose job it is to
sort it all out, to take advantage of it or to understand where the
policy action is. In the global economy, our policies are more
influential than ever, although the equation through which we
calculate them is more complex. Understanding that equation is
the challenge."

Countries debating whether to dollarize
should also consider how reversible that
policy would be. Although a government can always choose to end its dollarization policies, the risk of
financial instability from this move would be a powerful force working against reversing dollarization.
There is also a measurable monetary cost, called lost seigniorage, involved with forgoing a national currency.
Seigniorage is the revenue gained by issuing currency. Governments that dollarize will give up the benefits of
seigniorage, although this total benefit is estimated to be less than 1 percent of gross domestic product (GDP)
in most countries.
Adopting the dollar as the official currency has both political and economic ramifications for a nation. The
loss of sovereignty that accompanies the surrender of monetary policy control, the national currency and the
central bank is likely to spark opposition within a country. Such opposition is evident in some Latin American
countries where the dollarization debate is under way.
Although the business community in many of these nations appears to back dollarization, other segments of
society may view the loss of sovereignty as too great a price despite the economic benefits. The outcome of
this debate will be one of the most important economic developments in Latin America in the near term.

Who should dollarize?
Dollarization also implies
some costs to the
economy of a country that
adopts it. A dollarizing
country relinquishes
several important policy
instruments. For one,
monetary policy in a
dollarized economy is
made by the Federal
Reserve in the United
States. The Federal
Reserve's policy mandate

Although dollarization may not be feasible for all economies, it
would seem to benefit some. Small, open economies that are
particularly vulnerable to international shocks may find that
adopting a high level of dollarization or pegging their currency to
the U.S. dollar can help prevent extreme exchange-rate variations
that can harm their economies.
Countries with strong international trade and financial ties to the
United States are also among those better equipped to seriously
consider dollarization. Transaction costs between such countries
and the United States should be reduced by dollarization, and this
reduction could help develop even stronger ties through other
economic arrangements.

is domestic, and the U.S.
economic outlook chiefly
dictates its policy
decisions.

This advantage is particularly important for Latin America, which
has a stronger trade relationship with the United States than with
any other country or region. The move toward a Free Trade Area
of the Americas has dropped from the headlines because of
international financial crises and political developments in the
United States. Dollarization could lead to the deepening of trade
relationships that may integrate the hemisphere. Latin American countries stand to gain the most from such a
development.
In Latin America, the cases of Argentina, Mexico and Brazil highlight the current dollarization debate.
Argentina has stated officially that it would like to totally dollarize its economy. The country instituted a
currency board in 1991 in response to hyperinflation and a lack of policy credibility. Despite its fixed
exchange rate and constitutionally self-imposed restrictions on issuing currency, Argentina still finds itself
buffeted by international shocks.
Because the Argentine peso circulates along with the dollar, the chance of devaluation remains a possibility in
spite of Argentine policymakers' hard work to assure investors and peso holders that such a currency
realignment would never happen. Therefore, the country's interest rates maintain a notable spread over
comparable U.S. instruments (see Chart 1). Argentina's economy is not small, nor does it have extensive ties
with the United States. The fact that it has successfully operated a currency board arrangement for much of the
last decade, however, goes a long way toward enhancing Argentina's drive toward full dollarization.
In Mexico, business leaders recently
petitioned President Zedillo to move toward
fully dollarizing the nation's economy. The
continuing effects of Mexico's peso crisis in
1994 and 1995, coupled with the strong
economic ties between the United States and
Mexico, make the dollarization debate there
more lively. The loss of sovereignty that
accompanies dollarization is a difficult
political hurdle in Mexico at present. Despite
Mexico's apparent hesitancy, Central
American countries are actively considering
a move toward dollarization, and their
leaders plan to meet in July to formally
discuss the idea.
Brazil shows no interest in pursuing official
dollarization despite its recent economic
troubles and hyperinflationary bouts in the
1980s and early 1990s. Brazil's economy is
the largest in Latin America. Its trade and
financial ties with the United States are as
strong as those of many other South
American economies, but its economy
remains comparatively closed, with total
exports accounting for roughly 7 percent of
GDP.

