AlabamaBusiness
Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama
Volume 74, Number 2
Economic Outlook:
2nd Quarter 2005
United States
Overview. Although the U.S. economy
signaled a slight slowdown toward the
end of 2004, it grew 4.4 percent for
the year as a whole—the highest rate
of growth since 1999. The economy
relied heavily on consumer spending
for nearly three years after the most
recent recession ended in November
2001. However, business spending is
also showing healthy growth now, which
should generally lead to improvement in
payroll employment. After rising 17.5
percent in the third quarter of 2004,
business spending on equipment and
software climbed 18.4 percent in the
fourth. Despite a significant drop in the
value of the U.S. dollar over the past
three years, exports increased by just 3.2
percent in the fourth quarter while
imports rose 11.4 percent. Surprisingly,
defense related government spending
declined by a slight 0.6 percent, after
showing healthy gains earlier in the year.
Almost all of the economic growth in
2004 was due to consumer spending and
Second Quarter 2005
improving business
spending, primarily on
equipment and software.
Consumer spending contributed to the 4.4 percent GDP growth seen in
2004, posting a 3.8 percent increase with consumption of durable
goods or big-ticket items
rising 6.7 percent.
Business spending on
equipment and software
grew 13.6 percent, while
spending on information
processing equipment
rose 16.2 percent.
Purchases of computers
and peripherals also remained strong
with an almost 27 percent jump in 2004.
After three straight years of decline, business spending and investment in structures increased by a slight 1.4 percent.
Recent data show that business outlays
for new equipment grew in the second
half of last year at the fastest two-quarter
pace since 1997. Strong business outlays
imply a continuation of job growth in
2005 that should generate healthy
increases in income to help support consumer spending.
A major reason for the
economic slowdown
toward the end of 2004
was a sharp increase in
the trade deficit that, at
approximately $660 billion, subtracted about
1.4 percent off fourth
quarter growth. This
record 2004 deficit was
more than 25 percent
higher than the previous
record deficit of $531
billion set in 2003. The
deficit, as a percentage of
GDP, climbed to 5.7 percent, up from 4.8 per-
cent in 2003. The U.S. surplus in services shrank to $48.4 billion, down from
$51 billion in 2003.
The fall in the value of the U.S. dollar
over the past few years has not benefited
exports significantly as had been anticipated by exporters, particularly within
the manufacturing industry. The trade
deficit is expected to balloon in 2005,
with imports rising much faster than
exports. The U.S. dollar’s exchange
value is not the only determining factor
for exports. For exports to rise significantly, the economies of trading partners
also have to grow at a healthy pace,
In this issue:
Economic Outlook:
2nd Quarter 2005
1
Business Leaders
Confidence Index:
2nd Quarter 2005
5
Selected Indicators
9
Alabama’s Aging
Workforce
10
2
Alabama Business
which is currently not the case.
Consumer spending on imported goods
will also have to decline substantially for
the trade deficit to decline. Currently
the U.S. is borrowing over $2 billion a
day to finance the trade deficit, and
instead of those funds being used to
finance investment in productive assets,
they are fueling housing purchases and
imported consumer goods. Foreign
investors have also increased their purchases of property and mortgage-backed
securities, which is further fueling home
sales by keeping interest rates at historically low levels.
Many foreign central banks have been
covering the difference when private
lending falls short of the $2 billion a day
the U.S. currently borrows. In the first
three quarters of 2004, almost 50 percent
of the U.S. current account deficit was
financed by foreign central banks, with
Japan and China being the lead lenders.
The end of global quotas on textile shipments boosted the deficit with China.
Imports of foreign cars and auto parts
and consumer goods also set records
with imports of capital goods, including
such items as computers, airplane parts,
etc., rising to the highest level in more
than four years. The largest deficit with
a single country was recorded with
China, which in January alone was $15.3
billion.
Employment. During its fourth year of
economic recovery after the recession in
1990-91, the U.S. economy was adding
almost 300,000 jobs each month. That is
not the case in this fourth year after the
last recession; substantial productivity
gains seen in the late 1990s and more
recently could be contributing to weaker
job gains. With much higher levels of
productivity and technological improvements compared to what the economy
experienced during the early 1990s, it
will be difficult for businesses to generate
new jobs at the same pace as they did
after previous recessions. However, the
economy managed to add almost 2.4
million jobs in 2004, the most since
1999. Job gains have been registered
monthly since June 2003 and enough
jobs have now been added to regain all
the jobs that were lost since February
2001, the month that preceded the eightmonth recession. The pace of job
growth in manufacturing is still lagging
the rest of the sectors. In 2004, overall
manufacturing employment declined by
just over 1 percent. The
fastest job growth was
experienced in construction and in services producing industries, particularly healthcare and
social assistance; administrative support; educational services; and
employment services.
