Southeastern forecast: return to growth in New Year: the Southeastern economy suffered the effects of competition, declining demand for manufactured goods, shrinking business investment and a sharp reduction in travel-related activities during

Southeastern forecast: return to growth in New Year: the Southeastern economy suffered the effects of competition, declining demand for manufactured goods, shrinking business investment and a sharp reduction in travel-related activities during 2001. For 2002, a gradual recovery is on tap for the region, but growth is likely to be slower than what was the norm for the latter part of the 1990s – Regional Focus

John Robertson



By most measures Alabama’s economic performance was poor in 2001. Service industries displayed almost no growth, and factory employment fell by around 5 percent. Declining payrolls had a significant impact on all areas of economic activity in Alabama, from retail spending to housing demand to state government revenues. A revival in demand for manufactured products will be key to Alabama’s witnessing more prosperity in 2002 though many industries are likely to remain under pressure for some time.

Services face mixed prospects

Employment in Alabama’s miscellaneous service sector, which encompasses jobs such as business services, health care and entertainment, grew at less than 0.5 percent from the third quarter of 2000 to the third quarter of 2001; this rate compares to almost 3 percent growth for the same period a year earlier. Accounting for about 24 percent of the state’s nonfarm payrolls, compared to 32 percent for the entire region, Alabama’s service sector was adversely affected by slower economic activity.

Employment at hotel and lodging places was especially weak, falling by more than 1 percent over the 12-month period; it likely also fell in the fourth quarter of 2001 as a direct consequence of the Sept. 11 attacks. However, the share of Alabama’s total employment concentrated in hotels is around half the national average, so job losses in the hotel sector have less of an impact on total state payrolls than they would otherwise.

Data for the Birmingham metropolitan area show that employment levels in the state’s large hospital services sector displayed solid growth of about 1.5 percent between the third quarters of 2000 and 2001. This increase follows almost no growth in the previous year and represents a significant improvement over the decline in jobs in the industry in the late 1990s as industry consolidation took hold.

The service industry will likely remain under pressure in 2002. Services linked to the manufacturing sector, such as worker supply firms and transportation companies, will not recover until demand for manufactured goods picks up. Health services will be a primary stabilizing influence in the state as demand from aging baby boomers remains strong.

Manufacturing woes cloud state outlook

Factory employment growth in Alabama declined substantially in 2001 following a moderate fall in activity last year. Manufacturing jobs fell by almost 5 percent from the third quarter of 2000 through the third quarter of 2001 compared with a nearly 1.5 percent decline a year earlier.

Most of the weakness was concentrated in nondurable goods manufacturing, with employment falling by over 4 percent in 2001. The state’s textile and apparel firms posted job losses of 8 and 9 percent, respectively, as they either went out of business or moved facilities offshore to take advantage of cheaper labor.

Because of lagging computer sales, an electronics manufacturer shuttered one of its largest plants, eliminating over 300 jobs.

Strong foreign competition and weakening domestic markets also adversely affected durable goods producers in the state. Primary metals employment fell by nearly 10 percent over the year. Birmingham’s Trico Steel recently shut down, idling over 300 workers at the plant and as many as 1,000 workers in satellite industries. Excess capacity and slack demand also led to declining job rolls in the state’s important lumber and wood products industry. As part of a restructuring process, International Paper Corp. closed its mill in Mobile, eliminating 800 jobs, and a plant in Courtland cut another 400 jobs. Lumber companies, including Boise Cascade, also cut back operations because of poor market conditions.

With nearly $9 billion in capital investment statewide, Alabama is now home to over 130 automotive suppliers and three major manufacturing plants. The transportation equipment sector should remain a bright spot for the state’s economy in coming years. Toyota Motor Co.’s new $220 million V-8 engine plant under construction in Huntsville will employ about 350 workers and could generate about 1,000 jobs for surrounding industries. The plant is scheduled to open in the summer of 2003. The expansion of the Mercedes-Benz plant near Tuscaloosa will create up to 2,000 new jobs by mid-2003, when it is scheduled for completion. However, Goodyear Tire and Rubber recently eliminated 475 jobs at two Alabama plants.

The state’s shipbuilding sector should also get a boost from a number of large projects under way. For example, Austal U.S.A., Mobile’s newest shipbuilder, was awarded a contract to build two high-speed aluminum vessels that will deliver crews and supplies to oil and gas rigs in the Gulf of Mexico.

Manufacturing prospects for 2002 will depend on the pace of recovery in consumer and business spending. If residential construction remains robust, the lumber and wood industry should experience some stability. But continuing weakness in the textile, apparel and metal industries is likely to put a damper on the prospects for factory employment growth as these industries will likely continue to be adversely affected by low prices and foreign competition. The prospects for job growth in hightech firms is uncertain because consumer and business demand for new electronic equipment is low and may pick up rather slowly.