Dollarization and U.S. business

DEFINING TERMS IN THE
DOLLARIZATION DEBATE
Currency Boards

Domestic currency is converted to the reserve
currency on demand at a fixed exchange rate.
Monetary policy is automatic. If investors switch out
of domestic currency into dollars, the supply of
domestic currency will automatically shrink. This
decline will cause interest rates to rise until it
becomes attractive for investors to hold local
currency again.
Total Dollarization

The process involves adopting the U.S. dollar as the
official currency. The national currency unit ceases
to exist.
Monetary policy is made by the Federal Reserve in
the United States with no formal input from officials
in the dollarized economy.
Monetary Union

Members of a monetary union agree on a common
currency, either by adopting an existing one or
issuing a new currency altogether.
Monetary policy is made collectively, with input
from each member of the union.

Businesses in the United States could benefit
from dollarization in countries that are trade
partners. Like the dollarizing countries, U.S.
companies doing business in these countries
would see transaction costs decrease.
Currency conversion could be eliminated,
and the administrative costs associated with international trade and investment would decrease. As long as the

U.S. economy is stable, full dollarization should diminish the kind of currency volatility that restricts
investment and curtails deeper economic ties.
Businesses in the United States would also benefit from the expected fall in inflation and interest rates in
dollarized economies because these developments should, in turn, lead to faster rates of economic growth in
these countries. The stronger consumption and increased sales this growth would spark could improve the
performance of U.S. businesses that export to the dollarized markets.

To dollarize or not to dollarize
Dollarization is one proposition currently under consideration as a means to prevent, limit or contain the kinds
of financial crises that have swept the globe during the past two years. Countries considering dollarization
need to undertake a careful cost-benefit debate, weighing the benefits against the resulting loss of sovereignty
and the realization that monetary policymakers in the United States have a domestic focus, considering
international issues only insofar as they affect U.S. economic conditions.
Not all countries appear suited for dollarization. The current debate in Argentina about dollarization deserves
attention, as do increasing discussions in several other Latin American countries. The immediate implications
for the U.S. economy are not profound, although widespread dollarization throughout the hemisphere would
focus attention on the appropriateness of the Federal Reserve's domestic mandate in such an environment.
This article was researched and written by analysts in the Atlanta Fed's Latin America Research Group.

Research Notes
Research Notes highlights some of the research recently published by the Federal Reserve Bank of
Atlanta. For complete text of these articles or papers on this Web site, see the links below.

Economic models can shed light on crime
Polls identify crime as the number one public worry. Crime also exacts tremendous costs not factored into official
measures of well-being, and it is a favorite subject of politicians' campaign promises. But the public seems largely
unaware that crime responds to economic conditions and incentives and that a number of studies by economists have
important implications for public policies related to crime.
In a recent article, Zsolt Becsi, an Atlanta Fed economist, introduces the economics and crime literature by
describing a simple supply-and-demand crime model in which criminals supply crime, the public demands
protection from crime and the government provides public protection. He uses the model to show how crime
responds to a variety of demographic and economic factors and what results to expect from public policy proposals.
Using state data from 1971 to 1994, the author outlines broad regional differences and trends in the patterns of crime
in the United States. While in the 1990s crime has fallen dramatically nationwide in almost all categories, not all
regions have benefited equally. In particular, southeastern states have seen distinct worsening in crime rates relative
to other regions.
The author points out some measurement problems with crime data, such as underreporting and undercounting of
crimes, that must be considered when interpreting these data. To help control for such problems, he focuses part of
his analysis on data categories that are less subject to these measurement problems.
Becsi also cautions that correlations between crime and possible explanatory factors can be distorted by the
aggregation of data over time. To deal with this problem, he subjects the data he analyzes to a panel regression
approach that estimates the effects of demographic and economic variables on crime over time.
Becsi's analysis suggests several policies that could help alleviate crime, including providing unemployment
insurance, increasing welfare expenditures and increasing imprisonment rates.
The results of his analysis mirror those of some other researchers. Generally, the demographic and economic
variables explain crime rather well, and estimates for the most part conform to the economic model of crime.
ECONOMIC REVIEW
FIRST QUARTER 1999

Former Fed president leaves a legacy for monetary policy debate
Monetary policy was freed from the straightjacket of pegging U.S. Treasury interest rates following the TreasuryFederal Reserve Accord in 1951. This newfound freedom led to a growing debate inside and outside the Federal
Reserve System about the appropriate measures to use as operating guides. A recent article by Atlanta Fed visiting
scholar R.W. Hafer examines the contributions of Malcolm Bryan, president of the Atlanta Fed from 1951 through
1965, to this debate and to the evolution of monetary policy since the 1951 accord.

