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alabama.business
Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama
Volume 75, Number 3
Economic Outlook:
3rd Quarter 2006
United States
Review. After sluggish growth in the
fourth quarter of 2005, the U.S. economy expanded at an impressive 5.6 percent annual rate in the first quarter of
2006; the fastest pace in two and a half
years. A slight improvement in the
trade deficit resulted in an upward revision in GDP from a previously estimated
5.3 percent growth rate for the quarter.
Both consumer and business spending
contributed to strong GDP gains, registering their highest growth rates since
third quarter 2003. Consumer spending
rose 5.1 percent, outpacing income
growth and dropping the savings rate to
-1.7 percent for the quarter. Business
spending on software and equipment
increased by 14.8 percent. Corporate
profits rose 28.5 percent after being
revised up from $116.5 billion to $176.7
billion on a year over year basis.
The rapid pace of consumer spending on
imports, together with relatively high
prices for energy and other commodities,
have substantially deteriorated the U.S.
current account deficit. At the end of
2005 the deficit stood at $804.9 billion,
over 20 percent higher than the $668.1
billion deficit in 2004. U.S. foreign liabilities in 2005 exceeded U.S. foreign
assets by $2.7 trillion, up 14 percent
from 2004.
By second quarter 2006, however, the
U.S. economy began to show clear signs
of slowing as commodity prices and
interest rates continued to rise. U.S.
GDP growth for the second quarter is
currently estimated to be in the 2.3 to
2.5 percent range, primarily due to a
slowdown in consumer spending and a
weaker housing market. With increasing
Third Quarter 2006
inflationary pressures from higher
energy and raw material prices,
the Federal Reserve Bank raised
the federal funds rate from 5.0 to
5.25 percent at the June FOMC
meeting, the seventeenth consecutive increase. Long term yields
on treasury bonds increased from
4.6 percent in the first quarter to
approximately 5.1 percent in the
second quarter. Inflation, as
measured by the consumer price
index, rose at a 2.2 percent annualized rate in the first quarter of
2006 to reach approximately 5
percent in the second quarter.
Gross Domestic Product
Annual Percent Change
Over Same Quarter Previous Year
6
5
4
3
2
1
0
-1
-2
Q1
1991
Q1
1994
Q1
1997
Q1
2000
Q1
2003
Q1
2006
Source: U.S. Department of Commerce, Global Insight, and Center for
Business and Economic Research, The University of Alabama.
Higher energy costs are raising
other commodity prices, resulting
in higher prices for manufactured
6
goods. However, some manufacturers and retailers are still find5
ing it difficult to pass cost
4
increases on to their customers.
3
In the face of both rising interest
2
rates and persistently higher
energy prices, residential con1
struction and consumer spending
0
are beginning to show signs of
-1
cooling. Single family housing
Q1
starts and sales of both existing
1991
and new homes were significantly
Source:
lower in the first half of 2006
compared to the first half of
2005. Home price increases have moderated since 2005, reducing consumers’
ability to use home equity and refinancing to support spending.
With consumers pulling back on spending for big-ticket items, total expenditures are expected to rise just 2 percent
in the second quarter of 2006. Spending
on nondurable goods should increase by
about 1 percent, while spending on
durable goods is expected to decline by
2.5 percent. Business spending on
equipment and software is expected to
increase by 5 percent during the quarter,
with spending on information processing
equipment rising about 9 percent.
Consumer Expenditures
Annual Percent Change
Over Same Quarter Previous Year
Q1
1994
Q1
1997
Q1
2000
Q1
2003
Q1
2006
U.S. Department of Commerce, Global Insight, and Center for
Business and Economic Research, The University of Alabama.
In this issue:
Economic Outlook:
3rd Quarter 2006
1
Business Leaders
Confidence Index:
3rd Quarter 2006
5
Selected Indicators
9
Alabama’s Housing
Market Remains Strong
10
Residential investment is estimated to
drop by more than 7 percent in the second quarter, the first decline in over
four years.
The June employment report showed
softness in new job creation, with
increasing wage inflation. The 121,000
increase in payroll employment in June
was significantly below expectations.
Private payrolls averaged a gain of just
86,000 in the second quarter, compared
to 169,000 during the first quarter of
2006. Surprisingly, after years of laying
off workers, manufacturing industries
actually added 15,000 jobs to their payrolls in June. Currently the U.S. industrial sector is operating at 82.4 percent
of total capacity, a six-year high and up
from a May capacity utilization rate of
81.8 percent. The construction industry
lost 4,000 workers in June, with residential construction dropping almost 9,000
jobs as housing markets weakened.
Employment in services-related private
firms was up 75,000 in June. Payroll
employment in retailing fell by 7,000,
the third consecutive monthly decline.