Outlook. Economic
activity is expected to
slow slightly from 2004
levels. GDP is expected
to rise 4.0 percent in
the first half of 2005
and approximately 3
percent in the second half for an overall
rate of 3.7 percent. Consumer spending
will grow at an annualized rate of 3.0
percent in the first half, followed by 2.6
percent in the second. Business spending growth is forecasted to exceed 11 percent in 2005, with spending on equipment and software rising by about 14
percent and expenditures on computers
and peripherals jumping almost 30 percent. The 30-year fixed mortgage rate is
expected to rise from its current level of
around 5.8 percent to 6.8 percent by
year’s end. Both the 3-month Treasury
bill rate and 10-year Treasury note rate
are also expected to increase gradually
over the course of the year. Consumer
price inflation is estimated to decline
from its current level of over 3 percent
to around 2.6 percent by the end of the
year. With general commodity prices
and oil prices rising sharply in the first
Alabama Business
half of 2005, the U.S. trade deficit is
expected to reach $750 billion in 2005.
Alabama
Employment. During the twelve-month
period ending in February 2005,
Alabama added 38,900 net new jobs, a
2.1 percent increase. Approximately 70
percent of these jobs or 27,200 were
located in the state’s metropolitan areas.
The Mobile metro area added around
6,800 jobs, followed by 4,500 for
Huntsville and 4,400 in Birmingham.
Job growth in the Mobile metro area was
to some extent distorted by a one-time
surge in jobs due to Hurricane Ivan.
Payroll employment in the state
improved significantly toward the end of
2004 and will continue to do well in
2005. Among the state’s goods produc-
3
ing sectors, construction added 4,500
new jobs while manufacturing added
5,900. Durable goods manufacturing
accounted for 6,500 new jobs, mostly in
transportation equipment manufacturing
(3,400); fabricated and primary metals
(1,000); wood product manufacturing
(500); and furniture and related products
(800). Nondurable manufacturing on the
other hand lost 600 jobs; most of these
losses were associated with textile mills.
tor, which includes depository institutions, insurance carriers and real estate,
lost 1,100 jobs. Job gains in the leisure
and hospitality sector improved substantially, adding 3,200 new jobs. Educational and healthcare related businesses
added 6,000 jobs. The telecommunications industry continues to be haunted
by competition and excess capacity;
wired telecommunication carriers lost
300 workers.
From February 2004 to February 2005,
Alabama’s services producing industries
added 27,900 net new jobs. Professional
and business services added 12,700,
almost 46 percent of the total services
producing industries’ job gains. Strong
business and consumer spending helped
retailers gain 3,600 net new jobs in the
twelve-month period. The financial sec-
Tax Revenues. Total tax receipts for the
first two quarters of the current fiscal
year have risen by almost 10 percent to
$3.691 billion, an increase of about $334
million over the same period in the previous fiscal year. Tax receipts are expected to continue strong for the remainder
of the fiscal year. Individual income tax
revenue totaling $1.351 billion is up by
4
Alabama Business
Alabama Nonagricultural Employment
Change in Number of Jobs
February 2004 to
February 2005
Total Nonagricultural
38,900
Natural Resources and Mining
600
Construction
4,500
Manufacturing
5,900
Durable Goods Manufacturing
6,500
Wood Products Manufacturing
500
Primary Metal Manufacturing
500
Fabricated Metal Product Manufacturing
400
Machinery Manufacturing
0
Computers and Electronic Products Manufacturing
200
Electrical Equipment, Appliance and Component Mfg. -100
Transportation Equipment Manufacturing
3,400
Motor Vehicle Manufacturing
1,500
Furniture and Related Products
800
Nondurable Goods Manufacturing
-600
Food Manufacturing
-300
Textile Mills
-400
Textile Product Mills
500
Apparel Manufacturing
200
Paper Manufacturing
200
Plastics and Rubber Product Manufacturing
700
Trade, Transportation and Utilities
5,700
Wholesale Trade
1,600
Retail Trade
3,600
Transportation, Warehousing and Utilities
500
Information
-400
Telecommunications
-400
Financial Activity
-1,100
Professional and Business Services
12,700
Educational and Health Services
5,900
Leisure and Hospitality
3,200
Other Services
-800
Government
2,700
Federal Government
800
State Government
-100
State Education
-200
Local Government
200
Information: Key to success from the
source you know...