Bryan parted company with most of his colleagues on the Federal Open Market Committee (FOMC) by trying to
steer policy away from a focus on interest rates and money market conditions to placing more weight on the
monetary aggregates. Hafer reviews the transcripts of the committee meetings during Bryan's tenure, which reveal
Bryan's concerns about preventing the disruptive effects of short-run fluctuations in money growth and the longerterm effects of expansive Fed actions — namely, inflation.
Bryan's approach to monetary policy was a dramatic departure from
the prevailing views of the FOMC at the time. He took the new and
controversial research results coming out of monetary economics and
tried to implement them. His contributions went beyond merely
implementing others' ideas, however. His introduction of short-run
aggregate growth targets — growth cones — stands out as a
significant and innovative development in U.S. monetary policy. Even
though Bryan's targets and procedures were not adopted by the
FOMC at the time, his strategy for monetary policy would resurface
as the inflation produced by the policies he fought against became
unacceptable.
Hafer also notes that Bryan's contribution is important from a larger
perspective. Bryan's willingness to advocate a controversial view
within the FOMC promoted an airing of diverse views and concerns
that helped foster an environment in which alternative theories and
approaches to economic analysis could be used for improving
monetary policy.

ATLANTA FED DOLLAR INDEX

After falling slightly in January, the dollar rose
moderately in February and March versus the 15 major
currencies tracked by the Atlanta Fed. Most of this
movement was due to changes versus the European
and Asian currencies. The upturn reversed the dollar's
steady decline since August 1998.
Note: For more detailed, monthly updates and historical data on
the dollar index, see the Atlanta Fed's World Wide Web site at
www.frbatlanta.org/econ_rd/dol_index/index.html.

ECONOMIC REVIEW
FIRST QUARTER 1999

A simple model provides lessons on practical forecasting issues
Constructing forecasts of the future path for economic series such as real gross domestic product growth, inflation
and unemployment is vital to applied economic analysis for business and government. Model-based forecasts are
easier for independent researchers to replicate and validate than forecasts in which expert opinion is used to adjust a
model's results. In addition, the forecaster can formally investigate the source of systematic errors in model
forecasts, and a forecast model's performance can be established before it is used by a decision maker.
A recent article by John C. Robertson and Ellis W. Tallman, senior economists at the Atlanta Fed, describes a
particular model-based forecasting approach. The model studied is a vector autoregression (VAR) comprising six
U.S. macroeconomic variables. The idea underlying forecasting with a VAR model is first to summarize the dynamic
correlation patterns among observed data series and then use this summary to predict likely future values for each
series.
Robertson and Tallman discuss various methods that attempt to improve VAR forecast accuracy and then provide
some empirical evidence that compares the accuracy of forecasts created using these various techniques.
The authors also focus particular attention on the technical hurdles that must be addressed in a real-time application
of their model and methods for overcoming those hurdles. The solutions to these technical problems include
conditional forecasting to handle the staggered release of data and matching quarterly with monthly data.
In emphasizing the practical problems of forecasting economic data using a statistical model, Robertson and Tallman
draw on experience in using such a model at the Federal Reserve Bank of Atlanta. Although the model studied is
small and highly aggregated, it provides a convenient framework for illustrating several practical forecasting issues.
The focus on a simple model provides potential users with a road map of how one might implement such a
forecasting model in specific applications.

ECONOMIC REVIEW
FIRST QUARTER 1999

THE STATE OF THE STATES
Recent events and trends from the six states of the Sixth Federal Reserve District

Alabama
" Alabama is adding jobs at about the same rate as the nation, and

"
"

employment in the state has more or less tracked the nation's
performance since last summer. The state's construction sector is
currently very strong, with considerable growth focused in
Birmingham.
Ongoing contraction in Alabama's manufacturing sector is led by
losses in apparel. But Birmingham is defying state and national
trends, showing some net manufacturing employment gains, although
month-to-month numbers remain volatile.
The steel industry continues to suffer from intense foreign
competition, particularly from Pacific-basin countries.
The aerospace industry, based in the Huntsville area, remains quite
strong.