General merchandise stores have lost
almost 61,000 jobs over the last three
months as slower growth in payroll
employment, high gasoline prices, and
interest rate increases continue to
squeeze household spending.
Outlook. A slowdown in real consumer
spending coupled with declining residential investment are expected to remain a
drag on the economy during the second
half of 2006. Slowing gains in payroll
2
Alabama Business
employment will further
deteriorate household
finances and make consumers even more cautious.
Persistently high energy
prices will keep inflationary
pressures on the economy
and affect both consumer
financing and production
and raw material costs for
businesses. Growth in
inflation-adjusted household spending is estimated
to decline from 3.5 percent
in the first half of the year
to around 2.5 to 2.7 percent in the second half.
The Blue Chip Consensus
forecast calls for 3.1 percent GDP growth for the last three quarters of the year. However, in our view
the economy will grow by 2.5 to 2.7
percent for that period, as high oil and
commodity prices are not likely to abate
anytime soon. Oil prices are expected to
stay around $70 per barrel for the
remainder of the year.
Growth in consumer spending is estimated to be in the 2.5 to 3.0 percent
range for the second half of 2006.
Business spending will remain fairly
robust, growing at an average annual
rate of almost 9 percent; business
spending on equipment and software
will increase by approximately 11 percent. Spending on industrial equipment
should also hold up for the remainder of
the year, growing by almost 12 percent
in the third quarter and by about 10
percent in the fourth quarter. With a relatively weaker U.S. dollar, exports are
expected to increase much
faster than imports,
although this will not significantly improve the
imbalances in the U.S. current account. The overall
trade deficit could conceivably be about $825 to $850
billion by year’s end.
The yield on the 10-year
Treasury note is forecasted
to be around 5.2 percent by
the end of 2006 and the
30-year fixed mortgage rate
will increase from its cur-
rent level of about 6.6 percent to almost
6.9 percent. Although the Fed has been
giving mixed signals that it may be
through raising rates, in our view continued inflationary pressures could result
in another 25 basis point increase in the
funds rate to 5.5 percent in August, and
perhaps one more at their September
meeting to end the Fed’s tightening
cycle. Interest rates might start to ease
in 2007, particularly if economic growth
dips below its long-term potential rate
of 3.0 percent. The biggest risk to the
economy at present remains high gasoline prices, which could have a significant downside impact on both industrial
activity and consumer purchases. Most
of the growth in the second half of 2006
will come from capital spending and
exports, a boon for the nation’s industrial sector.
Alabama
Review. During the 12-month period
ending in May 2006, the state’s economy added 35,700 jobs. Over 71 percent
of these new jobs were located in the 28
metro area counties; the remaining 39
counties added about 10,200 jobs.
Unlike the U.S. manufacturing sector,
which in recent years has consistently
lost jobs, Alabama’s manufacturing sector has been growing, primarily due to
the automotive sector. In the 12-month
period ending in May 2006, the state
gained 3,700 new manufacturing jobs.
Durable goods producing industries
added 6,600 jobs, of which 5,200 were
in transportation equipment manufacturing. Wood product manufacturing
gained 600 jobs and computer and electronic product manufacturers created
1,100 new jobs. Nondurable goods
manufacturing industries lost 2,900
workers, including 2,300 in textiles and
apparel. Pulp and paper manufacturing
lost 300 jobs, while employment in
plastics and rubber products manufacturing rose by 500.
ers in the category classified as administrative support, waste management and
remediation services. While wholesale
trade added 1,900 workers, retailing lost
800 jobs. The accommodation and food
services industry gained 4,300 jobs, of
which 2,700 were at eating and drinking
places. Health care and social assistance
employment rose by 5,100 workers,
while state and local government added
2,700 jobs.
In the same 12-month period,
construction-related businesses added
5,100 employees to their payrolls, mostly with specialty trade contractors and
heavy and civil engineering construction
firms. Alabama’s services sector added
26,400 jobs. Almost 10,300 of these
jobs were in professional and business
services, including a gain of 8,100 work-
Although the May 2005 to May 2006
job growth in the state is impressive
compared to recent years, much of the
gain in payrolls was in businesses and
services that typically pay relatively
lower wages compared to jobs in the
industrial sector. For instance, some of
the largest gains in payroll employment
were in eating and drinking places and
administrative support services. Wages
in both these industries are significantly
below the wages paid in other sectors of
the state’s economy. In terms of payroll
employment, from May 2005 to May
2006, the fastest growing areas of the
state included the Birmingham-Hoover
metro area (6,900 jobs), the Huntsville
metro area (5,900 jobs), and Mobile
(5,000 jobs). Among smaller metro
areas, Auburn-Opelika added 1,800 new
jobs and the Florence-Muscle Shoals
metro had a net gain of 1,500 jobs.
