Alabama
Business
CULVERHOUSE COLLEGE OF COMMERCE AND BUSINESS ADMINISTRATION
CENTER FOR BUSINESS AND ECONOMIC RESEARCH
Third Quarter 2003 / Volume 72, Number 3
In this issue:
Economic Outlook: 3rd Quarter 2003
3
Selected Economic Indicators
7
Moving into Alabama
8
Housing Market Slows Down,
Still on Track to Set Annual Record
10
Alabama Business Leaders
Confidence Index: 3rd Quarter 2003
12
THE UNIVERSITY OF
ALABAMA
B U S I N E S S
This report is also available in PDF format on the
Internet at
http://cber.cba.ua.edu
The Center for Business and Economic Research has
available at this site downloadable data on various
topics including population, income, and employment. Research briefs are also available.
CENTER FOR BUSINESS AND ECONOMIC RESEARCH
Alabama Business
Associate Dean for Research
and Technology
Carl Ferguson
Associate Director
Samuel Addy
Assistant Directors
Deborah Hamilton
Annette Jones Watters
Authors
Ahmad Ijaz
Carolyn Trent
Leonard Zumpano
Graphic Design
Sherry Lang
Mark Your Calendars!
January 2004
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The University of Alabama’s Center
for Business and Economic Research
will hold its 2004 Economic Outlook
Conference on January 15, 2004 in
Montgomery, Alabama.
For more information:
Phone: (205) 348-6191
Email: [email protected]
Addtional Contributors
Deborah Hamilton
Sunja Park
Alabama Business is a quarterly publication of the
Center for Business and Economic Research,
Culverhouse College of Commerce and Business
Administration, 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.
For information on the Center for Business and
Economic Research, the Culverhouse College of
Commerce and Business Administration or The
University of Alabama:
http://cber.cba.ua.edu
http://www.cba.ua.edu
http://www.ua.edu
CBER
Economic Outlook:
3rd Quarter 2003
United States
Overview. Officially, the most recent recession ended in
November 2001 and the U.S. economy is now actually in
its second year of expansion. However, this jobless economic recovery has completely eluded some sectors of the
economy, making the recovery seem very lackluster.
Current economic conditions are similar to the post-199091 recession recovery when payroll employment did not
begin to pick up for almost two years. Consumer spending and housing markets have remained strong throughout
the downturn, but business spending and the manufacturing sector in general are still in the doldrums. Since the
stock market started declining in early 2000, the U.S.
economy has experienced an average annual growth rate
of 1.7 to 1.8 percent, primarily due to low business confidence and declining payrolls.
In a typical recession, both housing markets and consumer
spending decline, creating a pent-up demand when the
recovery eventually arrives. However, in the latest downturn, both these sectors remained buoyant, reducing the
expected postrecession pent-up demand for consumer
goods and other manufactured products. This is one
reason why the recovery has eluded the manufacturing
sector. A second reason is that excess capacity brought
on line in the late 1990s still has a great deal of overhang.
Until this capacity is utilized, firms have little incentive
to increase business spending or hire new workers. The
Federal Reserve Bank has eased interest rates 13 times over
the past 30 months by a total of 5.5 percentage points to
the lowest level since 1958. The latest drop in June 2003
took the federal funds rate to 1.0 percent, and yet business
capital spending has not revived. Manufacturing jobs
have declined for 33 consecutive months. This sector
accounts for almost 90 percent of the approximately 2.6
million jobs lost in the last 28 months.
For the first three months of 2003, the U.S. economy
expanded at an annual rate of 1.4 percent. Consumer
spending increased by two percent, a little better than the
1.7 percent growth in the previous quarter. Spending on
nondurable goods grew 6.1 percent, following a 5.1 percent rise in the fourth quarter of 2002, while spending on
durable goods fell further by 2.1 percent after an 8.2 percent decline in the last quarter of 2002. Fueled by low
interest rates, sales of new homes increased by 12.5 percent to a record 1.2 million units in May. New housing
construction reached a five-month high in June. However,
spending on capital goods by businesses is still restrained.
Spending on software and equipment dropped 4.8 percent
in the first quarter, a reversal from the 6.2 percent increase
in fourth quarter 2002; overall spending on capital goods
declined by 5.3 percent. On a more positive note, corporate profits are showing signs of improvement after
months of cost cutting through payroll reductions. Corporate profits rose 2.5 percent in the first quarter of 2003,
following 4.1 percent growth in the previous quarter.
