cber.cba.ua.edu
alabama.business
Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama
Volume 75, Number 1
Economic Outlook:
1st Quarter 2006
United States
Review of 2005. After expanding at an
average annual rate of 3.7 percent for the
first three quarters of 2005, the U.S. economy grew by only 1.1 percent in the fourth
quarter, according to advance estimates.
This was the slowest pace since the fourth
quarter of 2002, when the economy grew
by just 0.2 percent. For all of 2005, U.S.
economic growth averaged 3.5 percent.
The slowdown in the fourth quarter was
primarily the result of declines in defenserelated federal government spending and in
business spending, as well as a significant
cutback in consumer spending. Higher
energy prices and rising interest rates both
had an effect on consumer spending. Energy
prices also pushed the inflation rate up to a
five-year high of 3.4 percent. At the same
time, inflation-adjusted average wages for
production and nonmanagerial workers
declined for the third consecutive year.
Consumer spending, which grew at an
average annual rate of 3.7 percent through
the third quarter of 2005, increased by only
1.1 percent in the fourth. This was its
slowest pace since the second quarter of
2001, when the economy was actually in a
recession. The fourth quarter weakness will
bring growth in consumer spending, which
accounts for about two-thirds of the U.S.
economy, down to an average annual rate of
3.0 percent for 2005 as a whole. Spending
on durable goods fell by 17.5 percent in the
fourth quarter, following an increase of 9.3
percent in the third. This was the sharpest
decline in purchases of durable goods, such
as automobiles and major household
appliances, since the first quarter of 1987.
Spending on durable goods increased at an
average annual rate of only 0.6 percent in
2005. Consumer spending on nondurable
goods, including clothing and food, rose by
4.4 percent for all of 2005, while spending
on services such as healthcare increased by
2.9 percent.
First Quarter 2006
Federal government expenditures
declined by 7.0 percent in the fourth
quarter, following a third quarter
increase of 7.4 percent. Business
spending on equipment and software grew 3.5 percent in the fourth
quarter after experiencing an average
annual increase of almost 10 percent
for the first three quarters of 2005.
For the year as a whole, business
spending on equipment and software climbed more than 8 percent.
With exports increasing by 7.0
percent and imports by 6.4 percent,
the U.S. trade deficit reached $730
billion in 2005. It should be pointed
out, however, that a significant
portion of this deficit results from
U.S. companies manufacturing
products abroad and then importing
them back into the country.
Despite a slowdown in the fourth
quarter, the economy still managed
to add 2.0 million new jobs, with
unemployment averaging 5.1 percent, in 2005. Most of the gains
were in service-related businesses,
and in construction, retailing, and
travel and tourism-related firms.
The manufacturing sector continued
to shed workers despite a 3.0 percent increase in industrial production. Manufacturing lost almost
45,000 jobs in 2005. Strong competition made it difficult for most
manufacturers to pass higher energy
and raw material costs through to
their customers. Although manufacturing continued to experience
job losses, professional and business
services added over 500,000 jobs,
while retailing created approximately
140,000 new jobs in 2005. Construction firms generated about
278,000 new jobs and state and
local governments around the
country added almost 185,000
workers to their payrolls.
Outlook for 2006. Given the
current high rate of labor productivity, the U.S. economy is expected
to expand by 3.4 percent in 2006,
with first quarter growth averaging
In this issue:
Economic Outlook:
1st Quarter 2006
1
Business Leaders Confidence
Index: 1st Quarter 2006
5
Selected Indicators
9
Alabama Metro Areas:
Driving the State in 2005
10
3.8 percent. In recent years, labor productivity has increased by close to 3.5 percent
compared to its long-term average of around
2 percent. Hurricane-related reconstruction
activity will help support economic growth in
the first half of 2006. During the course of
the year, as interest rates continue to rise
gradually, the housing market will begin to
lose steam. While this will have a negative
effect on the overall level of economic
activity, we do not expect a full-fledged
recession. Another sign pointing to a
pending slowdown in the economy was the
inversion of the yield curve in late 2005,
with short-term interest rates being slightly
higher than long-term rates. The shape of
the yield curve is a good predictor of the
economy down the road, generally with
about an 11 to 12-month lag. It should be
pointed out that, although the yield curve is
a fairly good predictor of the economy, it has
also given some false signals over the course
of recent history.
The housing market, which has been the
main driver in the current economic
expansion, will begin to cool in 2006,
primarily due to rising interest rates and
overextended price levels. Most housing
indicators began slowing down in the fourth
quarter of 2005 and are expected to continue
to show some weakness. Housing prices for
existing homes are still growing at a faster
pace than prices for new homes, with
homebuilders likely selling new homes at a
discount, particularly in markets where home
prices have soared in recent years. After
growing by about 4.5 percent in 2005,
residential construction is forecasted to
increase 4.0 percent in 2006, and will
probably slow to around a 2.8 to 3.0 percent
rate by 2007. However, due to hurricane
reconstruction, residential construction could
grow by approximately 5 percent in the first
two quarters of 2006.
As mortgage refinancing activity tapers off it
will have an effect on consumer spending.
