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cber.cba.ua.edu
alabama.business
Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama
Volume 76, Number 2
Economic Outlook:
2nd Quarter 2007
United States
Review. The U.S. economy grew 3.3 percent
in 2006, slightly above the 3.2 percent rate
seen in 2005. Consumer spending rose 3.2
percent, down from a 3.5 percent increase in
2005; expenditures on durable goods were up
5.0 percent, beating the 3.7 percent increase
in spending for nondurable goods. Business
spending on equipment and software rose
6.6 percent, significantly below the previous
year’s 8.9 percent growth rate. Residential
fixed investment, which includes both home
construction and sales, fell 4.2 percent, the
first decline since 1995. The U.S. current
account deficit, the difference between the
country’s exports and imports, set another
record in 2006 by rising to almost $860 billion
from $792 billion in 2005.
The economy grew by 1.3 percent in the first
quarter of 2007, the slowest rise since early
2003 and significantly below the first quarter
of 2006, when growth was 5.6 percent. The
largest contributor to this slowdown has been
residential investment. The GDP price index,
an inflation gauge, increased by 4.0 percent
during the quarter, the largest increase in
nearly 16 years.
In the first three months of 2007, payroll
employment gains averaged 152,000; the
Second Quarter 2007
average monthly gain for 2006 was
189,000. The nation’s unemployment
rate crept down to 4.4 percent in
March from 4.5 percent in February
with the creation of 180,000 new
jobs. However, manufacturing firms
continued to shed jobs. The sector
lost 16,000 workers in March after
losing 11,000 in February. Furniture
and related goods producers lost
4,000 workers in March, bringing the
total job decline in the industry over
the last 12 months to 33,000. The
losses were primarily due to the
downturn in home sales and an
increase in cheaper furniture imports
from China. Overall, manufacturing
lost 167,000 jobs in 2006.
Construction added 56,000 new jobs
in March after losing 61,000 jobs in
February, mainly due to cyclical
variations and warmer weather in
March. The sector shed 47,000 jobs
for all of 2006, mostly in residential
and commercial construction. The
services sector gained 137,000 jobs in
March following a 180,000-job gain
in February. Most of the increases
were in healthcare (38,000), retailing
(36,000), and education (16,000).
Surprisingly, professional and business
services, one of the strongest serviceproviding industries, lost 7,000 jobs in
March. This industry group had been
the fastest growing segment of the
economy, adding a monthly average
of 33,000 jobs over the previous
12 months.
Gross Domestic Product
Annual Percent Change
Over Same Quarter Previous Year
6
5
4
3
2
1
0
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2000 2001 2002 2003 2004 2005 2006 2007
Source: U.S. Department of Commerce, Global Insight, and Center for
Business and Economic Research, The University of Alabama.
Consumer Expenditures
Annual Percent Change
Over Same Quarter Previous Year
6
5
4
3
2
1
0
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2000 2001 2002 2003 2004 2005 2006 2007
Source: U.S. Department of Commerce, Global Insight, and Center for
Business and Economic Research, The University of Alabama.
Total U.S. Nonfarm Employment
3
Annual Percent Change
Over Same Quarter Previous Year
2
1
0
-1
-2
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2000 2001 2002 2003 2004 2005 2006 2007
Source: Bureau of Labor Statistics, Global Insight, and Center for
Business and Economic Research, The University of Alabama.
Government entities hired 16,000 new
workers in March, mainly in state and
local agencies. After adding an average
of 11,000 jobs each month over the
previous 12 months, the financial sector
shed 2,000 jobs in March, perhaps due
to losses among sub-prime and other
mortgage lenders. Overall U.S. payroll
employment is expected to record 1.3 to
1.5 percent growth in the first quarter of
2007, with consumer spending rising
3.0 percent. Business spending on
equipment and software is expected to
decline 2.3 percent. Residential investments are forecasted to decreased by
17.7 percent.
In this issue:
Economic Outlook:
2nd Quarter 2007
1
Business Leaders
Confidence Index:
2nd Quarter 2007
5
Economic Indicators
9
Alabama Population
Trends
10
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Although some segments of the U.S. economy,
particularly housing and business spending,
continue to show signs of weakness, consumer
spending is still strong. Rising energy prices
and inflation increase the probability that the
Fed may raise short term interest rates another
25 basis points in the second half of the year.
The sharp rise in consumer prices in March was
primarily due to a 5.9 percent increase in fuel
prices, including a 10.6 percent jump at
gasoline pumps. In the first three months of
2007, fuel prices rose at an annual rate of 22.9
percent. Rising gasoline prices, together with
higher debt payments and falling home prices,
may force consumers to pull back on their
spending. National economic growth is
expected to register just 2.2 percent in the
second quarter of 2007.
Consumer Expenditures. Consumer
expenditures are forecasted to increase
2.1 percent in the second quarter of 2007.
Spending on durable goods will rise 2.2
percent, significantly below the first quarter’s
6.6 percent gain. Spending on new autos will
decline about 13 percent in the second quarter,
after a 5.4 percent drop in the first quarter.
With a significant decline in new home sales,
spending on furniture and household
equipment will increase only 2.4 percent,
following an 11.0 percent climb in the first
quarter. However, spending on computers
is forecasted to remain strong. Following a
roughly 17 percent rise in the first quarter,
computing equipment expenditures will jump
nearly 30 percent in the second quarter of
2007. Spending on nondurable goods will
rise 1.6 percent during the quarter, after a
3.9 percent increase in the first quarter.