Florida
" The cruise business is still the hottest segment of Florida's strong

"
"

tourist industry. Virtually every major cruise line operating in the state
has at least one new ship on order, suggesting that growth is
expected to continue in that industry. Tourism in central Florida
continues to expand, adding more jobs in an already robust market.
The state's economy as a whole is outperforming both the district's
and the nation's, with only the Miami area expanding at a slower rate
than the nation.
The state's aerospace industry, centered in the Melbourne area,
remains strong, and the outlook for the industry is solid.

Georgia
" Georgia's payroll growth is slightly outperforming the district's, with

Atlanta and the rest of the state nearly matching in performance since
the beginning of the year. In contrast to its stagnation in the district
and decline nationally, manufacturing employment in Georgia
continues to grow at around 1 percent year over year.
While Atlanta's single-family housing growth was relatively flat year
over year in 1998, Georgia still led the nation last year in the number
of single-family housing permits. The state's overall permits remain at
a high level even though growth has been flat in 1999.

" Agricultural commodity prices are still low although cotton prices have
recovered somewhat from 1998. The Vidalia onion crop is small
compared with last year's because of weather-related problems.

Louisiana
" Some rebound in oil prices has helped stabilize drilling, slowing the

downturn in exploration in the state. But prices have not been high
enough for a long-enough period to engender sufficient confidence to
resume oil field development.
New Orleans' economy continues to be weaker than the rest of the
state's, which is expanding at rates similar to the nation's. Baton
Rouge, on the other hand, has shown notable strength in services,
wholesale and retail trade, and government employment.
While the U.S. Defense Depart-ment did not support the proposed
acquisition of Newport News Shipbuilding by General Dynamics
because of concerns over industry competition, Newport News
announced that it will continue with its plans to merge with
Louisiana's Avondale Industries, a move that has received antitrust
clearance from the Justice Department.

Mississippi
" The gambling industry remains a major source of growth for the Gulf

"
"

Coast with the opening of the largest single casino project to date.
This expansion has led AirTran Airways to establish commercial flight
service from sev-eral southern cities to the Gulfport-Biloxi Regional
Airport.
While Mississippi's manufacturing sector employment levels have
declined slightly overall, the state is adding jobs in areas that are not
directly benefiting from the gaming sector's strength.
Auto component manufacturing is beginning to pick up in the northern
portion of the state.

Tennessee
" Conditions in the state's labor markets, which had been among the

"
"
"

tightest in the nation, have abated somewhat, particularly recently in
east Tennessee. Nashville continues to suffer from labor pressures,
especially for skilled employees.
A shortage of qualified truck drivers is forcing some trucking firms in
central Tennessee to leave part of their capital idle, a problem that
has occurred to a lesser extent in some other parts of the district.
Dell Computer announced that it is locating a new computer
assembly center in the greater Nashville area.
Diminished demand for synthetic fiber products has led to industrial
layoffs in the eastern part of the state.

Compiled by the regional section of the Atlanta Fed's research department

Southeastern Economic
Indicators
Total Payroll Employment
(thousands)a
Percent change from

Percent change from
Manufacturing Payroll
Employment (thousands)a
Percent change from
Percent change from
Civilian Unemployment Rate
Percent change from
Percent change from
Single-Family Building Permits
(units)b
Percent change from
Percent change from
Multifamily Building Permits
(units)b
Percent change from
Percent change from
Personal Income ($ billions)