Information is key to success and the Center for
Business and Economic
Research (CBER) is the
source for information on
Alabama’s economy and its
people. CBER’s website is
http://cber.cba.ua.edu.
The Center posts:
° Socioeconomic data
and maps
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and analysis
° Population projections
° Census data
° Free publications—Alabama Business and
Alabama Business Leaders Confidence Index®
° Information about other CBER
publications and services
Subscribe to CBER News Service on our website and
be notified when new items are added to the site or
when publications become available.
2005, with a more
rapid pace in the
first half of the year
than in the second. Payroll employment
is expected to continue to improve
throughout the year. Within the manufacturing sector, transportation equipment manufacturing, which includes
automotive production, is forecasted to
add about 4,000 to 4,500 new jobs in
2005. Despite some improvements in
both textile and apparel manufacturing
employment early in 2005, these industries could lose a significant number of
jobs.
Source: Alabama Department of Industrial Relations.
slightly more than $125 million, a 10.2
percent increase. Corporate income tax
receipts have risen 27.8 percent or about
$38 million to almost $176 million. At
close to $882 million, sales tax receipts
are up by about $44 million or 5.2 percent.
Appropriations made to the Alabama
Education Trust Fund totaled $2.280 billion, up from $2.081 billion for the first
two quarters of the previous fiscal year.
A significant improvement was also
made in appropriations to the state’s
General Fund, which at $681 million is
$98 million above last fiscal year.
Outlook. The state’s economy is expected to grow approximately 3.5 percent in
cber.cba.ua.edu
With expiration of the Multi-Fiber agreement and import quotas effective
January 1, 2005, there is a high probability than the state’s textile and apparel
industry could face yet another adverse
year. Furthermore, if CAFTA (Central
America Free Trade Agreement) passes in
spite of its slim chances, it will accelerate
job loses in other labor intensive industries in the state.
Overall, payroll employment will grow at
a slightly higher pace than in 2004. The
current forecast calls for an increase of
1.6 percent in 2005, with healthcare
related businesses, retailing, leisure and
hospitality related business, and professional and business services adding the
bulk of the new jobs. The services producing businesses in the state are expected to add approximately 20,000 new jobs
in 2005.
Ahmad Ijaz
[email protected]
AL BLCI Q2 2005.qxp
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Page 1
®
Second Quarter 2005 • Volume 4 • Number 2
Alabama Business Leaders Confidence Index
The Alabama Business Leaders Confidence Index® (BLCI) held steady at 61.5
in the second quarter of 2005. While not
as robust as the 2004 average of 67, the
current BLCI continues to signal expansion, as it is well above the neutral value
of 50. Given the economic rebound in
2004 that was accurately forecasted by the
index, Alabama business leaders expect the
pace of growth to moderate. Looking at
the components of the BLCI, expectations
for both the national and Alabama
economies pulled back somewhat on the
second quarter survey. While most panelists continue to anticipate stronger economic growth, some moved to the position
that gains will proceed at the first quarter
2005 pace.
In contrast, expectations for all four industry indicators were up. Sales remained the
strongest component of the index, with the
share of panelists anticipating a decline in
sales in their industry falling from 16.2
percent in the first quarter to 10.1 percent
this quarter. Alabama business leaders see
the largest downside to profits, with 16.4
percent forecasting a decrease during the
second quarter. Job creation and capital
spending should continue to support the
expansion. Panelists in transportation,
information, and public utilities (TIPU)
and in construction had the most optimistic second quarter outlooks with
industry-specific indexes of around 65,
while professional, scientific, and technical
services tallied a low reading of 56.
BLCI Focus on Alabama’s Workforce
The availability of a qualified workforce is
vital to the growth and competitiveness of
businesses across Alabama. Providing
workers for new and expanding industries
as well as replacement workers for existing
jobs is an ongoing challenge that will only
increase with job growth and the looming
retirement of the baby boom generation.
BLCI participants were asked to gauge
how difficult it is for their firm to hire
qualified employees. A substantial 72.5
percent of panelists reported at least some
difficulty, including 18.8 percent having
great difficulty. Just 19.7 percent of firms
are experiencing no difficulty.