Following a 5.7 percent increase in the first
quarter, spending on clothing and shoes
will drop 1.7 percent. Spending on food and
beverages will also slow in the second quarter.
2
Alabama Business
The price of animal feed is rising due to
increased corn prices and these higher feed
costs eventually are reflected in meat prices.
Business Spending. Business spending
will remain strong on information processing
equipment (including computers and peripherals), aircraft, and structures. Expenditures
on equipment and software will increase
10 percent in the second quarter of 2007,
after rising 7.7 percent in the first quarter.
However, spending on core capital goods,
excluding software, will remain soft in the
second quarter and probably for the remainder
of the year. A decline in home sales will also
affect expenditures made by manufacturers of
construction and housing-related products.
Housing Markets. After falling 17.7 percent
in the first quarter of 2007, fixed residential
investment will fall a further 16.4 percent in
the second quarter. Residential construction
will remain weak in the second quarter. Single
family home construction could fall 22 percent
in the second quarter, following a 32.3 percent
drop in the first. Housing affordability remains
a concern. According to a study by the Federal
Reserve Bank of Atlanta, average housing costs
rose almost 50 percent between 2002 and
2006, with nearly 100 percent increases in
some markets, including Florida.
Meanwhile, income growth has not kept pace
with rising home prices. Wages for lower
skilled and unskilled workers have essentially
remained stagnant; this stagnation could
further depress home sales. According to the
Mortgage Bankers Association, delinquency
rates for subprime loans increased 13.3 percent
in the fourth quarter of 2006. The delinquency
rate for prime loans was 2.6 percent. Delinquency rates have increased in 49 of the 50
states, while 44 states saw an increase in
foreclosures. Roughly $3.5 trillion in singlefamily mortgage debt, out of a total of about
$10 trillion, was associated with adjustable
rate mortgages (ARMs). As those mortgages
adjust upward they are adversely affecting both
delinquency and foreclosure rates. According
to Fannie Mae, about $1.1 to $2.2 trillion in
ARMs will reset in 2007, followed by $1.4 to
$2.4 trillion in 2008.
Outlook. For 2007 the U.S. economy is
expected to grow 2.1 percent. Consumer
spending, which has been the primary source
of growth in the last two quarters, will rise
3.0 percent. Total business spending will increase only 3.0 percent; spending on equipment and software will increase 3.7 percent.
In our view, housing markets have not reached
the bottom yet. With tougher lending standards enacted in 2007, reset of ARMs, and
the volume of families affected by these resets,
housing markets can remain in recession at
least through the first half of 2008. After
falling 4.2 percent in 2002, residential investment will plummet nearly 17 percent in 2007.
Overall employment growth is forecasted to be
just 1.2 percent in 2007, with unemployment
rising to 4.8 percent.
Alabama
Exports. In 2006 Alabama exports went to
179 countries and were valued at $13.9 billion,
up 28.5 percent over the previous year’s $10.8
billion. The state’s largest export market in
2006 was Germany at $3.6 billion. Exports
to Germany alone rose 120.7 percent, from
$1.6 billion in 2005 to $3.6 billion in 2006,
and consisted mostly of automobiles. In 2006
our next largest export markets were Canada
($2.2 billion), Mexico ($960 million), Japan
($774 million) and the United Kingdom
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($742 million). Alabama’s exports to the
United Kingdom grew 60 percent from 2005 to
2006. Exports to China, which is the state’s
seventh largest export market, rose from $466
million to $662 million, a 42 percent increase.
However, the U.S. trade deficit with China is
about $300 billion and data on imports are not
readily available at the state level. It is likely
that imports from China into Alabama rose
much faster than exports to China.
Transportation equipment, Alabama’s largest
export commodity, accounted for 39.1 percent
of all exports and rose in value from $3.1 billion in 2005 to $5.4 billion in 2006, up 74
percent. Other major Alabama exports in 2006
included chemicals ($1.9 billion), computers
and electronic products ($908 million), machinery ($855 million), and paper products
($808 million). All remaining export commodities accounted for 29 percent of total exports.
Employment. In the twelve-month period
ending in January 2007, total nonagricultural
employment in the state increased 35,900.
While the state’s 11 metropolitan areas,
comprising 28 counties, gained 31,000 jobs,
the remaining 39 counties gained only 4,900
workers. The Birmingham-Hoover metropolitan area led the state with 7,700 new jobs,
followed by Huntsville (5,200), Mobile (4,000),
and Montgomery (3,300). The Tuscaloosa
metro area added 2,500 jobs, while the
Auburn-Opelika and Florence-Muscle Shoals
metro areas added 2,100 and 2,000 new
workers, respectively.
The largest number of new jobs in the
Birmingham-Hoover metro area were at leisure
and hospitality businesses. Specific job gains
were in food services and drinking places
(2,500), healthcare and social assistance
(1,700), government (1,500), construction
(1,200), and professional and business services
(1,000). Manufacturing firms in the area added
500 to their payrolls, but retailers shed 1,200
workers and the finance and insurance
industries lost 600 jobs.
Industries that added the most jobs in the
Huntsville metro area were durable goods
producers (1,100) and professional and
business services (900). About 800 new
workers were hired in education and health
services and also in leisure and hospitality
industries. Information-related businesses lost
300 jobs. The Mobile metro area’s job gains
were concentrated in education and health
services (1,000) and wholesale and retail trade
(800). In the Montgomery metro area, 2,400
of the 3,300 new jobs were in professional and
business services, while retailers lost 500 jobs.
