cber.cba.ua.edu
alabama.business
Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama
Volume 76, Number 4
Economic Outlook:
4th Quarter 2007
United States
Review. The U.S. economy grew 3.8 percent
in the second quarter of 2007, following a 0.6
percent increase in the first quarter. Growth
in personal consumption expenditures for services; exports; investments in nonresidential
structures; federal, state, and local government
spending; and business spending on equipment
and software offset the negative contribution
from residential fixed investment, which includes both home sales and home construction. Residential investment declined 16.3
percent and 11.8 percent in the first and
second quarters, respectively. GDP growth in
the second quarter reflected a downturn in
consumer spending on both durable and
nondurable goods, both of which slowed
significantly after a good first quarter. Total
industrial production increased 3.5 percent in
the second quarter, an improvement over the
first quarter’s 1.1 percent gain. The pickup in
industrial activity primarily reflected a 7.5
percent increase in exports.
The downturn in the housing market has made
consumers very cautious about the state of the
economy, which remains relatively fragile. According to Conference Board reports, consumer
confidence slipped to 99.8 in September, the
lowest level in almost two years. However, the
consumer confidence index remains well above
the level of 60 to 70 that is generally viewed as
a sign of an upcoming recession. Another
factor making consumers cautious is the
amount of household debt, which currently
stands at 136 percent of household income
and has increased 36 percent during the past
six years. Housing markets are weak and show
no clear signs of a recovery. Housing permits,
after peaking in June 2005 at 212,000, have
steadily declined since. And, as more subprime
and adjustable rate mortgages reset, there is a
good chance that conditions in the housing
market could deteriorate further. According to
the Wall Street Journal, $1.5 trillion of high
interest loans were made between 2004 and
2006. These high rate mortgages comprised
Fourth Quarter 2007
29 percent of loans originating
in 2006, up from 16 percent in
2004. Of 43.6 million mortgages originating in 2006, 10.3
million were classified as subprime mortgages. Furthermore,
there were significant numbers
of subprime and adjustable
rate loans made in the first half
of 2007 that have yet to reset
to higher rates.
After rising 3.7 percent in the
first quarter of 2007, consumer
spending, which accounts for
almost two-thirds of the economy, increased only 1.4 percent in the following quarter.
Expenditures for durable goods
increased 8.8 percent in the
first quarter and 1.7 percent in
the second quarter. Weakness
in housing markets resulted in
a slowdown in consumer
spending on household furniture and equipment. The
second quarter also saw a
steep decline in sales of light
trucks. Light truck sales
dropped almost 17 percent,
following a 39.5 percent
increase in the first quarter.
Spending on nondurable goods
fell 0.5 percent in the second
quarter, a sharp reversal from
the 3.0 percent gain seen in
the first quarter.
Business spending on equipment and software increased
1.4 percent in the second
quarter after a 0.3 percent
increase in the first quarter.
Industrial equipment expenditures declined 2.9 percent in
the first quarter of 2007, but
rose 16.3 percent in the
second quarter as strong
exports and a pickup in
manufacturing boosted
spending. However, firms’
expenditures on transportation
equipment declined 23.8
percent in the second quarter,
after falling 15.2 percent in the
Economic Outlook:
4th Quarter 2007. . . . . . . . . . . . . . 1
Business Leaders Confidence Index:
4th Quarter 2007 . . . . . . . . . . . . . 5
Economic Indicators . . . . . . . . . . . 9
Underemployment
in Alabama . . . . . . . . . . . . . . . . .10
In this issue: BLCI panelists focus on support from state and city governments
first quarter. Aircraft purchases rose significantly during both quarters, however.
The U.S. unemployment rate increased to 4.7
percent in September, slightly above its average
of 4.5 percent since September 2006. Payroll
employment rose by 110,000 in September,
following an increase of 89,000 in August.
However, average monthly private sector
employment growth slowed to 74,000 during
the third quarter, compared to 114,000 in the
second quarter. Weakness in the housing
sector is now clearly affecting other areas of
the economy. Construction jobs declined
14,000, primarily due to a loss of 20,000 jobs
in the housing sector. Credit intermediation
lost 12,000 jobs, while employment at building
materials stores fell by 17,000 in September.
Despite a pickup in industrial activity, manufacturing continues to shed jobs. Payroll
employment in the sector dropped 18,000
in September after a loss of 45,000 jobs in
August. This was the seventh consecutive
month of decline in temporary payrolls, with
losses totaling 93,000 this year, including
20,000 in September. There are still some
sectors that are adding to their payrolls.