With the exception of the AnnistonOxford metro area, where payroll
employment was flat, the state’s other
metro areas also added jobs between
May 2005 and May 2006.
Tax Receipts. Alabama experienced
remarkable growth in tax revenues for
Alabama Business
3
Alabama Nonagricultural Employment
Change in Number of Jobs
May 2005 to
May 2006
Total Nonagricultural
Natural Resources and Mining
Construction
Manufacturing
Durable Goods Manufacturing
Wood Product Manufacturing
Primary and Fabricated Metal Product Manufacturing
Machinery Manufacturing
Computers and Electronic Product Manufacturing
Electrical Equipment, Appliance, and Component Mfg.
Transportation Equipment Manufacturing
Motor Vehicle Manufacturing
Furniture and Related Product Manufacturing
Nondurable Goods Manufacturing
Food Manufacturing
Textile Mills
Textile Product Mills
Apparel Manufacturing
Paper Manufacturing
Plastics and Rubber Products 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
35,700
300
5,300
3,700
6,600
600
300
0
1,100
0
5,200
1,200
-200
-2,900
-200
-600
-700
-1,000
0
500
1,900
1,700
-800
1,000
0
200
1,100
10,300
4,700
4,900
400
3,100
400
1,400
2,200
1,300
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Source: Alabama Department of Industrial Relations.
the first nine months of the current
fiscal year and state tax revenues are
expected to continue to show strong
gains. During the period from October
2005 to June 2006, state tax revenues
totaled more than $6.4 billion, up 9.7
percent, or approximately $565 million,
over the first nine months of the previous fiscal year. Sales tax revenues rose
9.1 percent to about $1.5 billion, an
increase of $123 million. Corporate
income tax receipts totaled over $400
million, up nearly 21.5 percent or about
$70 million. Individual income tax revenues grew 9.0 percent to approximately
$2.5 billion, about $207 million higher
than in the same period of the previous
4
Alabama Business
fiscal year. Appropriations to the
Alabama Education Trust Fund rose by
about $360 million to approximately
$4.1 billion, an increase of 9.7 percent.
Appropriations to the state’s General
Fund increased by approximately $156
million, a gain of 16.1 percent, to total
about $1.1 billion.
Outlook. After remarkable growth in
the first half of the year, the state’s
economy is expected to slow down
somewhat for the remainder of 2006.
With high gasoline prices putting a
strain on household budgets, consumer
spending levels will deteriorate and
stress the retailing industry. Conditions
in housing markets will weaken slightly
in the coming months. However, with
continued sizeable gains in corporate
profits, business spending is expected
to remain strong. The fastest growing
segments of Alabama’s economy are
forecasted to be business and health
care-related services, and automotive
production-related manufacturing industries. Overall the state’s economy is
estimated to grow by 2.5 percent for the
last two quarters of 2006.
Ahmad Ijaz
[email protected]
Third Quarter 2006 • Volume 5, Number 3
Economic conditions at the national level are weighing heavily
on the minds of panelists. Responding to the third quarter topical
questions, Alabama business leaders expressed concerns
including rising interest rates and their effect on housing markets;
consumer confidence and the impact of high energy prices on
both business costs and consumer behavior; and competition and
the difficulty of passing price increases for commodity inputs
forward. Despite these ongoing worries, panelists are confident
that business growth will move in a positive direction during the
third quarter of 2006.
National Economic Outlook
Q3 2006 compared to Q2 2006
50
39.2
Percent
40
32.9
30
23.6
20
10
2.9
1.4
0
Much
Worse
Somewhat Remain Somewhat
Worse the Same Better
Much
Better
100
National Economy
53.1
Alabama Economy
60.9
Industry Sales
62.2
Industry Profits
59.5
Industry Hiring
57.6
80
59.7
60
54.0
59.3 61.4 58.9
40
Capital Expenditures 60.4
20
BLCI
0
Q3 Q4
2005
Q1 Q2 Q3
2006
58.9
Index above 50 indicates expansion.
increase from previous quarter
decrease from previous quarter
Caution about National Economy Tempers Optimism Continued
high energy prices, rising interest rates, a slowdown in the housing
sector, and increasingly stretched consumers are among factors taking
their toll on U.S. economic growth. While GDP increased by a robust
5.6 percent in the first quarter of 2006, gains are expected to be around
2.3 percent in the second quarter. BLCI panelists are cautious about the
pace of economic growth in the third quarter, with 25 percent expecting
economic performance to weaken during the summer. Still, almost 36
percent think conditions will improve compared to the spring quarter,
leaving the national economy component index in mildly positive territory
at 53.1. Strong business investment and export growth should
contribute to U.S. economic gains. But with inflation a factor, the
Federal Reserve may boost the federal funds rate to 5.5 percent at its
August 8 meeting.