Statewide, manufacturing industries lost 3,300
jobs from January 2006 to January 2007.
Alabama Business
3
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Alabama Nonagricultural Employment
Change in Number of Jobs
January 2006 to
January 2007
Total Nonagricultural
Natural Resources and Mining
Construction
Manufacturing
Durable Goods Manufacturing
Wood Products
Primary and Fabricated Metals
Machinery
Computers and Electronic Products
Electrical Equipment, Appliances, and Components
Transportation Equipment
Motor Vehicles
Furniture and Related Products
Nondurable Goods Manufacturing
Food
Textile Mills
Textile Product Mills
Apparel
Paper
Plastics and Rubber Products
Trade, Transportation, and Utilities
Wholesale Trade
Retail Trade
Transportation, Warehousing, and Utilities
Information
Telecommunications
Financial Activity
Finance and Insurance
Real Estate and Rental and Leasing
Professional and Business Services
Educational and Health Services
Leisure and Hospitality
Accommodation and Food Services
Food Services and Drinking Places
Other Services
Government
Federal Government
State Government
State Education
Local Government
Source: Alabama Department of Industrial Relations.
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Alabama Business
35,900
-200
4,600
-3,300
3,500
-700
700
500
600
-300
3,200
-100
-800
-6,800
-500
-2,000
-2,300
-2,100
-100
-500
5,800
2,800
1,400
1,600
-500
-800
700
100
600
8,400
5,100
7,200
6,100
6,400
1,100
7,000
-300
3,300
1,400
4,000
Nondurable goods firms lost 6,800 workers while durable goods
producers added 3,500 new workers. Within durable goods
manufacturing, payroll gains were highest in transportation
equipment manufacturing (3,200), and primary and fabricated
metals (700). Job gains for machinery manufacturing and computer
and electronic products manufacturing were 500 and 600,
respectively. All nondurable goods producing industries lost jobs,
with the largest losses in textiles and apparel (6,400), animal
slaughtering and processing (600), and plastics and rubber products
manufacturing (500).
The state’s service-providing firms added 34,800 jobs to their
payrolls during 2006. The gains were primarily in leisure and
hospitality (7,200, of which 6,400 were in food services and
drinking places); education and health services (5,100, mostly in
healthcare and social assistance); professional and business services
(8,400); government (7,000, mainly in state and local government
agencies). Despite the loss of 2,000 jobs by general merchandise
stores, the retailing industry added 1,400 new workers statewide.
Tax Revenues. State tax revenues continue to show relatively
strong growth. For the first six months of the current fiscal year,
which ends in September, state tax revenues totaled $4.2 billion,
up 4.8 percent or about $194 million over the first six months
of the previous fiscal year. Sales tax revenues are up 2.7 percent
($26 million) to almost $1 billion. At $232 million, corporate
income tax receipts are 13.1 percent, or $27 million, higher
compared to the first two quarters of the previous fiscal year.
Individual income tax revenues have risen 8.3 percent, or $122
million, to nearly $1.6 billion.
For the first two quarters of the current fiscal year, appropriations
to the Alabama Education Trust Fund increased by more than $216
million, or 8.8 percent, to almost $2.7 billion, while those to the
state’s General Fund decreased approximately $27 million to $805
million, a decline of 3.4 percent.
Outlook. In 2007 Alabama’s economy is expected to grow
2.9 percent. Slowdowns in both consumer spending and business
spending will negatively impact certain segments of the economy,
particularly manufacturing, retail and wholesale trade, and residential and commercial construction. However, the manufacturing
sector is still expected to expand by 4.1 percent, driven by an increase of almost 15 percent in motor vehicle production. Employment is expected to remain strong in automobile manufacturing.
Other positive economic forces in 2007 will be professional and
business services, industrial construction, health services, and food
service and drinking places.
The effects of higher energy prices are likely to spill over to prices
of other commodities, which can slow consumer and business
expenditures. Most job gains in 2007 will be in eating and drinking
places, administrative services, and healthcare and social assistance.
Ahmad Ijaz
[email protected]
Samuel Addy
[email protected]
Second Quarter 2007 • Volume 6, Number 2
A stronger outlook for sales will lead the improvement across
the state’s industry sectors; the sales component index rose
4.2 points to 60.3. Hiring will be the weakest component, with
that index up just 0.9 points from last quarter and a smaller
percentage of panelists expecting hiring in their industry to
increase. The positive economic climate should enable
Alabama firms to continue the revenue growth, business
development, and expansion they have experienced over
the last three years.
Q2 2007 compared to Q1 2007
60
50
Percent
43.1
40
28.6
30
25.8
20
10
1.4
0
Much
Worse
1.1
Somewhat Remain Somewhat Much
Worse the Same Better
Better
100
80
61.4
60
58.9
National Economy
49.2
Alabama Economy
61.5
Industry Sales
60.3
Industry Profits
55.9
Industry Hiring
54.0
54.2 53.6 56.0
50
40
Capital Expenditures 55.2
BLCI
20
56.0
Index above 50 indicates expansion.
0
Q2 Q3 Q4
2006
Q1 Q2
2007
increase from previous quarter
decrease from previous quarter
Concern about U.S. Economic Growth Continues BLCI panelists
remained cautious in their outlook for the U.S. economy. For the second
survey in a row, the national economy component index came in under 50,
with this quarter’s reading of 49.2 up just 0.8 points from the first quarter.