Healthcare gained 33,000 new workers, while
food and drinking places added 25,000 jobs.
Professional and technical services also gained
37,000, its strongest month since April.
Although the number of subprime mortgages is
relatively small compared to total mortgages
outstanding, the problem in the credit markets
lies with instruments used to spread this risk
around, such as mortgage-backed securities
and other debt obligations that package these
mortgages and other risky assets. Falling or
flat home prices, together with tougher lending
standards, have furthered the housing market
problem. Housing starts dropped 2.6 percent
in August 2007 to 1.33 million, their slowest
pace in nearly 12 years, while single-family
2
Alabama Business
housing permits slid 8.1 percent in August to
0.93 million. From August 2006 to August
2007, single-family housing permits declined
28 percent. According to the National
Association of Home Builders (NAHB),
confidence among home builders dropped to an
index reading of 20, which is the same as the
all-time low seen in January 1991. NAHB
started the index in 1985, and just two years
ago the index reading was 70. With more
adjustable rate mortgages coming up for reset,
home sales will continue to fall. Builders will
have to cut construction and prices in order to
bring down the current levels of inventory.
Total residential construction dropped 11.6
percent in the second quarter, following a 16.6
percent decline in the first quarter. During the
first two quarters of 2007, construction on
single family homes dropped 29.8 percent and
14.3 percent, respectively. Every category of
residential construction experienced a decline
in the second quarter.
Outlook. With weakening consumer spending and a slowdown in the housing markets,
the U.S. economy is now expected to grow
2.7 percent in the third quarter, followed by
1.5 percent in the fourth quarter. Given slower
employment growth, falling home prices, and
tighter credit conditions, consumer spending
will likely increase 3.4 percent in the third
quarter, with growth of 2.1 percent forecasted
for the fourth quarter. Housing starts will drop
to the 1.2 million level by 2008, down from a
current level of 1.4 million. The housing market is not expected to recover until at least the
second half of 2008. Residential construction
will decline approximately 17 percent in the
third quarter and 24 percent in the fourth
quarter of 2007.
The Federal Reserve will most likely cut the Fed
Funds rate to 4.5 percent. However, with
inflation slowing, we would not be surprised if
they drop the rate to 4.25 percent in the fourth
quarter, which could send the value of the U.S.
dollar even lower. A cheaper dollar is great
news for exporters, but not for U.S. consumers, who end up paying higher prices for imported goods. Oil prices will probably increase
in the second half of the year, averaging $76
to $78 per barrel compared to the first half’s
average of $60 to $62. On the bright side, the
inflation rate is expected to remain low over
the next two quarters. Overall, prices are
expected to increase 1.8 percent in the third
quarter and 1.6 percent in the fourth quarter
of 2007. U.S. exports will grow 11.8 and 8.2
percent during the third and fourth quarters,
respectively.
Alabama
Employment. During the twelve-month
period ending in August 2007, the state added
27,700 net new jobs. Almost 86 percent, or
23,800, of these jobs were located in the 11
metropolitan areas, comprising 28 counties.
The remaining 39 counties added 3,900 jobs.
The Mobile metropolitan area led the state
with 5,400 jobs, followed by the BirminghamHoover, Huntsville, and Montgomery metropolitan areas, adding 5,000, 4,900, and 3,800
jobs, respectively. Most of the jobs added in
the Mobile metro area were in education and
health services (1,100), local government
(1,100), and professional and business services (1,000). The majority of jobs added in
Birmingham-Hoover were in local government
(1,400) and food service and drinking places
(1,300). Most of the Huntsville MSA’s new
jobs were in professional, scientific, and technical services (1,300), while in Montgomery
they were in retailing (1,200) and business and
professional services (1,100).
Alabama’s manufacturing sector experienced
the net loss of 3,400 jobs during the 12
months ending in August 2007. However,
durable goods manufacturers in the state
continue to surprise on the upside. From
August 2006 to August 2007, durable goods
industries netted 1,500 new jobs, most of
which were in motor vehicle and parts
manufacturing (1,000). Aerospace products
and parts manufacturing also gained 600 jobs,
while primary and fabricated metal industries
added 400 jobs. Transportation equipment
manufacturing is also the state’s largest
exporter, accounting for 39 percent of
Alabama’s total $5.4 billion in exports.