Alabama Economy Continues to Outpace Nation Alabama business
leaders are much more optimistic about prospects for growth in the
state’s economy than they are for the nation’s. Although the Alabama
component index is down 3.3 points to 60.9 on the third quarter survey,
it is the second highest of the component indices and is almost 8 points
above expectations for the U.S. economy. The state continues to add
jobs, particularly in construction, durable goods manufacturing, and
services. Nonagricultural employment in May 2006 was 35,700 above its
year-ago level. Statewide unemployment averaged 3.6 percent in 2006
through May compared to 4.7 percent for the United States, with the rate
even lower in each of Alabama’s 11 metro areas. New industry
announcements and expansions continue, and the state is garnering
accolades in categories including business investment, workforce
training, and cost of living. Half of panelists expect the Alabama
economy to perform better in the third quarter of 2006 than in the
second, while 12.4 percent forecast slowing growth.
Alabama Economic Outlook
Q3 2006 compared to Q2 2006
60
50
44.1
37.4
40
Percent
60
THE OUTLOOK
Alabama
BLCI
Index
Alabama BLCI Signals Moderate Growth Alabama business
leaders moderated their expectations for the third quarter of
2006. The Alabama Business Leaders Confidence Index® (BLCI)
of 58.9 signals continued growth, but the decline of 2.5 points
from the second quarter suggests that growth will proceed at a
somewhat slower pace. While all six component indices slipped
from their second quarter readings, they remain in positive
territory. Expectations for the national economy are the weak
spot, with the component index dropping 6 points to come in well
below the other indices. Industry sales, capital expenditures, and
the Alabama economy will be the strongest contributors to growth
for Alabama businesses during the third quarter of 2006.
30
20
11.9
6.1
10
0.5
0
Much
Worse
Somewhat Remain Somewhat Much
Worse the Same Better
Better
Center for Business and Economic Research, The University of Alabama
Industry Profits
60
Q3 2006 compared to Q2 2006
46.4
50
Percent
40
29.1
30
18.0
20
10
5.6
0.9
0
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Industry Sales
Q3 2006 compared to Q2 2006
51.8
60
50
40
Percent
Sales Expectations Upbeat Fifty-nine percent of Alabama business
leaders forecast increased sales in their industry during the third quarter of
2006, in contrast to 16.2 percent anticipating a decline. Although the sales
component index value of 62.2 is down 2.9 points from the second quarter,
it remains the strongest contributor to the BLCI. Recent successes among
Alabama firms in boosting sales of their products and services contribute to
a positive outlook. And, while high gas prices are eating away at consumer
disposable incomes, more Alabamians are working and incomes are rising.
State sales tax collections were up 9.1 percent through June of the current
fiscal year compared to the same period last fiscal year. The University of
Michigan’s Index of Consumer Sentiment stood at 84.9 in June compared
to 96.0 a year ago, indicating that consumers are likely to be cautious with
discretionary spending. Panelists in manufacturing and wholesale trade are
most positive about increasing sales this quarter, while those in construction,
health care, and finance, insurance, and real estate (FIRE) are the least
optimistic.
30
24.8
20
15.1
7.2
10
1.1
0
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Climb in Corporate Profits Unabated Corporate profits should continue
to climb in the third quarter of 2006. Fifty-two percent of BLCI respondents
forecast gains in profits, while 29.1 percent think profit growth will hold
steady. The profits component index of 59.5 decreased just half a point
from last quarter. Continuing growth in profits will help sustain business
spending on equipment and structures in the third quarter. While profitability is up for many firms as a result of productivity gains, companies are
challenged to pass along the increased prices they pay for commodities.
Recent wage gains are becoming a concern, while rising interest rates and
inflation could begin to cut into profits. Among third quarter BLCI panelists,
profit expectations are highest in the other services and manufacturing
sectors. About 29 percent of panelists in both wholesale and retail trade
and almost 26 percent in transportation, information, and public utilities
(TIPU) think profits could fall, compared to 18.9 percent of all respondents
forecasting a decline in industry profits.