Thirty percent of respondents think the economy could worsen during the
quarter, while a lesser 26.9 percent expect it to improve. Recent indications
are that growth will be sluggish through the second quarter; forecasting
group Global Insight expects GDP gains for the first half of 2007 in the
1.5 to 2.0 percent range. Housing continues to be a drag nationally, with
concerns in the subprime mortgage market, stricter lending standards, and
declining home prices contributing to a drop in housing starts that could
take 1.0 percentage point off GDP growth. Inventory corrections, falling
business investment spending, and rising inflation are contributing to the
weakness, while exports, rising defense spending, and continued consumer
spending are positive factors for growth. Job creation and wage gains are
supporting consumption as the home equity resource declines.
Outlook for Alabama Economy Strengthens The Alabama economic
outlook component index rose to 61.5 in the second quarter of 2007,
making it the most positive contributor to the forecast for the third
consecutive survey period. A gain of 5.3 points over the first quarter
was the largest increase among the BLCI components. Half of the
state’s business leaders expect the economy to improve during the
quarter, while just 9.7 percent think performance could worsen. Growth
in the transportation equipment sector is helping Alabama avoid the
recent declines in U.S. manufacturing employment, while strong demand
for services of the many national defense-related firms is contributing to
professional and business services job gains. And a number of projects
that would represent sizeable investments are currently under consideration. The addition of 11,000 nonagricultural jobs in February and
continuing low unemployment should keep new people moving into the
state, helping to support the residential housing market.
Alabama Economic Outlook
Q2 2007 compared to Q1 2007
60
50
40.2
Percent
National Economic Outlook
THE OUTLOOK
Alabama
BLCI
Index
Alabama Business Outlook Improves The Alabama
Business Leaders Confidence Index® (BLCI) reversed two
quarters of decline to come in at 56.0, up 2.4 points from the
first quarter 2007 value. Panelists are confident of moderate
improvement in business conditions during the second quarter
of 2007. Positive developments in the Alabama economy will
be a primary impetus for business growth; at 61.5, this index
is the highest of the six BLCI components. Continued strength
in the state’s housing markets, strong employment gains, and
rising personal income should help Alabama companies
counter weaknesses in the U.S. economy during the second
quarter. Business leaders expect national economic problems
to be a slight drag on growth, with the component index
registering 49.2.
43.9
40
30
20
9.1
10
6.2
0.6
0
Much
Worse
Somewhat Remain Somewhat Much
Worse the Same Better
Better
Center for Business and Economic Research, The University of Alabama
50
39.9
40
Percent
50
40
34.0
30
21.0
20
10
3.7
1.4
10
6.2
1.1
0
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Industry Hiring Plans
Q2 2007 compared to Q1 2007
60
Industry Capital Expenditures
60
Q2 2007 compared to Q1 2007
50
47.6
40
34.6
30
20
14.2
10
1.7
2.0
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
56.4
50
40
30
26.1
20
12.7
10
1.7
0
Percent
17.0
Profits Should Show Modest Increase The profits component index
stands at 55.9 for the second quarter of 2007, up 1.9 points over the first
quarter, but more than 4 percentage points below its year-ago reading.
Indications are that growth in after-tax profits will move into the single-digits
for 2007, after five years of annual gains ranging from 14.3 to 32.6 percent.
Among Alabama panelists, 43.6 percent expect profits in their industry to
increase this quarter, while 22.4 percent anticipate a decline. Rising costs
for labor and commodity inputs, slowing productivity gains, and limited
ability to raise prices could contribute to falling profit margins. Strong profits
have been a major contributor to increases in the overall market value of
many Alabama companies over the last three years. During the second
quarter, profit growth should be strongest in manufacturing and in
professional, scientific, and technical services. Trade, FIRE, TIPU, and
construction are expected to see below-average profit gains.
Job Growth to Continue at Moderate Pace Alabama’s expanding
economy should support moderate job gains during the second quarter of
2007. At 54.0, the hiring component index is up 0.9 points from the first
quarter, but is almost 5 points below the year-ago value. The 29.2 percent
of panelists expecting hiring in their industry to accelerate is down from
31.7 percent last quarter. But just 14.4 percent forecast a decrease and
more than half anticipate no change in hiring plans. Helped by strong
federal government demand and growing biotech and aerospace sectors,
professional, scientific, and technical services should see the strongest
job gains, with 45.3 percent of panelists in the industry expecting second
quarter hiring to increase. TIPU is also expected to post above-average job
gains. Manufacturing job growth may be slowing, as just 24.5 percent of
industry panelists forecast increased hiring and over 60 percent anticipate
no change in hiring plans.
2
27.5
30
20
Percent
Q2 2007 compared to Q1 2007
0
Q2 2007 compared to Q1 2007
48.2
Industry Profits
60
0
Industry Sales
60
Percent
Sales Expectations Rebound from Last Two Quarters More than
54 percent of Alabama business leaders forecast sales growth in their
industry during the second quarter of 2007, up from about 48 percent on
the first quarter survey. The sales component index rose to 60.3, more
than 4 points above the two previous quarters. Job and wage gains have
encouraged Alabama consumers to keep on spending—the state’s sales
tax revenues were up 3.7 percent in the first quarter of 2007 compared to
a year ago. Alabama’s housing market appears to be holding up better
than the nation’s, with home prices higher in February 2007 than a year
ago and the average time on the market down a month. And, from this
quarter’s topical questions, it is clear that many Alabama firms have seen
good results from their efforts to develop and market new products and
services. More than two-thirds of panelists in manufacturing and in TIPU
anticipate sales increases during the second quarter, while fewer than half
in retail trade and FIRE forecast gains.