Industries producing nondurable goods shed
4,900 jobs during the twelve-month period
ending in August 2007, with declines in most
nondurable sectors except for 100 jobs added
in animal slaughtering and processing. The
majority of the losses were in textiles and
apparel, which dropped a total of 4,300
workers from their payrolls.
During the twelve-month period ending in
August 2007, mining-related firms lost 200
jobs. The construction sector added 2,800
workers, primarily in the area of specialty trade
contractors (2,100). Service providing firms in
the state continue to add to their payrolls.
Altogether, from August 2006 to August 2007,
these firms added 28,500 jobs, primarily in
leisure and hospitality services (4,600),
education and health services (3,700), and
professional and business services (6,000).
Despite a slowdown in consumer spending,
retailers in the state added 4,500 net new jobs,
most of which were in department stores
(2,100). Firms providing professional,
scientific and technical services added 3,600
jobs. Most of the new jobs within leisure and
hospitality (4,800) were associated with food
services and drinking places. The government
sector, primarily local governments, gained
5,600 jobs during the twelve-month period
ending in August 2007.
Tax Receipts. After experiencing remarkable
growth in recent years, tax revenue gains have
slowed somewhat. During the fiscal year
ending in September 2007, state tax revenues
grew 4.2 percent and totaled over $8.7 billion.
Sales tax revenues rose 2.5 percent to about
$2.0 billion, almost $49 million higher than
the previous fiscal year. Corporate income tax
receipts totaled slightly over $509 million, a
decline of nearly 3.5 percent, or $19 million
below the previous fiscal year. Individual income tax revenues grew 9.1 percent to approximately $3.5 billion, about $292 million higher
than the previous fiscal year. Appropriations
made to the Alabama Education Trust Fund
increased about $358 million to approximately
$5.5 billion, a rise of 6.5 percent. Appropriations made to the state’s General Fund were
up approximately $3.5 million, a 0.22 percent
increase, and totaled approximately $1.6
billion.
Alabama Business
3
Alabama Nonagricultural Employment
Change in Number of Jobs
Aug 2006 to
Aug 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
Motor Vehicle Parts
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
Local Education
27,700
-200
2,800
3,400
1,500
-600
400
300
300
-200
1,400
-300
1,000
-300
-4,900
300
-800
-1,600
-1,900
-400
-100
8,100
2,200
4,500
1,400
0
-100
-100
-200
100
6,000
3,700
4,600
4,700
4,800
600
5,600
-400
900
-1,500
5,100
2,000
Source: Alabama Department of Industrial Relations.
Outlook. After a strong first half of the year, the state’s economy is
forecasted to grow approximately 2.8 percent in the third quarter of
2007 and 2.0 percent in the fourth quarter. For the year as a whole,
Alabama’s economy is estimated to expand by 2.7 to 3.0 percent.
Consumers will remain cautious over the next few months as both high
energy prices and constricted housing markets continue to affect the
state. Although Alabama did not have a housing bubble like a number
of other states, some areas did see relatively rapid increases in home
prices. Tightened lending standards across the nation will have an effect
on Alabama consumers. Residential construction is forecasted to
decelerate even further in the coming months.
4
Alabama Business
2008 Economic
Outlook Conference
REMEMBER
THIS DATE:
Thursday,
January 17,
2008!
The University of Alabama’s
Center for Business and Economic
Research will hold its annual
Economic Outlook Conference on
Thursday, January 17, 2008 in
Montgomery, Alabama.
For more information:
Phone: 205.348.6191
Fax: 205.348.2951
Email: [email protected]
http://cber.cba.ua.edu
Job growth has been slowing in recent months and will continue to
do so for the remainder of the year. However, the state’s motor
vehicle and parts manufacturing companies should help cushion
some of the shock. Transportation equipment-related industries,
including motor vehicle manufacturing, aerospace products, and
parts manufacturing, will continue to add to their payrolls well into
2008. The new Kia automotive plant is being constructed just
across the state line in Georgia, but Alabama is expected to land a
majority of its suppliers. These new and expanding parts
manufacturers will supply both Kia and the Hyundai plant in
Montgomery.