Firms with fewer than 20 employees are
least likely to have trouble hiring,
although 57.5 percent reported some or
great difficulty. Businesses in the categories of 20 to 99 and 500 and over
employees most often reported great difficulty, at 24.1 and 22.1 percent, respectively. Firms with 100 to 499 employees are
the most challenged, with just 13.9 percent seeing no difficulty hiring, 67.8 percent some difficulty, and 14.8 percent
great difficulty.
Looking at results by industry,
wholesale trade businesses represented by second quarter panelists are finding it hardest to
hire employees with the qualifications they need. Just 5 percent report no difficulty, while
25 percent feel they have great
difficulty. Health care firms are
also hard pressed, as almost 86
percent experience some or
great difficulty getting workers.
Businesses have
turned to a variety
of tools to obtain a
workforce with the
qualifications they
require. Panelists
selected all that
applied from a list
provided and were
asked to write in
other avenues they
have utilized. Alabama firms are
most likely to raise
entry-level wages
Center for Business and Economic Research, The University of Alabama
AL BLCI Q2 2005.qxp
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10:30 AM
Page 2
to attract employees, with 45 percent of respondents saying they have done this. Over 35 percent of panelists
reported using in-house training to create the qualified
workers they require, suggesting a need for increased
cooperation between local educational institutions and
businesses to match training to area skill demands.
Almost 20 percent of surveyed firms recruit outside
Alabama. Partnerships with high schools, community
colleges and technical schools, as well as colleges and
universities are a way to build a workforce with the right
skills. Businesses that reported partnering generally had
100 or more employees. Larger firms most often use the
services provided by Alabama Industrial Development
Training (AIDT).
Recruiting tools most often written in by survey panelists
include word of mouth, advertising (including Internet),
employment and temp agencies, hiring contract workers,
and hiring from the nontraditional workforce. Several mentioned using current employees to recruit (and even paying
incentives) and recruiting from competitors.
The National Economy
Expectations for U.S. economic growth moderated in the second
quarter of 2005. While 56.6 percent of Alabama business leaders
think growth will accelerate during the quarter, this is the weakest
forecast in two years and is well below last quarter’s 67.3 percent.
Following gains amounting to 4.4 percent in 2004, GDP growth
could slow to 3.7 percent in 2005. High oil prices and rising
interest rates impact both businesses and consumers, although
the housing market and consumer spending are still holding up.
The March NABE Survey cites the federal deficit and health care
costs as the largest short- and long-term risks to the U.S. economy. Close to 11 percent of BLCI panelists forecast a slowdown
in national economic activity during the second quarter, higher
than the negative expectations of the last year and a half.
Respondents in TIPU and in wholesale trade are the most
positive in their outlook for the national economy, while
those in health care are the least optimistic.
The Alabama Economy
Alabama’s economy will continue to pick up the pace of growth in
the second quarter of 2005, according to 53 percent of BLCI panelists. The state’s auto industry is a major contributor, as hiring
continues toward a late spring production date for Hyundai and
as Mercedes prepares to launch its new model during the quarter.
Expectations have moderated with sustained job and wage gains
and falling unemployment leading more participants to forecast
growth continuing at the first quarter pace. Just 7 percent see a
possible downside to Alabama’s economy during the quarter.
Expansionary expectations are slightly below those for the nation
though. While tax revenues are rising, state government continues to face spending pressures for programs including Medicaid
and education as well as for employee benefits. Construction,
manufacturing, and TIPU panelists are most upbeat about
prospects for growth in the state’s economy.
C e n t e r f o r B u s i n e s s a n d E c o n o m i c R e s e a rc h
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Page 3
Industry Sales
Sales remain the most positive BLCI component, with 65.1 percent
of panelists forecasting higher second quarter sales compared to 63.8
percent last quarter. And the share of panelists expecting a decline
in sales is down from the previous two quarters. Rising employment
and wages pushed personal income up 0.3 percent nationally in
February. Spending on nondurables, including furniture, household
equipment, and apparel, posted the largest increase. Alabama’s state
sales tax collections for March 2005 were 11 percent above March
2004. However, high gas prices as well as rising interest and mortgage rates could dampen spending in the near term. Both the
University of Michigan’s Index of Consumer Sentiment and the Conference Board’s Consumer Confidence Index fell in March. Over threefourths of retail trade panelists think sales will climb in the second
quarter, and almost 73 percent of business leaders in manufacturing
and wholesale trade anticipate gains. Expectations are weakest in
professional, scientific, and technical services, with 51.4 percent forecasting an increase and 20 percent predicting a decline in sales.