Percent change from
Percent change from

Total Payroll Employment
(thousands)a
Percent change from
Percent change from

Tennessee

6th
District

United
States

1,135.8

2,648.5

18,263.3

127,560.7

-0.1

0.1

-0.2

0.5

0.6

3.2

1.7

0.9

1.2

2.8

2.2

497.9

596.1

191.5

242.3

508.1

2,409.8

18,487.0

0.0

-0.1

-1.0

-0.4

-0.3

-0.5

Alabama

Florida

Georgia Louisiana Mississippi

1999Q1

1,929.2

6,824.0

3,815.0

1,911.0

1998Q4

0.5

0.7

0.8

1998Q1

2.2

3.9

1999Q1

373.8

1998Q4

-0.5

1998Q1

-1.7

1.0

-0.6

-0.9

-2.0

-0.4

-1.8

1999Q1

4.1

4.2

4.1

5.3

4.9

4.3

1998Q4

0.0

1.6

2.5

0.0

-6.4

4.9

0.7

-2.3

1998Q1

-7.6

-3.8

-7.6

-13.1

-3.0

-6.4

-7.2

1999Q1

15,786

107,321

72,135

14,568

10,286

30,118

250,214

1,287,833

1998Q4

-0.8

6.2

-4.7

-6.4

6.1

2.9

1.2

0.8

1998Q1

14.1

14.2

14.1

9.8

33.0

9.3

13.9

10.0

1999Q1

4,964

66,998

17,537

3,907

3,212

4,177

100,796

488,957

1998Q4

7.6

3.4

-28.5

182.2

-42.6

-35.0

-6.1

4.7

1998Q1

-0.8

45.4

-25.2

111.2

10.3

-49.3

15.1

5.3

1998Q4

94.7

394.0

196.1

94.6

53.3

130.4

963.0

7,282.1

1998Q3

0.9

1.3

1.5

1.2

1.5

1.3

1.5

1997Q4

4.5

6.3

7.6

4.2

5.9

4.9

5.9

5.6

Atlanta Birmingham Jacksonville

Miami

Nashville

New
Orleans

Orlando

Tampa

1999Q1

2,082.0

481.4

545.1

985.8

657.6

628.8

865.6

1,166.5

1998Q4

0.9

1.2

0.0

0.7

0.2

1.2

1.5

1998Q1

3.4

2.4

4.0

1.7

1.8

5.2

5.8

Civilian Unemployment Rate
Percent change from
Percent change from

a
b

1999Q1

3.3

2.7

3.0

6.7

2.8

4.4

3.0

2.9

1998Q4

5.7

-3.8

0.4

2.7

1.1

-1.3

1.4

1.0

1998Q1

-5.4

-6.9

-7.6

-0.6

-2.2

-10.5

-3.8

-10.7

Seasonally adjusted
Seasonally adjusted annual rate

Sources: Payroll employment and civilian unemployment rate: U.S. Department of Labor, Bureau of Labor Statistics. Initial unemployment
claims: U.S. Department of Labor, Employment and Training Administration. Single- and multifamily building permits: U.S. Bureau of the
Census, Construction Statistics Division. Personal income: Bureau of Economic Analysis. Quarterly estimates of all construction data reflect
annual benchmark revisions. All the data were obtained and seasonally adjusted by Regional Financial Associates. Small differences from
previously published data reflect revisions of seasonal factors.
For more extensive information on the data series shown here, see the Southeastern Economic Indicators.

Total Payroll Employment

Manufacturing Payroll Employment

Civilian Unemployment Rate

Single-Family Building Permits

Multifamily Building Permits

Personal Income

Alabama
Florida

Southeastern Manufacturing Survey
Below are highlights from the monthly survey of southeastern manufacturers conducted by the Federal Reserve Bank
of Atlanta in May.
"Current indicators for the region's manufacturing activity generally eased in April after notable gains the previous month.
"The current production index edged down to 23.5 from 28.3 in March.
"Other indexes of current activity declined or were little changed. The indexes for backlog orders and the number of employees
declined. The new orders index dipped only slightly, and the shipments index fell after a sharp boost in March. The materials
inventories index fell to its lowest level since June 1995.
"Current price indexes, which have been volatile but stronger recently, turned positive. The prices received index reached its highest
level since July 1997, and the prices paid index reached its highest level since January 1998.
"Outlook indexes were mixed but at moderate levels. The indexes for production, shipments, new orders and backlogs rose slightly.
Both the number of employees and the average workweek indexes slipped after notable gains in March. The materials inventories
index turned negative. The prices received index posted its fourth consecutive increase, while the prices paid index jumped sharply
after a sizable drop in March.
SOUTHEASTERN MANUFACTURING INDICATORS
(through May 1999)

For more complete, monthly information see the Southeastern Manufacturing Survey index.

Full text of EconSouth : Second Quarter 1999, Volume 1, Number 2

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