Ahmad Ijaz
[email protected]
Sam Addy
[email protected]
Fourth Quarter 2007 • Volume 6, Number 4
Alabama
BLCI
THE OUTLOOK
100
National Economy
42.9
80
Alabama Economy
55.8
70
Industry Sales
52.8
60 54.2 53.6 56.0 56.8
50.7
50
Industry Profits
50.6
Industry Hiring
50.4
90
Index
Alabama’s BLCI Stays in Positive Territory Strong
fundamentals in the state’s economy helped keep the
fourth quarter 2007 Alabama Business Leaders Confidence
Index® (BLCI) on the expansionary side of the neutral point
of 50. At 50.7, the index is down 6.1 points from its third
quarter reading and is 3.5 points below the fourth quarter
of 2006. The outlook for the national economy dropped
below the neutral point, declining 8.8 points, and is the
weakest of the six index components. While the outlook for
the state economy declined by almost as much, it remained
the strongest of the six component indexes. The gap
between the U.S. and Alabama outlooks widened to 12.9
points this quarter.
40
Capital Expenditures 51.5
30
The four industry components of the index also fell in the
20
fourth quarter, reflecting the broad impacts that problems
BLCI
50.7
in the housing and financial markets are having on busi10
Index above 50 indicates expansion.
nesses. Sales remains the strongest industry indicator,
0
although its 6.8 point decline was the largest among these
increase from previous quarter
Q4
Q1 Q2 Q3 Q4
four components. The downside risk has increased, with
decrease from previous quarter
2006
2007
the share of firms expecting to report lower profits this
quarter 10.0 percentage points higher than last quarter,
and the percent of businesses planning to reduce capital
but the share anticipating a reduction is up 7.4 percentage points.
expenditures more than double. The majority of comAn analysis by industry highlights the stress that the construction and
panies still expect to maintain the status quo on hiring,
finance, insurance, and real estate (FIRE) sectors are under in the state.
Q4 2007 compared to Q3 2007
Percent
50
41.1
40
36.7
30
17.9
20
10
0
3.5
0.9
Much Somewhat Remain Somewhat Much
Worse
Worse the Same Better
Better
U.S. Economic Concerns Depress Index The national economy
component index fell 8.8 points on the fourth quarter 2007 survey, ending
below the neutral point at 42.9. Alabama panelists seem to be of the
same mind as forecasting group Global Insight and others that there is
growing concern of a possible recession. The housing market, which has
been deteriorating for almost two years, has been further depressed in
the short-term by tighter lending standards imposed in response to the
crisis in subprime mortgage markets and is not expected to turn the
corner until the second half of 2008. Although wage gains and lower gas
prices have helped consumers, a slowing job market and the negative
impact of housing are reflected in a drop in the Conference Board’s
Consumer Confidence Index to a 22-month low in August. The U.S.
economy seems to be losing momentum entering the fourth quarter, with
the Institute for Supply Management’s manufacturing and nonmanufacturing indexes both down in September. GDP growth is projected to
slip from about 2.7 percent in the third quarter of 2007 to around 1.5
percent in the fourth.
Alabama’s Economy Slowing, but Still on Solid Ground BLCI
panelists remain confident that the state’s economy will continue to expand
in the fourth quarter of 2007, as evidenced by a state component index of
55.8. The pace of growth is expected to slow, however; the component
index is down 8.2 points from the third quarter and is slightly below its 56.2
reading in the first quarter of this year. While the slumping housing market
has adversely impacted Alabama, the effect has not been as severe as at
the national level—existing home sales in the state through August 2007
were 2.4 percent below the same period a year ago, while existing home
sales nationally were down 9.0 percent through July. At the current rate
of sales, the 8.6 month supply of Alabama homes for sale in August was
below the national average 10.0 month supply. The state’s unemployment
rate of 3.8 percent in August compared favorably to the nation’s 4.6
percent, with job growth of 27,700 since August 2006 representing a
1.4 percent gain.
60
Alabama Economic Outlook
Q4 2007 compared to Q3 2007
50
41.4
Percent
National Economic Outlook
60
37.2
40
30
18.2
20
10
0
0.6
2.6
Much Somewhat Remain Somewhat Much
Worse
Worse the Same Better
Better
THE UNIVERSITY OF ALABAMA
Q4 2007 compared to Q3 2007
Percent
50
40
32.9
33.8
28.0
30
20
10
3.5
0
1.8
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
60
Q4 2007 compared to Q3 2007
Percent
50
45.5
40
30
26.8
19.2
20
10
0
2
4.7
3.8
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
38.2
40
30.0
30
26.2
20
10
2.9
0
2.6
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Profit Expectations Continue to Slide Alabama companies as a
whole anticipate weak profit growth in the fourth quarter of 2007; the
profits component index of 50.6 indicates slight gains and is down
3.8 points from its third quarter 2007 reading. While 35.6 percent
of panelists forecast higher profits in their industry during the fourth
quarter, 31.5 percent expect profits to trend lower. The weak dollar
is cutting into the bottom line for many companies, with indications
that firms are absorbing much of the higher costs for imported raw
materials and goods, rather than pass them along to the consumer.
