Full text of EconSouth : Third Quarter 2002, Volume 4, Number 3
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Economic Research Federal Reserve Bank of Atlanta EconSouth In This Issue STAFF Lynne Anservitz Editorial Director Volume 4, Number 3, Third Quarter 2002 CURRENT ISSUE Lynn Foley Nancy Pevey Managing Editors The Impact of Oil Prices On Economic Activity Elizabeth McQuerry Contributing Editor COVER STORIES Jean Tate Lee Underwood Staff Writers Are We Running Out of Oil? Geologists have identified reserves of oil that will last well into the future, but the key question may be, Who owns the oil? Harriette D. Grissom Stephen Kay Myriam Quispe-Agnoli Contributing Writers Energy Helps Power the Southeastern Economy Carole Starkey Peter Hamilton Designers Every Sixth District state except Georgia produces oil and gas, but the stakes are highest for Louisiana, the biggest producer. EDITORIAL COMMITTEE Bobbie H. McCrackin VP and Public Affairs Officer Thomas J. Cunningham VP and Associate Director of Research Pierce Nelson AVP and Public Information Officer John C. Robertson AVP, Research Department FEATURES A Mixed Blessing: Oil and Latin American Economies International Focus Some Latin American countries are major oil exporters while others are like the United States and depend on imports. In both cases, volatile oil prices can have a significant impact on macroeconomic stability. Regional Section Free subscriptions and additional copies are available upon request to Public Affairs Department Federal Reserve Bank of Atlanta 1000 Peachtree Street, N.E. Atlanta, Georgia 30309-4470 or by calling 404/498-8020 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. Regional Focus Temps Have a Permanent Place In the Workforce Temporary employment has grown substantially in the United States over the past decade relative to other employment categories, and these employment patterns are apparent in the Southeast too. DEPARTMENTS Research Notes & News Dollar Index The State of the States Southeastern Economic Indicators 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 Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500 Economic Research CURRENT ISSUE The Impact of Oil Prices On Economic Activity he price for west Texas intermediate crude oil was over $27 per barrel at the beginning of August 2002, representing a 245 percent increase in less than four years. At the end of 1998, by comparison, the same crude was around $11 per barrel. Market price projections reveal that oil prices are not expected to decline much over the next few months. Oil price increases in recent memory Sustained increases in energy prices are troubling because history shows that they can have a dramatic impact on the production decisions of firms and the consumption decisions of households. The Arab-Israeli War of 1973, the 1978 Iranian Revolution, the 1980 Iran-Iraq War and the 1990 Gulf War, for instance, were followed by an immediate drop of 7 to 9 percent in the world oil supply. The resulting mismatches between supply and demand led to increasing oil prices. This development, in turn, curtailed economic activity in the United States as a larger share of consumers’ household incomes were diverted away from discretionary expenditures and toward energy consumption. What’s more, the higher costs of production in many cases translated into higher prices for goods and services. Different times, different circumstances But there are some important differences between the earlier incidences of rising oil prices and the more recent episodes. For one, in the 1970s unprecedented oil price increases were associated with large and persistent upswings in the overall rate of price inflation in the economy. In the 1990s it was a different story. Even though the Gulf War brought about a nearly 8 percent drop in the world oil supply, the resulting rise in oil prices did not have any persistent effect on the overall inflation rate. Measured inflation had actually tracked down during the 1980s prior to the Gulf War, and this trend continued once oil prices stabilized in 1991 after the war. In 1999 the rise in oil prices associated with OPEC (Organization of Petroleum Exporting Countries) production cuts, amounting to about a 4 percent fall in world production, was largely an attempt by OPEC to increase revenue in the face of high and strongly growing demand. Similarly, the decline in oil prices during 2001 reflected weaker world demand and OPEC’s reluctance to jeopardize revenues by cutting production. In both cases the impact on inflation and inflation expectations was relatively minor. Measured inflation changed in the short term, but these developments have not significantly altered the outlook for low, stable inflation. One possible explanation for the differing inflationary outcomes between the 1970s and the 1990s is a change in the monetary policy response in the face of oil price shocks. Many economists have argued that in the 1970s the Federal Reserve tried to counter the negative impacts of the oil price shocks on economic activity by adopting an expansionary monetary policy stance. This policy may have inadvertently provided a stimulus to inflation — stimulus that persisted for a considerable time. Monetary policy has become less accommodating of oil price shocks since then, suggesting that concerns about an upturn in oil’s relative price are more likely to center on the increase’s effect on real economic activity than on implications for the longer-term inflation outlook. By John Robertson, assistant vice president of the regional research group of the Federal Reserve Bank of Atlanta Return to Index | Next Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500 Economic Research COVER STORY Are We Running Out of Oil? Both the availability and the cost of oil concern Americans across the country. Consumers are anxious not only about prices at the gas pump but also about whether oil will be around for the next generation. ncreased unrest and instability in the Middle East and in the oil-producing countries of Latin America have again raised concerns about recurring and persistent energy price increases. Oil prices have moved widely over recent years — from below $10 a barrel in 1998 to over $35 a barrel in 2000 (see chart 1), and the threat to future supplies is again becoming a highprofile issue in the United States. At stake are not only consumers’ pocketbooks but also the health of both the U.S. and world economies, made even more tenuous by the recent downturn in business activity. Beyond these shorter-term concerns is the recognition that available supplies of oil are being depleted as oil use increases. As supplies become scarcer, prices will inevitably rise, and many analysts wonder about the consequences for the U.S. economy. What’s happened to oil supplies? Several factors affect both the long- and short-term oil supply conditions, and these conditions, in turn, affect the U.S. economy. The first factor is what the world’s oil reserves look like and what the prospects are for adding to those reserves. The second consideration is where those reserves are and who has access to them. The final component is U.S. refineries’ ability to refine oil and get it to market. At the end of World War II, known oil supplies stood at about 600 billion barrels, according to the U.S. Energy Information Administration. Following the war, the economies of both the United States and the rest of the world expanded rapidly, and consumption of these known supplies accelerated. However, as the result of new discovery, drilling and recovery technologies, exploitable oil reserves increased even more rapidly than demand. In 2000 a U.S. Geological Survey reported that known recoverable oil amounted to about 3 trillion barrels, a 20 percent increase over 1990 estimates of undiscovered oil (see chart 2). Even more impressive is the fact that an additional three trillion barrels of known supply exist that are as yet unrecoverable given current extraction technologies. To put this number in CHART 1 Crude Oil Spot Price perspective, consider that — with reasonable assumptions about world economic growth — the known recoverable