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cber.cba.ua.edu
alabama.business
Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama
Volume 76, Number 1
Economic Outlook:
1st Quarter 2007
United States
Review. The U.S. economy grew 3.5 percent
in the fourth quarter of 2006, a significant
improvement over the third quarter. The higher
than expected growth was due to increases in
consumer expenditures, exports, state and local
government spending, and federal government
spending. Overall, the U.S. economy grew 3.4
percent in 2006, slightly above the 3.2 percent
increase in 2005. It ended the year with much
stronger than anticipated activity, thus easing
some of the concerns about a recession.
Not all news was good news. Both high
energy prices and slowing residential fixed
investment, which includes home construction
and sales, affected the 2006 economy in the
middle of the year. During the last three
quarters of 2006, residential fixed investment
declined 11.1 percent, 18.6 percent, and 19.2
percent, respectively. Overall business spending, including expenditures on equipment and
software, also declined in the fourth quarter.
Spending on industrial equipment was down
by 0.5 percent. Industrial production also
dropped by 0.5 percent in the final quarter
of 2006, the first decrease since the fourth
quarter of 2001.
Consumer Spending. Consumer spending
helped offset the declines mentioned above.
With energy prices down and low unemployment rates in the final quarter of 2006,
consumer spending increased 4.4 percent,
a significant improvement over the 2.8 percent
rate of increase seen in the third quarter.
Consumer spending accounts for almost twothirds of the economy. Because of the U.S.
economy’s heavy reliance on consumers,
observers were glad to see that expenditures
for durable and nondurable goods increased
5.1 percent and 3.8 percent, respectively.
Within durable goods, not all products saw
increased sales. There was a 7.7 percent drop
in new light truck sales and sales of new
automobiles declined 0.1 percent. However,
Americans were making some major purchases
for their homes, despite a drop in home sales.
Spending on furniture and other household
First Quarter 2007
equipment increased more than 12
percent. Consumer spending on
services, which includes household
operations, transportation, medical
care, and recreation, increased
modestly. In 2006 Americans held on
to their usual interest in electronics.
Expenditures increased over 28 percent
for computers and 15 percent for
software.
Gross Domestic Product
Annual Percent Change
Over Same Quarter Previous Year
6
5
4
3
2
Business Spending. Family
shopping at the mall isn’t the whole
spending story in today’s economy.
Nonresidential fixed business spending
accounted for 11.5 percent of the
overall economy and that spending
increased 7.4 percent in 2006.
Business spending on equipment and
software increased 6.7 percent in
2006; below the 8.9 percent increase
in 2005. Businesses may have spent a
little less overall in 2006 than in 2005
on most kinds of equipment, but
expenditures for computers and
communications equipment remained
strong, and spending on industrial
equipment also rose.
1
0
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2000 2001 2002 2003 2004 2005 2006 2007
Source: U.S. Department of Commerce, Global Insight, and Center for
Business and Economic Research, The University of Alabama.
Consumer Expenditures
Annual Percent Change
Over Same Quarter Previous Year
6
5
4
3
The Housing Market. Residential
fixed investment is another indicator
2
that was closely followed and fre1
quently reported in 2006. Anyone
who watches television news knows
0
the housing market suffered last year.
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
After increasing at an average annual
2000 2001 2002 2003 2004 2005 2006 2007
rate of almost 9 percent from 2003
Source: U.S. Department of Commerce, Global Insight, and Center for
to 2005, the national average for
Business and Economic Research, The University of Alabama.
residential fixed investment declined
by 4.2 percent in 2006. According
to the Commerce Department, the
average number of new homes sold in 2006
showed the largest drop in 17 years, since the
recession of 1990. Sales of existing homes,
Economic Outlook:
including both single-family and multifamily,
1st Quarter 2007
1
totaled approximately 6.5 million, down 8.4
percent, for the largest annual decline since
Business Leaders
1989. Most of that decline is attributable to
the reluctance of people buying single-family
Confidence Index:
homes, particularly newly-built ones. Accord1st Quarter 2007
5
ing to the Commerce Department, sales of new
single-family homes totaled 1.06 million units
Economic Indicators
9
for all of 2006, down 17.3 percent from the alltime high of 1.28 million units set in 2005.
There are some signs that housing markets may
Alabama Metro Areas
10
have bottomed out, but it is really too early to
In this issue:
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tell. Because the country has significant
inventories of both new and existing homes,
it might be a few more months before we see
the bottom in home sales.