Forecasting group Global Insight expects after-tax profits to rise just
0.7 percent on an annual basis in 2007. Panelists in FIRE, construction, retail trade, and healthcare forecast declining profits in their
industries in the fourth quarter of 2007. Only service businesses,
particularly the professional, scientific, and technical component,
foresee moderate profit gains this quarter.
Businesses More Cautious about Hiring The state's hiring plans
component index fell to 50.4 for the fourth quarter of 2007, reversing
three straight quarters of improvement. Faced with rising wages and
an uncertain economy, business leaders may be more cautious about
adding jobs, with 22.2 percent of panelists expecting to reduce hiring,
25.0 percent planning an increase, and most maintaining the status
quo. In Alabama this slowdown could also represent a lull while new
industries, including ThyssenKrupp and Georgia’s Kia, construct their
plants and BRAC-related jobs relocate. Manufacturers are least
optimistic about hiring this quarter with an industry hiring index of
44.4; firms in the FIRE sector are close behind at 44.7. Most new jobs
created during the fourth quarter will be in service-related businesses,
especially in professional, scientific, and technical firms, many of which
are benefiting from national defense-related work.
Industry Capital Expenditures
Q4 2007 compared to Q3 2007
50
Industry Hiring Plans
Q4 2007 compared to Q3 2007
52.8
60
50
Percent
Industry Profits
60
Industry Sales
60
Percent
Weakness in Financial and Real Estate Sectors Hurting Sales On
average, Alabama BLCI panelists expect sales in their industry to rise
modestly in the fourth quarter of 2007, although the sales component
index of 52.8 is 6.8 points below its third quarter value. Sales declines
are forecasted in finance, insurance, and real estate and in manufacturing this quarter. Expectations are most robust in services, particularly
in professional, scientific, and technical services where the sales index is
62.2. At 29.1 percent, the share of respondents anticipating a decrease
in industry sales during the fourth quarter is the highest in survey history,
while the 40.8 percent expecting sales to increase is the lowest. Alabama sales tax receipts grew just 2.49 percent in FY2007, which ended
September 30, compared to a gain of 8.96 percent in FY2006. Still, the
quarterly sales component index of 55.6 among retail trade panelists
suggests a moderate uptick in retail sales for the holiday season.
40
30
22.4
18.1
20
10
0
4.1
2.6
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Firms Cut Back on Capital Investment While nonresidential
investment has experienced strong gains in 2007, it is beginning to
show the impact of the current economy on business optimism—
Alabama’s capital expenditures component index fell 5.2 points to 51.5
this quarter, indicating very modest increases in investment during the
last three months of 2007. Most significantly, the share of businesses
planning to trim expenditures more than doubled from 11.0 percent in
the third quarter to 23.9 percent in the fourth. The impact of the
depressed housing market on consumer spending is having a ripple
effect on business equipment spending as well, with firms hesitant to
invest if final demand may be weak. Alabama companies in the
wholesale trade, construction, and manufacturing sectors are most
likely to cut back on capital spending, while firms in services and
transportation, communications, and public utilities are most likely to
increase investment in the fourth quarter.
Center for Business and Economic Research, The University of Alabama
This quarter’s topical question series addresses how business
owners and operators feel about the help they get at the state
and municipal levels. Opinions are measured both in terms of a
general feel for the business environment and of the availability
and effectiveness of government in specific areas. Our business
leaders then were asked to specify one key issue they would like
to see government improve.
and has used incentives to recruit many other businesses as well.
Workforce training, which in Alabama is coordinated at the state
level, ranked second. The state’s award-winning programs have
been instrumental in attracting and growing industry and in
furnishing a workforce with the skills needed by a variety of
companies. Close behind in the weighted average rankings are
supportive tax laws and assistance with financing. State
government was considered least useful to business in helping
stimulate consumer spending and in streamlining government
processes.
