Fourth Quarter 2007 • Volume 6, Number 4
Alabama
BLCI
THE OUTLOOK
100
National Economy
42.9
80
Alabama Economy
55.8
70
Industry Sales
52.8
60 54.2 53.6 56.0 56.8
50.7
50
Industry Profits
50.6
Industry Hiring
50.4
90
Index
Alabama’s BLCI Stays in Positive Territory Strong
fundamentals in the state’s economy helped keep the
fourth quarter 2007 Alabama Business Leaders Confidence
Index® (BLCI) on the expansionary side of the neutral point
of 50. At 50.7, the index is down 6.1 points from its third
quarter reading and is 3.5 points below the fourth quarter
of 2006. The outlook for the national economy dropped
below the neutral point, declining 8.8 points, and is the
weakest of the six index components. While the outlook for
the state economy declined by almost as much, it remained
the strongest of the six component indexes. The gap
between the U.S. and Alabama outlooks widened to 12.9
points this quarter.
40
Capital Expenditures 51.5
30
The four industry components of the index also fell in the
20
fourth quarter, reflecting the broad impacts that problems
BLCI
50.7
in the housing and financial markets are having on busi10
Index above 50 indicates expansion.
nesses. Sales remains the strongest industry indicator,
0
although its 6.8 point decline was the largest among these
increase from previous quarter
Q4
Q1 Q2 Q3 Q4
four components. The downside risk has increased, with
decrease from previous quarter
2006
2007
the share of firms expecting to report lower profits this
quarter 10.0 percentage points higher than last quarter,
and the percent of businesses planning to reduce capital
but the share anticipating a reduction is up 7.4 percentage points.
expenditures more than double. The majority of comAn analysis by industry highlights the stress that the construction and
panies still expect to maintain the status quo on hiring,
finance, insurance, and real estate (FIRE) sectors are under in the state.
Q4 2007 compared to Q3 2007
Percent
50
41.1
40
36.7
30
17.9
20
10
0
3.5
0.9
Much Somewhat Remain Somewhat Much
Worse
Worse the Same Better
Better
U.S. Economic Concerns Depress Index The national economy
component index fell 8.8 points on the fourth quarter 2007 survey, ending
below the neutral point at 42.9. Alabama panelists seem to be of the
same mind as forecasting group Global Insight and others that there is
growing concern of a possible recession. The housing market, which has
been deteriorating for almost two years, has been further depressed in
the short-term by tighter lending standards imposed in response to the
crisis in subprime mortgage markets and is not expected to turn the
corner until the second half of 2008. Although wage gains and lower gas
prices have helped consumers, a slowing job market and the negative
impact of housing are reflected in a drop in the Conference Board’s
Consumer Confidence Index to a 22-month low in August. The U.S.
economy seems to be losing momentum entering the fourth quarter, with
the Institute for Supply Management’s manufacturing and nonmanufacturing indexes both down in September. GDP growth is projected to
slip from about 2.7 percent in the third quarter of 2007 to around 1.5
percent in the fourth.
Alabama’s Economy Slowing, but Still on Solid Ground BLCI
panelists remain confident that the state’s economy will continue to expand
in the fourth quarter of 2007, as evidenced by a state component index of
55.8. The pace of growth is expected to slow, however; the component
index is down 8.2 points from the third quarter and is slightly below its 56.2
reading in the first quarter of this year. While the slumping housing market
has adversely impacted Alabama, the effect has not been as severe as at
the national level—existing home sales in the state through August 2007
were 2.4 percent below the same period a year ago, while existing home
sales nationally were down 9.0 percent through July. At the current rate
of sales, the 8.6 month supply of Alabama homes for sale in August was
below the national average 10.0 month supply. The state’s unemployment
rate of 3.8 percent in August compared favorably to the nation’s 4.6
percent, with job growth of 27,700 since August 2006 representing a
1.4 percent gain.