Construction expects little buildup

Single-family housing has shown considerable resilience during 2001. The first three quarters of 2001 saw permit issuance in the state grow, buoyed primarily by strong gains in the Birmingham area. Permits grew during the third quarter at an annual rate of 21 percent in Birmingham compared to a 7 percent pace for the Southeast as a whole. In Huntsville and Mobile construction was near year-ago levels while activity in Montgomery was slightly higher than in 2000. Despite strong construction activity, existing home sales in the state were generally flat during 2001. In 2002, construction and home sales will likely moderate from the pace of 2001, reflecting the mild recovery in employment conditions in the state.

In 2001, office and industrial construction activity declined below year-earlier levels as demand for space diminished. The Birmingham office market has accumulated considerable empty space, and some construction projects have been cancelled or postponed until there is a turnaround in demand. Public works and utilities projects experienced strong growth during 2001, but this trend is unlikely to continue in 2002 as the state government looks at trimming its budget. Overall, nonresidential construction will probably remain subdued at least in the first half of 2002.




Florida’s economy continued to expand strongly through the first half of 2001. This growth was fueled by immigration from Latin America and a robust tourism and hospitality sector. For 2002 a recovery from the direct effects of Sept. 11, together with continued robust housing markets in south Florida, should set the stage for moderate growth.

Service industry remains key to Florida’s economy

Job growth in Florida’s large service sector slowed over the first part of 2001. Accounting for about 38 percent of the state’s employment, the service sector grew by approximately 5.5 percent between the third quarters of 2000 and 2001 compared to 6 percent growth over the same period the previous year. The majority of the 142,000 new jobs in this sector were in business services such as call centers and data processing centers. Employment growth in Florida’s large health services sector accelerated over the year after having displayed little growth in 2000. Health care services accounted for over 7 percent of Florida’s total employment base.

Even before the Sept. 11 terrorist attacks, Florida’s tourism and hospitality sector was slowing in parts of the state, reflecting both a reduction in business travel and some softness in leisure travel. Attendance at central Florida theme parks was down from the previous year’s recordbreaking levels as some consumers postponed vacation trips in the face of a slowing economy. Expectations were high, however, that south Florida would post another solid tourist season as new hotels came on line and the area continued to be popular with domestic and foreign travelers.

But the terrorist attacks and the resulting cutback in air travel have led to a significant revision of the state’s short-term tourism outlook. Every segment of the state’s travel industry was adversely affected, including car rentals, cruise ships, hotels and travel agencies. Car rental companies rapidly took action to reduce their fleet sizes and cancelled new car orders. ANC Corp., a large car rental chain based in Fort Lauderdale, filed for Chapter 11 bankruptcy protection because of the drop in rental car demand at airports. South Florida’s cruise industry was dramatically affected by cancellations; Renaissance Cruises, based in Fort Lauderdale, filed for Chapter 11 and ceased operations. Hotels, motels and food service businesses laid off workers in response to low occupancies. The state government had to completely re-evaluate its budget projections in light of significantly lower sales tax revenues.

The outlook for 2002 is for a reasonably quick improvement in Florida’s service industry. The key will be the speed with which leisure travelers regain confidence in the safety of air travel. This recovery will be especially important for south Florida, where over 90 percent of visitors arrive by air. During 2001 the state’s Department of Travel and Tourism launched a new advertising campaign designed to play up driving to Florida destinations. The car rental and cruise industries may experience further consolidation as travel companies search for greater efficiency and profitability. In the short term, cruise lines, resorts, hotel/motels and theme parks are likely to continue to offer special prices and package deals to attract business, at least until bookings return to more normal levels.

Manufacturing will gradually recover

For the preceding 12 months through the third quarter of 2001, factory employment in Florida declined approximately 1.3 percent, the smallest percentage decline of any Southeastern state, following a small gain in 2000. This relatively good performance is mainly the result of the diversity of Florida’s factory sector, with its relatively low concentration in apparel and textile manufacturing. But Florida’s manufacturers were not immune to a generally slower economy in 2001.

In the last quarter of 2001, producers of security equipment saw a strong increase in demand as businesses and government agencies took steps to improve security infrastructure. But signs of overall weakness appeared in the electronic equipment and industrial machinery sectors as consumer spending waned and companies cut back on capital equipment purchases. Industrial machinery employment fell by 1.5 percent over the year. The high-tech and aerospace sectors were especially hard-hit as companies laid off employees. For example, some of Palm Beach’s largest employers — Motorola, Pratt & Whitney, and Daleen Technologies — reported large layoffs. In Tampa, SBC Telecommunications shut down operations and eliminated 400 jobs.