Overall consumer spending is expected to
increase by around 3 percent in 2006 and,
after a very slow fourth quarter of 2005, first
quarter 2006 expenditures could grow by 3.5
percent. Spending on home furnishings and
appliances will slow considerably as home
sales and construction decline. Auto sales
are also expected to grow only modestly in
2006.
Business spending on equipment and
software is forecasted to remain strong,
offsetting some of the decline in economic
activity resulting from slowing consumer
expenditures. Investment spending for
equipment and software is expected to
increase by 9.5 percent in 2006, with growth
for the first quarter estimated at close to 12
percent. Spending on industrial equipment
will rise by 6.0 percent in 2006, with a first
quarter increase of approximately 8 percent.
Given relatively high energy prices,
investment expenditures on mining and
petroleum-related structures will climb by
almost 30 percent in 2006, following an
increase of 17.0 percent in 2005.
2
Alabama Business
Energy prices will stay relatively high in 2006
as strong growth in the world economy
continues to rapidly absorb existing supplies
as well as any new supplies coming online.
The price of West Texas Intermediate Crude
is expected to hover around $60 per barrel.
Higher energy prices, together with higher
raw material prices, will keep the inflation
rate around 2.5 to 3 percent for 2006. At
present, energy prices remain the biggest risk
to the forecast. A sharp spike in prices could
have an adverse effect on the cost of doing
business and further erode the consumer’s
purchasing power.
Alabama
Review of 2005. During the 12-month
period ending in December 2005, payroll
employment in the state increased by
17,400. Most of the increase was in servicerelated businesses. Some of the largest gains
were seen in administrative and support
services, which added 4,100 new jobs.
Relatively strong housing markets helped the
construction sector gain approximately 800
jobs. Other sectors of the state’s economy
that performed well included healthcare and
social assistance, adding 2,300 new jobs
from December 2004 to December 2005, and
restaurants and drinking places, where
payroll employment increased by 3,300.
Businesses providing professional, scientific
and technical services added 2,200 jobs to
their payrolls in 2005. Some job gains were
also seen in retailing. However, during the
12-month period ending in December, firms
associated with the finance and insurance
industries lost 1,100 jobs, while the
telecommunications sector shed 100 jobs.
Alabama’s manufacturing sector had a
relatively strong year. During the 12-month
period ending in December, manufacturing
industries added 3,600 net new jobs.
Industries producing durable goods created
4,000 jobs while industries producing
nondurable goods experienced a decline in
their payrolls of 400 workers. Within the
durable goods sector, transportation
equipment manufacturing, which includes
motor vehicle manufacturing, had another
remark-able year in 2005, adding 4,800 jobs
during the 12-month period ending in
December. Other industries that added
workers to their payrolls in 2005 included
foundries (500), fabricated metal (300),
machinery manufacturing (700), and
computer and electronic products manufacturing (400). However, furniture
manufacturers lost 1,300 jobs and the wood
products industry shed 700 workers. Within
nondurable goods manufacturing, food
manufacturing and plastics and rubber
products were the only industries to add to
their payroll employment, creating 1,400 and
400 jobs, respectively. All other nondurable
goods industries experienced job losses.
The upturn in economic growth over the last
two years has had a significant impact on
state tax receipts. During the first quarter of
the current fiscal year, ending in December,
state tax revenues totaled about $1.9 billion.
This was an increase of 8.8 percent, or
approximately $154 million, compared to the
first quarter of the previous fiscal year. Over
the same period, sales tax revenues increased
by 13.4 percent to $494 million, almost $58
million higher than receipts from the same
period of the previous fiscal year. First
quarter corporate income tax receipts totaled
$109 million, an increase of 5.7 percent, or
$6 million, over the first quarter of the
previous fiscal year. Individual income tax
revenues of $654 million were up approximately 5 percent compared to the same
quarter last year, for an increase of $31
million.
In the first quarter of the current fiscal year,
ending in December, appropriations made to
the Alabama Education Trust rose by over
$46.9 million to total $1.2 billion, an
increase of 4.0 percent. Appropriations
made to the state’s General Fund amounted
to $417 million, an increase of approximately
$83.9 million, or over 25 percent, compared
to the first quarter of the last fiscal year.
Outlook for 2006. In 2006 the state’s
economy is expected to grow by slightly over
3 percent and add approximately 26,000 new
jobs. Currently, higher interest rates and
energy prices present the biggest risks to the
forecast. Higher energy prices can place
inflationary pressures on the economy, which
in turn push interest rates higher and erode
consumers’ disposable incomes. Furthermore, higher interest rates could adversely
affect interest sensitive sectors of the
economy.
Alabama’s manufacturing sector should grow
by 5.1 percent, largely due to an almost 27
percent increase expected in the production
or motor vehicles. Although the state’s
economy is forecasted to slow slightly from
2005, some sectors of the economy,
including retailing, construction, professional
and business services, and health services
Alabama Business
3
Alabama Nonagricultural Employment
Change in Number of Jobs
December 2004 to
December 2005
Total Nonagricultural
Natural Resources and Mining
Construction
Manufacturing
Durable Goods Manufacturing
Wood Products Manufacturing
Primary Metal Manufacturing
Fabricated Metal Product Manufacturing
Machinery Manufacturing
Computers and Electronic Products Manufacturing
Electrical Equipment, Appliance, and Component Mfg.