3.1
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
New Capital Investments May Slow The share of Alabama BLCI
panelists expecting capital investment in their industry to increase slipped
slightly, from 37.3 percent in the first quarter to 36.6 percent on the second
quarter 2007 survey. Nationally, orders and shipments of business fixed
equipment have been falling since a November 2006 peak, with businesses
seeming more cautious. The capital expenditures component index rose
1.1 points to 55.2, however, as fewer panelists expect business investment
to decrease. Responses to this quarter’s topical questions indicate that
almost 35 percent of Alabama companies have taken advantage of
increasing revenues and strong profits over the last three years to expand
or remodel their facilities. Capital spending is most robust in the Huntsville
metro, where a number of defense-related firms are building or expanding
facilities. Across the state, investment should be highest in manufacturing,
construction, and TIPU and weakest in trade and FIRE.
Center for Business and Economic Research, The University of Alabama
What type of revenue growth have you
experienced during the past three years?
Topical Question Series:
The Wealth Effect and Business Growth
Last Three Years Good for Many Alabama Businesses
Alabama experienced steady gains in both output and jobs
across the three-year period from 2004 through 2006. Rapid
expansion of the state’s automotive sector certainly contributed
to growth, as did strong gains in professional and business
services and in educational and health care services. The
“wealth effect” factored into demand for the goods produced and
services offered by Alabama businesses as increases in home
values and improving stock market returns helped consumers
feel better off and, hence, able to spend more. On the business
side, strong profit growth and tax law changes that created
generous depreciation allowances encouraged investment in
capital improvements and in information technology.
6.9
50% or more
13.1
40 - 49%
5.1
30 - 39%
14.6
20 - 29%
26.6
10 - 19%
19.7
5 - 9%
16.3
0 - 4%
7.7
Decrease
0
5
10
15
20
25
30
Percent
During the past three years, have you?*
Increased marketing
efforts/expenditures
50.3
Increased hiring
45.1
Developed new
markets/channels
44.5
Implemented new
technology/processes
38.2
35.6
Created new products/services
Expanded/remodeled facilities
34.8
Operations largely unchanged
23.3
2.9
Other
0
10
20
30
40
Percent
50
Various Directions Taken to Grow Business Over the last
three years, Alabama companies have worked to increase
revenues in a number of ways, with most pursuing more
than one of the initiatives listed. Just over half of BLCI
panelists report that their firm has increased marketing
efforts and expenditures. Many have taken their marketing
efforts in new directions, with 44.5 percent developing new
markets and/or channels. More than 45 percent have
increased hiring—a percentage that goes along with the
steady employment gains and low unemployment seen
across much of Alabama since 2004. About 38 percent of
companies have upgraded their operations to incorporate
new technologies and/or processes. While another 23.3
percent note that their operations have changed little over
the last three years, these companies may have made other
changes such as increasing marketing or developing new
products that they do not regard as operational. Alabama
businesses have been creative in recent years, with 35.6
percent of firms bringing new products and services to
market. And more than a third of companies surveyed have
invested in their facilities during the past three years.
*Panelists can choose multiple responses.
60
Revenues Up for Most Firms Seventy-six percent of Alabama
businesses surveyed in March 2007 reported overall revenue
growth of 5 percent or more over the last three years. Another
16.3 percent saw flat revenues or slight gains in the 0 to 4
percent range from 2004 through 2006. Median growth rates
among the firms represented by second quarter 2007 BLCI
panelists fell into the 10 to 19 percent range. Some did much
better, with 6.9 percent reporting revenue growth of 50 percent
or more. Not all firms were able to grow their income, however,
and 7.7 percent of respondents have faced declining revenues
over the last three years. Firms which are relatively small in
terms of sales are most likely to struggle—19.3 percent of
businesses with annual sales under $1 million reported a
decrease in revenue since 2004, while another 19.3 percent
saw revenue growth in the 0 to 4 percent range. Among
businesses with annual sales from $1 to $5 million, 23.2
percent had revenue gains under 5 percent and 8.7 percent
experienced a decline.
During the past three years have you
considered (or undertaken)?*
Expanding your business
53.8
Merging with/acquiring
new companies
29.1
Paying off debt earlier
than anticipated
28.5
20.2
Starting an offshoot or
new company
19.9
No plans to change operations
8.8
Increasing dividends
Other
0
1.4
10
20
30
40
Percent
50
60
Revenue Growth Spurs Action A positive climate for
businesses in Alabama is evident in the 53.8 percent of survey
respondents expanding their businesses over the last three
years or considering an expansion. Mergers and acquisitions
have been undertaken or explored by 29.1 percent of companies, while 20.2 percent of firms have pursued starting an offshoot or a new company. In financial dealings, 28.5 percent of
Alabama businesses have paid off debt early or considered
doing so. While many of the firms responding to the survey are
privately held, almost 9 percent of panelists report increasing or
considering increasing dividends.