The lumber and wood and paper industries also trimmed employment rolls. The state’s very large printing and publishing component posted job losses in 2001 as advertising revenues declined and competition from nonprint media sources increased.

Activity in Florida’s factory sector is likely to remain slow in 2002, but its diversity will help minimize any further retrenchment. A turnaround for the state’s high-tech and capital equipment producers will depend on a pickup in business investment, which is not likely to occur until businesses’ balance sheets improve.

Residential markets solid, but commercial construction will slow

The Florida housing market experienced another strong year in 2001. When comparing the third quarter of 2000 to the third quarter of 2001, permit issuance increased by over 11 percent compared with a 7 percent pace for the Southeast. Existing home sales were flat for the state as a whole, but inventories in south Florida were particularly low in the face of very strong demand. In some cases, low inventories there were restraining sales growth. During the coming year, Florida’s housing market is set to experience continued growth because the state remains a desirable destination for individuals from Northern states and Latin American countries.

From the high levels observed in 1998, nonresidential construction in Florida slowly declined over the last three years. Office and industrial vacancy rates rose in the first three quarters of 2001 in key markets such as Jacksonville, Miami, Orlando and Tampa. Sublease space is prevalent in most markets, and absorption has been weak. With considerable construction already under way, new construction activity has slowed considerably and will continue to be moderate in the coming year.




Georgia’s economy broadly resembles the nation’s, so the developments in Georgia in 2001 and the outlook for 2002 are similar to the nation’s. During 2002, the fundamental strengths of Georgia’s economy should help return the state to a respectable rate of growth, but that process will likely be gradual, and growth will be more subdued than in the late 1990s.

Services and tourism feel the squeeze

Georgia’s usually robust miscellaneous services sector weakened during 2001 mainly because of a shrinking business services component. Employment in services grew by only 0.5 percent from the third quarter of 2000 to the third quarter of 2001 as opposed to over 6 percent in each of the previous two years.

Employment levels in business service firms, which make up nearly 30 percent of total services employment, declined by almost 9 percent during the year as high-tech service providers trimmed payrolls or closed facilities in response to declining demand or increased competition. For example, Cypress Communications, an Atlanta-based telecommunications company, cut 200 workers, AT&T Broadband laid off more than 300 Atlanta workers and Atlanta-based CNN laid off 400 employees. closed its distribution center in McDonough, eliminating almost 450 jobs. Temporary staffing firms that provide personnel to high-tech employers also cut staffing levels.

Georgia’s tourism and hospitality industry slumped following the Sept. 11 attacks. Hotel occupancies in Atlanta dropped, and job losses in the industry mounted. Although there were no cancellations of major conventions in 2001, attendance was down appreciably. Some larger conventions that had been held in Atlanta in the past had already been lost to other cities, such as Las Vegas, because of existing space constraints. The continuing expansion of the World Congress Center will help lure more large-scale conventions to Atlanta in 2002, and occupancies for the city’s almost 90,000 hotel rooms should rebound. A recovery in leisure travel will be led by a recovery in confidence, whereas an increase in business-related travel will follow improved economic conditions.

The performance of other service providers was more encouraging during 2001. Despite two large food retailers shuttering stores in Atlanta in 2001 because of stiff competition, retail employment in Georgia grew by about 10,000 people through the third quarter of the year. In addition, the large health services and educational services industries added jobs over the year, with employment up almost 4 and 9 percent, respectively; the strong demand for workers in these areas will likely persist into 2002.

Manufacturing recovery depends on increased orders

Factory activity in Georgia continued to contract in 2001. Following little growth in 1999 and an almost 2 percent decline in 2000, manufacturing employment fell by almost 4 percent from the third quarter of 2000 through the third quarter of 2001. Georgia, with over 550,000 manufacturing jobs, employs more factory workers than any other Southeastern state.

Nondurable manufacturing, including industries such as textiles, apparel and paper, makes up nearly 60 percent of Georgia’s factory workforce. This share has decreased over time, primarily as the size of the apparel industry has declined, but is still much higher than the 40 percent share for the nation as a whole. Textiles alone account for around 17 percent of manufacturing jobs in Georgia compared with less than 5 percent nationally. Apparel firms, which accounted for almost 9 percent of Georgia’s factory jobs in 1996, have eliminated some 18,000 jobs in Georgia since that time and accounted for less than 5 percent of the state’s manufacturing jobs in 2001.