Employment Growth and Losses. Despite
a slowdown in the middle of the year, employment grew on average for 2006, albeit both
manufacturers and retailers shed jobs. While
manufacturing lost almost 72,000 jobs,
retailing lost close to 80,000. Construction
also continues to lose workers. Most of the
job gains in 2006 were in education, healthcare
services, eating and drinking places, hotels,
engineering services, other business services,
and state and local governments.
Outlook. Except for housing and autos, the
economy will continue to grow in 2007, but
at a slightly slower pace. Slowdowns in
employment growth and housing markets
will definitely impact consumer purchasing
behavior. The recent easing of oil prices has
offset some of the impact from these shocks.
Although housing markets are expected to
remain in a slump in the near future, business
spending on equipment and software will
increase at a healthy pace. The U.S. economy
is forecasted to grow in the 2.5 to 3.0 percent
range in the first quarter of 2007. For the year
as a whole, economic growth is forecasted to
be around 2.5 percent.
Overall consumer spending will continue to
grow; however, consumer spending on durable
goods is forecasted to decline 3.0 percent in
the first quarter and approximately 1 percent
in the second quarter. Business spending on
equipment and software will increase in the
first and second quarters. Computer sales will
be very strong. After a decline in the fourth
quarter of 2006, business spending on
industrial equipment is expected to turn
2
Alabama Business
around, rising by approximately 6 percent in
the first quarter and 2.5 percent in the second.
Housing will remain a drag on the economy
and will also hurt the manufacturing industries
that are tied to housing. As long as there is a
high inventory of unsold homes, residential
investment will continue to decline throughout
2007. Forecasts call for an almost 20 percent
drop in the first quarter and another 14 percent
decline in the second quarter. The average
price of both new and existing homes is
forecasted to fall further in 2007.
Most employment gains will be in service
providing businesses, particularly healthcare
services, professional and business services,
and food services. The unemployment rate is
expected to increase from its current level. On
the bright side, inflation will remain tame in
the next two quarters, even though prices will
increase more than the Fed’s target of 1 or 2
percent. The Fed will probably start lowering
the funds rate by the second quarter.
Alabama
Employment. During calendar year 2006,
the state added 16,600 new jobs. While the
state’s 11 metropolitan areas, comprising 28
counties, gained 17,300 jobs, the remaining 39
counties lost 700 workers. The BirminghamHoover metropolitan area led the state by
adding 6,400 jobs, followed by Huntsville
(4,900) and Mobile (3,000). The Montgomery
and Tuscaloosa metro areas each added 1,600
jobs. Most job gains in the Birmingham metro
area were in food services and drinking places
(2,000), professional and business services
(1,700), and education and health services
(1,600). Surprisingly, retail trade in the
Birmingham area netted only 100 new workers
to its payrolls. In the Huntsville metro area the
industries that added the most jobs were
professional, scientific, and technical services
(1,300), and retail trade (1,000).
Durable goods manufacturing industries in
Alabama continued to add jobs. From
December 2005 to December 2006, these
industries added 2,900 new workers, primarily
in transportation equipment manufacturing
(2,200). Transportation equipment
manufacturing includes motor vehicle
production, aerospace products, and parts
manufacturing. Computer and electronics
producers added 500 jobs; wood products
manufacturing also gained 500 jobs. Industries
producing nondurable goods, on the other
hand, lost 6,700 jobs. Except for the 200 jobs
added by food manufacturing, every other
nondurable industry lost jobs during calendar
year 2006. The majority of these job losses
were in textiles and apparel; firms in these
industries lost 4,600 workers from their
payrolls. Despite job gains in durable goods,
as a whole, manufacturing firms in Alabama
experienced a net loss of 3,800 jobs.
Service providing firms in the state added
19,100 jobs to their payrolls last year, primarily
in leisure and hospitality services (3,500),
education and health services (5,200), and
professional and business services (5,800).
Most of the new professional and business
services jobs were in administrative and
support occupations (4,200). Healthcare jobs
were largely in ambulatory healthcare services
(2,700) and social assistance (2,000). Just as
at the national level, most of the new jobs
within Alabama’s leisure and hospitality
industry were at eating and drinking places
(3,000). Payrolls in retailing were up only 800,
while both financial activities and informationrelated firms experienced losses.
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Most (1,300) of the new 1,900 government
jobs were in state government, rather than
local or federal government.
Tax Receipts. Alabama’s tax revenues will
continue growing in the current fiscal year.