Center for Business and Economic Research, The University of Alabama
3
Most Companies See Marked Growth in Market Value The
second quarter survey included an open-ended question asking
panelists about factors contributing to the increasing or
decreasing market value of their company over the past three
years. Responses indicate that the 2004 to 2006 period has
provided a positive economic climate for Alabama businesses,
with 71.6 percent reporting significant improvement in market
value versus 28.4 percent saying that market value has been
relatively flat or declining.
While a small number of respondents attribute their company’s
higher value at least in part to the wealth effect, an equal number
say that the wealth effect is definitely not involved. Alabama
business leaders list a wide range of reasons why their
businesses have prospered over the last three years. Factors
most frequently cited include better sales revenue and profits,
marketing improvements that expand the client base and
increase demand for the firm’s products or services, and the
development of new and/or better products or services. Others
list the positive economic environment or changes within their
industry as well as relevant price increases. Many businesses
have made operational changes that have boosted market
value—implementing advanced technology, working smarter or
more efficiently, and controlling costs. Staff development and
other investments are among factors contributing to increased
market value.
Firms which have seen their market value remain flat or decline
over the past three years most often noted the negative effects of
increasing business costs, inability to raise prices, and lack of
profit growth. Some of these firms are in a market that is
generally declining or in a business that is adversely affected by
weather events. A lack of qualified workers and loss of key
clients are among problems contributing to the lack of growth.
And some firms with stagnant market value are at full capacity,
stable, or in a finite market and do not expect to expand.
Component Index by Area, Q2 2007
Q2 2007
Alabama
Change from Q1 2007
Birmingham
MSA
Huntsville
Mobile
Montgomery
National Economy
49.2
0.8
49.2
53.8
51.1
48.2
Alabama Economy
61.5
5.3
58.6
62.1
69.3
63.4
Industry Sales
60.3
4.2
58.4
66.7
65.9
60.4
Industry Profits
55.9
1.9
54.9
56.1
62.5
53.7
Industry Hiring
54.0
0.9
52.5
59.8
61.4
52.4
Capital Expenditures
55.2
1.1
55.1
61.4
56.1
50.6
BLCI
56.0
2.4
54.8
60.0
61.0
54.8
Huntsville, panelists there are much more positive about capital
expenditure trends for the second quarter.
Alabama BLCI by Component and Region
All six components of the BLCI turned up in the second quarter
of 2007. The Alabama economy and industry sales component
indexes showed the largest increases and were also the two
strongest reasons for business confidence this quarter. At 61.5,
the Alabama economic outlook indicator is 12.3 points higher
than the component index for the U.S. economy. Sales
continues to be the most robust industry indicator, while
hiring is the weakest.
Although panelists from firms in the Mobile metropolitan area
continued to be the most upbeat with an area BLCI of 61.0,
Huntsville business leaders were close behind at 60.0. In
particular, Mobile respondents were more optimistic about the
state’s economy (the RSA’s Battle House Tower and Hotel are
set to open in May), while with a spate of corporate building in
The second quarter area BLCI for both Birmingham and
Montgomery was 54.8, with the Birmingham index up two points
from last quarter and the Montgomery index 5.8 points higher.
Both metro areas expect hiring to be below the statewide
average and respondents in Montgomery anticipate relatively
weak capital investment during the quarter. Panelists in
professional, scientific, and services were the most upbeat
in both metro areas.
Thank you to the more than 350 Alabama business leaders
who completed the second quarter 2007 BLCI survey.
Please join us in June for the third quarter 2007 survey at
www.blci.com/alabama.
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.
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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
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
2005/Q3 2005/Q4
11,115.1
3.4
4.2
3.4
1.97
3.78
2.2
5.9
134.1
1.9
5.0
11,163.8
3.1
4.5
3.8
1.98
3.75
2.3
7.3
134.7
1.8
5.0
2005/Q3 2005/Q4
2006/Q1 2006/Q2 2006/Q3 2006/Q4 2007/Q1
11,316.4
3.7
4.6
4.4
1.99
3.70
2.3
2.9
135.4
2.1
4.7
11,388.1
3.5
5.1
4.7
2.02
3.99
2.0
-9.1
135.9
1.9
4.6
11,443.5
3.0
4.9
4.9
2.03
3.36
1.8
-18.4
136.4
1.7
4.7
11,513.0 11,550.9
3.1
2.1
4.6
4.7
4.9
5.0
2.02
2.04
1.95
2.50
1.7
1.6
-26.5
-30.9
137.0
137.4
1.7
1.5
4.5
4.6
2006/Q1 2006/Q2 2006/Q3 2006/Q4 2007/Q1
1,946.4
2.2
1,967.3
2.2
1,960.2
2.5
1,982.6
1.8
1,974.0
1.4
1,990.6
1.2
1,980.9
1.1
298.7
2.0
300.7
1.8
301.5
2.9
302.5
1.5
300.5
0.6
298.2
-0.8
299.8
-0.6
179.5
5.8
181.7
5.4
182.9
6.0
184.5
3.8
184.3
2.7
186.2
2.5
188.0
2.8
119.2
-3.3
119.0
-3.3
118.7
-1.5
118.0
-1.9
116.2
-2.5
112.0
-5.9
111.8
-5.8
79.6
1.7
232.9
1.1
4.1
23.2
40.5
1,780.0
10.1
766.7
17.4
457.2
6.8
79.8
1.6
238.4
0.2
3.5
17.8
40.5
1,903.1
8.0
764.0
5.1
494.7
13.4
79.7
2.1
232.8
0.2
3.8
21.6
40.6
2,126.2
10.2
899.9
12.4
478.5
7.4
80.8
2.3
234.2
-0.5
3.4
17.8
41.4
2,365.9
10.0
1,229.2
12.9
498.9
6.7
81.0
1.7
233.1
0.1
3.8
20.0
41.2
1,963.7
10.3
854.9
11.5
496.5
8.6
81.4
2.0
239.9
0.6
3.2
21.7
40.8
2,029.2
6.6
879.7
15.2
503.3
1.7
82.3
3.3
235.8
1.3
3.6
26.0
40.1
2,206.5
3.8
932.5
3.6
496.1
3.7
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
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Alabama Population
Trends
Alabama is finally seeing a real uptick in
population growth, according to estimates
released by the U.S. Census Bureau.