supplies of oil would sustain the current rate of consumption for somewhere between 63 and 95 years. Of course, the ability to tap these reserves is critically dependent upon who possesses them and how willing the owners are to sell their oil. Where does U.S. oil come from? The United States currently imports about 60 percent of the oil that it consumes. About 50 percent of that oil comes from OPEC Source: U.S. Energy Information Administration, (Organization of Petroleum Exporting Countries). Persian Gulf dated brent crude oil spot prices OPEC countries account for about 26 percent of U.S. imports, with Iraq supplying slightly under half of the oil the United States gets from this region. Interestingly, oil from Iraq today makes up a much larger portion of U.S. oil imports than it did before the Gulf War. Non-Gulf OPEC countries, and specifically Venezuela, account for about 14 percent of U.S. imports. With such a high degree of dependence on foreign oil, it is no wonder that the United States is concerned about conditions in the Middle East. The nation has a great deal at risk if oil supplies from that region, especially from Iraq, are disrupted for even a short time. Not only are the United States, Europe and the Far East dependent upon the Middle East for oil, but that area accounts for the bulk of the world’s known reserves (see chart 3). Without a change in U.S. energy usage patterns, dependence on the Middle East for future oil supplies will continue to increase as supplies are drawn down. The ups and downs of oil prices Currently oil is in plentiful supply (see chart 2), and the world is in no immediate danger of running out of this resource. The United States’ inability to convert crude oil into usable product, however, may have played a significant role in the run-up in domestic oil and gasoline prices during the summer of 2000 and again in 2001. CHART 2 Hypothetical Six Trillion Barrel World Oil-in-Place Resources Base, 2000 Refinery capacity has lagged behind demand in the United States, with existing refineries running at full or nearly full capacity since the late 1990s. The roots of this capacity problem were long in the making. Largely as result of the elimination of price controls and allocations in 1981, relatively small and Source: U.S. Geological Survey (2000) inefficient refineries exited the industry, and refinery capacity in the United States fell dramatically. Capacity utilization of the remaining refineries increased, but virtually no new capacity was built. Despite the rapid increase in demand for new refinery capacity during the 1990s, the combination of regulations, legal questions and economic considerations limits the attractiveness of such investment for investors and oil companies. The principal response to increased demand has been to increase capacity utilization. In 1998 measured capacity utilization reached 96 percent, a number that may even understate actual utilization given that a certain proportion of capacity is routinely sidelined for maintenance and improvements. When U.S. oil prices spiked in the summer of 2001, the situation wasn’t really an oil-supply problem. Even if more oil had arrived on U.S. shores, there was no easy way to convert it into gasoline. And varying environmental constraints on emissions meant that refined gasoline in surplus areas couldn’t always be transferred to where it was needed. For example, oil refined in Texas could not necessarily be shipped to places like Chicago because the Texas refining process might not be compatible CHART 3 Global Consumption, Production and Reserves of Oil with Chicago’s emission requirements. Therefore, because of capacity constraints, last summer’s high oil prices were probably unavoidable. Unfortunately, current data from the U.S. Energy Information Administration suggest that the capacity utilization problem hasn’t improved. As of June 2002, U.S. refineries were running at 95 percent capacity, which is virtually identical to capacity utilization in June 2001. Operable refinery capacity in 2002 is about 16.8 million barrels of oil input per day, which is only 0.3 million barrels of oil per day greater than in 2001. Inventories are on par with the midpoint of last year’s levels. Source: U.S. Energy Information Administration, Weekly Petroleum Status Report A slippery issue Even a cursory look at the oil supply and refining problems facing the United States suggests that a complex web of structural, production and political issues interacts to affect short-run prices of gasoline and oil-related products. The longrun dependence on the Middle East for oil remains a fact of life. A harmonious settlement of local political problems in the Middle East, as well as improvement of U.S. relations with that part of the world, is essential if shocks to energy supplies are to be avoided. While there is clearly no demonstrable shortage of oil in the world, it is apparent that by the end of this century, alternative sources of cheap energy need to be found in order to maintain the current U.S. standard of living. This article was written by Robert Eisenbeis, senior vice president and research director of the Atlanta Fed. Return to Index | Next Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500 Economic Research COVER STORY Energy Helps Power the Southeastern Economy With energy use declining in the nation over the past year, Southeastern states that depend on producing and selling energy could begin to feel the pinch. s the economy powered down in 2001, energy consumption in the United States declined for the first time since 1990. According to the U.S. Energy Information Administration (EIA), energy consumption in the United States totaled 96.51 quadrillion Btus (British thermal units) in 2001, down from 98.77 quadrillion Btus in 2000 and 96.76 quadrillion Btus in 1999. Petroleum remains the largest source of energy in the United States, accounting for 38.23 quadrillion Btus, or nearly 40 percent of all energy consumed. Natural gas and coal provide much of the rest at just over 22 quadrillion Btus — about 23 percent of consumption — each. Even so, except for nuclear electric power, “wood, waste, alcohol” energy (mostly a corn-derivative called ethanol that is blended into gasoline), and solar and wind power, energy consumption declined last year for every source. Not surprisingly, the decline in energy consumption has had the greatest impact on fossil fuel–producing states, especially those whose economies are less diversified and therefore more dependent on energy companies for jobs and tax revenues. In the Sixth Federal Reserve District, every state except Georgia produces oil and gas. But the industry’s greatest presence, by far, is in Louisiana. Leading the way Louisiana is one of the nation’s leading energy-producing states: It ranks fourth in crude oil production and fourth in production of natural gas (excluding federal offshore drilling areas). The state’s extensive natural resources make it an important player in the energy industry, but the industry has a disproportionate impact on the state’s economy. According to a March study published by the Louisiana State University Center for Energy Studies, oil and gas drilling and production activities on state leases have a direct economic impact of $733 million and an indirect impact of $249 million on the state in a typical year. The study also reported that drilling and production on state leases in Louisiana produced 3,467 jobs with energy producers as well as an estimated 3,118 jobs in related fields. The industry had a significant effect on government revenues too, according to the study, generating $432.4 million for state coffers and $57.3 million for local governments. Still, even allowing for the millions of dollars and thousands of jobs created by the oil and gas industry, Louisiana’s inability to develop additional, non-energy-related industries remains its biggest economic challenge. The state’s dependence on the oil and gas industry means that when energy prices and production decline, so does Louisiana’s economy. For example, from 1999 to 2000, when the U.S. economy grew well over 4 percent, Louisiana’s economy