Transportation Equipment Manufacturing
Motor Vehicle Manufacturing
Furniture and Related Products Manufacturing
Nondurable Goods Manufacturing
Food Manufacturing
Textile Mills
Textile Product Mills
Apparel Manufacturing
Paper Manufacturing
Plastics and Rubber Product Manufacturing
Trade, Transportation, and Utilities
Wholesale Trade
Retail Trade
Transportation, Warehousing, and Utilities
Information
Telecommunications
Financial Activities
Professional and Business Services
Educational and Health Services
Leisure and Hospitality
Other Services
Government
Federal Government
State Government
State Education
Local Government
17,400
200
800
3,600
4,000
-700
100
300
700
400
0
4,800
3,000
-1,300
-400
1,400
-500
-200
-400
-300
400
3,500
2,000
500
1,000
0
-100
-200
6,500
2,400
2,100
700
-800
-100
-1,500
-2,000
800
Source: Alabama Department of Industrial Relations.
NOW AVAILABLE!
Alabama Economic Outlook 2006
The Alabama Economic
Outlook 2006 examines
current economic conditions
and trends and their likely
effects on the national and
Alabama economies in the
coming year.
The Alabama forecast focuses
on the short term outlook for
output and employment in
the state by sector and
presents a look at state revenues. Trends in the state’s
metropolitan areas are also discussed.
The Alabama Economic Outlook 2006 is the 27th in an
annual series produced by the Center for Business and
Economic Research. The Outlook is supplemented by a
companion publication of detailed forecast tables. Each
publication is $30.
For more information, call 205.348.6191 or visit our web
site at: cber.cba.ua.edu
To Order:
Please make checks payable to The University of Alabama
and send to:
Center for Business and Economic Research
Box 870221
Tuscaloosa, Alabama 35487-0221.
Name:
Address:
will hold up well. Employment in professional and business services is
expected to increase by slightly over 3 percent, with the addition of
approximately 6,500 jobs. Most of these jobs will be in scientific and
technical services and in administrative and support services. The
educational and healthcare sectors of the economy will add about
3,400 new jobs to their payroll employment, primarily in healthcare
and social assistance-related services. With higher energy prices,
economic activity in Alabama’s natural resources and mining sector is
also expected to improve.
If the state’s economy remains on its current trajectory, barring any
unforeseeable exogenous shocks, Alabama’s tax revenues should rise
by at least 8 percent in the current fiscal year. Sales tax receipts are
expected to increase by over 5 percent.
Ahmad Ijaz
[email protected]
4
Alabama Business
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First Quarter 2006 • Volume 4, Number 1
60
National Economic Outlook
50
Q1 2006 compared to Q4 2005
44.0
40
36.4
30
20
14.9
10
0.8
0
3.9
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
100
National Economy
58.8
Alabama Economy
62.8
Industry Sales
61.9
Industry Profits
57.8
Industry Hiring
56.0
80
60
61.6 61.5 59.7
54.0
59.3
40
Capital Expenditures 58.3
20
BLCI
0
Q1 Q2 Q3 Q4 Q1
2005
2006
59.3
Index above 50 indicates expansion.
increase from previous quarter
decrease from previous quarter
U.S. Economy Benefits from Hurricane Rebuilding During the first quarter
of 2006 the national economy is expected to rebound from the hurricaneinduced fourth quarter slowdown. At 58.8, the national economic outlook
component index is almost 12 points higher than the fourth quarter reading
and just above its pre-Katrina level. Growth in real GDP slowed from 4.1
percent in the third quarter of 2005 to around 3.1 percent in the fourth.
Global Insight, a global economic consulting and forecasting firm, expects the
U.S. economy to expand at a 3.8 percent rate during the first quarter of 2006.
While hurricane rebuilding will add to growth, continued high energy costs
could curtail consumer spending and push up inflation as firms exercise
pricing power. Two more interest rate hikes will likely bring the federal funds
rate to 4.75 percent by the end of the quarter. Almost 48 percent of Alabama
business leaders expect the U.S. economy to improve during the first quarter
of 2006, while 15.7 percent think economic activity could be curtailed.
Alabama Economy to Continue Steady Growth Alabama’s economy
expanded at a 3.4 percent rate in 2005 and is poised for growth of around
3 percent in 2006. About 30,000 new jobs helped spread prosperity across
the state. Every metro area added jobs in 2005 and in November, for the
first time in at least three decades, unemployment in every county was in
the single digits. Median family income rose 2.0 percent between FY2004
and FY2005, according to Department of HUD estimates. Total Alabama
tax revenues for the October to December 2005 period were up 8.8
percent compared to the same period a year ago. Business leaders
expect this momentum to carry over into the first quarter of 2006. At 62.8,
the Alabama economic outlook is the highest component of the BLCI and is
10 points above the fourth quarter dip that resulted from Hurricane Katrina.
About 55 percent of panelists expect growth in the Alabama economy to
accelerate this quarter, while 36.7 percent think growth will follow recent
trends. Only 8.4 percent of respondents anticipate a slowdown in the
state’s economy in the first quarter of 2006.