Population gains were meager in the first
several years of the 21st century as the 2001
recession weakened the state’s economy and
job opportunities declined in most areas. From
mid-2000 to mid-2001, about 1,000 more
people moved out of Alabama than moved in,
with a modest population gain due solely to
an excess of births over deaths. As economic
growth has picked up, so has the influx of
people moving into the state. Between July
2005 and July 2006, net migration totaled
more than 36,700, an increase of almost
88 percent compared to the previous year.
For the first time this decade, in 2006 the
state’s annual rate of population growth
was faster than the nation’s.
It is almost surprising that the rebound has
not been stronger, as Alabama’s unemployment rate has fallen sharply since 2003 and
employers are reporting shortages of skilled
workers to fill jobs in expanding industries,
including automobile manufacturing, healthcare, and aerospace and defense-related
engineering. With unemployment registering
3.6 percent statewide in 2006, even the best
workforce training programs cannot supply
enough workers with the education and skills
needed for every job opening.
Growth and Opportunity Uneven
Not all of Alabama’s 67 counties gained residents between 2000 and 2006; in fact, just
28 added population during this time. The
remaining 39 counties saw losses as high as
8.5 percent. Population change by county is
indicated on the map on page 11. The primary
factor in population growth or decline is
migration. Twenty-seven counties had net
inmigration as more people moved in than
moved out during the six years. However,
five of these counties experienced a natural
decrease, with more deaths than births.
Another 29 of Alabama’s counties were hit
with net outmigration, but still managed to
deliver more than enough births to offset
deaths. And three of the state’s larger
counties—Mobile, Montgomery, and
Calhoun—had population gains on the
strength of natural increase, despite
outmigration.
Eleven counties were dealt the double blow of
net outmigration coupled with natural decrease
between 2000 and 2006. Most of these
counties actually experienced population gains
between 1990 and 2000, but many have been
10
Alabama Business
hit with plant closings and a lack
of offsetting development since
2000. Only two of these
counties lie in the area of the
state traditionally known as the
Black Belt. Altogether, 12
Alabama counties lost more than
5 percent of their population
between 2000 and 2006 due to
net outmigration; eight of these
counties are in the Black Belt.
Many of the people leaving these
12 counties are not lost to the
state, however; migration data
indicate that they are likely to
relocate to a nearby metropolitan
county.
Metro and Nonmetro Trends
Components of Alabama Population Change
Alabama has long been a state
Population
Net
Natural
where the population is concenEstimate
Migration
Change
trated in the metropolitan areas.
The 11 metros currently encom4/1/2000*
4,447,351
pass 28 counties with an
7/1/2000
4,452,375
397
4,516
estimated 2006 population of
7/1/2001
4,466,618
-1,083
17,117
3,264,017, up 4.2 percent since
7/1/2002
4,477,571
1,322
13,741
2000. Metro area counties
7/1/2003
4,495,089
7,287
12,706
housed 71.6 percent of the
7/1/2004
4,517,442
11,624
12,614
state’s population in 2006, up
7/1/2005
4,548,327
19,559
13,322
from 70.5 percent in 2000, with
7/1/2006
4,599,030
36,716
13,802
population gains outpacing those
*
Estimates
base,
which
includes
changes
through
1/1/2006.
in the nonmetropolitan counties
Note: Natural Change = Births - Deaths.
for every year from 2000 to
Source: Population Division, U.S. Census Bureau.
2006. Shelby County in the
Birmingham-Hoover metro area
industry mix that is generally less
has been the state’s fastest growing county
manufacturing- and more services-dependent
for several decades. And nine of the top ten
helps the metro areas as a whole weather
counties in terms of percent population
economic downturns better than the often
increase between 2000 and 2006 are in
more manufacturing-heavy nonmetro areas.
metropolitan areas. That is not to say that
As Alabama’s economy began to slide in 2001,
every metropolitan county has prospered—
nonagricultural employment (which is by place
the very rural metro counties of Greene and
of work) fell off relatively more rapidly in the
Lowndes are among 12 counties statewide
nonmetro areas. From 2000 to 2003, the
showing outmigration of more than 5 percent
state’s metro areas lost 33,050 jobs and the
of their population since 2000.
nonmetro areas lost 22,650. This amounted to
2.3 percent of the metro areas’ 2000 jobs total,
The 39 nonmetro counties are a diverse group
but for the nonmetro areas it represented a loss
as they include 15 counties that are in microof 4.9 percent. Nonagricultural employment
politan areas (smaller economic centers with
has steadily increased across the state since
at least one core city of 10,000 to 49,999
2003, with the metropolitan counties adding
residents). Coastal Baldwin County, which
84,000 jobs between 2003 and 2006, an
comprises the Daphne-Fairhope micro, has
increase of 5.9 percent, and the nonmetrobeen the second-fastest growing county in
politan counties counting 22,900 new jobs,
Alabama for the last several decades. Popua gain of 5.2 percent. The auto industry
lation in the micro areas approached 844,550
has helped bring jobs to both metro and
in 2006, up 4.1 percent since 2000 and
nonmetro Alabama as suppliers fan out in
amounting to 63.3 percent of the state’s
search of available labor pools and the OEMs
nonmetro total. The remaining nonmetro
draw their sizeable labor forces from their
counties saw their population decline by 2.5
home and nearby counties.
percent after 2000, before stabilizing in 2006.
