CENTER FOR BUSINESS AND ECONOMIC RESEARCH / THE UNIVERSITY OF ALABAMA
& ECONOMIC INDICATORS
Volume 67, Number 9
What Does the
I
n 1999 Alabama businesses
with a global reach will be faced
with two unusual problems:
year 2000 computer compliance
issues, and the “euro,” the new European currency. Although businesses
have more than a year to get their computers ready for 2000, the euro will
become a fact of life in a few months.
Starting January 1, 1999, the euro will
be a fully effective currency among the
11 “in” countries of the European Union
(EU).
The first 11 countries admitted to the
European Monetary Union (EMU) with
the euro as their common currency are
Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg,
Netherlands, Portugal, and Spain. The
United Kingdom, Sweden, and
Denmark are also qualified to join the
Union, but due to domestic political
pressures they opted not to join in the
first phase. Greece did not qualify
under the Maastricht Treaty criteria.
These four “out” EU countries will
probably join by the year 2001. Euro
coins and notes start circulating in
2002. As more countries, particularly in
Eastern Europe, join the EU, the euro
will become more and more important.
Even before the coins and notes begin
circulating among residents and
tourists, the euro will be a real
currency. The currencies of all the “in”
countries will be fully convertible to
euro and with each other at a fixed
exchange rate. Starting in January
September 1998
uro Mean for Alabama Business?
1999, all firms
conducting business in
EMU countries will have
to have a system in
place capable of pricing,
invoicing, and accepting
payments in euros. The
exchange value of the
euro is expected to be
approximately 1.10
against the U.S. dollar.
However, the true value
will not be known until
the euro is actively used
and traded.
The first 11 “in”
countries constitute an
economic area with a gross domestic
product (GDP) close to that of the
United States. Euroland, as EMU
countries are generally referred to, will
have a combined GDP of $6.3 trillion
versus $8.1 trillion for the United
States. Euroland’s population will be
larger than that of the United States—
290.8 million versus 268.2 million for
the United States. The economic clout
of this Union is going to have a
significant impact on global
businesses.
In 1997 Alabama’s exports to EMU
countries totaled $964 million, or a little
over 14 percent of total state exports.
When the remaining four EU countries
are included, total exports increase to
$1.4 billion, or about 21 percent of the
total exports from Alabama.
Euroland’s share of world exports will
be much larger than the United States’
share. This new factor, plus the strong
initial demand for the euro, could keep
its exchange rate value strong against
the U.S. dollar. Having a strong euro
could provide opportunities for
Alabama-based companies to increase
their market share by being more price
competitive. A common European
market with a single currency presents
chances for Alabama businesses to
increase their exports without the
foreign exchange risks of trading with
each individual country.
Although exchange rate risk will be
eliminated against each individual
country, it will continue to exist against
the euro itself, however, the exchange
rate volatility is expected to dampen.
Exporting firms can concentrate more
Alabama Taxable Retail Sales
Alabama retail sales totaled $3.14 billion in April 1998, a strong 5.2 percent above April 1997 sales. Apparel sales
were 19.0 percent higher than sales a year ago, while general merchandise sales climbed 15.8 percent. April 1998
automotive sales were up 4.9 percent from April 1997, while sales at eating places increased 4.6 percent.
Anniston, where sales were up 7.6 percent, was the only metropolitan area posting a gain above the state average.
Strongest sales gains were found in the state’s nonmetropolitan areas where eight counties posted gains above ten
percent for April 1998 compared to April 1997.
1997
May
June
July
August
September
October
November
December
1998
January
February
March
April
May
$ Thousands
3,069,779
2,958,620
3,011,110
3,057,655
2,930,222
2,979,411
2,868,971
3,560,757
2,650,297
2,777,928
3,148,354
3,138,699
3,172,778
Employment Trends
Total nonagricultural wage and salary employment in Alabama grew 1.9 percent between 1996 and 1997, averaging
1,863,158 for the year. While above the previous year’s 1.4 percent gain, this increase was well below the 2.7
percent gain seen nationwide. Employment growth in the state has been dampened by job losses in nondurables
manufacturing, mining, and the federal government sector, while job growth has been strong in services, FIRE,
trade, and construction. Average nonagricultural wage and salary employment for the first five months of 1998 is
1.3 percent ahead of the same period a year ago.