Alabama Economic Outlook
Q1 2006 compared to Q4 2005
60
50.1
50
36.7
40
Percent
Percent
Expectations for the Alabama economy early in 2006 are the
strongest of the six BLCI components as the state is poised
to build on its 2005 success, particularly in motor vehicle
manufacturing and professional and business services. For the
third consecutive quarter, panelists are more optimistic about
Alabama’s economy than the nation’s, although the U.S. outlook
bounced back almost 12 points from last quarter to 58.8. While
sales is the strongest industry indicator and the outlook for gains
in hiring is the most subdued, all four industry components of
the BLCI forecast expansion.
THE OUTLOOK
Alabama
BLCI
Index
Alabama BLCI Approaches Pre-Hurricane Level The
Alabama Business Leaders Confidence Index® (BLCI) came in
at 59.3 for the first quarter of 2006, gaining back 5.3 points to
approach its pre-hurricane level of 59.7. All components of the
index turned up this quarter. Uncertainty about the hurricanes’
aftermath depressed expectations for the fourth quarter but by
December, when the first quarter 2006 survey was conducted,
the spike in energy prices had abated and it was clear that
hurricane damage in Alabama was more than offset by the
involvement of state businesses in cleanup and rebuilding and
by the positive economic impact of an influx of storm evacuees.
Most importantly, the economy of the state held up well, with job
gains throughout the year.
30
20
8.1
10
0.3
0
4.8
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Center for Business and Economic Research, The University of Alabama
Percent
Percent
Industry Sales
Sales Rebound to Pre-Katrina Levels With the hurricane-induced spike
Q1 2006 compared to Q4 2005
in energy prices abated and demand for materials to be used in rebuilding
60
on the horizon, Alabama business leaders expectations for industry sales
53.2
improved in the first quarter of 2006. The sales component index of 61.9
50
is 3 points above its fourth quarter 2005 value, and about 60 percent of
panelists anticipate increased sales in their industry during the first three
40
months of 2006. Alabama consumers should be in better shape overall
than they were a year ago, with strong job gains during 2005 reducing
30
unemployment and raising income across the state. However, relatively
23.5
high energy costs may be a drag on consumer spending during the winter
20
heating season; 16.8 percent of respondents think sales could trend lower
15.1
this quarter. Sales expectations are especially robust in professional,
6.4
10
scientific, and technical services and in healthcare and social assistance
1.7
services where almost 75 percent of panelists forecast an increase. In the
face of already-strong demand, just half of construction firms expect sales
0
No
Strong Moderate
Moderate Strong
to increase this quarter. Only 48.4 percent of retail firms anticipate sales
Decrease Decrease Change Increase Increase
gains compared to the fourth quarter holiday period.
Higher Energy and Commodity Prices Constrain Profits The profits
60
Industry Profits
component index regained 4.8 points from its fourth quarter low to come in at
Q1 2006 compared to Q4 2005
57.8 for the first quarter of 2006. However, profit expectations remain below
50
their third quarter 2005 level of 59.4. Higher prices for both energy and
44.0
commodity inputs are cutting into profits, although recent surveys by the
40
Institute of Supply Management and the National Federation of Independent
31.9
Business indicate that firms are becoming more likely to raise prices to help
30
cover these costs. Wage gains are also a factor, partially offset by continuing
productivity increases. Across Alabama businesses, 48.5 percent of panelists
17.6
20
expect profits in their industry to rise during the first quarter of 2006, while
19.6 percent forecast a decline. Sixty-nine percent of respondents in
transportation, information, and public utilities (TIPU) industries expect higher
10
4.5
first quarter profits. Expectations are also well above average in professional,
2.0
scientific, and technical services. The wholesale and retail trade and
0
No
Strong Moderate
Moderate Strong
construction industries have the weakest profit forecasts this quarter.
Decrease Decrease Change Increase Increase
Industry Hiring Plans
60
Industry Capital Expenditures
50
44.3
Q1 2006 compared to Q4 2005
38.1
Percent
40
30
20
10.4
10
2.2
0
2
5.0
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
60
Q1 2006 compared to Q4 2005
49.6
50
40
Percent
Job Gains to Continue at Moderate Pace Alabama business leaders
forecast moderate job growth in the first quarter of 2006, with the hiring
plans component index of 56.0 up just 1.1 points from its fourth quarter
2005 value. After a year that saw the addition of about 30,000 jobs across
the state, hiring will likely be slightly lower in 2006. Half of BLCI survey
respondents expect to hold the status quo on hiring this quarter, while
37.3 percent think hiring in their industry will accelerate. Following a year
of strong growth in the motor vehicle industry, job gains in manufacturing
should slow—57.1 percent of manufacturers surveyed expect no change in
hiring plans for the first quarter of 2006, while 30.5 percent plan to step up
hiring. Strongest job growth is forecasted in TIPU; professional, scientific,
and technical services; finance, insurance, and real estate (FIRE); and
construction. Job gains in trade and healthcare are projected to be below
average.