Although the economy continues to grow modestly, the
first half of 2003 saw a rapid increase in layoffs. With
uncertainty surrounding the war in Iraq lifted, it is more
likely that economic growth will accelerate somewhat in
the second half of the year. Evidence of this is showing in
retail sales and increasing consumer spending. Consumer
spending is expected to rise by 2.8 percent in second quarter 2003 and by about 3.6 percent in the second half of
the year. The economy is expected to grow by 2.0 to 2.5
percent this year. Productivity increases will drive this
growth, but will also constrain job gains. Payroll employ-
3
depend on capital and equipment investment, which in
turn depends on demand conditions and profits. Even
though the Conference Board’s index of leading indicators
has indicated improving conditions in recent months, the
lack of business confidence remains a concern. The gain
in the index has been mainly due to the rising stock market, declining jobless claims, and rising consumer confidence.
ment is expected to decline by 0.3 percent, a net loss of
approximately 400,000 jobs. Only once since World War
II has the economy lost jobs for three consecutive years
during a downturn. The last time was in 1952 due to a
steel industry strike. Government purchases grew by
almost 7.5 percent last year and are expected to rise again
this year. The federal government should remain one of
the strongest sectors; its expenditures are expected to grow
by almost seven percent in 2003. Severe budget shortfalls
will cause state and local government sector spending to
increase by just 0.1 percent.
Manufacturing. The Institute of Supply Management’s
(ISM) index rose slightly in June. Orders are showing
some postwar signs of improvement. Manufacturing has
been one of the hardest hit sectors in recent years.
Industrial machinery and electronics manufacturers and
communications equipment producers are among those
that have suffered the most. Productivity gains in recent
years have contributed to the dismal employment situation in manufacturing. While generally positive over the
long run because it leads to a higher standard of living,
productivity improvement can adversely affect payroll
employment in the short term. With productivity increasing faster than economic growth, firms are refraining from
adding workers. The economy grew at a faster pace than
productivity in previous economic recoveries. Globalization has also shipped some factory work overseas. The
nation’s factories are running at 74.3 percent of capacity
versus an average utilization rate of 82.7 percent five years
before the recession began.
Manufacturing employment fell 5.5 percent in 2002 and is
expected to decline by 3.4 percent, or almost 575,000 jobs,
this year. Both durable and nondurable goods producing
firms are expected to lose jobs. Durable goods manufacturers will fare worse, with nearly all industries within this
category losing jobs. Any recovery in manufacturing will
4
Consumer Spending. After a slight slowing in the first
quarter, consumer spending appears to be picking up
again. For the first half of the year, consumer spending is
expected to increase by 2.4 percent. Consumer attitudes
in June were slightly less optimistic than in May; the
University of Michigan’s confidence index fell to 89.7
from 92.1. The current conditions index rose, but the
future expectations index deteriorated. Continuing layoffs
and increasing unemployment are largely responsible for
the movement in the indexes. Consumer spending on
electronics, appliances and home furnishings, general merchandise, and apparel remained strong in the first half of
the year, offsetting the declines experienced in automobile
sales, travel, and recreation. Newly enacted federal
income tax cuts are expected to boost disposable income,
thus setting the stage for strong consumer spending in the
second half of the year. The income tax cuts should
increase household spending by 1.5 percent in the second
half of 2003, or by approximately $120 billion annualized.
The tax cuts will raise disposable income in 2004 by $190
billion and lead to an additional $130 billion in spending.
After an increase of 2.4 percent in the first half, consumer
spending is expected to rise 3.9 percent in the second half
of this year, with strong growth in computer sales, motor
vehicles (mostly light trucks), household furnishings and
equipment, recreation, and medical services.
One cautionary note is that household debt is now in
excess of 80 percent of U.S. gross domestic product
(GDP), about 15 percentage points higher than in the
early 1990s. Household debt grew 10 percent in the first
quarter of 2003 compared to fourth quarter 2002, primarily driven by an 11.6 percent increase in mortgage debt,
which now stands at $6.2 trillion. Overall consumer debt
is up 25 percent in the last two years. Despite these high
levels of debt, consumer spending will be strong so long as
consumers feel they can service their debt payments.
Consumer spending accounted for almost 80 percent of
GDP growth in 2002 and should drive most of the economic growth in 2003.