60
Alabama Economic Outlook
Q4 2007 compared to Q3 2007
50
41.4
Percent
National Economic Outlook
60
37.2
40
30
18.2
20
10
0
0.6
2.6
Much Somewhat Remain Somewhat Much
Worse
Worse the Same Better
Better
THE UNIVERSITY OF ALABAMA
Q4 2007 compared to Q3 2007
Percent
50
40
32.9
33.8
28.0
30
20
10
3.5
0
1.8
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
60
Q4 2007 compared to Q3 2007
Percent
50
45.5
40
30
26.8
19.2
20
10
0
2
4.7
3.8
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
38.2
40
30.0
30
26.2
20
10
2.9
0
2.6
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Profit Expectations Continue to Slide Alabama companies as a
whole anticipate weak profit growth in the fourth quarter of 2007; the
profits component index of 50.6 indicates slight gains and is down
3.8 points from its third quarter 2007 reading. While 35.6 percent
of panelists forecast higher profits in their industry during the fourth
quarter, 31.5 percent expect profits to trend lower. The weak dollar
is cutting into the bottom line for many companies, with indications
that firms are absorbing much of the higher costs for imported raw
materials and goods, rather than pass them along to the consumer.
Forecasting group Global Insight expects after-tax profits to rise just
0.7 percent on an annual basis in 2007. Panelists in FIRE, construction, retail trade, and healthcare forecast declining profits in their
industries in the fourth quarter of 2007. Only service businesses,
particularly the professional, scientific, and technical component,
foresee moderate profit gains this quarter.
Businesses More Cautious about Hiring The state's hiring plans
component index fell to 50.4 for the fourth quarter of 2007, reversing
three straight quarters of improvement. Faced with rising wages and
an uncertain economy, business leaders may be more cautious about
adding jobs, with 22.2 percent of panelists expecting to reduce hiring,
25.0 percent planning an increase, and most maintaining the status
quo. In Alabama this slowdown could also represent a lull while new
industries, including ThyssenKrupp and Georgia’s Kia, construct their
plants and BRAC-related jobs relocate. Manufacturers are least
optimistic about hiring this quarter with an industry hiring index of
44.4; firms in the FIRE sector are close behind at 44.7. Most new jobs
created during the fourth quarter will be in service-related businesses,
especially in professional, scientific, and technical firms, many of which
are benefiting from national defense-related work.
Industry Capital Expenditures
Q4 2007 compared to Q3 2007
50
Industry Hiring Plans
Q4 2007 compared to Q3 2007
52.8
60
50
Percent
Industry Profits
60
Industry Sales
60
Percent
Weakness in Financial and Real Estate Sectors Hurting Sales On
average, Alabama BLCI panelists expect sales in their industry to rise
modestly in the fourth quarter of 2007, although the sales component
index of 52.8 is 6.8 points below its third quarter value. Sales declines
are forecasted in finance, insurance, and real estate and in manufacturing this quarter. Expectations are most robust in services, particularly
in professional, scientific, and technical services where the sales index is
62.2. At 29.1 percent, the share of respondents anticipating a decrease
in industry sales during the fourth quarter is the highest in survey history,
while the 40.8 percent expecting sales to increase is the lowest. Alabama sales tax receipts grew just 2.49 percent in FY2007, which ended
September 30, compared to a gain of 8.96 percent in FY2006. Still, the
quarterly sales component index of 55.6 among retail trade panelists
suggests a moderate uptick in retail sales for the holiday season.
40
30
22.4
18.1
20
10
0
4.1
2.6
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Firms Cut Back on Capital Investment While nonresidential
investment has experienced strong gains in 2007, it is beginning to
show the impact of the current economy on business optimism—
Alabama’s capital expenditures component index fell 5.2 points to 51.5
this quarter, indicating very modest increases in investment during the
last three months of 2007. Most significantly, the share of businesses
planning to trim expenditures more than doubled from 11.0 percent in
the third quarter to 23.9 percent in the fourth. The impact of the
depressed housing market on consumer spending is having a ripple
effect on business equipment spending as well, with firms hesitant to
invest if final demand may be weak. Alabama companies in the
wholesale trade, construction, and manufacturing sectors are most
likely to cut back on capital spending, while firms in services and
transportation, communications, and public utilities are most likely to
increase investment in the fourth quarter.
Center for Business and Economic Research, The University of Alabama
This quarter’s topical question series addresses how business
owners and operators feel about the help they get at the state
and municipal levels. Opinions are measured both in terms of a
general feel for the business environment and of the availability
and effectiveness of government in specific areas. Our business
leaders then were asked to specify one key issue they would like
to see government improve.
and has used incentives to recruit many other businesses as well.