contracted 2.7 percent, according to the U.S. Bureau of Economic Analysis. Only Louisiana and Alaska, another major energy producer, suffered such fates. Considered apart from the state’s economy, however, Louisiana’s oil and gas industry seems to be in very good shape. The state’s proven oil reserves have been revised downward in recent years, but federal offshore reserves in the Gulf of Mexico are significant, and Louisiana-based companies and employees will continue to play a major role in extracting them. A recent report by the EIA noted that after a long decline in the 1980s, natural gas accounted for 52 percent of the major firms’ oil and natural gas production in the United States in 1999, driven by natural gas’ clean-burning properties and its profitability relative to oil. Louisiana’s dominance as a natural gas producer preceded this shift toward the use of natural gas. Taking credit In addition to noting environmental concerns and profitability considerations, the EIA’s report on natural gas production finds that a tax code provision has contributed to the major energy producers’ shift to natural gas. This provision, Section 29 of the 1980 Windfall Profit Tax Act, makes tax credits available to firms that produce certain qualifying fuels from wells drilled between 1980 and 1992. Qualifying fuels include oil from shale and tar sands, wood fuels and synthetics from oil. The most commonly claimed Section 29 credit, however, is for gas from coal seams, also called coalbed methane. According to the EIA, the Section 29 credit, which is scheduled to expire this year, averaged $1.02 per thousand cubic feet of gas in the 1990s, increasing the effective price received for eligible production by 53 percent. The effect on gas production in the United States has been dramatic. The EIA reports that Section 29 companies increased U.S. natural gas production by 26 percent between 1990 and 1999 while production by other major companies not seeking the tax credits declined 14 percent over the same period. SIXTH DISTRICT ENERGY CONSUMPTION AND PRODUCTION Consumption State Alabama Population Rank (in (2000) Millions) Production Total Energy (Quadrillion BTUs) Rank (1999) Per Capita Energy (Million BTUs) Rank (1999) Crude Oil Rank Natural Gas Rank (Thousands (2000) (Million (2001) of Barrels/Day) Cubic Feet) 4.447 23 2.0 17 459 10 29 15 349,114 10* Florida 15.982 4 3.9 6 255 47 13 19 5,706 16 Georgia 8.186 10 2.8 10 359 25 0 NA 0 NA Louisiana 4.469 22 3.6 8 827 3 288 4 1,497,201 4* Mississippi 2.845 31 1.2 27 437 11 54 10 107,540 13 Tennessee 5.689 16 2.1 16 378 21 1 27 0 NA *Onshore and state offshore only; does not include federal offshore Sources: Energy Information Administration, Louisiana Department of Natural Resources, Alabama State Oil and Gas Board A hot market Section 29 seems to have had a particularly dramatic effect on gas production in Alabama, the nation’s 10th leading natural gas–producing state. As one of three states (along with Colorado and New Mexico) holding 75 percent of proved coalbed methane reserves, Alabama’s coalbed methane production increased from 36.4 billion cubic feet in 1990 to 113.5 billion cubic feet last year, when it accounted for 28 percent of the state’s natural gas production. Alabama gas production has also received a strong boost from so-called state offshore (within three miles of the shore) drilling, which increased from 19.9 billion cubic feet in 1990 to 201.9 billion cubic feet last year. The increase in coalbed methane and state offshore production generated strong growth in Alabama’s natural gas production. Total natural gas marketed production grew from 136 billion cubic feet in 1990 to 349 billion cubic feet last year. As for petroleum, the state ranks 15th in crude oil production. Unlike Alabama and Louisiana, Mississippi does not rank among the American Petroleum Institute’s top 10 oil and gas– producing states. But its oil and gas production is not insignificant. The state ranks 10th in crude oil production and 13th in natural gas production. Tennessee and Florida also produce energy, but the sector is not significant to the economy of either state. Florida, which ranked 16th in natural gas production with 5.7 billion cubic feet of gas marketed production in 2001 and 19th in crude oil production, is perhaps more notable for its relative energy efficiency; the state ranks 47th in per capita energy consumption. Tennessee produces no gas at all and ranks 27th in crude oil production. For more information about energy consumption and production in the Sixth District, see the table above. Energy as part of a diverse economy One of the most significant national developments of the last 50 years has been the transformation of the Southeastern economy. As millions of Americans made their way south for new jobs and new homes, the region’s economy began to resemble the national economy in almost every respect, including, of course, energy consumption. The Southeast, like the nation, now consumes far more gas and oil than it produces, adding to U.S. dependence on external oil production. Nonetheless, for states such as Louisiana and, to some extent, Alabama and Mississippi, oil and gas production remain significant influences on the economy, and their importance is unlikely to be diminished any time soon. Return to Index | Next Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500 Economic Research INTERNATIONAL FOCUS A Mixed Blessing: Oil and Latin American Economies Latin America’s role as a key supplier of crude oil to the United States has received renewed attention as this country seeks to reduce its dependence on crude-oil imports from the Middle East. But within Latin America, many countries struggle to deal with the effects of volatile oil prices. he United States depends on Latin America for a significant portion of its oil. In 2001 Mexico and Venezuela were respectively the second- and fourth-largest suppliers of U.S. oil imports, and for the month of May 2002, Mexico surpassed Saudi Arabia as the largest single supplier of crude oil to the United States. Yet only a few Latin American countries — Venezuela, Mexico, Ecuador and Colombia — are large net oil exporters. Some countries, like Argentina, have become self-sufficient and have begun to export oil while others, including Brazil, seek self-sufficiency in the coming decade. The rest of the region, however, resembles the United States in its dependency on oil imports. The bottom line is that oil has a significant effect on the economy of every Latin American country. Oil’s importance to Latin America Latin America’s oil economy and volatile oil prices have varying impacts on the region’s economies. High oil prices help large producers like Venezuela and Ecuador that rely on exports for fiscal revenue and foreign exchange. For the net oil-importing countries of Brazil, Peru and Chile, the price of oil is a key determinant of inflation, the cost of production, the trade balance and the strength of the currency. Oil prices today are extremely volatile, and sharp fluctuations in oil prices contribute to macroeconomic volatility in the region. Over the past 20 years, oil prices have been more volatile than the prices of other commodities like raw agricultural products, ores and metals. The impact of this volatility varies according to a country’s relative dependence on oil production and exports. Oil dependency: Curse or blessing? While individual nations might expect their large oil reserves to pave the way for economic development, the region’s major oil-exporting economies have experienced difficulty in converting oil revenues into a continuous source of financing for economic growth and development. Oil exports have represented a greater share of gross domestic product (GDP) in Venezuela and Ecuador than in any other country in the region over the past 20 years, yet both economies have experienced lower-than-average economic growth and higher inflation. Exports since the 1980s have averaged 20 percent of GDP in Venezuela and 10 percent of GDP in Ecuador. One reason for the poor performance of these two oil-exporting economies is the fact that the extensive revenue from oil exports may