Weakness was especially pronounced in the state’s apparel and textile industries in 2001 because of foreign competition and weakened domestic markets. Apparel employment contracted around 8 percent, and textile employment fell by almost 6 percent. Even the usually strong carpet industry posted job losses as demand for carpet used in commercial buildings slumped. As a result, some consolidation occurred within the floor coverings industry.

Weakening was also evident in major durable good industries. For example, industrial machinery and electronic equipment employment declined as companies curtailed capital spending. High-tech employers such as Lucent Technologies cut hundreds from their payrolls. Also, the transportation equipment industry posted declining employment rolls because of cutbacks at aerospace companies and because of idle plant capacity to adjust inventory levels at General Motors and Ford Motor Co. facilities. But, in an encouraging development, an auto parts supplier for Honda plans to add over 250 jobs and invest some $30 million in its Bremen plant to supply parts to the new Honda plant in Lincoln, Ala.

Factory activity in 2002 will be mixed. The apparel industry will continue to face pressure either to lower costs by moving operations offshore or to shut down. The performance of the lumber and wood and the carpet industries will depend on the pace of residential and commercial building.

The outlook is more promising for businesses involved in the provision of military equipment. For instance, the Department of Defense contract awarded to Lockheed Martin for the Joint Strike Fighter plane will help secure jobs at the company’s plant in Marietta. Although the plane will be produced in Texas, parts are likely to be produced in Marietta. In addition, F-22 production will continue at the Marietta facility, ensuring employment for the 7,000 workers there. Georgia-based Firearms Training Systems received a contract from the U.S. Air Force to supply simulation systems and weapons. In addition, local firms that produce military gear, such as boots and tents, have seen a surge in orders.

Construction is slower but still healthy

The housing market in Georgia continued to slow during 2001 but remained at historically high levels. The pullback was attributable to less migration into Atlanta during the year as the pace of new business formation declined. Low interest rates and strong overall income growth continued to support demand, however. Builders of high-end homes experienced the most significant decline in demand. The hectic pace of single-family construction has eased somewhat in response to the weaker conditions. During the third quarter of 2001, permit issuance was at year-earlier levels compared with an almost 7 percent increase for the Southeast as a whole. Rising inventory levels will most likely translate into lower levels of new home construction in 2002.

Nonresidential construction in the state during 2001 was below year-earlier levels by a larger margin than in most other parts of the Southeast. As more space has become available in the market through completions and the release of substantial amounts of sublease space, vacancy rates have risen and absorption levels have declined. This trend is particularly evident in the Atlanta market. In 2002, office and industrial construction activity is likely to remain subdued until more of the existing vacant space has been absorbed.




High energy prices in 2000 led to a resurgence of extraction activity in Louisiana’s predominantly offshore oil and gas industries. Although the extraction activity continued to gradually increase in the first part of 2001, the rest of the state was negatively affected by the high oil prices and the slowing U.S. economy. For 2002, the outlook for Louisiana’s economy will depend on the pace of recovery nationally and the direction of oil prices. Energy prices fell considerably during the second half of 2001, and a continuation of low energy prices in 2002 could cause the extraction sector to contract but would be a boon to the state’s beleaguered chemical sector.

Services and tourism expect to moderate

From the third quarter of 2000 through the third quarter of 2001, service sector employment grew by slightly less than 1 percent, down from the over 2 percent growth during the preceding 12 months. The demand for temporary workers declined as manufacturing output sank, leading to slower growth in the business services component. On the positive side, several telecommunications firms opened customer service centers in the state in 2001.

The opening of the state’s 14th riverboat casino in Shreveport added over 2,000 jobs, and the viability of Harrah’s land-based casino in New Orleans improved after the state legislature approved a tax cut for the casino in exchange for a guaranteed floor on staffing levels.

Over the year employment in recreational and amusement services grew by over 5 percent, down from the 11 percent growth from 1999 to 2000. The ongoing rapid expansion in the number of hotel/motel rooms resulted in a 5 percent increase in the number of lodging workers during 2001, tripling the rate of growth in 2000.

The short-term outlook for the state’s service sector is downbeat, however. Hotels and casinos reported weak occupancy and attendance numbers toward the end of 2001, and employment growth in these industries will be slow in 2002. Because New Orleans relies far more on drive-in visitors than many other tourist destinations, however, the drop in tourism there may not be as significant. In business services, the rollout of call centers in the state may also slow in 2002 as telecommunications companies continue to struggle.