State Business Environment Receives Positive Review
Alabama’s success in recruiting and growing businesses is
reflected in the positive evaluation BLCI panelists gave the state’s
business environment—71.3 percent of respondents categorized
the climate as very supportive or supportive, while just 6.7 percent
found it unsupportive or very unsupportive. Asked to rank six
areas of state legislation or regulation in terms of the positive effect
of each on their
business, panelists
Ranking of Positive Effects of
viewed incentives as by State Government
far the most important
1. Utilizes incentives
aspect of state
2. Provides workforce training
government support.
3. Writes tax laws for industry needs
Alabama has had very
4. Enables financing
visible success with
5. Stimulates consumer spending
some of its biggest
6. Streamlines government
incentive packages,
Local Governments Have More Room for Improvement
Not quite half of the BLCI panelists rated their city’s business
environment as very supportive or supportive, while 23.5 percent
felt their local government was unsupportive or very unsupportive.
Local incentives, such as tax abatements, are their most effective
tools for supporting business development, while work on zoning
issues, which are handled at the local level, is ranked a close
second in its positive
effect on business. Local
Ranking of Positive Effects of
financing, tax laws geared
City/Municipal Government
to business, and workforce training are closely
1. Provides local incentives
ranked in terms of their
2. Assists with zoning issues
helpfulness to area busi3. Enables financing
nesses, while streamlining
4. Gears tax laws to company types
government is least impor5. Provides workforce training
tant or effective.
6. Streamlines government
Topical Question Series: Are You Supported
by Your State and City?
Do you consider your state’s business environment to be:
Do you consider your city’s business environment to be:
Very supportive 11.0%
Very supportive 16.2%
Very unsupportive 6.4%
Very unsupportive 0.9%
Unsupportive 5.8%
Supportive 36.3%
Supportive 55.1%
Unsupportive 17.1%
Neutral 22.0%
Neutral 29.3%
Business Leaders See Education, Workforce Training,
Infrastructure, and Taxes as Key Areas for Improvement
Panelists were asked to identify one key issue that they would
like to get state and city legislators and officials to focus on and
improve. The 225 panelists who responded to this challenge
provide a significant window on what can best enhance the
environment for businesses across Alabama. Education at all
levels is of primary importance, it is our “key to the future” and
essential to attracting businesses to the state. Survey participants are concerned about recent administrative issues in the
junior college system. They would like to see more high school
programs to steer non-college-bound students into career tracks
including manufacturing, with training to improve workforce
readiness by instilling basic skills, ethics, and a positive attitude
toward work. Workforce training is intertwined with education
beginning, as one respondent notes, with pre-kindergarten.
Issues mentioned include providing training for individuals in
hands-off industries, and funding to upgrade the manufacturing
technology available at existing workforce training facilities.
Maintenance and upgrading of the state’s transportation
infrastructure is also high on the wish list, with concerns about
traffic flow and long-term planning, as well as improved public
transportation. One panelist suggested that Alabama needs to
build its workforce and infrastructure before increasing new
business development.
Since the question asked what government can improve upon,
taxation naturally came to the forefront. Lowering the consumer
sales tax was mentioned most often, in particular removing the
tax on food and medicine. Suggestions for property tax reform
focused on dropping annual appraisals, perhaps going to every
four years with increases capped. Birmingham’s occupational
tax is seen by one panelist as “the biggest disincentive to
business we have.” Also noted is the issue of fixing tax
loopholes that allow an out-of-state business to avoid taxes.
Statewide tax incentives or credits and low interest bonds for
alternative energy production or use are proposed.
Regarding government at the state level, Alabama business
leaders would like to see less waste, less graft, more effectiveness, and continued recruitment of industry; specific issues include reducing state budget earmarking as well as the regulatory
burden placed on companies. A new state constitution with
home rule for cities and counties is a priority. At the local level,
panelists hope for qualified elected officials working together for
Center for Business and Economic Research, The University of Alabama
3
the good of the community, better and more expeditious handling
of zoning issues and approvals, and establishment of priorities
and funding standards for cultural development. Cooperation
among adjoining cities and counties to attract business and
promote an area can work for the greater good. Public meetings
on key issues and attention to the needs of all stakeholders could
help improve the quality of life in our communities. A number of
comments directly addressed governance in the city of Birmingham, the lack of uniform zoning regulation across the greater
Birmingham area, and the importance of cooperation among all
local governments in the area in working toward common goals.
At every level of government, businesses would benefit from
streamlined approvals and other processes and simplified
paperwork with more information and reports online.