Industry Profits
Profit expectations strengthened slightly, with 54.6 percent of
Alabama business leaders forecasting an increase in profits in their
industry during the second quarter of 2005. The share expecting
profits to be about the same as in the previous quarter rose to 29 percent. It seems unlikely that profits can continue to post the doubledigit increases seen over the last three years. Higher costs for energy,
material inputs, and employee wages and benefits along with rising
interest rates and slowing productivity gains may limit businesses’
ability to grow profits. For the second quarter, 62.2 percent of panelists in TIPU and 60 percent of retailers anticipate higher profits.
Expectations for profit growth are weakest in health care, with 42.9
percent forecasting an increase, and in professional, scientific, and
technical services, where about 44 percent expect an increase and 20
percent a decline in profits. Overall, 16.4 percent of BLCI panelists
think profits could weaken during the second quarter of 2005.
Industry Hiring
Across the four quarters of 2004, BLCI panelists were most likely to
expect hiring to accelerate. The addition of 42,200 wage and salary
jobs in the state during the year bears out this projection. Now that
job growth has returned, firms are more likely to continue to hire at
the present rate than to pick up the pace of hiring. Still, job gains
should be strong in the second quarter, as 40.4 percent of Alabama
business leaders expect hiring in their industry to accelerate and
almost half expect hiring to proceed at the first quarter pace. Just
10.3 percent forecast a decrease. Job opportunities may be most
improved in construction, where 57.9 percent of panelists expect an
upturn. Health care should be an area of strong growth as 51.4 percent forecast increased hiring this quarter. While just a third of manufacturing firms expect hiring to increase, that compares to about 28
percent on the first quarter survey, and most manufacturing panelists
expect no change in hiring. Job gains in professional, scientific, and
technical services could slow markedly.
C e n t e r f o r B u s i n e s s a n d E c o n o m i c R e s e a rc h
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Industry Capital Expenditures
Capital spending should accelerate at the same pace as in the
first quarter, according to Alabama business leaders. About 46
percent expect expenditures in their industry to increase during the quarter, while 43.5 percent anticipate no change.
Nonresidential construction, which declined nationally during
2001 through 2003 and was essentially flat last year, is expected
to pick up modestly in 2005. Spending for equipment and
software remains strong with no drop-off evident from firms
taking advantage of the expiring bonus depreciation tax break
in 2004. Competitive pressures could be a motivating factor
for businesses to make capital investments. Capital spending
trends are most robust in TIPU, where 66.7 percent expect
investment to increase during the second quarter of 2005.
Professional, scientific, and technical businesses are least likely
to up investment and the most likely to continue to invest at
the first quarter rate. Overall, 10.5 percent of survey respondents forecast a decline in capital expenditures.
BLCI Panelists and MSA Indices
Participation in the BLCI survey continues to grow with a
record 542 panelists responding online during March.
Manufacturing; professional, scientific, and technical
services; and finance and insurance are the industries most
frequently represented, accounting for about 40 percent of
panelists taking the current survey.
Respondents come from all of Alabama’s 11 MSAs as well as
nonmetro counties across the state. About three-fourths of
second quarter panelists are from firms located in the four
largest metro areas, enabling calculation of an index value
for each of these areas.
Second quarter sentiment
Q2 2005
was close to the BLCI for
BLCI
all survey participants in
Alabama
61.5
Birmingham and MontBirmingham MSA
61.6
gomery. Strong positive
Huntsville MSA
60.2
expectations among manu- Mobile MSA
64.2
facturing panelists in
Montgomery MSA
61.1
Mobile helped push up
that area’s index. And a concentration of firms in professional, scientific, and technical services, which were generally
less optimistic this quarter, pulled down the Huntsville
index.
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.