34.2
30
20
10
0
10.1
3.1
3.1
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Business Investment Boosted by Hurricane Rebuilding Capital
expenditures will continue to grow in the first quarter of 2006. The capital
spending component index, which fell only slightly on the fourth quarter
survey, passed its third quarter 2005 reading with a value of 58.3. Slightly
more BLCI panelists expect investment to continue at fourth quarter 2005
levels (44.3 percent) than to pick up the pace (43.1 percent) in the first
quarter of 2006, but just 12.6 percent see a downside. Capital spending
increases should be well above average in construction, supporting Global
Insight’s expectation that industrial and commercial construction will get a
boost from Hurricane Katrina-related rebuilding, particularly of mining and
petroleum structures. Companies in the TIPU sector also expect a strong
increase in capital spending. Information processing equipment, software,
and transportation equipment are all expected to be important investment
targets in 2006. Below average capital spending is forecasted for firms in
trade, FIRE, and professional, scientific, and technical services.
Center for Business and Economic Research, The University of Alabama
Compensation to Rise for Most Alabama Workers Three out
of four Alabama business leaders responding to the first quarter
survey expect employee compensation in their firm to increase
during the first six months of 2006. Increases will generally be
from 2 to almost 4 percent. And 11.5 percent of businesses
expect compensation to rise 5 percent or more. Overall, 19.9
percent of companies surveyed plan no change in employee
compensation through June, but this varies by firm size—28.8
percent of firms with fewer than 20 employees fall into this
category as do 18.1 percent of companies employing 20 to 99
and 13.4 percent of firms employing 100 or more. The most
frequent category of planned compensation increases for
companies with under 100 employees is 2 to 2.99 percent, while
gains are most likely to fall in the 3 to 3.99 percent range at firms
with 100 or more employees. Small firms (under 20 employees)
are most likely to grant large compensation increases of 5
percent or more (17.1 percent of firms), while 11.2 percent of
large companies and just 5.7 percent of mid-size firms expect
compensation increases of this magnitude. Nationally, Global
Insight expects total employee compensation to increase at an
annualized rate of around 3.8 percent in the first half of 2006.
Composition of Change in Compensation
Cost of living
adjustment
30.5%
2005 year-end bonus
21.7%
Granting of
stock options
2.0%
Merit/performance
increase
45.8%
Expectations for Employee Compensation
Over the Next Six Months
Increase 5% or more
11.5
Increase 4 - 4.99%
7.0
Increase 3 - 3.99%
19.6
24.1
Increase 2 - 2.99%
13.4
Increase 0 - 1.99%
19.9
Stay the same
1.7
Decrease
2.8
Don’t know
0
5
10
15
20
25
30
Percent of Panelists
Merit Increases, Cost of Living Raises, and Bonuses Figure
into Gains Awards for merit and performance should account for
the largest share of changes in employee compensation over the
first six months of 2006, amounting to 45.8 percent of the total
increase. Incentive compensation is becoming increasingly
important as firms seek to attract and retain good talent and to
reward high performance. Cost of living adjustments will
contribute 30.5 percent of the change in compensation. Year-end
bonuses are a substantial component, amounting to 21.7 percent
of the overall increase as 2005 came to a close. Stock options
are a meager 2.0 percent, reflecting the fact that most Alabama
businesses are privately held. About 72 percent of Alabama
business leaders reported that their firm will use more than one
form of compensation in awarding increases—slightly below the
78 percent of companies planning to utilize “variable pay plans”
in 2006 on a recent nationwide survey.
Compensation Plans
Compared to One Year Ago
Lower
100
About the same
Higher
85.5
83.3
78.0
80
Percent
Bonuses, Cost of Living Adjustments More Prominent The
majority of employee compensation plans will be structured
about the same this year as last. However, bonuses are more
evident at year-end 2005 than they were a year ago—13.2
percent of companies surveyed this quarter that plan to increase
compensation expected to award year-end bonuses to more
employees than last year. Adjusting for 8.8 percent that planned
to award fewer bonuses yields a net gain of 4.4 percent of
companies expanding year-end bonuses. Cost of living
adjustments will reach a larger share of employees in 2006, with
10.3 percent of firms planning to expand coverage for a net gain
of 3.9 percent awarding cost of living increases to more
employees. However, in line with national trends, stock options
are expected to become a less important component of Alabama
employee compensation packages in 2006.
60
40
20
8.8
13.2
6.4
10.3 12.5
0
2005
Year-end
bonus
2006
Cost of living
adjustment
2.0
2006
Stock
options
Center for Business and Economic Research, The University of Alabama
3
Post-Hurricane Bounce Propels Mobile Economy A number
of Hurricane Katrina evacuees moved east toward the closest
inhabitable coastal area—the Mobile metro area. Home sales
and prices, rental and motel occupancy, and retail sales were all
driven up and remain above normal levels. New and expanding
industries as well as rebuilding of oil and gas infrastructure in the
Gulf of Mexico are also propelling the Mobile economy. Mobile
MSA panelists garnered a BLCI of 64.8, 5.5 points above the
statewide index. The Birmingham, Huntsville, and Montgomery
MSAs all saw strong job growth in 2005 and are poised for
continued economic gains in 2006. Huntsville’s average was
pulled down by a less optimistic outlook among its professional,
scientific, and technical services businesses.