Industry Hiring Plans
60
Q3 2006 compared to Q2 2006
40.8
41.0
Percent
40
30
20
11.0
6.5
10
0.7
2
Q3 2006 compared to Q2 2006
50.0
50
40
33.8
30
20
10.8
10
0.9
0
4.5
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Industry Capital Expenditures
50
0
60
Percent
Hiring to Pick Up Moderately Half of Alabama business leaders
surveyed expect hiring plans in their industry to be unchanged from the
second quarter. Job growth should strengthen as 38.3 percent of panelists
forecast an up-tick in hiring and only 11.7 percent forecast a decline. The
hiring component index of 57.6 is down 1.3 points from its second quarter
value. Alabama’s economy has continued to create jobs during the spring,
with motor vehicle manufacturing, trade, FIRE, leisure and hospitality, and
other services among the sectors adding to employment. Responses to
this quarter’s open-ended topical question indicate that finding qualified
workers continues to be a problem for many businesses. During the third
quarter, hiring is expected to be most robust in professional, scientific, and
technical services and in construction. While the majority of panelists in
manufacturing and wholesale trade expect hiring to continue at the current
pace, very few see any downside to employment.
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Capital Spending Boosts Economy Strong increases in corporate profits
are providing companies with ample funds for capital investment. At 60.4,
the third quarter 2006 capital expenditures component index is down just
0.6 points from the second quarter and is the second highest of the industry
indices. Capital spending should be a driver of economic growth this
quarter, with 47.5 percent of panelists expecting to see an increase,
compared to just 11.7 percent forecasting a decline. Business equipment
spending grew at a double-digit rate in 2005 and should experience similar
gains in 2006. Investment in structures is picking up, with post-hurricane
rebuilding, rising capacity utilization, and demand for warehouse and office
space factoring into growth. Capital spending increases are expected to be
the weakest in trade and FIRE, while TIPU could see the largest gains.
The outlook for capital expenditures is particularly upbeat for the Mobile
metro area.
Center for Business and Economic Research, The University of Alabama
How Do You Manage and Motivate Your Sales Force? This
quarter’s topical questions focus on how Alabama business
leaders compensate their sales force while controlling costs.
How do you compensate your sales staff?*
13.0
Contract labor
Compensation Among Alabama businesses surveyed in June
2006, three-fourths of the sales staff receives a salary as all or
part of their compensation. In 27.1 percent of firms, sales
personnel are only paid a salary. Another 23.4 percent pay a
salary plus commissions only, while 15.3 percent of panelists
report compensation of a salary paired with hourly wages.
Commissions figure into sales force compensation at about half
of firms surveyed and are the only form of remuneration at 15.7
percent of companies. Hourly wages are generally combined
with other types of payment. Thirteen percent of firms say that
their sales force works under contract with various payment
arrangements.
What type of sales incentives do you offer?*
Bonus
65.0
Contribution-based profit sharing
27.3
15.7
Prizes
Stock options
Other
None
5.8
3.7
30.8
Hourly wages
49.8
Commission
Salary
75.0
0
20
40
60
80
100
Percent
* Panelists could choose multiple responses on each
of the topical questions.
Incentives Almost 24 percent of third quarter BLCI panelists
report that their companies do not offer incentives to the sales
staff. But the majority (65 percent) use bonuses to reward sales
performance. While bonuses are the only incentive employed by
about 35 percent of firms, they are often paired with contributionbased profit sharing and/or prizes. Profit sharing makes up all or
part of the incentive package at 27.3 percent of panelists’ firms.
Prizes and stock options are generally paired with other
incentives.
23.8
0 10 20 30 40 50 60 70 80
Percent
Tactics to Offset Rising Costs Faced with rising costs, 48.9
percent of Alabama businesses surveyed in the third quarter
look at their product offerings, creating new products or services
to boost sales revenues. Developing strategic alliances is also
an important focus, with 37.5 percent of companies reporting
that this is at least part of their strategy. Exploring market or
channel expansion figures into the sales strategy of over 30
percent of responding companies. Making changes in sales
staff, sales incentive packages, or benchmarks are less
prominent among tactics used to offset rising costs. Just 8.6
percent of companies report discounting to boost sales. Other
tactics noted include raising prices, conservation upgrades to
save on energy costs, investing in technology, increasing staff
productivity, outsourcing, and layoffs.
Sales Challenges When asked about the biggest sales
challenges facing their industry, over 250 Alabama business
leaders responded and most listed more than one concern.
From their responses, it is clear that in addition to specific
concerns related to sales, many commented in a broad sense
about issues including the economic environment, workforce,
and regulation.
Rising interest rates are foremost on the minds of Alabama
business leaders, particularly as they affect homebuilding and
home sales. The available workforce is also an important
concern, with panelists noting difficulty staffing their jobs and the
lack of a talent pool in their area. Competition, in terms of price,
foreign imports, and internet sales presents a challenge to many
Alabama firms. The effect of energy prices is a worry,
particularly as it affects consumer disposable income. And,
generally, companies are concerned about the economy and
about consumers’ perceptions of the economy.