Employment. More than two and a half million jobs
have been lost since the start of the recession in March
2001; about 600,000 in just the first half of 2003. The
number of discouraged workers, those who would like to
work but have stopped looking, is around 9.2 million and
part-time workers number about 4.8 million, up 46 percent from 2001. Nationally, employment is in its third
year of contraction. The unemployment rate climbed to
6.4 percent in June, the highest level in more than nine
years, with businesses cutting 30,000 jobs from payrolls.
Since March, the number of workers being laid off has
increased by 93,000, with manufacturing accounting for
56,000. It should be noted that unemployment, a lagging
indicator, always rises on the verge of recovery as the number of people looking for jobs increases. In June, optimistic expectations about the economy led over 600,000
more people to search for work. Improving conditions in
manufacturing and services raises the likelihood for payroll loss deceleration in the second half of 2003. Significant improvement in manufacturing payrolls is not expected until 2004. Strength in residential construction has led
to the addition of over 100,000 construction jobs since
February. Almost 10,000 new services jobs were added in
June, after a 54,000-job loss in May. Temporary employment also increased by 38,000 in June, after an increase of
44,000 in May. However, price pressures continue to
force firms to lay off people in order to reduce costs.
Outlook. The U.S. economy will grow 2.0 to 2.5 percent
in 2003. The second half of the year will post a much
stronger gain fueled by both monetary and fiscal policies.
Consumer price inflation is expected to remain subdued at
about two percent, a slight increase over the 1.6 percent
recorded in 2002. The 2003 tax package should boost
consumer spending in the second half of this year and
next year. Consumer spending is forecasted to increase by
2.7 percent this year, with almost five percent for durable
goods and slightly over three percent for nondurable
goods. Business capital spending will probably decline by
one percent and put downward pressure on payrolls. The
manufacturing sector will remain weak through the end of
the year and the weaker dollar is not expected to help
much due to overcapacity, weak global demand, and the
yuan-dollar peg. Change in the exchange value of the
U.S. dollar does not affect the U.S.-China trade imbalance.
Alabama
Employment. The state lost 15,800 jobs, mostly in manufacturing, from May 2002 to May 2003, a decline of about
0.8 percent. The loss of 11,000 manufacturing jobs was
partially offset by a slight gain in construction jobs.
Except for motor vehicle and related industries, almost all
manufacturing industries lost jobs. Fabricated metals lost
1,800 jobs, electrical and nonelectrical machinery manufacturing (1,400), transportation equipment excluding
motor vehicles (1,500), food manufacturing and processing
(1,800), and apparel manufacturing and textile mills
(1,800). Payroll losses were also fairly widespread in service producing industries. Substantial declines were experienced in financial activity employment (1,400) and wholesale and retail trade (4,300), with food and beverage stores
losing almost half of these. However, educational and
health services added almost 2,000 new jobs to their payrolls. The government sector also added 2,300 new jobs.
5
Alabama Nonagricultural Employment
Change in Number of Jobs
May 2002 to
May 2003
Job gains in motor vehicle production and related industries have negated some of the payroll declines experienced in other sectors. The automotive industry continues to expand production capacity in the state.
Tax Revenues. Most states have experienced substantial
budget shortfalls. Thirty-seven states have cut $14.5 billion off current year budgets and 29 states have proposed
a total of $17.5 billion in new taxes. Most of the decline
in tax receipts has been due to the substantial fall in business spending and capital gains. Upward spiraling health
care costs have added to states’ woes, with some health
care-related costs rising by as much as 18 percent over the
previous year. For the first nine months of the current fiscal year, Alabama state tax revenues are up 2.3 percent, or
$105 million, to $4.6 billion. Sales and individual income
tax revenues have risen 2.4 percent to $1,182 million and
$1,882 million, respectively. Corporate income taxes are
down 7.5 percent. Legislative appropriations to the
General Fund are up almost 20 percent, or $157 million,
6
Total Nonagricultural
-15,800
Natural Resources and Mining
-200
Construction
400
Manufacturing
-11,000
Durable Goods Manufacturing
-5,400
Wood Products Manufacturing
600
Primary Metal Manufacturing
0
Fabricated Metal Product Manufacturing
-1,800
Machinery Manufacturing
-800
Computers and Electronic Products Manufacturing
-200
Electrical Equipment, Appliance and Component Mfg. -600
Transportation Equipment Manufacturing
-1,500
Motor Vehicle Manufacturing
0
Furniture and Related Products
-800
Nondurable Goods Manufacturing
-5,600
Food Manufacturing
-1,800
Textile Mills
-600
Textile Product Mills
0
Apparel Manufacturing
-1,200
Paper Manufacturing
-500
Chemical Manufacturing
-600
Plastics and Rubber Product Manufacturing
-100
Trade, Transportation and Utilities
-4,400
Wholesale Trade
-1,900
Retail Trade
-2,400
Transportation, Warehousing and Utilities
-100
Information
-600
Telecommunications
-1,300
Financial Activity
-1,400
Professional and Business Services
-100
Educational and Health Services
2,000
Leisure and Hospitality
-1,000
Other Services
-1,800
Government
2,300
Federal Government
-400
State Government
1,700
State Education
1,800
Local Government
1,000
Source: Alabama Department of Industrial Relations.