Mining faces uncertainty if energy prices fail

Almost 50,000 people are currently employed in Louisiana’s oil and gas extraction industry. This employment level is around half the level of the early 1980s and only about one-quarter the size of the state’s manufacturing sector employment. Nonetheless, this industry is of great importance to Louisiana’s economy since many of the manufacturing jobs in the state are tied to the extraction industry.

Exploration and extraction in Louisiana gradually increased to the highest levels in a decade during 2000 in response to sharply higher oil and gas prices. Although still at relatively high levels, activity pulled back during 2001 as energy prices declined. The increased use of cost-reducing extraction technologies has mitigated some of the negative effects of energy price volatility, but continued low oil prices in 2002 would be a setback for the state’s oil and gas industry as well as all the fabrication, machinery and shipbuilding firms that support it.

Manufacturing has strong links to energy sector

Louisiana employs fewer factory workers than any other state in the Southeast, and factory workers make up only 9 percent of the state’s workforce. Louisiana’s manufacturing employment fell by almost 3 percent between the third quarter of 2000 and the third quarter of 2001 following a 2 percent decline the year earlier.

Louisiana is home not only to many firms that directly support the state’s oil and gas extraction industry but also to some of the country’s largest chemical producers. High oil and gas prices are good for extraction and related industries but can be devastating for the state’s chemical industry. Employment in the state’s important chemical industry fell by over 2 percent during 2001 primarily because of increased competition from China, Australia and India. Several fertilizer plants shut down or trimmed production because they were unable to compete against foreign producers that enjoy much lower costs for natural gas.

Layoffs continued in the apparel industry, and the lumber and wood and paper industries trimmed employment rolls because of slack domestic demand. Lumber prices are low, and older plywood plants have struggled to compete with newer, more efficient technologies. The industrial machinery sector added jobs because of the relative strength of the oil and gas extraction industry and the high demand for machinery needed to bring refineries up to regulatory standards. Employment in the fabrication and shipbuilding industries was also boosted, by the high level of activity in the extraction industry.

The outlook for the state’s factory sector is mixed. Job losses are likely to continue in some industries, such as apparel, but the fortunes of many others will be determined by the direction of the oil and gas extraction industry. Stronger energy prices would put further downward pressure on the state’s large chemical industry but would boost demand for fabricated metal producers, machinists and shipbuilders. An increase in military shipbuilding contracts would also help Louisiana’s shipyards. For example, a recent defense bill has a $10 million provision to expand the Maritime Technology Center built by the state of Louisiana at the Avondale Shipyard, Louisiana’s largest manufacturing employer. The expansion of the General Motors Shreveport plant should attract a number of parts suppliers into that area.

Construction outlook is mixed

The housing market in Louisiana improved during the early part of 2001. Single-family construction permit issuance grew by almost 5 percent when comparing the third quarter of 2000 to the third quarter of 2001. Existing home sales also grew at a rate greater than in the previous year. If the decline of the extraction industry continues into 2002, however, new home construction and sales may weaken, at least until the effects of a general recovery in the economy lead to greater housing demand.

Office and industrial construction levels remained fairly low in 2001. In New Orleans, the office market experienced rising vacancy rates as sublease space re-entered the market. In Baton Rouge, in contrast, most segments of the commercial real estate market boasted high occupancy rates. The hotel sector, which has been booming for the past five years, is facing the risk of being overbuilt unless occupancies rebound. Nonetheless, several major industrial construction projects, including refinery upgrades and power plant construction, will boost commercial construction activity in 2002.




Mississippi has been at the leading edge of the national economic slowdown. By the middle of 2001, the state was posting one of the largest rates of employment decline in the nation, but what has been taking place in Mississippi is part of a larger trend. The state’s manufacturing jobs declined through much of 2000 largely because of the shrinking of the state’s beleaguered apparel industry. In 2002, even after the temporary cyclical factors subside, the trend away from certain types of manufacturing in the state is likely to continue. As a result, the service sector will become increasingly important.

Services and tourism stabilize the economy

About one-fourth of Mississippi’s workers are employed in service jobs outside the retail, government and financial sectors. Between the third quarter of 2000 and the third quarter of 2001, service payrolls declined by about 0.6 percent in the state following little gain over the preceding 12 months and a 3 percent increase in 1999. The significant falloff in employment in the sector can be attributed largely to the end of the expansion of Mississippi’s gaming sector. In particular, employment in the state’s hotels and motels grew by 28 percent in 1999 as new casinos opened their doors whereas it rose by only 0.5 percent in 2000 and fell by about 2 percent in 2001.

The previously strong growth in business services also took a hit as the demand for temporary help declined and the establishment of call centers in the state slowed. After having boosted service employment rolls considerably in 1999 and 2000, health services employment grew moderately in 2001.