1997
May
June
July
August
September
October
November
December
1,870,800
1,868,400
1,860,600
1,854,900
1,868,000
1,880,500
1,887,000
1,885,800
1998
January
February
March
April
May
2
1,861,000
1,866,900
1,877,700
1,882,000
1,885,800
Alabama Business and Economic Indicators
New Business Incorporations
Across Alabama 8,146 new businesses incorporated in 1997, 460 more than the 7,686 new businesses started in
1996. This 6.0 percent gain from 1996 to 1997 compares to no increase in the previous year and attests to the
state’s economic vitality. During the first six months of 1998 a total of 4,163 new business incorporations have
been recorded, an increase of 424, or 11.3 percent, over the same period in 1997.
1986
6,788
1987
6,690
1988
6,613
1989
6,659
1990
6,092
1991
6,116
1992
7,087
1993
7,179
1994
7,169
1995
7,686
1996
7,686
1997
8,146
Total Tax Collections
While total taxes collected by the state of Alabama rose between 1996 and 1997, the 2.3 percent growth was the
weakest of the last decade. However, tax revenues for the first six months of 1998 are showing strong gains over
the same period in 1997, with total tax collections up 6.2 percent. Corporate income tax collections jumped 10.4
percent for the period, while individual income taxes are 9.3 percent higher. Sales tax growth of 5.5 percent in the
first six months of 1998 compares to just 2.7 percent for 1997.
1997
$ Thousands
May
491,484
June
451,010
July
354,524
August
428,277
September
459,979
October
371,913
November
425,462
December
409,711
1998
January
436,305
February
436,889
March
518,136
April
506,527
May
523,599
June
490,114
For more information about these and other Alabama economic indicators, please visit the CBER Internet site at
http://www.cba.ua.edu/~cber
Center for Business and Economic Research
3
CENTER FOR BUSINESS AND ECONOMIC RESEARCH
Value of Alabama Exports 1997
on the overall Euroland economy and
less on the business and political
cycles of each individual country. A
single currency will offer Alabama
businesses greater investment and
borrowing opportunities due to
removal of currency restrictions and
more transparent financial markets.
However, new opportunities in
Euroland also present new
challenges. If the exchange value of
the euro compared to the U.S. dollar is
low (instead of high, as expected),
euro-based firms could then undersell
their U.S.-based competitors. During
the transition period, from 1999 to
2002, the euro will be in effect at the
wholesale level only. It will be
introduced at retail in 2002.
Businesses will have to determine
what share of their Euroland trade is
considered wholesale and what
portion is retail. Also, with this new
single currency, firms doing business in
more than one of these 11 countries
will have to keep their prices uniform.
Price differentials based on exchange
rates will not be possible within EMU
countries and could affect a
dollar-based firm’s profit margins.
To European Monetary Union Countries:
Austria
Belgium
Finland
France
Germany
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
$
3,793,844
117,282,913
6,741,333
163,335,284
183,242,877
23,785,588
98,453,312
6,171,623
275,943,043
3,383,907
81,127,486
Total to EMU Countries:
$
963,261,210
All Alabama Exports:
$ 6,702,438,547
Source: Massachusetts Institute for Social and Economic Research,
and Alabama Foreign Trade Relations Commission, 1998.
Despite these challenges, a single
market of this size will present
tremendous opportunities for Alabama
businesses involved in international
trade.
Ahmad Ijaz
Alabama Business is a monthly publication of the Center for Business and Economic Research, Culverhouse College of Commerce, The
University of Alabama. Articles reflect the opinions of the authors, but not necessarily those of the staff of the Center, the faculty of the
Culverhouse College of Commerce, or the administrative officials of The University of Alabama.
All correspondence should be addressed to: Editor, Alabama Business, Center for Business and Economic Research, The University of
Alabama, Box 870221, Tuscaloosa, Alabama 35487-0221.
The University of Alabama
Center for Business and Economic Research
Box 870221
Tuscaloosa, Alabama 35487-0221
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