compared to the same period in the previous fiscal year, to
$957.6 million. Appropriations to the Education Trust
Fund are up by 2.1 percent, or $63 million, to a total of
$3,083 million.
Outlook. The Alabama economy will grow by about two
percent in 2003, with employment falling 0.5 percent, a
loss of almost 10,000 jobs. Most of the economic growth
will be in services, specifically health care and government. Job gains in motor vehicle production and related
industries will continue. Lack of capital spending and
excess manufacturing capacity will continue to constrain
new payroll jobs.
Ahmad Ijaz
Selected Economic Indicators
United States
Gross Domestic Product (billions)
Percent Change
10-Year Treasury Bond Rate
3-Month Treasury Bill Rate
Consumer Price Index
Inflation Rate
Housing Starts (millions)
Percent Change
Total Employment (millions)
Percent Change
Unemployment Rate
Alabama
2002/Q1
2002/Q2
2002/Q3
2002/Q4
2003/Q1
2003/Q2
9,363.2
1.4
5.1
1.7
178.0
1.2
1.7
7.1
136.2
-0.4
5.8
9,392.4
2.2
5.1
1.7
179.5
1.3
1.7
2.6
136.3
-0.2
6.0
9,454.5
3.3
4.3
1.6
180.5
1.6
1.6
5.9
136.8
0.3
6.0
9,514.5
2.9
4.0
1.4
181.4
2.2
1.6
11.7
136.9
0.8
5.8
9,588.0
2.3
3.9
1.2
182.7
2.7
1.5
2.8
137.4
0.9
5.6
9,649.9
2.7
3.8
1.2
183.9
2.4
1.6
1.2
137.3
0.7
5.5
2002/Q1
2002/Q2
2002/Q3
2002/Q4
2003/Q1
1,892.1
-1.4
308.1
-6.1
1,886.9
-0.9
306.8
-5.1
1,897.4
-0.5
305.4
-3.7
1,870.1
0.0
299.7
-3.1
172.0
-3.3
171.7
-2.2
171.1
-2.3
167.8
-2.9
136.1
-9.4
135.1
-8.6
134.3
-5.5
131.9
-3.2
79.4
-4.9
78.4
-5.2
77.6
-4.9
77.1
-2.7
228.2
-0.1
5.9
23.8
40.8
1,716.7
-0.8
833.7
0.2
394.1
3.4
226.5
-0.2
5.9
23.8
40.8
1,542.1
6.2
678.0
8.9
395.0
3.9
231.8
-0.9
5.9
27.8
40.5
1,387.0
4.8
573.8
9.8
385.1
-1.2
226.0
-0.1
5.5
36.9
41.5
1,574.4
6.3
691.9
3.2
393.2
5.9
Total Nonagricultural
Employment (thousands)
1,870.2
Percent Change
-1.8
Manufacturing Employment (thousands) 309.1
Percent Change
-7.2
Durable Goods Manufacturing
Employment (thousands)
172.8
Percent Change
-3.8
Nondurable Goods Manufacturing
Employment (thousands)
136.3
Percent Change
-11.2
Wholesale Trade
Employment (thousands)
79.2
Percent Change
-5.5
Retail Trade Employment
(thousands)
226.2
Percent Change
-0.6
Alabama Unemployment Rate
5.8
Initial Benefit Claims (thousands)
33.9
Manufacturing Weekly Hours
40.8
Total Tax Revenues (millions)
1,480.9
Percent Change
0.7
Total Income Tax Revenues (millions)
670.4
Percent Change
7.9
Total Sales Tax Revenues (millions)
371.4
Percent Change
0.3
Note: All percent changes indicate change over same period of the previous year.
Source: U.S. Bureau of Labor Statistics, U.S. Department of Commerce, Alabama Department of Industrial Relations,
Alabama Department of Revenue, and Center for Business and Economic Research, The University of Alabama.