Tactics implemented to offset rising costs*
48.9
New product/service offerings
37.5
Strategic alliances
30.4
Market or channel expansion
15.9
Strategic shifts in sales staff
New incentive packages
13.4
New benchmarking systems
13.4
Discounting
8.6
7.1
Other
0
10 20 30 40 50 60
Percent
Panelists report challenges holding onto profit margins in the
face of higher costs for commodities, labor, technology, health
care, etc., noting efforts to grow revenues, increase close ratios,
and negotiate to preserve price. Some mention difficulty with
product saturation and limited markets. Educating customers on
change and the need for a particular product or service is an
ongoing issue. Other specific sales concerns include meeting
sales quotas to maintain product lines, keeping up with demand,
increasing customer contacts, and keeping certifications for
technical services up-to-date. The reluctance of customers to
close a deal in the face of uncertain future operating costs was
also noted.
More general considerations include tax laws and government
regulations, the state’s legal climate, mergers and acquisitions,
the ongoing war in Iraq, and the effects of recent natural
disasters.
Center for Business and Economic Research, The University of Alabama
3
Metro Area Economies Diverse Very different BLCI values
for Alabama’s four major metropolitan areas highlight the
diversity of their economies. At 55.9, the BLCI for Birmingham
area panelists was three points below the statewide score and
even farther below the index values reported for the other three
metro areas. News of the planned merger of local banking
companies Regions and AmSouth and of pending job losses
severely depressed sentiment in Birmingham’s FIRE sector.
the influx of military and civilian jobs that will result from BRAC.
Mobile business leaders present the most optimistic outlook,
with a BLCI of 65.0, as the area continues to spring back from
Hurricane Katrina. Both construction and professional,
scientific, and technical services firms tallied particularly high
scores. The Montgomery area’s BLCI of 59.0 reflects a
dampening of recent job growth and capital investment as
Hyundai reaches its full production stage.
Huntsville garnered a BLCI value of 61.2, with defense-related
businesses having ample work and the area readying itself for
Component Index by Area, Q3 2006
Q3 2006
Alabama
Change from Q2
Birmingham
MSA
Huntsville
Mobile
Montgomery
National Economy
53.1
-6.0
49.5
54.5
60.3
53.9
Alabama Economy
60.9
-3.3
55.3
67.3
67.1
64.4
Industry Sales
62.2
-2.9
59.4
64.1
67.4
63.4
Industry Profits
59.5
-0.5
56.6
62.2
64.0
60.2
Industry Hiring
57.6
-1.3
55.3
63.5
64.5
54.2
Capital Expenditures
60.4
-0.6
59.5
55.8
66.6
57.8
BLCI
58.9
-2.5
55.9
61.2
65.0
59.0
A Look into the BLCI Almost 450
Alabama business leaders from across the
state completed the third quarter 2006
survey online during June. Panelists came
from all of the broad industry groupings,
with the largest shares in professional,
scientific, and technical services, finance
and insurance, other services, and
manufacturing.
Many thanks to all of our panel members
for making this survey a useful and reliable
indicator. And special thanks to the more
than 250 panelists who took the time to
record their opinions concerning sales
challenges facing their industries. Please
join us in September for the Fourth Quarter
2006 Survey.
Distribution of Alabama BLCI Panelists by Industry, Q3 2006
Agriculture/Forestry/Fishing
0.9
Mining
1.1
Public Administration
2.7
Other Services
12.4
5.9
Health and Social Assistance Services
14.4
Professional/Scientific/Technical Services
13.7
Finance and Insurance
9.7
Real Estate
Transportation/Information/Public Utilities
7.0
Retail Trade
7.0
6.1
Wholesale Trade
7.9
Construction
11.3
Manufacturing
0
5
10
15
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.