During the first quarter, total tax revenues
increased 5.9 percent, or $114 million, over the
first quarter of the previous fiscal year, reaching
over $2 billion. Sales taxes, corporate income
taxes, and individual income taxes were all up
compared to a year ago. Sales tax revenues
rose 1.7 percent to about $503 million, almost
$9 million higher than the first quarter of fiscal
year 2006. Corporate income tax receipts
totaled over $143 million, an increase of 30.3
percent, or $34 million above the revenues of
last year’s first quarter. Individual income tax
collections grew 12.6 percent to approximately
$737 million, about $83 million above last
year’s comparable time period.
Appropriations made to the Alabama
Education Trust Fund rose about $160 million
to approximately $1.2 billion, an increase of
13.2 percent. Alabama’s other large fund did
not do as well. Appropriations made to the
state’s General Fund declined by slightly over
$16 million, a drop of 3.9 percent compared to
the first quarter of the previous fiscal year.
construction, educational and health services,
and food services and drinking places.
Outlook. Alabama’s economy is forecasted to
slow from its 2006 growth rate of 3.1 percent.
Different scenarios point to growth in the
range between 2.5 and 2.9 percent. Rising
interest rates, slowing home sales, and
relatively high energy prices will drive this
forecasted slowdown in the economy.
Tax revenues for FY2007 will increase by
slightly over 7 percent to more than $8.9
billion, barring unexpected shocks such as
sharp energy price increases, a much deeper
housing recession, or mass layoffs by
manufacturing firms. Sales tax receipts could
increase 6.0 percent, or $118 million, to $2.1
billion. However, sales tax revenue gains will
not come in at that 6.0 percent rate if
Alabamians drastically cut their spending
levels. Individual income tax revenues will
increase about 8 percent, or $257 million,
totaling $3.5 billion.
Alabama’s manufacturing sector will grow 4.3
percent in 2007, mainly due to an expected
increase in motor vehicle manufacturing.
Other positive economic forces in 2007 will be
professional and business services, industrial
There will be 15,000 Alabama jobs added in
nonagricultural fields. Job growth rates have
been slowing in recent months and will
continue to do so for the remainder of the
year. However, the state’s motor vehicle
Alabama Business
3
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Alabama Nonagricultural Employment
Change in Number of Jobs
December 2005 to
December 2006
Total Nonagricultural
Natural Resources and Mining
Construction
Manufacturing
Durable Goods Manufacturing
Wood Products
Primary and Fabricated Metals
Machinery
Computers and Electronic Products
Electrical Equipment, Appliance, and Component
Transportation Equipment
Motor Vehicle
Furniture and Related Products
Nondurable Goods Manufacturing
Food
Textile Mills
Textile Product Mills
Apparel
Paper
Plastics and Rubber Products
Trade, Transportation, and Utilities
Wholesale Trade
Retail Trade
Transportation, Warehousing, and Utilities
Information
Telecommunications
Financial Activity
Professional and Business Services
Educational and Health Services
Leisure and Hospitality
Other Services
Government
Federal Government
State Government
State Education
Local Government
16,600
-300
1,600
-3,800
2,900
500
-600
-500
500
-200
2,200
600
500
-6,700
100
-900
-1,700
-200
0
-1,600
2,800
1,100
800
900
-200
-200
-500
5,800
5,200
3,500
600
1,900
-100
1,300
700
700
NOW AVAILABLE!
Alabama Economic
Outlook 2007
The Alabama Economic Outlook 2007 examines current
economic conditions and trends and their likely effects
on the national and Alabama economies in the coming
year.
The Alabama forecast focuses on the short-term outlook
for output and employment in the state by sector and
presents a look at revenues. Trends in the state’s
metropolitan areas are also discussed.
The Alabama Economic Outlook 2007 is produced by the
Center for Business and Economic Research. Copies are
$30 each.
TO ORDER:
Please make checks payable to The University of Alabama
and send to:
Center for Business and Economic Research
Box 870221
Tuscaloosa, Alabama 35487-0221.
Name
Address
City
State
Zip
Source: Alabama Department of Industrial Relations.
Phone
manufacturing industries, aerospace companies, and parts manufacturers will
continue to add to their payrolls. With the new Kia automotive plant slated
to open in 2009 just across the state line in Georgia, most of Hyundai’s tier
one and tier two suppliers in Alabama probably will expand, adding workers
to supply parts for both plants. However, payrolls in Alabama’s retailing
sector will decline slightly or remain flat. Corporate profits will continue to
be healthy, providing a boon for business investments in equipment,
software, and other capital investments.
Ahmad Ijaz
[email protected]
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Alabama Business