Though the casinos and hotels along the Mississippi Gulf Coast were not growing, they reportedly continued to operate at high levels in late 2001 largely because these destinations rely much less on air travel for customers than on personal vehicles and chartered buses. The gaming industry will continue to be a major source of stability for Mississippi’s economy, but it is now a maturing industry that is unlikely to display the phenomenal rates of growth observed during the latter part of the 1990s. For 2002, the outlook for the state’s tourism industry and the businesses that support it is somewhat better than in many parts of the nation.

Manufacturing is a mixed bag

Mississippi’s factory sector weakened significantly in 2001. Manufacturing employment fell by 7 percent from third quarter 2000 through third quarter 2001, the largest rate of decline in that sector in any Southeastern state. Nearly 20 percent of the state’s payroll employees work in manufacturing, so this decline had a devastating impact on the state’s economy.

Over 60 percent of Mississippi’s factory workers are involved in durable goods production, and durable manufacturing employment fell by nearly 9 percent during the year. Both lumber mills and furniture producers reduced payrolls sharply in the face of the national slowdown in residental construction. Lumber and wood employment fell by 9 percent in 2001, and furniture sector employment fell by 12 percent after little change in 2000. As business investment pulled back nationwide, producers of industrial machinery and electronic equipment trimmed payrolls significantly in response to declining capital spending by businesses. Employment at electronic equipment plants fell by more than 12 percent in 2001 after having increased the year before.

In the nondurable goods sector weakness was concentrated in the apparel industry. Apparel employment fell by around 17 percent in 2001 following a 13 percent falloff in 2000. Apparel manufacturing is labor-intensive, and employment in that industry has fallen by one-half in Mississippi since 1996. Companies have relocated operations offshore to lower their wage costs or have succumbed to strong foreign competition and closed down completely.

The outlook for the state’s manufacturing sector in 2002 is mixed. Apparel producers and suppliers will continue to scale down or close operations in the face of rising labor costs and foreign competition. On the other hand, producers of capital equipment will see renewed demand for their goods as the economy improves and business demand picks up.

The state’s shipbuilding industry will continue to expand. Halter Marine won a contract worth $400 million to build four patrol ships for the Egyptian navy, a project that will create 200 jobs at its Mississippi shipyards. Halter employs about 2,500 people in Pascagoula and Moss Point. Ingall’s Shipyard, Mississippi’s largest private employer, has signed a $3.2 billion contract for three destroyers to be built in Pascagoula.

Nissan Motor Co. is proceeding with its new plant near Canton that will produce 250,000 sport utility vehicles, trucks and minivans a year, with the first vehicles rolling off the assembly lines in 2003. Nissan is spending $900 million on the plant, and Mississippi is investing $295 million on roads and job training. The company expects the plant to eventually employ 4,000 workers, and the pay for production line workers is likely to average well over $20 per hour.

Construction has subdued prospects

The issuance of building permits for new residential construction in Mississippi declined during 2001. Construction activity was weakest along the Gulf Coast whereas activity around Jackson was strong. The sales of existing homes improved during 2001 across the state. During the third quarter of 2001, permit issuance was almost 3 percent below year-earlier levels compared with an almost 7 percent increase in the Southeast as a whole. Given the extent of the weakness in Mississippi’s labor markets during 2001, single-family construction activity will likely remain subdued during much of 2002.

Economic weakness has also had a significant impact on nonresidential construction activity. In the third quarter of 2001 the overall pace of construction slowed considerably. In 2002 the slowdown in casino-related projects may be offset somewhat by the increased construction activity associated with the new Nissan plant in Canton.




The economic downturn in Tennessee has largely mirrored the slowdown in the nation as a whole. Service employment has slowed considerably, and the manufacturing sector has contracted, particularly in industries producing capital equipment and in those facing strong foreign competition. The state’s important tourism sector remains well grounded, but commercial real estate markets are weak, and less construction activity is anticipated next year.

Services and tourism are slower but steady

Growth in service employment in Tennessee slowed to around 2 percent between the third quarter of 2000 and the third quarter of 2001 from a 3 percent pace in 2000 and 1999. This rate reflects the general slackening in demand for business services. Business services employment grew at a modest rate around 2 percent compared with more than 5 percent growth in 2000 and an 8 percent increase in 1999. Health service payrolls remained relatively stable, fluctuating around the levels prevailing over much of the previous four years.

During 2001 employment in amusement and recreation services and staffing levels at hotels increased, thanks in part to the opening of the massive Opryland Hotel and Convention Center and the continuing popularity of country music-based theme parks such as Dollywood. Hotel employment in Tennessee reached its highest level since 1996. Although the slowing economy has led to the cancellation of plans to build a new luxury hotel along Nashville’s music row, several hotels have recently opened or will open in early 2002.