Component Index by Area, Q1 2006
Q1 2006
Alabama
Change from Q4
Birmingham
MSA
Huntsville
Mobile
Montgomery
National Economy
58.8
11.8
58.3
58.6
60.4
60.0
Alabama Economy
62.8
10.0
61.8
62.9
69.8
62.5
Industry Sales
61.9
3.0
62.9
59.3
69.3
60.6
Industry Profits
57.8
4.8
58.2
57.9
62.5
60.6
Industry Hiring
56.0
1.1
57.1
55.0
62.5
54.4
Capital Expenditures
58.3
1.2
58.7
56.4
64.1
58.1
BLCI
59.3
5.3
59.5
58.3
64.8
59.4
A Look into the BLCI Over 350 Alabama
business leaders completed the first quarter
2006 survey online during the month of
December. Panelists came from all of the
broad industry groupings in the state, with the
largest contingent in the combined finance,
insurance, and real estate sector. Manufacturing, trade, and professional, scientific,
and technical services were also particularly
well represented.
Many thanks to all of our panel members for
making this survey a useful and reliable
indicator. Your continued participation is very
important. Please join us in March for our
Second Quarter 2006 Survey.
Distribution of Alabama BLCI Panelists by Industry
Q1 2006
Agriculture/Forestry/Fishing
1.1
Mining
1.1
Public Administration
2.0
Other Services
11.2
Health and Social Assistance Services
5.6
Professional/Scientific/Technical Services
12.6
Finance/Insurance/Real Estate
20.4
Transportation/Information/Public Utilities
8.1
Retail Trade
8.7
Wholesale Trade
8.7
Construction
6.7
Manufacturing
13.7
0
5
10
15
20
Percent of Panelists
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.
25
Selected Economic Indicators
United States
2004/Q2
2004/Q3
2004/Q4
2005/Q1
2005/Q2
2005/Q3
2005/Q4
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
10,704.1
4.6
4.6
1.1
1.886
2.8
2.1
8.8
131.3
1.1
5.6
10,808.9
3.8
4.3
1.5
1.894
2.7
2.1
4.1
131.7
1.4
5.4
10,897.1
3.8
4.2
2.0
1.910
3.4
2.1
-2.3
132.3
1.6
5.4
10,999.3
3.6
4.3
2.5
1.922
3.0
2.2
8.0
132.8
1.7
5.3
11,089.2
3.6
4.2
2.9
1.941
2.9
2.2
5.9
133.4
1.6
5.1
11,202.3
3.6
4.2
3.4
1.966
3.8
2.2
6.1
134.0
1.7
5.0
11,288.7
3.6
4.5
3.8
1.984
3.8
2.2
5.6
134.3
1.5
5.0
Alabama
2004/Q2
2004/Q3
2004/Q4
2005/Q1
2005/Q2
2005/Q3
2005/Q4
1,902.8
1.3
290.9
-1.7
1,905.9
1.9
292.3
0.3
1,923.9
1.9
293.6
1.4
1,913.0
2.1
293.3
2.2
1,933.6
1.6
297.1
2.1
1,929.1
1.2
296.5
1.4
1,939.4
0.8
296.3
0.9
167.7
1.2
168.9
3.3
170.2
3.7
170.8
3.9
173.9
3.7
173.7
2.9
173.7
2.1
123.2
-5.5
123.5
-3.4
123.4
-1.7
122.5
-0.1
123.3
0.0
122.8
-0.6
122.6
-0.6
78.1
2.0
231.5
2.0
5.6
19.7
41.2
1,892.3
13.7
935.9
18.3
436.9
8.1
78.2
1.7
230.8
0.8
5.6
23.0
39.3
1,617.0
8.1
653.1
1.9
427.9
8.5
78.5
1.2
237.1
0.7
5.4
21.7
40.6
1,761.5
16.2
727.0
13.0
436.3
2.7
78.4
2.1
233.0
1.4
5.2
22.2
41.5
1,929.9
9.9
800.3
11.1
445.6
7.8
79.8
2.1
234.6
1.4
4.2
18.6
40.6
2,150.8
13.7
1,088.8
16.3
467.7
7.1
80.1
2.4
234.1
1.4
4.2
23.2
40.2
1,780.0
10.1
766.7
17.4
457.2
6.8
80.5
2.5
235.1
-0.8
4.5
17.8
40.7
1,915.6
8.8
764.0
5.1
494.7
13.4
Total Nonagricultural
Employment (thousands)
Percent Change
Manufacturing Employment (thousands)
Percent Change
Durable Goods Manufacturing
Employment (thousands)
Percent Change
Nondurable Goods Manufacturing
Employment (thousands)
Percent Change
Wholesale Trade
Employment (thousands)
Percent Change
Retail Trade Employment (thousands)
Percent Change
Alabama Unemployment Rate
Initial Benefit Claims (thousands)
Manufacturing Weekly Hours
Total Tax Revenues (millions)
Percent Change
Total Income Tax Revenues (millions)
Percent Change
Total Sales Tax Revenues (millions)
Percent Change
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, 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
Alabama Business
9
Alabama Metro
Areas: Driving the
State in 2005
Led by Alabama’s growing automotive
industry, the economic rebound that began
in 2004 gained strength in 2005. Every one
of the state’s 11 metropolitan areas added
jobs during the year. Between January and
December 2005, the metro areas generated a
total of 38,680 new jobs. As the economy
improved over the course of the year, more
residents of each metro area were able to find
work. With employment rising more than
twice as fast as the civilian labor force, on
average, the unemployment rate fell markedly
in each area during 2005. On a percentage
basis, Dothan saw the strongest job growth
with an increase of 4.6 percent, followed by
the automotive manufacturing centers of
Montgomery and Tuscaloosa with gains of
4.2 and 4.0 percent, respectively.