be crowding out development in other economic sectors. This explanation, known as “Dutch disease” (named after the impact of North Sea gas on the Dutch economy), suggests that the returns on investment in oil are so large that they divert investment from other economic activities. In addition, the oil industry is capital-intensive, which means that it generates less employment per dollar invested in new capital than other more labor-intensive industries. Another drawback for these oil-dependent economies is that they can be further hurt by the impact of volatile oil export revenues on the exchange rate. A surge in export revenues can lead to a surplus in a nation’s balance of payments, which results in a stronger domestic currency. Foreign-exchange appreciation can have some unexpected spillover effects for other parts of the economy. Appreciation of domestic currency results in a loss of competitiveness in other economic sectors as imports become cheaper and exports more expensive. Even if domestic currency depreciates, local manufacturers of tradable goods who were disadvantaged when the currency was strong may still be unable to fully capitalize on the improved exchange-rate environment if the volatility in the currency discourages investment in other industries. The examples of Venezuela and Ecuador demonstrate that growth in oil exports does not necessarily translate to overall economic growth. During the past decade, oil exports increased on average 10 percent per year in these two economies, but their overall economic growth rates reached on average only 1 and 2 percent, respectively. In Mexico, a country less dependent on oil than Venezuela or Ecuador, real GDP grew on average 3.6 percent, and oil exports increased on average 5 percent between 1991 and 2000. In a less oil-dependent economy like Mexico, greater diversification of production can partially compensate for volatility in the oil sector. CHART 1 Venezuela’s Oil Export Revenues and Fiscal Balance For governments that are highly dependent on oil export Source: World Development Indicators, World Bank revenue, fluctuations in the price of oil can have a major impact (2002) on the fiscal balance. As oil prices rise, governments are able to finance public expenditures. However, when export revenues decline, there will inevitably be a fiscal shortfall. Oil stabilization funds represent one effort to compensate for oil price volatility (see the sidebar), but a basic fact of political economy remains that governments find it far easier to raise expenditures than to cut them. In Venezuela, Ecuador and Bolivia a strong relationship exists between fiscal balance and oil export revenues as a percentage of GDP (the impact of oil revenue on fiscal balance in Venezuela is highlighted in chart 1). In contrast, Mexico’s economy was once highly dependent on oil export revenues, but the country has seen its fiscal accounts improve even as oil export revenue as a percentage of GDP has declined (see chart 2). Mexico’s government remains dependent on the state-owned oil company, Pemex, for 37 percent of its revenue; however, the government has made significant strides in reducing fiscal deficits in the 1990s (see the sidebar). Mexico’s successful export diversification and consequent reduced dependency on oil is due in part to its implementation of structural reforms in the late 1980s and 1990s. By comparison, reforms in Venezuela and Ecuador have lagged behind the rest of the region. Trade balance For countries dependent on oil exports, volatile revenues can also introduce pressures on the trade balance. Rising oil prices and revenues tend to lead to a rise in imports of consumption goods and services. However, when export revenues fall, less revenue is available to import necessary intermediate and capital goods and services, creating the need for other financing sources. Generally, this situation leads to increases in public debt. CHART 2 Mexico’s Oil Export Revenues and Fiscal Balance For the region as a whole, oil exports as a percentage of overall exports have declined over the past 20 years. Oil exports, on average, were 28 percent of total exports between 1980 and 1990 while oil exports from 1991 through 2000 averaged 16 percent. On the other hand, manufactured-exports’ share in total exports went from 27 percent on average for the 1980–90 period to 45 percent for 1991–2000. In the region’s largest oil export–dependent economies, oil as a Source: World Development Indicators, World Bank share of overall exports declined in the 1990s compared to the (2002) 1980s. Mexico and Bolivia show the sharpest declines. In Mexico, this share fell to an average of around 13 percent from 1991–2000, down from 53 percent, while oil as a share of exports in Bolivia dropped to 13 percent in the last decade compared to 40 percent in the 1980s. Ecuador’s oil-export share of total merchandise exports fell to 37 percent in the 1990s on average. In Venezuela, the decline is not as drastic as in the other net oil exporter countries. The share of oil exports as a percentage of total exports declined to 79 percent in the 1991–2000 period compared to 87 percent during the 1980s. Mexico’s diversification of exports and consequent reduced dependency on oil revenue stands in marked contrast to Venezuela’s lack of diversification. As the process of economic reform was implemented in the region and Latin American markets became more open, Mexico pursued a strategy that led to a diversification in exports. Oil exports as a share of total exports began to fall in the mid-1980s as Mexico’s manufactured exports increased rapidly, in part through the expansion of the maquiladora sector. Maquiladoras are assembly plants, often located near the U.S.-Mexico border, where finished products made of imported parts are assembled and exported; they flourished during much of the 1990s under the North American Free Trade Agreement (NAFTA). A dramatic increase in Mexico’s total exports led to a decline in the share of oil exports. During the same time period Venezuela’s dependence on oil shrank only marginally because the country never diversified its export base. Can Oil Stabilization Funds Reduce Macroeconomic Volatility? Volatile oil prices can wreak havoc on oil-exporting countries. In order to ameliorate the negative impact of volatile oil prices, Colombia, Ecuador, Mexico and Venezuela have recently established oil stabilization funds. The funds are based on the argument that governments should save windfall earnings from periods when oil prices are high in order to spend such funds when prices fall. Venezuela, for example, is more dependent on oil than any other country in Latin America with year-2000 petroleum-export revenue accounting for approximately 23 percent of gross domestic product, half of the government’s revenue, and 86 percent of exports. Consequently, the Venezuelan economy undergoes cycles of expansion and contraction associated with the price of oil. The economic swings are exacerbated by the fact that fiscal policy has traditionally been procyclical, with government spending rising during the boom years and shrinking when revenues fall. An oil stabilization fund is a tool that governments can use to enact countercyclical fiscal policies that could potentially reduce the disruptive impact of a sharp drop in the price of oil. Venezuela’s brief experience with its Macroeconomic Investment and Stabilization Fund (known as the FIEM) suggests that stabilization funds are unlikely to be effective without a clear commitment to countercyclical fiscal policy. Since Venezuela’s “rainy day” fund began operation in 1999, it has accumulated $4 billion. The Chávez administration failed to make its obligatory deposits into the FIEM in 2001 and instead spent the funds on other government obligations. In 2002 the economy is expected to shrink by 4.4 percent, and government-financing needs are approximately $9 billion. While the government has announced that it will tap into the stabilization fund, the total resources in that fund are not enough to cope with the shortfall. Furthermore, the government is drawing on the FIEM at a time when oil prices are relatively