The first part of 2002 may see some weakness in the amusement and hotel sector because of the expected slow pace of tourist activity, but Tennessee may fare better than some states because many of its largest tourist attractions rely primarily on ground rather than air transportation. A pickup in demand for business services will depend on the pace of turnaround in industrial and corporate business activity in 2002.

Manufacturing scales back

Although it is well diversified, Tennessee’s manufacturing sector weakened in 2001. Indeed, the pace and timing of the downturn in the state’s manufacturing sector largely matched that of the nation as a whole. Factory employment fell by approximately 4.5 percent in Tennessee between the third quarter of 2000 and the third quarter of 2001 after changing little over the preceding 12 months. Most of the job losses were posted in the durable goods sector, reflecting the sharp decline in purchases of transportation equipment and major household appliances.

Among producers of durable goods, employment in transportation equipment fell by 3 percent as vehicle producers cut jobs because of sluggish sales over much of 2001. Industrial machinery employment fell by nearly 7 percent as companies cut back or delayed spending for capital equipment. Employment in the electrical equipment component also slumped. Tennessee’s furniture makers, like Mississippi’s, posted double digit declines in payroll over the year.

Producers of nondurable goods also registered large employment declines. Tennessee’s apparel sector was especially hard hit in 2001 with employment falling by over 11 percent. The state’s apparel industry has lost more than 20,000 workers since 1996, when apparel accounted for around 8 percent of manufacturing jobs in the state. Sluggish markets for textiles had a negative effect on the state’s textile producers. For example, DuPont Co. scaled back production and laid off over 200 workers at its Chattanooga facility, which produces polyester and nylon. The state’s chemical producers trimmed employment rolls. These declines were partly a continuation of the downward trend of the last few years although the dropoff in 2001 was less than in the previous two years.

The outlook for the state’s factory sector is mixed. On the positive side, Nissan Motor Co. is moving production of its Maxima sedan to Smyrna in 2003. The expansion of the Smyrna facility should create approximately 2,000 new jobs. The Smyrna plant currently produces the Altima, the Frontier pickup and the Xterra sport utility vehicle. In Spring Hill, production of Saturn’s new SUV is ramping up. Auto suppliers are continuing to locate in the state as the region’s automobile production industry expands. For instance, Toyo Seat U.S.A. has recently broken ground for a new plant in Pelham, located close to both the Saturn and Nissan plants. Machinery suppliers will also reap the benefits from expansions in Tennessee’s auto industry in the new year.

The state’s printing and publishing sector will likely recover in line with the general economy, but the state’s apparel sector will remain under intense pressure from foreign producers.

Construction should slow in coming year

Single-family construction permit growth in Tennessee increased during 2001 after declining in the previous year. Existing home sales were also modestly positive over the year. Construction was particularly robust in Nashville and Knoxville. High-end builders, however, have experienced a significant slowdown in markets such as Nashville, where the inventory of higher-priced homes increased as the year unfolded. Tennessee’s homebuilders are proceeding cautiously, and this caution will likely translate into lower levels of construction in 2002.

Nonresidential construction weakened during 2001 as building activity remained slightly below year-ago levels, but some pickup in activity occurred during the third quarter. Nashville markets, in particular, experienced much higher vacancies and softer absorption than the year before. Despite the gap between current demand and supply, construction in the state’s industrial market remained robust. Rents were weaker across all sectors. In 2002, construction levels will probably decline as the vacant space currently available is absorbed.


RELATED ARTICLE: Governments balance lower revenues with increased demands.

The health of the economy has direct and immediate implications for a state government’s fiscal condition. Just as the economic downturn has hit budgets of firms and individuals, revenue shortfalls have become a major problem for state governments around the country. The problem is exacerbated by the fact that when the economy enters a downturn, demand for state-funded social welfare programs tends to increase.

In states heavily dependent on manufacturing, such as Alabama, Mississippi and Tennessee, state tax revenue growth during 2000 was on a slowing trend as factory payrolls slumped. Not only did income tax collections slow in Alabama and Mississippi, but retail spending also slipped and with it sales tax revenues in all three states. It became clear quite early that collections in these states were falling below even the most modest projections built into state budgets, and state governments were forced to cut spending and find new revenue sources.

As economic conditions continued to deteriorate during 2001, other state governments also had to re-examine the balance between revenue and expenditure. The events of Sept. 11 were a particularly severe blow to Florida’s budget since the state has no income tax and relies heavily on out-of-state travelers for sales tax revenue. For the first three months of the 2002 fiscal year that began in July 2001, Georgia’s tax revenue was approximately 7 percent below the previous year’s, reflecting broad declines in individual, corporate and sales tax collections.