7
Moving into Alabama
Migration Aids Recent Population Growth
Between 1990 and 2000, Alabama experienced a larger
influx of new residents than during any prior decade of
the 20th century. In fact, only in the 1970s had more people moved into the state than moved out. A net gain of
209,792 in-migrants from both other states and abroad
accounted for 51.6 percent of Alabama’s population
increase of 406,513. The remaining population growth
came from natural increase, with an estimated 616,510
intercensal births exceeding 419,789 deaths for a net gain
of 196,721 residents.
Forty-seven of the state’s 67 counties saw their populations
boosted by in-migration during the 1990s. Suburban
counties of large metro areas were among the biggest gainers from migration—Autauga, Baldwin, Blount, Elmore, St.
Clair, and Shelby counties all netted more than 5,000 residents. Smaller metropolitan areas, including Auburn,
Decatur, Florence, Huntsville, and Tuscaloosa, and several
newly-defined micropolitan area counties—Cullman,
Jackson, and Marshall—were also popular destinations for
those moving in from out-of-state or from another
Alabama county.
Rate of Net Migration, 1990-2000
(per 100 population in 1990)
Alabama Net Migration, 1900-2000
1900-1910
1910-1920
1920-1930
1930-1940
1940-1950
1950-1960
1960-1970
1970-1980
1980-1990
1990-2000
Note:
Total
White
Nonwhite
-52,362
-149,272
-212,231
-184,614
-301,376
-368,151
-229,681
115,014
-89,120
209,792
-28,275
-64,898
-113,433
-112,372
-115,348
-144,130
-2,033
150,236
-17,046
93,525
-24,087
-84,374
-98,798
-72,242
-186,028
-224,021
-227,648
-35,222
-72,074
116,267
The category of nonwhite migrants for 1990-2000 includes those
who marked any race other than white alone on the Census 2000
form as well as individuals who marked more than one race.
Source: Center for Business and Economic Research, The University of
Alabama.
However, 20 Alabama counties had more residents move
out than in between 1990 and 2000. Many of these counties are economically distressed; over half faced unemployment rates substantially above the state average throughout the decade. Most are in or adjacent to the historically
depressed Black Belt region. In addition, the central
urban counties of the three largest metros—Jefferson,
Mobile, and Montgomery—all experienced net out-migration. And two counties, Calhoun and Dale, saw their residents dwindle due to military base closings and reductions. Rates of net migration vary widely, as shown on the
map. In Baldwin County about 38 people moved in during the decade for every 100 residents, while in Sumter
County almost 14 of every 100 residents moved out.
Alabama rate = 5.2
The 1990s was the only decade when migration added to
both the state’s white and nonwhite populations. An estimated net gain of 93,525 white residents amounted to
44.6 percent of the migration stream. The 116,267 nonwhite net in-migrants accounted for 55.4 percent of the
total. This category encompasses all racial groups except
white; in particular, individuals who marked black alone
and those who selected more than one race or some other
race on their census form. Hispanics figure prominently
in the later group, as they tended to regard their ethnicity
as a race. Counties including Blount, Cullman, DeKalb,
Franklin, Marshall, and Winston that saw nonwhite rates
of net migration in excess of 100 all showed rapidly growing Hispanic populations between 1990 and 2000.
Migration by race also reveals that the three urban metropolitan counties of Jefferson, Mobile, and Montgomery
saw a net gain of nonwhite migrants, although it was not
enough to offset the loss of white residents.
Most Age Groups Draw New Residents
Source: Center for Business and Economic Research, The University of Alabama.
8
Almost every age group saw its numbers grow from migration during the 1990s. Alabama’s steady employment
gains between 1990 and 1998 likely helped bring in work-
Migration by Race for Alabama Counties, 1990-2000
ing-aged adults and their children. Sizeable additions were
seen in the adult population aged 35 to 54 in 2000.
Estimates show that over 87,000 more individuals in this
age range moved in than moved out during the 1990s.
And net migration added over 60,000 children and teens
aged 10 to 19. With migration gains continuing among
20 to 24 year olds, Alabama does not appear to be experiencing an outflow of recent high school and college graduates.
The only significant out-migration of Alabama residents
occurred among 25 to 29 year olds, while net migration
was essentially flat for the 30 to 34 age group. And the
number of children aged 0 to 9 added by migration was
well below the number of older children, suggesting that
adults establishing their careers and beginning families are
the group most likely to seek opportunities outside the
state, perhaps later returning to work and raise their children in Alabama.