Workforce training, which in Alabama is coordinated at the state
level, ranked second. The state’s award-winning programs have
been instrumental in attracting and growing industry and in
furnishing a workforce with the skills needed by a variety of
companies. Close behind in the weighted average rankings are
supportive tax laws and assistance with financing. State
government was considered least useful to business in helping
stimulate consumer spending and in streamlining government
processes.
State Business Environment Receives Positive Review
Alabama’s success in recruiting and growing businesses is
reflected in the positive evaluation BLCI panelists gave the state’s
business environment—71.3 percent of respondents categorized
the climate as very supportive or supportive, while just 6.7 percent
found it unsupportive or very unsupportive. Asked to rank six
areas of state legislation or regulation in terms of the positive effect
of each on their
business, panelists
Ranking of Positive Effects of
viewed incentives as by State Government
far the most important
1. Utilizes incentives
aspect of state
2. Provides workforce training
government support.
3. Writes tax laws for industry needs
Alabama has had very
4. Enables financing
visible success with
5. Stimulates consumer spending
some of its biggest
6. Streamlines government
incentive packages,
Local Governments Have More Room for Improvement
Not quite half of the BLCI panelists rated their city’s business
environment as very supportive or supportive, while 23.5 percent
felt their local government was unsupportive or very unsupportive.
Local incentives, such as tax abatements, are their most effective
tools for supporting business development, while work on zoning
issues, which are handled at the local level, is ranked a close
second in its positive
effect on business. Local
Ranking of Positive Effects of
financing, tax laws geared
City/Municipal Government
to business, and workforce training are closely
1. Provides local incentives
ranked in terms of their
2. Assists with zoning issues
helpfulness to area busi3. Enables financing
nesses, while streamlining
4. Gears tax laws to company types
government is least impor5. Provides workforce training
tant or effective.
6. Streamlines government
Topical Question Series: Are You Supported
by Your State and City?
Do you consider your state’s business environment to be:
Do you consider your city’s business environment to be:
Very supportive 11.0%
Very supportive 16.2%
Very unsupportive 6.4%
Very unsupportive 0.9%
Unsupportive 5.8%
Supportive 36.3%
Supportive 55.1%
Unsupportive 17.1%
Neutral 22.0%
Neutral 29.3%
Business Leaders See Education, Workforce Training,
Infrastructure, and Taxes as Key Areas for Improvement
Panelists were asked to identify one key issue that they would
like to get state and city legislators and officials to focus on and
improve. The 225 panelists who responded to this challenge
provide a significant window on what can best enhance the
environment for businesses across Alabama. Education at all
levels is of primary importance, it is our “key to the future” and
essential to attracting businesses to the state. Survey participants are concerned about recent administrative issues in the
junior college system. They would like to see more high school
programs to steer non-college-bound students into career tracks
including manufacturing, with training to improve workforce
readiness by instilling basic skills, ethics, and a positive attitude
toward work. Workforce training is intertwined with education
beginning, as one respondent notes, with pre-kindergarten.
Issues mentioned include providing training for individuals in
hands-off industries, and funding to upgrade the manufacturing
technology available at existing workforce training facilities.
Maintenance and upgrading of the state’s transportation
infrastructure is also high on the wish list, with concerns about
traffic flow and long-term planning, as well as improved public
transportation. One panelist suggested that Alabama needs to
build its workforce and infrastructure before increasing new
business development.
Since the question asked what government can improve upon,
taxation naturally came to the forefront. Lowering the consumer
sales tax was mentioned most often, in particular removing the
tax on food and medicine. Suggestions for property tax reform
focused on dropping annual appraisals, perhaps going to every
four years with increases capped. Birmingham’s occupational
tax is seen by one panelist as “the biggest disincentive to
business we have.” Also noted is the issue of fixing tax
loopholes that allow an out-of-state business to avoid taxes.
Statewide tax incentives or credits and low interest bonds for
alternative energy production or use are proposed.
Regarding government at the state level, Alabama business
leaders would like to see less waste, less graft, more effectiveness, and continued recruitment of industry; specific issues include reducing state budget earmarking as well as the regulatory
burden placed on companies. A new state constitution with
home rule for cities and counties is a priority. At the local level,
panelists hope for qualified elected officials working together for
Center for Business and Economic Research, The University of Alabama
3
the good of the community, better and more expeditious handling
of zoning issues and approvals, and establishment of priorities
and funding standards for cultural development. Cooperation
among adjoining cities and counties to attract business and
promote an area can work for the greater good. Public meetings
on key issues and attention to the needs of all stakeholders could
help improve the quality of life in our communities. A number of
comments directly addressed governance in the city of Birmingham, the lack of uniform zoning regulation across the greater
Birmingham area, and the importance of cooperation among all
local governments in the area in working toward common goals.