Jobs are even more centered in the metro
areas, with 76.5 percent of nonagricultural
employment located in these 28 counties in
2006, up from 75.8 percent in 2000. An
As a group, Alabama’s metro areas provide
more than enough jobs for their residents and
the nonmetro areas provide too few. The ratio
of jobs to employed nonmetro residents has
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other overriding factors, such
as housing, schools, or family,
keeping them in their current
location. Both the lack of
newer housing and poorly
performing local public
schools in some of Alabama’s
more rural counties do not
entice younger adults to
remain and raise their families
there.
A Future with Growth and
Prosperity for All?
Population growth for
Alabama as a whole is
expected to continue to build
2000
2003
2006
on the momentum of the last
Alabama
1,931,200
1,875,500 1,982,400
several years throughout this
Metro
1,464,650
1,431,600 1,515,600
decade. Recommendations of
Nonmetro
466,550
443,900
466,800
the Base Realignment and
Percent Change
Closure (BRAC) commission
Alabama
-2.9%
5.7%
will be bringing an influx of
Metro
-2.3%
5.9%
new residents to Madison and
Nonmetro
-4.9%
5.2%
other northern Alabama
Metro Share of Total
75.8%
76.3%
76.5%
counties through 2011, when
Source: U.S. Bureau of Labor Statistics and Center for Business
the last moves are scheduled
and Economic Research, The University of Alabama.
to be completed. Eastern
Alabama counties, including
fallen slightly from .816 in 2000 to .809 in
Lee and Russell, should also see population
2006. This means that if all the jobs in
growth from BRAC as military personnel
nonmetro counties were held by residents,
transferred to Fort Benning in nearby Colum19.1 percent of workers would still have to
bus, Georgia spread out across the area. Onlook elsewhere for work. Of course, some
going and pending economic development is
workers commute out of every metro and
expected to keep the state adding jobs at a
nonmetro county. Persistently higher average
moderate pace, with workforce development
historical unemployment rates across
initiatives helping to provide Alabamians with
Alabama’s nonmetropolitan counties suggest
the skills needed by new and existing jobs. But
that people are reluctant to move and the fact
with unemployment low, employment gains
that nonmetro unemployment rates came
should keep a positive stream of new people
down significantly in 2005 indicates that they
moving into the state to help fill these job
might not need to. The question then arises
openings.
that if gas prices remain relatively high over a
prolonged period of time, will workers become
However, several factors will contribute to a
more likely to move to be closer to their jobs?
growing number of counties showing a natural
The probability may be higher if there are not
Nonagricultural Employment (Jobs)
decrease: the aging of the baby boom
generation, the cumulative outmigration of
young adults in the 20 to 29 age range from
many counties, and the success of some
counties in attracting retirees. That is not to
say that retiree attraction is a negative—recent
trends indicate that retirees are more likely to
relocate to a nonmetro than a metro county.
And they generally have higher disposable
income than the older population “aging in
place” in the county. But a lack of convenient
healthcare services and other amenities make it
difficult for some counties to draw retirees.
Immigration is a positive factor for natural
increase; in particular, Hispanics tend to be
younger and to have more children than the
aging white non-Hispanic population.
Bringing all Alabama counties to a state of
population and economic growth is a longterm aspiration. The effect of decades of
outmigration of young adults coupled with
economic decline has left many rural nonmetro
counties with populations that are older, less
well-educated, have lower incomes, and are
employed in lower-skilled jobs than their metro
or even micropolitan neighbors. But regional
initiatives that help attract jobs and provide
relevant job skills, as well as repair and develop
needed infrastructure are a start. Ultimately,
though, spreading success across every area of
the state will require leadership and tools to
create new competitiveness strategies as well
as local entrepreneurs to develop the financial
and social capital to implement these
strategies.
Carolyn Trent
[email protected]
Note: Visit cber.cba.ua.edu and
www.census.gov for 2006 population
estimates data.
Alabama Business
11
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cber.cba.ua.edu
alabama.business
The Center for
A word from your peers...
Business and
The Alabama Business Leaders Confidence Index® (BLCI) is
a composite representation of the expected health of the state and
national economy as perceived by the very individuals who are in
a position to know—Alabama business leaders. You are able to
gain a perspective from peers who share the same local conditions
therefore making the information more relevant to your important
business decisions.
Economic Research
gratefully
acknowledges
Please log on at www.blci.com/alabama and register to
become a BLCI panelist. It only takes a few minutes and you’ll
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the financial
With increased participation from business leaders like you, the
BLCI will become a more valuable planning tool for the Alabama
business community. Plus, when you participate, you receive an
exclusive preview of survey results before they are released to the
general public. Join today!
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Center for Business and Economic Research
Box 870221
Tuscaloosa, Alabama 35487-0221
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