Migration Trends Follow Jobs
Migration was not evenly distributed throughout the
1990s. Estimates based on Internal Revenue Service
address change data, Medicare enrollments, and information on immigration from abroad show migration into
Alabama beginning the decade positively but peaking
between July 1992 and July 1993. Although tapering off,
migration held up fairly well through July 1998. But as
jobs in Alabama fell from 1998 to 1999, so did the net
influx of residents. Migration turned negative for the two
years from 1999 to 2001 before rebounding to a slight
gain of about 1,500 from 2001 to 2002. An increased
inflow of foreign immigrants is keeping the numbers from
looking worse. States, including Florida and Texas, that
sent Alabama residents in the first half of the 1990s are
now net recipients of Alabama out-migrants. Since interstate moves are often work-related, in-migration trends
should strengthen when the state’s employment prospects
pick up.
Carolyn Trent
Alabama
Autauga
Baldwin
Barbour
Bibb
Blount
Bullock
Butler
Calhoun
Chambers
Cherokee
Chilton
Choctaw
Clarke
Clay
Cleburne
Coffee
Colbert
Conecuh
Coosa
Covington
Crenshaw
Cullman
Dale
Dallas
DeKalb
Elmore
Escambia
Etowah
Fayette
Franklin
Geneva
Greene
Hale
Henry
Houston
Jackson
Jefferson
Lamar
Lauderdale
Lawrence
Lee
Limestone
Lowndes
Macon
Madison
Marengo
Marion
Marshall
Mobile
Monroe
Montgomery
Morgan
Perry
Pickens
Pike
Randolph
Russell
St. Clair
Shelby
Sumter
Talladega
Tallapoosa
Tuscaloosa
Walker
Washington
Wilcox
Winston
Total
209,792
6,926
37,588
2,662
3,409
10,004
322
-648
-8,151
-864
4,309
5,968
-663
-1,057
852
1,120
1,570
2,123
-190
960
965
63
8,112
-4,457
-4,419
7,897
13,303
2,023
2,801
534
2,911
2,043
-671
985
630
2,815
4,722
-13,379
182
5,995
1,879
20,919
8,452
-79
-1,662
16,918
-1,595
1,261
8,447
-6,454
-1,218
-1,243
5,500
-1,390
-303
904
2,085
1,250
12,012
32,176
-2,196
3,543
1,761
5,603
2,126
457
-1,073
2,420
Net Migration
White
Nonwhite
93,525
116,267
6,175
751
34,848
2,740
777
1,885
2,431
979
8,394
1,610
70
252
-111
-537
-6,548
-1,603
-809
-56
4,026
283
4,825
1,143
-291
-371
-328
-729
759
92
1,033
86
-70
1,640
1,221
902
8
-197
591
369
1,146
-182
185
-123
6,560
1,553
-5,342
885
-3,385
-1,034
4,954
2,943
10,805
2,498
296
1,727
716
2,085
437
97
1,124
1,788
1,914
130
47
-718
637
347
756
-126
997
1,818
3,623
1,099
-39,308
25,929
111
71
4,509
1,486
1,389
490
15,829
5,090
5,685
2,767
253
-332
-55
-1,607
2,256
14,662
-803
-792
708
554
4,643
3,805
-15,041
8,588
-776
-442
-13,399
12,157
1,158
4,342
-644
-747
-110
-193
-71
974
1,964
121
-977
2,227
10,775
1,238
27,206
4,971
-900
-1,296
2,180
1,363
2,084
-323
-864
6,467
1,466
660
366
91
-469
-604
1,892
528
Note: Nonwhite includes all racial groups except white alone.
Source: Center for Business and Economic Research, The University of Alabama.
9
Housing Market
Slows Down, Still
on Track to Set
Annual Record
Although the Alabama housing sector changed
very little in the second quarter, it continues to
show strong levels of production in terms of permits, starts, and completions despite a small
decrease in activity. Alabama home sales slipped
1.8 percent in June to 4,345 units, but the
decline does not come as a surprise after May’s
record setting 4,424 homes sold. In fact, June’s
figure for number of homes sold is the second
highest on record behind May’s. The average
selling price also fell 4.8 percent to $122,442
while supply rose to 6.17 months in June from
6.15 months in May. All of these figures indicate
a slight “loosening” of the Alabama housing market, and they may be the first signs of a cooling
trend in the sector.