Lawmakers in the Southeast had generally built their fiscal year 2002 budgets based on modest revenue growth forecasts. But enacting balanced budgets for the coming year has been a challenge in some states as legislators have struggled to keep proposed spending in line with sluggish revenue growth estimates. Now that actual revenue growth has tapered off even more than the forecasts, and because states are required to set balanced budgets, state governments across the Southeast are looking at a range of measures to accommodate the ongoing budget pressures anticipated for 2002. These measures include tightening tax laws, broadening the tax base and cutting or limiting government expenditure.

RELATED ARTICLE: The Southeast’s banking sector likely to mirror national trends.

The overall performance of the banking industry in the Southeast in 2001 remained solid. Declining commercial loan activity was matched by robust consumer loan demand. In 2002, regional financial trends will be determined mostly by developments in the national economy.

On the consumer side, mortgage-related consumer spending and automobile loan demand has been brisk. Lower mortgage rates have encouraged refinancing of both conventional and adjustable-rate mortgages, motivated partly by consumers’ desire to reduce their monthly mortgage payments. Many of these refinancings have also involved a cash-out provision. This cash infusion has supported consumer spending in 2001 and allowed consumers to pay down some other forms of debt, such as credit cards. With used car prices very low, the demand for automobile loans remained brisk during the second half of 2001.

Of course, low interest rates have negatively affected many retirees and other consumers who rely on interest income to support their current spending. Also, as labor markets have weakened significantly in parts of the Southeast, delinquency rates on certain types of consumer loans have risen.

Unlike consumer loan demand, commercial loan demand softened considerably in the Southeast and in the nation as a whole over the course of 2001. As office and industrial vacancy rates have increased, the demand for loans for new commercial construction has declined. Many planned building projects have been postponed until economic conditions improve.

There is also little sign of a significant pickup in local venture capital markets. While venture activity is still high on a historical basis, it is much lower than in recent years, and most new funds have been used to support existing ventures rather than new projects.

Financial deregulation and strong competition have been the norm for the banking industry over the 1990s. As a result, banks in the Southeast entered the current recession in better financial shape than in most previous downturns, and this trend bodes well for the sector’s performance in 2002.

RELATED ARTICLE: Agricultural producers eye international market conditions.

Agricultural output in the Southeastern states is very sensitive to global market conditions because one-fifth of total production in the region is exported. While close monitoring of crop production has been the key to remaining competitive in 2001, growth prospects for 2002 will depend largely on international market conditions.

Poultry producers expect exports to continue boom

Currently, poultry production accounts for about one-half of farm income in Alabama, Georgia and Mississippi. In fact, Georgia is the largest poultry exporter in the country. Poultry exports in the United States grew an impressive 22 percent in 2001. While the aftermath of the Sept. 11 attacks blurs the forecast for 2002, rapid growth in white-meat consumption in developing countries supports a favorable long-term outlook.

Cotton outlook is uncertain

The Southeast accounts for nearly 40 percent of national cotton production. In 2001, reduced demand for textiles and high levels of domestic production adversely affected the price of cotton, bringing it to the lowest levels in 25 years. The outlook for 2002 is not very encouraging unless demand increases and production levels stabilize. Any further deterioration in international economic conditions could dampen demand for U.S. cotton exports.

Citrus faces fuzzy future

The citrus industry accounts for about one-fourth of state farm income in Florida. Because of increased production in Brazil, the global market for orange juice experienced a glut in 2001. The outlook for 2002 is uncertain. With the citrus crop in Brazil afflicted by disease and bad weather and lower U.S. Department of Agriculture estimates for production in Florida, the market should support higher prices in 2002. However, the demand for citrus products is likely to be affected especially in Mexico and Asia, where it is sensitive to changes in disposable income.

Peanut farmers await change in government program

The peanut industry is on the brink of change as a 63-year-old subsidy program faces downsizing. New farm legislation proposes a departure from the quota system that resulted in surplus production at substantial cost. The long-debated peanut subsidy program replaces quotas with minimum price supports.

Alabama, Florida and Georgia account for nearly 60 percent of the country’s peanut production. In 2001, production in these three states was up about 30 percent because of increased yields. In 2002, lower NAFTA tariffs coming into effect for Mexico and Canada will further increase supplies and make the peanut market even more competitive.

This article was written by John Robertson, David Avery, Whitney Mancuso, Navnita Sarma and Gustavo Uceda of the Atlanta Fed research department’s regional research group.


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