20
Selected Economic Indicators
United States
2004/Q4 2005/Q1
2005/Q2 2005/Q3 2005/Q4 2006/Q1 2006/Q2
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
10,897.1
3.8
4.2
2.0
1.911
3.3
2.1
-2.7
132.2
1.6
5.4
11,089.2
3.6
4.2
2.9
1.940
3.0
2.2
6.1
133.2
1.5
5.1
Alabama
2004/Q4 2005/Q1
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
10,999.3
3.6
4.3
2.5
1.922
3.0
2.2
7.9
132.7
1.6
5.2
11,202.3
3.6
4.2
3.4
1.966
3.8
2.2
5.9
133.7
1.6
5.0
11,248.3
3.2
4.5
3.8
1.982
3.7
2.3
7.0
134.2
1.4
4.9
11,403.6 11,469.6
3.7
3.4
4.6
5.1
4.4
4.7
1.993
2.018
3.7
4.0
2.3
2.1
3.0
-6.3
134.7
135.1
1.5
1.4
4.7
4.6
2005/Q2 2005/Q3 2005/Q4 2006/Q1 2006/Q2
1,923.9
1.9
1,913.0
2.1
1,933.6
1.6
1,929.1
1.2
1,952.2
1.5
1,960.2
2.5
1,981.0
2.5
293.6
1.4
293.3
2.2
297.1
2.1
296.5
1.4
298.1
1.5
301.5
2.8
302.7
1.9
170.2
3.7
170.8
3.9
173.9
3.7
173.7
2.9
176.6
3.8
182.9
7.1
184.0
5.8
123.4
-1.7
122.5
-0.1
123.3
0.0
122.8
-0.6
121.5
-1.5
118.7
-3.2
118.7
-3.7
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
80.3
2.3
239.3
0.9
3.7
17.8
41.3
1,903.1
8.0
764.0
5.1
494.7
13.4
79.7
1.7
232.8
-0.1
3.8
21.6
40.6
2,126.2
10.2
899.9
12.4
478.5
7.4
80.6
1.0
233.8
-0.3
3.0
17.4
40.1
2,365.9
10.0
1,229.2
12.9
498.9
6.7
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’s Housing
Market Remains
Strong
Existing home prices in Alabama rose
to an all time record average in May
2006 of $160,720. Despite rising interest rates, high oil prices, and flagging
consumer confidence, we are fast
approaching another record year for
housing in Alabama following the high
set in June 2005 when 5,905 properties
were sold.
Photo courtesy of Carolyn Goode of the Alabama Real Estate Research and Education Center.
The number of homes listed for sale
represents a very sizeable increase of
32 percent compared to a year ago.
This translates into an almost six
month supply of existing housing at
the current rate of sales. Year to date,
the number of homes put on the
market totals 151,381, compared to
only 120,218 during the same period in
2005. Despite this large increase in the
supply of available homes, the average
number of days a house spends on the
market has remained remarkably stable.
Baldwin County. The Baldwin County
market seems to be firming up after a
rough post-Katrina period. Prices have
been relatively stable for the first five
months of the year, in the neighborhood
of $295,000, but they are below the
record of $344,656 set in February 2005.
Year to date sales are still well behind
the pace set in 2005 (1,470 units sold
through May 2006 compared to 2,331
through May 2005) and the inventory
of homes has increased to a 19-month
supply at the current rate of sales.
Overall, the data indicate a period of
readjustment for Baldwin County real
estate while people reevaluate after the
devastating effects of Hurricane Katrina.
Birmingham. The Birmingham market
continues to be strong for home sales.
For the first five months of 2006 compared to the same period in 2005, the
average number of homes sold per
month increased by 100 to 1,392, with
the average selling price increasing by
$11,683 and the median selling price
rising by an average of $7,939. In the
10
Alabama Business
Birmingham market, the average price
of a home sold during the months of
January to May 2006 was $199,270.
The average number of days on the market was virtually the same during this
period as the year before, while the total
number of homes for sale in any month
during the period increased by an average of 1,886 to reach a level of 8,640.
The Birmingham area remains a solid and
steadily growing real estate market for
the state.
Dothan. Dothan’s housing market, like
Birmingham’s, is seeing steadily growing
activity. The average number of sales
per month in the Dothan market rose
from 79 homes per month during the
first five months of 2005 to 114 per
month during the same period in 2006.
Average and median selling prices in the
Dothan market increased slightly in the
first five months of 2006. Homes appear
to be selling more quickly in Dothan
compared to the previous year, with an
average of 26 fewer days on the market.
Dothan’s strategic location provides it
with a sound and diversified real estate
market. Located a few miles from the
state lines of Florida and Georgia,
Dothan is one of the region’s most progressive cities. The Dothan area offers
affordable housing with low property
taxes and a wide variety of housing for
people from young families to retirees.
Huntsville. Huntsville remained a very
strong market between early 2005 and
early 2006. The average number of
homes sold per month in the Huntsville
market increased by 162 for January to
May 2006 compared to the same period
in 2005, to reach a monthly average of
854. In addition, the average selling
price increased by $10,091 in the first
five months of 2006 compared to 2005,
while the median selling price jumped by
$12,454. The average number of days a
home was on the market in the
Huntsville metro area decreased by six
days compared to the previous year,
while the number of homes for sale
increased by 503. Huntsville’s implementation of its regional growth initiative is paying off. Over 5,400 new jobs
have been created, which means an
increase in the number of houses
needed for new residents of the area.