will begin to attract more
new residents to the
state. As the metro areas
continue to add jobs that
pay good wages, incomes
of the average family will
show marked improvement. Workforce
development holds the
key, however, to maintaining this momentum
by providing enough
workers with the skills
needed in new and
expanding industries
across the metro areas
and the state as a whole.
Metro Area
Developments
in 2005
Metropolitan Area Nonagricultural Employment
Alabama
Anniston-Oxford
Auburn-Opelika
Birmingham-Hoover
Decatur
Dothan
Florence-Muscle Shoals
Gadsden
Huntsville
Mobile
Montgomery
Tuscaloosa
Russell County
Net Jobs in Metropolitan Areas
38,680
Anniston-Oxford. Role
in national defense and
homeland security
expanding; Anniston Army
Depot survived BRAC cuts;
growing workload for the
Depot and related defense
contractors; employment
gains from expansion at
nearby Honda; development
of McClellan progressing;
successful recruiting of
laminate wood flooring
manufacturer Kronospan
GmbH plant that will create
up to 700 jobs; ongoing
retail growth to include
new Oxford Exchange
outdoor mall in 2006.
Relations.
Alabama Business
Change from
January 2005
Number Percent
40,600
2.1
500
1.0
700
1.4
8,000
1.5
1,800
3.1
2,900
4.6
1,700
3.1
1,200
3.1
6,100
3.1
4,900
2.7
7,300
4.2
3,800
4.0
-220
-1.7
* Preliminary
Note: Russell County is part of the Columbus, GA-AL MSA.
Source: Alabama Department of Industrial Relations.
Services was the primary engine of job
growth, accounting for 15,700 new jobs in
the 11 metropolitan areas from January to
December 2005. Professional and business
as well as healthcare services were large
components of these gains, while leisure and
hospitality added jobs in almost every metro
area. Manufacturing was a key sector,
contributing a total of 6,700 jobs across
metropolitan Alabama during 2005. All
areas except Anniston-Oxford and Decatur
posted manufacturing job gains during the
year. While motor vehicles and parts
manufacturing accounted for the largest
share of these new jobs, aerospace, ships,
steel, and computer and electronic products
were also important. Trade, including
wholesale distribution, retail centers, and
neighborhood retail, was responsible for
Metropolitan Area
job gains across the metro areas. And
Unemployment Rate
involvement of many of Alabama’s
December*
January
metros in activities supporting national
2005
2005
defense and homeland security brought
Alabama
3.2
5.5
jobs to governmental entities and to
Anniston-Oxford
3.3
5.5
private contractors supporting their
Auburn-Opelika
2.5
4.5
work.
Birmingham-Hoover
3.0
5.0
Decatur
3.3
5.9
The momentum of 2005 is carrying over
Dothan
2.6
4.9
into 2006. Jobs at automotive plants
Florence-Muscle Shoals
3.7
6.4
and their suppliers continue to grow, and
Gadsden
3.5
6.1
shipbuilding and aerospace are among
Huntsville
2.6
4.4
other sectors that are adding to their
Mobile
3.5
6.0
workforces in 2006. Implementation of
Montgomery
3.2
5.5
decisions by the Base Realignment and
Tuscaloosa
2.7
4.9
Closure Commission (BRAC) may begin
* Preliminary
to shift jobs to Alabama this year. Low
Source: Alabama Department of Industrial
unemployment and ongoing job growth
10
December*
2005
1,944,900
51,100
50,800
516,700
57,400
63,300
54,900
38,400
198,900
178,500
175,100
95,400
12,970
Metropolitan Area Job Creation
by Sector
January to December 2005
Manufacturing
Services
Alabama
Anniston-Oxford
Auburn-Opelika
Birmingham-Hoover
Decatur
Dothan
Florence-Muscle Shoals
Gadsden
Huntsville
Mobile
Montgomery
Tuscaloosa
5,000
-400
100
800
-400
100
400
500
900
300
2,600
1,800
17,500
100
900
3,400
1,100
1,000
600
-200
2,500
2,800
2,700
800
Source: Alabama Department of Industrial
Relations.
What’s on the horizon?
• More transportation equipment
jobs, in automotive manufacturing
and also in shipbuilding and
aerospace.
• Significant growth in North
Alabama as a result of BRAC.
• A continuing increase in jobs
related to national defense.
• Growth in healthcare services
jobs and facilities.
• High tech job gains in medical,
biotechnology, science, and
engineering research areas.
• Increased importance of Alabama’s
targeted career/technical training
programs to supply workforce
needs.
• Population growth as jobs attract
people to the state.