At every level of government, businesses would benefit from
streamlined approvals and other processes and simplified
paperwork with more information and reports online.
Looking at issues specifically related to business, concerns arose
about providing better assistance to existing businesses, help to
grow existing businesses, and more communication with general
industry. New business start-up efforts could be facilitated by
simplified regulations and permitting processes, as well as available financing. Tort reform remains an issue. And business
owners wish that governments would look at local suppliers
before buying elsewhere. Healthcare is a concern—business
leaders would like to see healthcare options for the uninsured,
affordable pooled health insurance, and specific healthcare
options for small firms. With many incentives pointed at larger
firms, small businesses hope to work in a local environment that
is friendly to all sizes of businesses, with government officials
who understand their needs. They would be helped by tax
incentives and research and development funding targeted at
small business, and wish the door would open for more small
and moderate-sized firms to compete for government contracts.
Other issues that concern Alabama business leaders include
crime, landscapes cluttered with signs, immigration, and drug
abuse by younger workers. They would like to see the demise
of problems resulting from Hurricane Katrina and incentives for
oil drilling in the Gulf, as well as state tax credits to assist with
affordable housing that could be funded from real estate
recording fees. And they hope that governments will provide a
better response to consumer needs and a program to promote
personal financial literacy and life skills in both the student and
adult population.
Component Index by Area, Q4 2007
Q4 2007
Alabama
Change from Q3 2007
Birmingham
MSA
Huntsville
Mobile
Montgomery
National Economy
42.9
-8.8
42.2
45.0
45.4
41.4
Alabama Economy
55.8
-8.2
52.0
57.5
63.8
54.6
Industry Sales
52.8
-6.8
51.3
62.5
56.2
50.0
Industry Profits
50.6
-3.8
51.1
55.0
53.3
44.7
Industry Hiring
50.4
-4.2
50.6
59.2
53.3
46.0
Capital Expenditures
51.5
-5.2
51.5
52.5
52.1
49.3
BLCI
50.7
-6.1
49.8
55.3
54.0
47.7
Alabama BLCI by Component and Area Expectations for the
national and Alabama economies both dropped on the fourth
quarter 2007 survey, with the national index dropping into
negative territory. Business leaders’ confidence in the Alabama
economy held up better—the state’s economic outlook remains
positive and the gap between the two component indexes
widened to 12.9 points. All four industry indicators managed to
stay above the neutral point of 50, but fell significantly from their
third quarter values and portend weak gains. The overall
negative impact that the housing crisis has had on business and
the economy is reflected in considerably lower BLCI readings for
each quarter of 2007 compared to the same quarter of 2006.
Panelists in the Huntsville metro area remain the most upbeat,
with business sentiment helped by the heavy concentration of
professional, scientific, and technical service firms, many of
which have government contracts. Mobile’s economy is also
expected to see moderate growth during the fourth quarter of
2007, although the forecast is dampened by a negative outlook
among respondents in the beleaguered FIRE sector. Birmingham’s metro area BLCI slipped just under 50, indicating a relatively flat performance during the quarter, as area businesses
in construction and FIRE are feeling the negative effects of the
housing slowdown. The outlook for the Montgomery metro area
is the least optimistic, with firms particularly concerned about the
national economy, prospects for profits, and the housing market.
Thanks to the 350 Alabama business leaders who completed
the fourth quarter 2007 BLCI survey during the first three
weeks of September. And a special thank you to the 225
panelists who took the time to identify a key issue for state
and/or local governments to improve. Please join us during
the first two weeks of December for the first quarter 2008
survey at www.blci.com/alabama.
Analysis provided by Carolyn Trent, Socioeconomic Analyst,
Center for Business and Economic Research, The University of Alabama.
The BLCI is a
Compass on Business
initiative created in
collaboration with:
For more details on the Alabama Business Leaders Confidence Index®, visit www.blci.com/alabama.
For more details on the Center for Business and Economic Research, visit cber.cba.ua.edu.