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2010 Alabama Economic Outlook

2010 Alabama Economic Outlook. Federal Reserve Bank of Atlanta 2 nd Annual LEARN Conference Atlanta, Georgia March 29, 2010 Samuel Addy, Ph.D. Center for Business and Economic Research Culverhouse College of Commerce. ABCI: Business confidence continues to improve in Q2 2010.

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2010 Alabama Economic Outlook

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  1. 2010 Alabama Economic Outlook Federal Reserve Bank of Atlanta 2nd Annual LEARN Conference Atlanta, Georgia March 29, 2010 Samuel Addy, Ph.D. Center for Business and Economic Research Culverhouse College of Commerce

  2. ABCI: Business confidence continues to improve in Q2 2010 • The Alabama Business Confidence Index™ (ABCI) is a forward-looking quarterly measure of business sentiment across the state. The online survey is in its 9th year (34 consecutive quarters). • The second quarter 2010 ABCI is up 0.7 points; a jump of 14 points in third quarter 2009 indicated a clear turnaround in confidence. • With an index of 49.5, panelists feel economic conditions will be better in the second quarter. However, they do not think the state will yet see a broad-based recovery encompassing output, sales, profits, employment, and capital spending. • Two of the six components, sales and profits, are above the expansion threshold of 50 this quarter. • Hiring and capital spending are the weakest links in the recovery. CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 2

  3. Q2 2010 OUTLOOK National Economy 47.0 Alabama Economy 49.8 Industry Sales 56.4 Industry Profits 50.5 Industry Hiring 47.3 Capital Expenditures 46.1 ABCI 49.5 Index above 50 indicates expansion. Index below 50 indicates contraction. increase from previous quarter decrease from previous quarter CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 3

  4. Confidence for both U.S. and Alabama economies slipped in Q2 2010 CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 4

  5. Sales growth expected to pick up, boosting profits CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 5

  6. Hiring and capital spending contracting at a slower rate CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 6

  7. Modest expansion seen for Huntsville; panelists in other major metros less optimistic CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 7

  8. Alabama business confidence moved below 50 in Q1 2008; now recovering from Q1 2009 low CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 8

  9. Despite two recessions 2000-2010 is shaping up to be one of Alabama’s best decades • Many economic and workforce development successes with accolades for state agencies. • A number of cities listed as best places to live and do business. • Continued and faster than expected population growth; moving companies report sharp reductions nationwide but net gain for Alabama in 2009. • Per capita income reached highest levels relative to the nation’s. • Fast-growing tourism and exports industries. • Continuing diversification of the state economy into biotechnology, healthcare, aerospace, automotive, national defense, education, steel, shipbuilding, and other high-paying manufacturing and white-collar jobs. CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 9

  10. Population growth continued in the recession 2008 to 2009 Number Percent Net 7/1/2009 Change Change Migration Alabama 4,708,708 31,244 0.7 16,363 Anniston-Oxford 114,081 659 0.6 497 Auburn-Opelika 135,883 2,778 2.1 1,993 Birmingham-Hoover 1,131,070 7,924 0.7 3,975 Decatur 151,399 1,055 0.7 571 Dothan 142,693 1,247 0.9 822 Florence-Muscle Shoals 144,238 412 0.3 435 Gadsden 103,645 210 0.2 254 Huntsville 406,316 9,088 2.3 7,077 Mobile 411,721 2,589 0.6 691 Montgomery 366,401 805 0.2 -1,130 Tuscaloosa 210,839 1,937 0.9 1,063 Non-metro (29.5%) 1,390,422 2,540 0.2 -19 Source: U.S. Census Bureau, Population Estimates Division. CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 10

  11. State per capita income on upward trend Alabama Per Capita Income as Percent of U.S. Source: U.S. Department of Commerce, Bureau of Economic Analysis. CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 11

  12. Median Family Income, FY2009 CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 12

  13. Challenges facing the Alabama economy in 2010 and on Continuing, but slowing, job losses Declines in consumer spending and income Declining revenue to fund public education Long-term workforce development Cutbacks in federal government spending for some programs Continuing problems in commercial and residential real estate CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 13

  14. Great recession effects on Alabama The number of employed residents declined at a slower rate from the start of the recession until mid-2008, but has fallen sharply since; 288,441 have lost their jobs and many have become discouraged. After being below the national rate from 2002 through 2008, the state’s unemployment rate has been above the nation’s since February 2009. Most job losses were in manufacturing, construction, retail trade, and professional and business services; except for retail, these sectors pay high salaries and wages. Tax revenues have declined sharply. CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 14

  15. Basic Structure of Alabama Econometric Model • Four main components • Output State Real Output in Sector i = F(The Corresponding U.S. Sector Output or Industrial Production, The Relative Sector Wage Rate, The Relative Tax Burden,…) • Employment State Wage and Salary Employment in Sector i = F(The Corresponding State Industrial Real Output, The Real Industry Wage Rate,…) • Wage rates State Wage Rate in Sector i = F(The Corresponding U.S. Sector Wage Rate, The State Unemployment Rate,…) • Income, includes personal income and its components and detailed wages and salaries by industry State Income category = F(The Corresponding U.S. Income Category,…)

  16. U.S. Economic Outlook Source: IHS Global Insight. CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 16

  17. Alabama Gross Domestic Product andTotal Nonagricultural Employment Annual Percent Change (2000 Chained Dollars) CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 17

  18. The state’s economy will be recovering in 2010: Forecast Range Alabama GDP 1.9 percent 1.0 to 2.5 percent Alabama employment -0.1 percent -1.0 to 1.0 percent Total tax collections 0.1 percent -1.5 to 1.5 percent Education and diversification must be priorities Workforce and economic development funding challenges remain Focus on optimality, sustainability, equity, and flexibility Public policy (education, infrastructure, health & safety, taxes, …) Business and consumer behavior In conclusion • Thank you CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 18

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