high, rather than waiting for a “rainy day” when oil prices are low. Net oil-importing countries Many countries in Latin America, including Brazil, Peru and Chile, are net oil importers. Since petroleum is one of the main inputs for the production and distribution of goods and services, these imports are relatively inelastic to changes in oil prices, meaning that the consumption of fuel (including oil, lubricants, coal, natural gas and related products) varies little in response to changes in the price of oil. This inelasticity means that increases in oil prices will have a direct impact on the production costs of goods and services and can contribute to an increase in the inflation rate if these increased prices are passed on to the consumer. During the 1980s, oil price hikes were one of the main factors that increased production costs in Latin America and contributed to higher inflation rates. As was the case with fuel exports as a share of total exports, however, fuel imports as a share of total imports declined in the 1990s. On average, fuel imports as a percentage of total merchandise imports in Latin America declined from 17 percent between 1980 and 1990 to 8 percent between 1991 and 2000. Meanwhile, the share of manufactured imports as a percentage of total merchandise imports increased from 64 percent (1980 to 1990) to 76 percent (1991 to 2000). The process of trade liberalization and economic opening helped bring about the increase in manufactured imports into the region in the 1990s. The economic reforms implemented in the early 1990s included the promotion of foreign investment and the adoption of new technologies and modes of production that spurred growth in imports of intermediate capital goods. Throughout Latin America inflation rates have been declining since the economic reforms of the 1990s, and the decline in the share of fuel imports as a percentage of total imports has served to further reduce the impact of fluctuating oil prices on the inflation rate. Opening Up Mexico’s Protected Energy Sector Mexico’s 1938 nationalization of its oil industry is an enduring symbol of national sovereignty and independence. The constitution grants Mexico’s national oil company, Pemex, the exclusive right to produce and explore oil and gas and prohibits it from selling such rights to a third party. As Mexico seeks to expand exploration, however, these restrictions on foreign investment become an increasing burden. Mexico has proven oil reserves of 24 billion barrels compared to 22 billion barrels in the United States. Yet Pemex by itself lacks the financial capacity to fund a rapid expansion in the exploration of these resources. Because the federal government receives 37 percent of its revenue from Pemex, the company is further limited by its crucial role in financing the public sector. For example, some analysts argue that with sufficient foreign investment, Mexico could begin exploiting its gas-rich Burgos Basin within two years, but Pemex would need seven years to carry out the project by itself. In the face of political opposition, Mexican President Vicente Fox has pledged to increase international investment in the energy sector. Under current arrangements, foreign energy firms play a limited role and receive a flat fee to perform a specific task under a one- or two-year contract. Pemex has managed more than 1,100 of these contracts since 1997. A new government proposal would initiate multiservice contracts allowing a small number of firms to manage numerous service contracts that would last 10 or 20 years. Whether multiservice contracts will be upheld as constitutional is not clear, nor is it clear whether foreign firms will find their terms and conditions promising enough to merit the costs of largescale investment. In the event that multiservice contracts do not take off and an increase in foreign investment does not materialize, Pemex — and Mexico — will have to continue to go it alone. Good news and bad news The impact of oil prices on Latin American economies varies depending on whether a given country is a net importer or a net exporter of oil. Whenever oil prices rise, countries like Venezuela or Ecuador that are net exporters of oil stand to benefit in the short run. On the other hand, net fuel importers like Chile and Peru are certain to cheer a drop in prices. Although some countries possess large oil reserves, the benefits of large oil revenues have not been fully exploited. In fact, the region’s policymakers have found it difficult to direct or channel these resources to other productive activities. The fate of the region’s oil exporters suggests that it is the management of oil resources, not oil wealth itself, that can create economic distortions. In some cases, large oil revenues have depressed other economic sectors, curtailing their development and growth. In countries that are dependent on large oil exports, the volatility of oil prices has tended to add to economic uncertainty and instability. For other oil-exporting countries in the region, structural reform and the expansion of trade have reduced most countries’ dependence on oil as the primary source of government revenue. Mexico is an example of one country that has greatly diversified its export base and is consequently far less dependent on oil exports than was the case 20 years ago. For Latin America, vast oil reserves can be a mixed blessing since oil itself is no guarantee of rapid economic development. This article was written by Stephen J. Kay and Myriam Quispe-Agnoli of the Atlanta Fed’s Latin America Research Group. Return to Index | Next Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500 Economic Research REGIONAL FOCUS Temps Have a Permanent Place in the Workforce Temporary employment arrangements can benefit both employers and workers. Businesses can cut costs and maintain staffing flexibility; employees can gain experience and training. While still not a large share of total payroll employment, the temp industry is growing both regionally and nationally and appears to have important implications for businesses and policymakers. ur parents may have retired from their jobs after 30 or 40 years, receiving the obligatory gold watch and framed certificate. Today many of us have changed careers, much less jobs, several times, and we see a growing number of people in our workplaces who won’t be there thirty days, much less thirty years. Over recent decades, job permanence has given way to job flexibility, and temporary workers have become an increasing and more important part of the workforce. The impact of temporary workers on overall employment and on the economy as a whole may have important implications for businesses and for the policymakers who seek to understand the temporary help industry’s cyclical nature and its role as an economic indicator. Between 1979 and 1995 the number of workers employed by temporary-help supply services grew at an annual rate of 11 percent — five times the rate of growth for total employment. As a result, temporary services’ share of total employment also grew. Still, in 2001 estimates of temporary workers made up only a small percentage of total employment, estimated between 1.7 and percent of the total labor force (see chart 1). In the Sixth Federal Reserve District states, temp services as a proportion of total state employment rates range from a high of 2.7 percent in Georgia to a low of 0.9 percent in Mississippi. A temp or not a temp? That is the question . . . Temporary employment varies from contract and seasonal employment to employment-agency placements in jobs that may last only a few hours. Temporary employment provided through staffing firms can be divided into two broad categories: temporary help and employee leasing. Temporary help represents employees hired to meet employers’ short-term or project-specific needs. Employee leasing is typically a longer-term contractual relationship between a leasing agency and an employer; the agency assumes responsibilities such as payroll, taxes and possibly even management of the leased employees. Why use temps? A recent survey by the Upjohn Institute for Employment Research found employers demand