C e n t e r f o r B u s i n e s s a n d E c o n o m i c R e s e a rc h
Alabama Business
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
Nonfarm Payrolls (millions)
Percent Change
Unemployment Rate
Alabama
2003/Q3
2003/Q4
2004/Q1
2004/Q2
10,472.8
3.5
4.2
0.9
1.8
2.198
2.0
8.1
129.9
-0.3
6.1
10,580.7
4.4
4.3
0.9
1.8
1.893
2.2
14.9
130.2
-0.1
5.9
10,697.5
5.0
4.0
0.9
1.9
1.819
2.1
9.9
130.5
0.3
5.7
10,748.7
4.8
4.6
1.1
1.9
2.835
2.0
9.1
131.3
1.1
5.6
2003/Q3
2003/Q4
2004/Q1
2004/Q2
1,884.5
-0.5
289.5
-4.9
1,869.2
0.2
288.7
-3.2
1,882.3
0.2
289.0
-2.3
1,879.8
0.5
290.0
-0.4
1,903.8
1.0
291.9
0.8
1,904.3
1.9
292.4
1.3
164.1
-3.7
165.0
-1.0
165.6
0.0
166.8
2.0
168.4
2.6
170.1
3.1
125.4
-6.4
123.7
-5.9
123.4
-5.3
123.2
-3.5
123.5
-1.5
122.3
-1.1
77.2
-0.8
235.1
1.8
5.8
24.6
41.0
1,516.3
9.3
643.1
12.1
424.9
10.4
76.7
0.3
230.7
3.2
5.7
25.9
40.4
1,755.9
11.5
720.4
4.1
413.4
5.1
77.0
0.5
232.3
2.2
5.6
19.7
41.2
1,892.3
13.7
935.9
18.3
436.9
8.1
77.2
0.3
232.7
1.3
5.9
23.0
39.3
1,617.0
8.1
653.1
1.9
427.9
8.5
77.5
0.5
237.4
1.0
5.4
21.7
40.6
1,761.5
16.2
727.0
13.0
436.3
2.7
78.1
1.9
233.1
1.1
5.5
24.7
42.1
1,929.9
9.9
800.3
11.1
445.6
7.8
Total Nonagricultural
Employment (thousands)
1,870.8
Percent Change
-0.5
Manufacturing Employment (thousands) 291.1
Percent Change
-5.0
Durable Goods Manufacturing
Employment (thousands)
163.5
Percent Change
-4.5
Nondurable Goods Manufacturing
Employment (thousands)
127.6
Percent Change
-5.7
Wholesale Trade
Employment (thousands)
76.9
Percent Change
-1.5
Retail Trade Employment (thousands)
229.7
Percent Change
2.5
Alabama Unemployment Rate
5.8
Initial Benefit Claims (thousands)
25.7
Manufacturing Weekly Hours
40.8
Total Tax Revenues (millions)
1,495.4
Percent Change
-3.0
Total Income Tax Revenues (millions)
641.0
Percent Change
-5.5
Total Sales Tax Revenues (millions)
394.2
Percent Change
-0.2
2004/Q3 2004/Q4 2005/Q1
10,891.0
4.0
4.3
1.5
1.9
2.693
2.1
4.1
131.7
1.4
5.4
10,994.3
3.9
4.2
2.0
1.9
3.373
2.1
-2.1
132.3
1.6
5.4
11,105.2
3.8
4.3
2.5
1.9
3.014
2.3
11.4
132.8
1.7
5.3
2004/Q3 2004/Q4 2005/Q1
Note: All percent changes indicate change over the 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.
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, Box 870221, Tuscaloosa,
Alabama 35487-0221.
Copies of this publication as well as other socioeconomic data resources are available on the
Center website: http://cber.cba.ua.edu
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10
Alabama Business
Alabama’s Aging
Workforce
The aging of the baby boom generation
is the primary dynamic behind the aging
of the workforce across the United
States. Individuals born to this generation will turn 65 between 2011 and 2029.
Population projections recently released
by the U.S. Census Bureau have the
share of the nation’s population aged 65
and over rising from 12.4 percent in
2000 to 13.0 percent in 2010 and then
escalating to 18.2 percent in 2025. This
trend will be more pronounced in
Alabama, where the 65 and over age
group was already 13.0 percent of the
total population in 2000 and where weak
net in-migration is not bringing many
younger workers into the state. By 2025,
residents 65 and over could account for
close to 20 percent of Alabama’s population. Census projections have the state’s
population growing just 7.9 percent
between 2000 and 2025, adding 352,992
residents. While projections from the
Center for Business and Economic
Research assume more positive migration
trends and forecast the addition of
938,897 people over the 25 years, this
will have little effect on aging trends.
Data recently made available for
Alabama through a partnership between
the Census Bureau and the Alabama
Department of Industrial Relations called
the Local Employment Dynamics (LED)
program allow examination of recent
trends in the aging of Alabama’s workforce by industry for counties, metropolitan areas, and Workforce Investment
areas. The program provides quarterly
workforce indicators by place of residence. Even over the three years from
2001 to 2003, the age composition of
the state’s workforce changed, as the
number of workers under the age of 45
either entering the workforce or moving into Alabama to work did not keep
pace with the ongoing dynamics of
aging. The most rapidly growing group
was workers aged 55 to 64, with the
baby boomers just reaching this age
group in 2001. By first quarter 2004,
the percentage of younger workers had
dropped further to 62.2 percent.