Mobile. The Mobile residential real
estate market, like that of Baldwin
County, was significantly affected by
Hurricane Katrina in late 2005. The
real estate situation on the Alabama
Gulf Coast is still hard to read, but
seems to have more good news than
bad. The average number of homes sold
per month in Mobile County decreased
by 53 to 500 during the year over year
period, but the average selling price
climbed by $9,061 to $161,930 and the
median selling price grew by $8,950 to
$131,700. Amazingly, the average number of days on the market for a home in
Mobile County decreased by 36 days in
a year’s time. Over the first five months
of 2005, the average house was on the
market for 95 days. Over the same period in 2006, the average house was on
the market for only 59 days. Mobile’s
cost of living continues to rank as one
of the 10 lowest out of the 80 largest
metropolitan cities in the United States.
Rebuilding efforts are underway and
some residents of Baldwin County are
relocating to Mobile County.
Montgomery. The Montgomery market
is also proving to be a growth market
for Alabama. While the average number
of sales hasn’t changed much in 2006,
the average selling price increased by
$18,781 and the median selling price
rose by $20,525. Redevelopment of
the downtown convention facilities
and the presence of a five-star hotel
will continue to build Montgomery’s
Riverfront development as a thriving
retail, residential, and entertainment
district. With Hyundai and various
supporting businesses locating in
Montgomery, the city will see new
faces and new dollars supporting the
community.
Tuscaloosa. The Tuscaloosa market
continues to grow as well. The average
number of homes for sale increased during the first five months of 2006 compared to the comparable period of 2005.
The average selling price was up $6,736
to $162,053 over the period, and the
median selling price increased by $7,817
to $143,437. The average number of
days a house is on the market is longer
in Tuscaloosa than in Mobile, Huntsville,
or Birmingham, but the Tuscaloosa market continues to thrive. The plan to
attract an additional 8,000 students to
The University of Alabama, the recent
expansion of the Mercedes facility, and
new downtown revitalization and riverfront developments are providing opportunities for the area’s real estate market.
Outlook. It would appear that the
housing market is continuing
to expand in most locations within
Alabama, with both prices and sales
levels up. There seems to be a shift in
demand from higher cost markets to
locations where price appreciation has
been more modest, as buyers seek more
affordable housing. Add the strong
labor market in Alabama and all ingredients are in place for another good year
for housing.
speculation over the last few years are
cooling, with prices returning to more
sustainable levels. Interest rates have
been slowly, but steadily, rising for the
last year. May 2006 mortgage rates
were about 100 basis points higher
(1.0 percent) than during May of last
year and the Federal Reserve just
announced another 1/4 percent hike
in the federal funds rate. While fears
of a housing bubble are receding, rising
interest rates and declining housing
affordability, high gasoline prices, and
sagging consumer confidence will probably work to soften housing markets,
especially in higher priced communities,
as we move into the second half of the
year.
Suzanna Allaway
[email protected]
Leonard V. Zumpano
[email protected]
Research assistance from Junhua Yu
http://arerec.cba.ua.edu
Those markets that experienced doubledigit price appreciation and significant
Alabama Home Sales Report
Average Statewide Statistics
Total Homes Sold
Average Selling Price
Average Days on Market
Total Homes Listed
May 2006
April 2006
May 2005
Year to Date
May 2006
Year to Date
May 2005
5,695
$160,720
123
32,781
4,983
$157,905
117
32,188
5,550
$143,813
131
24,748
23,807
$152,302
127
151,381
23,097
$142,634
136
120,218
These statistics reflect residential sales of houses, condominiums, and townhomes by REALTORS® in the local boards/associations of REALTORS®.
This and more information can be found at http://arerec.cba.ua.edu
Alabama Business
11
cber.cba.ua.edu
alabama.business
The Center for
Business and
Economic Research
gratefully
acknowledges
the financial
support of
Compass Bank.
Let Your Voice Be Heard
Each quarter a select group of business leaders provide their
input on economic expectations for the upcoming quarter
through the Alabama Business Leaders Confidence Index® (BLCI).
The BLCI, a collaborative effort by Compass Bank and The
University of Alabama, provides a unique snapshot of the health
of the state and national economies. Through the BLCI you are
able to gain a perspective from local peers, making the information more relevant to your important business decisions.
Log onto www.blci.com/alabama today to become a participant in the BLCI. We will remind you on September 1st to
share your opinions in a survey that will only take a few minutes
of your time.
By providing your opinion, not only is the value of the index
enhanced, but you also receive an exclusive preview of the
results. Join today!
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Center for Business and Economic Research
Box 870221
Tuscaloosa, Alabama 35487-0221
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Tuscaloosa, AL 35401
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Address service requested.
THE UNIVERSITY OF
Alabama Business is sponsored in part by
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Compass Bank and The University of Alabama.
ALABAMA
CENTER FOR BUSINESS &
ECONOMIC RESEARCH