temporary workers for a broad range of reasons. Using temps allows firms to adjust more easily to workload fluctuations and employee absences. Companies that hire temporary workers also enjoy lower employee-screening and hiring and firing costs because temporary help agencies bear some of those expenses. And using temps saves firms health insurance and pensions-related costs. For example, the Upjohn survey notes that in 2001 only 10 percent of temporary workers had employer-provided health insurance and only about 7 percent were included in employer pension plans. In comparison, roughly 55 percent of permanent workers received health insurance and 47 percent had a pension plan through their employer, according to a study by David Autor of the Massachusetts Institute of Technology. CHART 1 Temporary Help Employment as a Percent of Total Payroll and Services Employment Note: All figures are as of the first quarter. Source: Bureau of Labor Statistics In addition, firms may save on salaries because temporary workers are paid roughly 20 percent less, on average, than permanent workers are. A temp worker earned $396 weekly in early 2001, significantly below the roughly $500 per week paycheck of a permanent employee. Even taking into account the fees paid to the staffing agency, roughly three-quarters of firms surveyed found temporary employees’ total compensation costs less than those of permanent employees. Steve Berchem, vice president of the American Staffing Association, says that many businesses use temps to help out during unexpected increases in demand or to fill in for absent regular employees. This labor flexibility will continue to be an important market factor in the use of temporary help. In fact, workforce flexibility was a critical driver behind the recordbreaking expansion of the U.S. economy during the last decade, and Berchem predicts that more businesses will turn to staffing companies to help meet their labor needs as they understand the importance of such flexibility. Many workers may also benefit from temporary employment arrangements. Temporary employment can allow workers to balance work and personal activities. And temporary employment provides both work experience and training. Manpower Inc., one of the country’s largest staffing firms, estimates that it trains 100,000 temporary workers a year in office-automation software. For some workers, temporary jobs serve as a pathway to permanent jobs. Although some workers may choose temporary work for experience and training, over half of temporary workers in 2001 preferred permanent employment. Here, there and everywhere In 2001, according to the Bureau of Labor Statistics’ Current Population Survey, there were 5.4 million temp workers, who accounted for 4 percent of total national employment. The demographic characteristics of these temps have remained relatively stable since the BLS started the survey in 1995. Temporary workers are employed in nearly all occupational areas, but they tend to be most heavily represented in professional specialties, administrative support, general services, precision production and farming. One of the significant trends in temporary employment, however, is the steady decline in the number of temps used in manufacturing. In 1995, one-third of all temporary agency–employed workers were employed in the manufacturing industry. By 2001 that portion had fallen to one-fifth. In recent years, minor increases in temporary employment have been noted in the transportation and utilities industries. But the largest gains have come in services. Pam Scheibenreif, area manager for Royal Staffing Services Inc. in Atlanta and current president of the Georgia Staffing Association, noted a large growth market for staffing of “contact” centers, or call centers, which companies use to handle customer inquiries. Consistent with population rankings as a whole, the temporary help industry has a strong presence in the Southeast, with Florida and Georgia among the top 10 states in terms of percentage of total workforce and in terms of industry receipts (see the table); Tennessee ranks nineteenth. The Atlanta metropolitan area is the region’s largest single market, ranking eighth in the nation for temporary help services. The Miami and Tampa markets also rank among the nation’s largest. Sixth District Staffing-Industry Profile Alabama Florida Georgia Louisiana Mississippi Tennessee 50.9 345.9 163.5 45.6 17.8 75.7 2.7 5.4 4.5 2.5 1.6 2.8 33.7 144.3 95.9 38.6 10.4 53.8 Percent of total employment 1.8 2.2 2.7 2.1 0.9 2.1 Employee leasing employment3 14.8 199.6 64.5 5.0 6.2 15.4 Percent of total employment 0.8 3.1 1.1 0.3 0.6 0.6 Total employment through staffing services1 Percent of total employment Temporary help services employment2 1Includes temporary help services, employee leasing, and two minor categories not listed in the table — executive search and permanent placement. 2Employees hired to meet employers’ short-term or project-specific needs. 3Typically a longer-term contractual relationship between a leasing agency and an employer; the agency assumes responsibilities such as payroll, taxes and possibly even management of the leased employees. Note: All staffing numbers are in thousands. Source: Staffing Industry Sourcebook, 2000–2001 Temps on the rise Overall, temporary help employment has been a positive force in a slower economy. “The increased hiring in temporary personnel services is a good indication that employers, while hesitant to make long-term hiring decisions at this point, need additional workers to meet their current demands,” said Georgia Labor Commissioner Michael Thurmond. “The additional hiring in this sector represents 38 percent of all jobs created in Georgia since January 2002.” Many businesses in the region have also noted a rebound in temporary employment beginning this year, and this trend is reflected in the national and regional data. Scheibenreif said, “Business is picking up, but we are still below year-ago levels.” Some staffing firms have also noted that business is improving, and they expect demand for temporary workers to continue to rebound. In the Atlanta area, personnel services employment has shown steady improvement this year, and employment levels are back to year-ago levels. Not only is the number of temporary employees on the rise, but the number of temporary-help supply establishments has also grown in recent years. According to Staffing Industry Analysts Inc., there were over 20,000 temporary help supply offices in the United States and Canada in 2000. If offices that provide employee leasing and permanent placement services are included, that number rises to over 30,000. The number of franchised or licensed offices of staffing companies in operation in North America doubled in the second half of the 1990s, an impressive growth rate. The recent economic downturn resulted in some closings, but the overall growth trend appears to be CHART 2 Contribution of Temporary Workers to Payroll Employment Change well established. Part of the cycle As chart 1 indicates, temporary workers make up an increasing, yet still small, proportion of total payroll employment. Notwithstanding the modest absolute size of temporary employment, fluctuations in the industry comprise a substantial segment of variation in total payroll employment over the business cycle. Note: All figures are as of the second quarter. Despite the fact that temporary employment comprises about 2 Source: Bureau of Labor Statistics percent of payroll employment, fluctuations in temporary jobs contributed negative 0.3 percentage point to the 1 percent net decline in payroll employment over the latest employment downturn (see chart 2). This pattern contrasts slightly with temporary employment trends through the 1981–82 and 1990–91 recessions, when the decline in temporary jobs added only marginally to the overall payroll decline. Given the nature of temporary employment and the increasing use of temporary help by private firms, temporary employment appears to have a growing importance in labor market fluctuations over the business cycle. Is temporary employment a leading indicator? Temporary employees are typically “marginal” workers. They’re the first to be dismissed as business conditions deteriorate because they tend to have lower productivity than permanent employees, and the firing costs are lower as well. As demand for workers increases, it should follow that temporary workers are the last hired as well. But when the economic outlook is uncertain, the pattern is more likely to be an increase in hours worked by existing employees, the hiring of low marginal cost temporary workers and, as economic uncertainty diminishes, the addition of workers to permanent payrolls. In this scenario, temporary workers provide employers with additional workforce flexibility. Chart 2 shows that fluctuations in temporary jobs have generally occurred along with broader changes in total payroll employment through the 1980s and 1990s. But over the most recent downturn, temporary employment appears to have led slightly the downturn in overall employment and now appears to be preceding broader growth in payroll employment. Temporary employment rose by 126,000 workers between February and May 2002 whereas overall employment expanded by only 42,000 workers. Temporary help means business Temporary employment has grown substantially over the past decade relative to other employment categories in the nation as a whole and in the Southeast. While contributing only modestly to employment changes during the 1981–82 and 1990–91 recessions, fluctuations in temporary jobs have been a considerable proportion of total employment variation through the most recent recession. Staffing industry data show trends in the Southeast that reflect recent national employment patterns. Given the evolving nature of temporary employment and its importance in recent payroll employment fluctuations, developments in this segment of the labor market warrant continued close scrutiny. This article was written by Michael Chriszt of the regional team of the Atlanta Fed research department. Return to Index | Next Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500 Economic Research Research Notes and News highlights recently published research as well as other news from the Federal Reserve Bank of Atlanta. For complete text of summarized articles and publications, see the Atlanta Fed’s World Wide Web site at www.frbatlanta.org/publ.cfm. Federal funds futures prices and monetary policy The federal funds futures market enables market participants to both hedge interest rate risk and speculate on interest rate movements. Prices of federal funds futures also reveal market participants’ expectations about changes in Federal Open Market Committee (FOMC) policy. This information allows monetary policymakers to assess the degree to which asset prices already reflect potential policy moves and these prices’ likely reaction to policy changes that deviate from market expectations. In a recent article Jeff Moore and Richard Austin examine the relationship between U.S. monetary policy changes and futures market participants’ ability to forecast these changes. Previous research has shown the federal funds futures market to be a relatively good forecaster of changes in the fed funds rate on average. But these studies treated futures market data as a single sample and failed to take into account the significant changes in forecast error behavior over different periods of the monetary policy cycle. Moore and Austin find that futures market forecast error mean and variance differ substantially over various stages of the monetary policy cycle, with overall performance improving considerably in the latter half of the 1990s before deteriorating sharply through 2000 and 2001. The data also reveal both substantial overshooting and undershooting by futures prices around turning points in the path of the funds rate. Finally, the evidence suggests that increased disclosures of information by the FOMC during the past decade have played only a minor role in improving futures market participants’ forecasting performance. ECONOMIC REVIEW SECOND QUARTER 2002 Global banks, local crises: Bad news from Argentina Banking crises have been a recurrent phenomenon in Latin America over the past few decades. Some have argued that the internationalization of the banking sector has ushered in a new era: What used to be systemic risk from the perspective of local banks with undiversified portfolios might no longer be systemic from the standpoint of large international banks. Argentina’s experience shows that the presence of international banks was not enough to prevent local banking crises and sizable losses to depositors. The “bad news” from Argentina, according to a recent article by Marco Del Negro and Stephen J. Kay, is that depositors in emerging markets may not reap the full benefits of international portfolio diversification because international banks have limited liability, at least under some circumstances — for instance, when the local government heavily intervenes in the banking system. The authors emphasize that while the limited-liability feature of international banks may seem bad ex post — and, of course, it is from the perspective of Argentine depositors — this feature may well be desirable, perhaps even necessary, ex ante. The article first presents evidence of the globalization of the banking sector in Latin America and the dramatic increase of the phenomenon in the late nineties. After reviewing the literature on the pros and cons of international banks in emerging markets, the authors focus on the legal issues behind the limited-liability feature. The authors examine the new evidence that Argentina’s recent experiences provide and conclude by analyzing the pros and cons of the limited-liability feature. ECONOMIC REVIEW THIRD QUARTER 2002 Latin American conference proceedings now online Financial liberalization is one of the most pressing goals for policymakers in Latin America today as policies aimed at expanding, diversifying and modernizing financial services foster greater participation in the global economy. However, liberalization also presents new dilemmas. To offer a perspective on these issues, the Latin America Research Group of the Federal Reserve Bank of Atlanta sponsored the conference Domestic Finance and Global Capital in Latin America. Regulators, policymakers, bankers and academics met in November 2001 to discuss policy concerns related to opening and developing Latin American financial markets. Original research explored theoretical issues related to capital flows and liberalization, banking sector issues and the workings of financial markets. The conference concluded with a roundtable on monetary and regulatory policy in which policymakers and academics discussed their experiences in modernizing the region’s capital markets as well as their concerns going forward. The entire conference proceedings are now available on the bank’s Web site at www.frbatlanta.org/econ_rd/larg/larg_index.cfm. How do WSJ survey forecasters measure up? Twice a year the Wall Street Journal surveys a group of forecasters for their forecasts of several key macroeconomic variables designed to characterize the economy’s future performance. The Journal publishes the forecasts and provides a ranking of a few of the top forecasters based on how close the forecasts of the variables are to their realized values. ATLANTA FED DOLLAR INDEX The dollar continued its decline in April and May 2002 against the 15 major currencies tracked by the Atlanta Fed. Decreases were registered on all subindexes except the Americas subindex, which remained unchanged in April but rose slightly in May. The dollar again declined in June, for the fourth consecutive month, and decreases were registered on all subindexes except the Americas subindex. 