Auburn-Opelika. Strong job gains in
professional and business services and in
state and local government; new and
expanding auto suppliers; other new
manufacturing, including Gambro Renal
Products; Jo-Ann Stores distribution center
opened; retail development at TigerTown and
Colonial University Village mall; strong
population and housing growth; further
growth on the horizon from expansion at
nearby Fort Benning as a result of BRAC.
Birmingham-Hoover. Job gains led by
services, trade, and manufacturing; losses
in banking resulting from SouthTrust sale
to Wachovia; new and expanding auto suppliers; employment growth from expansions
at neighboring Mercedes and Honda;
warehouse development; professional and
business services boosted by new State Farm
operations center; UAB’s new biomedical
research building to bring scientific and
medical research jobs in 2006; downtown
Birmingham redevelopment with Park Place
Hope VI project, loft apartments, and
condos; new Social Security Administration
building and hospital projects underway;
Retirement Systems of Alabama (RSA)’s
Renaissance Ross Bridge Resort and Spa
opened in Hoover; strong suburban
population, housing, and retail growth.
Decatur. Economy diversifying with strong
job growth in professional and business
services, medical services, and in leisure and
hospitality services jobs; gains in manufacturing almost offset losses; steel and some
chemical products plants expanding; future
of rocket production promising; Colonial Mall
renovations underway in 2006; sport fishing
marina under development; expansion of
targeted industry training programs as well
as ongoing construction projects at Calhoun
Community College; funding for I-565
extension corridor study.
Dothan. Gains in retail trade strengthen city
of Dothan’s role as regional shopping hub;
new Dothan Pavilion shopping center on the
horizon; job growth in educational and
health services; expanding warehousing and
distribution sector, including Geneva
County’s new SYSCO facility; expansions at
area manufacturers, including Dothan’s
Pemco Aerospace and Henry County’s
Westpoint Stevens; enhanced cooperation
across the metro to promote retail, industrial,
and commercial development in all area
communities.
Florence-Muscle Shoals. Developments
on many fronts helped the area rebound in
2005; RSA’s Shoals Marriott Hotel, a second
Robert Trent Jones golf course, and an
associated spa and revolving restaurant
brought hospitality jobs and convention and
recreational visitors; services was boosted by
growing call center employment; new and
expanding manufacturing companies more
than offset the loss of the area’s last textile
and apparel jobs; vehicle tail lamp manufacturer North American Lighting selected the
Shoals for a new plant that will bring over
300 jobs.
Gadsden. Job growth from new and
expanding manufacturers, including auto
suppliers; employment growth also from
commuting to nearby Honda; new Rigid
Building Systems plant will employ 200 in
2006; growing retail with opening of Coosa
Town Center and new Wal-Mart Supercenter;
retail and commercial development beginning
to follow housing growth in outlying areas;
large retail and housing developments
planned for Gadsden.
Huntsville. National defense demands
driving growth at area defense contractors;
manufacturing job growth headed by
expansion of Toyota’s engine plant; strong
gains in scientific and technical jobs, with
building and expansion at a number of
companies; groundwork laid for HudsonAlpha Institute for Biotechnology; progress in
providing amenities to attract and retain high
tech workforce with groundbreaking for
World Famous Bridge Street project; strong
residential growth; downtown development
progressing; defense-related population and
job explosion to begin in 2006 as BRAC
move of three units to Redstone Arsenal gets
underway.
Mobile. Strong job gains in shipbuilding and
repair; growing aerospace industry with
Mobile chosen by EADS North America for
engineering center and possible plant; new
and expanding manufacturing industries,
including steel production; Alabama State
Docks expansion on track; sizeable job gains
in professional and business services;
downtown building to bring new office and
hotel space in 2006; tourism and seafood
industries recovering from Hurricane Katrina;
hurricanes brought influx of evacuees,
boosting Mobile economy by hotel occupancy, retail sales, home sales, and rentals;
building underway on the University of
South Alabama’s Cancer Research Institute.
Montgomery. Hyundai Sonata production
began in May, more than doubling plant
employment between January and September; strong job growth at Hyundai suppliers;
gains to continue in 2006 as Santa Fe
production added; plastics and aerospace
manufacturing also growing; professional and
business services saw strong job gains;
Maxwell-Gunter Air Force Base retained its
high tech jobs under final BRAC; residential
and retail development accelerating in
Prattville, where large-scale shopping center
under construction; RSA-led renovation of
Montgomery Civic Center and construction
of performing arts center and adjoining hotel
adding to downtown development.
Tuscaloosa. Job growth driven by doubling
of employment at Mercedes to 4,000 as
second plant came online, full-scale
production of the next generation M-Class
underway at the start of 2005 and R-Class
production added at mid-year; expansions
at Mercedes suppliers and other area manufacturers; job gains in mining and construction; rising enrollment at The University of
Alabama triggering construction of dormitories on campus and private investment in
off-campus student condos; downtown
development to progress in 2006 on new
federal building, urban renewal, and housing.
A report on 2005 developments in each of
Alabama’s 11 metro areas is included in the
Alabama Economic Outlook 2006 publication.
Carolyn Trent
[email protected]
Alabama Business
11
cber.cba.ua.edu
alabama.business
The Center for
Business and
Economic Research
gratefully
acknowledges
the financial
support of
Compass Bank.
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