Aging Trends among Alabama Workers
2001 to 2003 (annual averages)
Percent by Age Group
14-44
45-54 55-64
65+
2001
2002
2003
64.7
63.6
62.7
22.1
22.4
22.6
10.4
11.0
11.6
2.9
3.0
3.1
Source: U.S. Census Bureau and Alabama
Department of Industrial Relations, Local
Employment Dynamics Program.
Alabama’s Workforce, First Quarter 2004
Percent of Workers Aged 45 and Over
Across industries 37.7 percent of
Alabama’s workforce was aged 45 or
above. However, the distribution of
workers by age group varies considerably by industry. Educational services
and mining have the largest shares of
older workers (55 and above) at 21.3
and 20.3 percent of employees, respectively. More than half of the workforce in the mining and utilities sectors
falls into the 45 and over age category,
as do 46.4 percent of workers in educational services. The relatively low
wages and available part-time employment in retail trade and arts, entertainment, and recreation may account for
almost 70 percent of workers being
Source: U.S. Census Bureau and Alabama
Department of Industrial Relations,
Local Employment Dynamics
Program.
Age Distribution of Alabama’s Workforce by Industry, First Quarter 2004 (Percent)
Industry
14-24
Manufacturing
8.0
Construction
13.3
Wholesale Trade
8.2
Retail Trade
25.9
Transportation and Warehousing
8.8
Information
12.4
Utilities
3.3
Finance and Insurance
10.5
Real Estate Rental and Leasing
15.4
Professional, Scientific, Tech. Services
10.2
Management of Companies/Enterprises 12.3
Health Care and Social Assistance
10.0
Educational Services
12.4
Arts, Entertainment, and Recreation
27.2
Other Services
13.3
Agric., Forestry, Fishing, and Hunting
10.6
Mining
4.6
Total, All Industries
14.5
25-34
21.9
24.5
23.3
21.3
21.9
28.8
17.4
27.4
23.5
24.8
22.6
25.2
19.7
21.4
20.6
21.2
14.5
22.8
Age Groups
35-44
45-54
28.6
26.0
26.5
21.4
28.2
23.5
20.2
17.4
27.2
24.5
23.8
22.9
26.8
35.5
25.2
21.8
22.5
19.9
26.6
22.2
24.2
23.7
26.0
24.1
20.6
25.1
19.5
15.9
23.8
22.0
26.3
24.1
21.9
37.8
24.9
22.8
55-64
12.8
10.4
12.3
10.3
13.5
9.9
15.4
12.0
12.3
11.9
13.4
11.2
16.8
9.8
13.4
12.6
18.4
11.8
Source: U.S. Census Bureau and Alabama Department of Industrial Relations, Local Employment Dynamics Program.
65+
1.8
3.1
3.6
4.1
3.6
1.4
0.9
2.3
5.5
3.2
3.1
2.8
4.5
5.3
5.9
4.5
1.9
3.1
Share of Workers
Under 45
45+
58.5
40.6
64.3
34.9
59.7
39.4
67.4
31.8
57.9
41.6
65.0
34.2
47.5
51.8
63.1
36.1
61.4
37.7
61.6
37.3
59.1
40.2
61.2
38.1
52.7
46.4
68.1
31.0
57.7
41.3
58.1
41.2
41.0
58.1
62.2
37.7
Alabama Business
younger than 45, including over a quarter under the age of 25.
By county, the share of workers in the 45
and over age group ranged from lows of
33.5 percent in Lee County and 33.6
percent in Shelby County to highs of
48.2 percent in Choctaw and 51.1 percent in Washington County. Many rural
Alabama counties have seen continued
high net out-migration of residents aged
20 to 29, seriously eroding the pool of
younger workers as evidenced by above
average shares of older residents in the
workforce.
Employment versus Retirement. As
retirement nears for the baby boom generation, firms face the prospect of losing
a large base of knowledge and experience
as well as a sizeable part of their workforce. The unknown is whether retirement patterns will change. Retirement
decisions are influenced by a number of
factors, including age requirements for
social security eligibility. Workers turning 62 in 2005 are eligible for reduced
benefits, but must postpone retirement
until age 66 to receive full benefits. This
age will jump to 67 in 2022. Social security now adjusts benefits to be age neutral, so individuals are not penalized for
working past the normal retirement age.