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/di_index.cfm. The methodology used to rank the forecasters scores them on the sum of the weighted absolute percentage deviation from the actual realized value of each series; the weight for each series is simply the inverse of the actual realized value of the series. This performance-assessment method may become distorted, and even undefined, when the realized value is close to or equal to zero. Also, it does not consider the correlations in the data among the variables being forecast. In a recent working paper, Robert Eisenbeis, Daniel Waggoner and Tao Zha propose a methodology that is designed to be used to assess the accuracy of any type of forecast and that both yields a measure of joint forecast performance and provides a single measure of how similar a joint forecast is to those of other forecasts. The method also allows the authors to assess the collective forecast accuracy of a set of forecasts flowing from economic models or individual forecasters and the accuracy of those forecasts over time. Finally, the method provides some indication of how tightly the forecasts are clustered around the realized values and can be used to compare judgmental forecasts as well as those of formal econometric models. Among many results, the authors find great variability among forecaster performance over time, which serves to illustrate how difficult economic forecasting is. WORKING PAPER 2002-8A JULY 2002 Return to Index | Next Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500 Economic Research THE STATE OF THE STATES Recent events and trends from the six states of the Sixth Federal Reserve District Alabama • Honda Motor Co. will add a $425 million assembly line to its Lincoln auto plant, creating 2,000 jobs by 2004. Honda’s expansion means that the plant will double its output of the Odyssey minivan and V-6 engine to 300,000 a year. • Bender Shipbuilding and Repair Co. Inc. of Mobile has been awarded an $8 million contract to refurbish the frigate USS Stephen W. Groves. About 125 employees will be assigned to work on the ship. • Higher prices for steel have boosted production in the region. Demand for domestic steel has surged following a series of tariffs on imported steel. One Alabama company recently ramped up production to an all-time high and is expected to reach full production capacity by year-end. Florida • Guests headed to Disney World are reportedly waiting until the last minute to book their travel, and international visitors are still lagging behind last year. Nevertheless, hotel occupancies in the area are at about 90 percent of normal capacity in part because of discounting. • The chairman of the Travel Industry Association reported that Florida tourism, while recovering to near-2000 levels, won’t surpass record tourism levels until 2004. Tourism officials say that the decline in fly-in visitors has been offset in part by a considerable increase in the number arriving by car. • Agere Systems Inc. granted a reprieve to more than 1,000 workers at its Orlando microchip manufacturing plant, announcing that it would keep the plant open for at least two more years. The plant manufactures chips used in telecommunications equipment. Georgia • Market observers in Atlanta have seen an improvement in industrial leasing recently. Preliminary numbers indicate that the market had absorbed nearly 2 million square feet of space at midyear compared to 2.57 million square feet of space leased during all of last year. • Georgia ports posted another year of double-digit increases in tonnage. During the fiscal year ending June 2002, the state’s ports moved 11 percent more cargo than in the previous year. This increase followed last year’s record 20 percent growth. As port workers on the West Coast negotiate a labor contract and strike possibilities loom, some shipments from Asia are being diverted to Georgia. • Toyota Motor Co. will build a $60 million parts plant in Jackson County that will create 120 new jobs over the next few years. The plant will make compressors for auto air conditioners. Louisiana • The gaming business on boats and in video-poker establishments in Louisiana has improved during the current fiscal year. The state is expected to realize about $30 million more in revenues than projected. • The Louisiana oil industry’s average rig count rose to 161 in July from 156 in June; the U.S. rig count climbed to 856 from 842. The average price for Louisiana sweet crude oil rose slightly to $27.11 per barrel in July compared to $25.57 per barrel in June. Mississippi • The state’s casino coffers continued to grow. Through June, gross gambling revenues statewide were up 2 percent over last year. The 12 casinos on the Gulf Coast saw their revenues rise 1 percent last month. • Nissan Motor Corp. has announced that it will further expand its Canton, plant. The $500 million expansion, which means 1,300 new jobs, will accommodate an annual production of 150,000 Altimas. • A commercial rocket motor manufacturer plans to invest about $250 million in construction of a new plant near Iuka. The facility is expected to eventually employ 600 workers. • Mississippi’s governor called for a special legislative session to approve a $31.5 million incentive package for the expansion of Laurel-based Howard Industries. The expansion will create 2,000 jobs at a new Howard Industries manufacturing division. Tennessee • A new manufacturer, Astec Industries Inc., plans to stimulate the economy of Loudon with the opening of an equipment plant that will employ 250 people. The plant will be located in the old John Deere manufacturing facility. • Tennessee’s unemployment rate was a relatively low 4.8 percent in June compared to a 5.8 percent rate for the nation. Total nonfarm employment fell 0.6 percent in the second quarter following a 0.5 percent rebound in the first quarter. • While working under a temporary budget that furloughed more than half the state’s workforce in early July, legislators approved a $933 million tax increase, the largest in the state’s history. The greatest portion of the tax hike will come from a 1 percent sales tax increase. Compiled by the regional section of the Atlanta Fed’s research department Return to Index | Next Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500 Economic Research Southeastern Economic Indicators Alabama Florida Georgia Louisiana Mississippi Tennessee 6th District U.S. Total Payroll Employment (thousands)a 2002Q2 1,898.7 7,178.7 3,890.4 1,929.0 1,129.5 % change from 2002Q1 –0.1 0.0 0.3 –0.1 –0. –0.6 0.0 0.0 % change from 2001Q2 –0.8 –0.2 –2.2 0.0 –0.2 –0.2 –0.6 –1.1 Manufacturing Payroll Employment (thousands)a 2002Q2 329.1 448.0 538.9 177.2 207.7 466.0 2,166.9 16,776.3 % change from 2002Q1 –0.8 –0.6 0.5 0.1 –0.1 –0.4 –0.2 –0.6 % change from 2001Q2 –3.2 –5.6 –2.3 –3.1 –3.2 –2.7 –3.4 –6.1 2002Q2 Civilian Unemployment Ratea 5.6 5.2 4.7 6.1 6.8 5.0 5.3 5.9 2,703.4 18,729.7 130,716.7 Rate as of 2002Q1 5.6 5.4 4.6 5.8 6.5 5.5 5.4 5.6 Rate as of 2001Q2 5.1 4.5 3.9 5.8 5.1 4.4 4.6 4.5 Single-Family Building Permits (units)b 2002Q2 15,747 115,206 77,975 14,858 8,637 28,496 % change from 2002Q1 –8.2 –14.7 6.8 –3.9 2.5 4.1 –5.6 0.4 % change from 2001Q2 14.5 –1.9 1.9 10.9 –0.3 5.9 1.7 4.7 Multifamily Building Permits (units)b 2002Q2 12,700 63,132 25,343 3,473 3,158 3,614 111,421 450,618 % change from 2002Q1 209.6 2.4 10.4 90.8 –26.7 –17.7 12.3 8.6 % change from 2001Q2 399.9 38.8 15.0 9.8 150.1 –51.0 36.1 12.0 Personal Income ($ billions)b 2002Q1 110.4 476.5 242.5 109.2 63.4 155.6 1,157.7 8,705.2 % change from 2001Q4 1.3 1.3 1.6 0.8 2.3 2.1 1.5 1.4 260,918 1,304,282 % change from 2001Q1 2.3 3.5 2.9 3.0 3.3 Atlanta Birmingham Jacksonville Miami Nashville 2.3 3.1 1.7 New Orlando Orleans Tampa Total Payroll Employment (thousands)a 2002Q2 2,144.9 485.2 572.3 1,041.9 686.1 622.5 904.0 1,223.9 % change from 2002Q1 0.1 0.0 0.0 0.6 0.1 –1.0 –0.1 –0.2 % change from 2001Q2 –2.8 –0.1 0.9 0.7 0.5 –0.8 –1.0 –0.8 2002Q2 Civilian Unemployment Ratea 4.9 4.1 5.1 7.3 3.8 5.4 5.2 4.3 Rate as of 2002Q1 4.8 4.0 4.9 7.6 4.1 5.2 5.7 4.4 Rate as of 2001Q2 3.2 3.1 4.0 6.5 3.2 5.0 3.5 3.5 a Seasonally adjusted b 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 Atlanta Fed’s World Wide Web site at www.frbatlanta.org/publica/econ_south/2002/q3/dist_data.htm. Total Payroll Employment Manufacturing Payroll Employment Civilian Unemployment Rate Single-Family Building Permits Multifamily Building Permits Personal Income Return to Index Disclaimer & Terms of Use : Privacy Policy : Contact Us : Site Map : Home Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470 Tel. (404) 498-8500