Year-to-date home sales in Alabama are still up
16.3 percent over the same time last year, while
average selling price is up 3.1 percent. Only
three areas recorded a smaller number of homes
sold when compared year-to-date with June of
2002, including Gadsden, Lee County, and Marshall
County. Despite the slip in the total number of homes
sold across the state, Baldwin County, Cullman County,
and Lee County all set records for the highest number
of homes sold in one month, as did Mobile and Montgomery. Dothan, Huntsville, and Montgomery set
records for the highest recorded average selling price.
Residential construction spending continued to increase in
the state in June, climbing 17.1 percent year-to-date over
June 2002 to $1.55 billion, as tracked by F. W. Dodge
Reports. On the negative side, the unemployment rate
worsened slightly, climbing to a preliminary figure of 5.9
percent from 5.7 percent, according to the Alabama
Department of Industrial Relations.
The number of existing single-family homes sold slipped
0.3 percent at the national level to 5.83 million units on
an annualized, seasonally adjusted basis, according to the
National Association of REALTORS® (NAR). Median
selling price is up to $176,500, an increase of 7.7 percent
compared to June of 2002. Supply increased slightly to
5.1 months in June from 4.8 months in May. However,
10
the manufactured housing industry continues to post
some of the lowest shipment levels in more than 40 years.
Very little has changed in the apartment sector. The
national average apartment vacancy rate in first quarter
2003 increased to 7.1 from 6.0 percent a year earlier,
according to M/PF Research. New supply continues to
grow despite weak tenant demand, with little relief in permit activity. Bank of America reports multifamily completions hit an annual rate of 345,000 units in May 2003,
which is a 20 percent increase from the previous year and
its highest level since March 2000. According to the
National Apartment Association’s Consulting Economist,
Robert Jr. Sheehan, the rental housing market conditions
continued to soften in the second quarter of 2003.
Vacancy rates rose and rent increases moderated. An essential ending of the war in Iraq does help to ease the uncertainties that negatively impacted consumer confidence.
Now media attention will turn more to the twin deficits—
federal budget and foreign trade. It is difficult to forecast
a sharp upturn in the rental market and the economy in
the near term if interest rates remain low and job growth is
weak. Job growth is a major factor to the recovery in
apartment tenant demand. Apartment properties would
likely benefit from an increase in interest rates, which
would make housing more expensive and may slow new
construction. The recent accounting failures at Freddie
Mac and increased scrutiny of all the agencies’ lending
activities could disrupt the mortgage market. If this shakeup results in less accommodating lending programs and
increased borrowing costs, marginal buyers, who would
otherwise be renters, would likely feel a direct impact.
Residential construction spending increased at the national level as well, inching up 0.7 percent to $322.1 billion in
May on a seasonally adjusted annual basis, according to
the U.S. Census Bureau. The Consumer Price Index, the
most popular gauge of inflation, increased 0.1 percent in
June to 183.7 as tracked by the Bureau of Labor Statistics.
The Producer Price Index for Finished Goods, generally
considered a leading indicator for inflation, rose 0.5 percent in June to 142.6. According to these metrics, the
deflation that many economists feared has not shown
itself. Employment in the Southeast continued to slow
during the first quarter of 2003. With manufacturing losses
weighing heavily on the region’s economy, employment
declined by 55,100 jobs, or 0.2 percent, to 24,246,400 for
the 12 months ending February 2003. The U.S. employment situation worsened for the fifth straight month in
June, shedding a total of 30,000 nonfarm, payroll jobs.
The latest decline pushed unemployment up to 6.4 percent, the highest level in nine years. Economic growth on
the order of three percent per year is needed to bring jobs
back into the economy, which the NAR is forecasting to
happen in the third quarter of this year.
As mentioned earlier, it seems that there are signs of slackening in the housing sector. At the state level, the fall in
home sales and prices, taken with the slight increase in
supply, does point to further weakening in the sector.
Increasing mortgage rates will likely be the main drag on
the market, however. According to data released by the
Mortgage Bankers Association of America on July 23, the
national average for a 30-year, fixed rate mortgage
increased to 5.72 percent from 5.33 percent one week earlier, with average points increasing to 1.53 from 1.47.
Historically low mortgage rates have kept housing affordable in an otherwise uncertain economic environment. A
national average mortgage rate of 5.72 percent for a 30year mortgage is still low by historical standards, but the
increase may have a negative impact on the housing sector
in the next few months, especially if rates continue to rise.
Home sales are still very strong by any measure. While a
slowdown is expected some time in the near future, the
NAR is predicting yet another record-setting year for
home sales in 2003.