Private defined contribution plans are
also age neutral, but defined benefit
plans generally are not. A mandatory
retirement age is now illegal for most
jobs. Polling suggests, however, that further raising the social security retirement
age would be unpopular, with employees
preferring to set aside more of their
wages for pensions throughout their
work lives than to delay retirement.
Labor force participation of workers 65
and over decreased throughout much of
the twentieth century. However, a gradual increase has been evident since the
mid-1980s. The Bureau of Labor
Statistics (BLS) reported that in 2003 the
labor force included 62.4 percent of 55
to 64 year olds, 27.4 percent of individuals aged 65 to 69, 14.6 percent of 70 to
74 year olds, and 5.8 percent of those 75
and older. Seventy percent of older
workers were employed full time; parttime workers almost always did so by
choice. While it is generally harder for
older workers seeking a job to find one,
only about 2 percent of Americans 55
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Top Industries in Alabama Employing Older Workers
Second Quarter 2003 to First Quarter 2004 Average Employment
No. of Workers Avg. Monthly
Aged 55 to 64
Earnings
Industry
Professional, Scientific, and Technical Services
Administrative and Support Services
General Merchandise Stores
Ambulatory Health Care Services
Hospitals
Transportation Equipment Manufacturing
Credit Intermediation and Related Activities
Merchant Wholesalers, Durable Goods
Specialty Trade Contractors
Food Services and Drinking Places
Nursing and Residential Care Facilities
Truck Transportation
10,176
7,893
6,818
6,744
5,122
5,099
5,092
5,012
4,805
4,485
4,418
4,354
$5,193
$2,310
$1,890
$4,460
$2,982
$4,702
$3,908
$3,949
$3,198
$1,466
$1,857
$3,048
No. of Workers Avg. Monthly
Aged 65 and over
Earnings
Industry
Administrative and Support Services
Professional, Scientific, and Technical Services
General Merchandise Stores
Food Services and Drinking Places
Ambulatory Health Care Services
Motor Vehicle and Parts Dealers
Specialty Trade Contractors
Merchant Wholesalers, Durable Goods
Nursing and Residential Care Facilities
Food and Beverage Stores
Truck Transportation
Real Estate
3,616
2,815
2,639
1,924
1,804
1,476
1,467
1,429
1,271
1,240
1,071
1,018
$1,431
$3,874
$1,352
$1,083
$3,156
$1,825
$2,389
$2,677
$1,505
$1,199
$2,147
$1,670
Source: U.S. Census Bureau and Alabama Department of Industrial Relations, Local Employment
Dynamics Program, http://lehd.dsd.census.gov.
and over who were not in the labor force
reported that they wanted a job.
Still, in 2002, nearly half of men left the
workforce by age 62 and half of women
by age 60. With the life expectancy of
American women at 80.1 years and men
at 74.8 in 2005, most people can expect
a fairly lengthy retirement. Longer
retirements mean people are at increased
risk for outliving their retirement savings.
As growth in the nation’s workforce
slows, encouraging older individuals to
remain at work longer could benefit individuals, businesses, and the economy.
Later retirement would give people more
income and assets and would also result
in larger contributions to health and
pension systems. The 35.7 percent of
the 55 and over population in the labor
force nationwide will increase to 39.7
percent by 2012, according to BLS projections. This share could be higher if
labor shortages and skill needs lead firms
to offer older workers incentives to
remain on the job.
In the first quarter of 2004, 210,357 jobs
were held by Alabama’s workers aged 55
to 64, while 55,898 were in the hands of
workers who were 65 and older. Older
individuals accounted for 14.9 percent of
the state’s workforce. Those in the 55 to
64 age group were most likely to be
employed in professional, scientific, and
technical service jobs, which offered the
highest average monthly wages among
the top 12 industries for all workers aged
55 and over. Administrative and support
services and general merchandise stores
were major employers of older workers
in Alabama, although earnings were relatively low. Ambulatory health care services are a source of higher wage jobs for
both age groups. Transportation equipment manufacturing; nursing and residential care facilities; administrative and
support services; and professional, scientific, and technical services were the
largest sources of job creation for
Alabama’s older workers, from second
quarter 2003 to first quarter 2004.
Carolyn Trent
[email protected]
AlabamaBusiness
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