Leonard Zumpano
Director, Alabama Real
Estate Research and
Education Center
Alabama Historical Housing Statistics
Date
2003-May
April
March
February
January
2002-December
November
October
September
August
July
June
May
April
March
February
January
2001-December
November
October
September
Number
of Sales
Average
Selling Price
Median
Price
Average Days
on Market
Total Homes
Listed
4,424
4,112
3,496
3,004
2,579
3,062
2,959
3,238
3,211
3,901
3,832
3,610
3,892
3,258
3,145
2,640
2,317
2,753
2,651
2,659
2,599
$128,598
127,417
119,595
121,151
116,271
118,661
118,662
116,970
123,664
121,579
115,549
123,074
120,393
119,749
116,650
120,848
114,163
108,773
110,381
116,203
120,378
$107,980
109,108
102,124
103,253
103,277
94,500
99,900
98,500
99,900
97,500
92,950
93,900
98,900
91,250
99,500
100,000
98,850
89,750
87,200
103,194
100,000
162
148
161
143
151
151
166
144
156
146
143
143
171
154
148
169
177
156
153
154
146
27,206
26,451
26,685
26,511
26,736
25,146
25,689
27,424
27,620
28,012
28,017
28,367
28,487
27,991
27,580
27,010
27,596
25,941
26,649
27,924
27,740
Source: Alabama Real Estate Research and Education Center, The University of Alabama.
For more information about the Alabama Real Estate Research and Education Center at The University of Alabama:
http://arerec.cba.ua.edu/ or call (205) 348-4117.
11
BLCI
3rd Quarter 2003
With national economic and geopolitical issues appearing
to ease, Alabama business leaders are optimistic that economic growth will accelerate in the third quarter of 2003.
The Business Leaders Confidence Index (BLCI) value of
61 for the quarter surpasses the reading of 60 a year ago
and marks a five point improvement in business confidence over last quarter’s 56.
Alabama business leaders are upbeat in their third quarter
outlook for the U.S. economy—71.5 percent forecast
improvement over second quarter performance, a jump
from just 51.3 percent anticipating an upturn last quarter.
Expectations for improvement in the state’s economy are
less robust, however, as just 50.7 percent of panelists forecast gains. With a solution to the state’s fiscal problems
awaiting the outcome of a September 9 vote on the governor’s tax and accountability plan, this is nevertheless an
improvement on the 43 percent expecting an upturn last
quarter. In response to this quarter’s issue question,
almost half of the state’s business leaders reported that the
slow economy has affected their business travel plans.
Strongest economic gains in the third quarter should
come from increased sales and improved profits. Almost
66 percent of panelists think sales in their industry will
rise, up from 59 percent last quarter. Sales increases could
be most prevalent in finance, insurance, and real estate
(FIRE), retail trade, transportation, communications, and
public utilities (TCPU), and construction. The outlook
The University of Alabama
Center for Business and Economic Research
Box 870221
Tuscaloosa, Alabama 35487-0221
Address service requested.
for industry profits
improved from the
100
second to third
quarter forecasts,
80
with almost 56 percent of BLCI participants anticipat60
ing increased industry profits in the
third quarter, com40
pared to less than
47 percent last
20
quarter. Strongest
increases in profits
are expected in
0
TCPU, construction, and FIRE.
Profit growth may
lag in manufacturing and wholesale trade.
Index
Alabama Business
Leaders Confidence
Index (BLCI):
Current Quarter vs. Previous Quarter
60
56
Q3 Q4
2002
58
56
61
Q1 Q2 Q3
2003
Hiring is expected to remain the weakest link in the current recovery, although the outlook has improved slightly
across the first three quarters of 2003. About a third of
Alabama business leaders expect their industry to add jobs
in the third quarter. Job prospects should be strongest in
construction and FIRE and weakest in manufacturing and
wholesale trade. Rising confidence in a positive direction
for the economy could give a boost to capital spending in
the third quarter, with 46.5 percent of panelists anticipating increased expenditures in their industry, up from 37.5
percent last quarter. Capital spending gains are expected
to be relatively stronger in construction and retail trade
and weaker in manufacturing, TCPU, and wholesale trade.
Carolyn Trent
The BLCI is developed in partnership between Compass Bank and
the Center for Business and Economic Research. Complete results
can be found at blcindex.cba.ua.edu.
Nonprofit Organization
U.S. Postage Paid
Tuscaloosa, AL 35401
Permit No. 16