Looking at issues specifically related to business, concerns arose
about providing better assistance to existing businesses, help to
grow existing businesses, and more communication with general
industry. New business start-up efforts could be facilitated by
simplified regulations and permitting processes, as well as available financing. Tort reform remains an issue. And business
owners wish that governments would look at local suppliers
before buying elsewhere. Healthcare is a concern—business
leaders would like to see healthcare options for the uninsured,
affordable pooled health insurance, and specific healthcare
options for small firms. With many incentives pointed at larger
firms, small businesses hope to work in a local environment that
is friendly to all sizes of businesses, with government officials
who understand their needs. They would be helped by tax
incentives and research and development funding targeted at
small business, and wish the door would open for more small
and moderate-sized firms to compete for government contracts.
Other issues that concern Alabama business leaders include
crime, landscapes cluttered with signs, immigration, and drug
abuse by younger workers. They would like to see the demise
of problems resulting from Hurricane Katrina and incentives for
oil drilling in the Gulf, as well as state tax credits to assist with
affordable housing that could be funded from real estate
recording fees. And they hope that governments will provide a
better response to consumer needs and a program to promote
personal financial literacy and life skills in both the student and
adult population.
Component Index by Area, Q4 2007
Q4 2007
Alabama
Change from Q3 2007
Birmingham
MSA
Huntsville
Mobile
Montgomery
National Economy
42.9
-8.8
42.2
45.0
45.4
41.4
Alabama Economy
55.8
-8.2
52.0
57.5
63.8
54.6
Industry Sales
52.8
-6.8
51.3
62.5
56.2
50.0
Industry Profits
50.6
-3.8
51.1
55.0
53.3
44.7
Industry Hiring
50.4
-4.2
50.6
59.2
53.3
46.0
Capital Expenditures
51.5
-5.2
51.5
52.5
52.1
49.3
BLCI
50.7
-6.1
49.8
55.3
54.0
47.7
Alabama BLCI by Component and Area Expectations for the
national and Alabama economies both dropped on the fourth
quarter 2007 survey, with the national index dropping into
negative territory. Business leaders’ confidence in the Alabama
economy held up better—the state’s economic outlook remains
positive and the gap between the two component indexes
widened to 12.9 points. All four industry indicators managed to
stay above the neutral point of 50, but fell significantly from their
third quarter values and portend weak gains. The overall
negative impact that the housing crisis has had on business and
the economy is reflected in considerably lower BLCI readings for
each quarter of 2007 compared to the same quarter of 2006.
Panelists in the Huntsville metro area remain the most upbeat,
with business sentiment helped by the heavy concentration of
professional, scientific, and technical service firms, many of
which have government contracts. Mobile’s economy is also
expected to see moderate growth during the fourth quarter of
2007, although the forecast is dampened by a negative outlook
among respondents in the beleaguered FIRE sector. Birmingham’s metro area BLCI slipped just under 50, indicating a relatively flat performance during the quarter, as area businesses
in construction and FIRE are feeling the negative effects of the
housing slowdown. The outlook for the Montgomery metro area
is the least optimistic, with firms particularly concerned about the
national economy, prospects for profits, and the housing market.
Thanks to the 350 Alabama business leaders who completed
the fourth quarter 2007 BLCI survey during the first three
weeks of September. And a special thank you to the 225
panelists who took the time to identify a key issue for state
and/or local governments to improve. Please join us during
the first two weeks of December for the first quarter 2008
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.
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
2006/Q1 2006/Q2
11,238.7
3.3
4.6
4.4
1.99
3.70
2.3
3.0
135.4
2.1
4.7
11,306.7
3.2
5.1
4.7
2.02
3.99
2.0
-9.0
135.9
1.9
4.6
2006/Q1 2006/Q2
2006/Q3 2006/Q4 2007/Q1 2007/Q2 2007/Q3
11,336.7
2.4
4.9
4.9
2.03
3.36
1.8
-18.8
136.4
1.7
4.7
11,395.5
2.6
4.6
4.9
2.02
1.95
1.7
-27.1
137.0
1.7
4.5
11,412.6
1.5
4.7
5.0
2.04
2.43
1.6
-31.7
137.4
1.5
4.5
11,520.1 11,596.6
1.9
2.3
4.8
4.7
4.7
4.3
2.07
2.08
2.66
2.33
1.6
1.4
-21.2
-22.2
137.9
138.1
1.4
1.2
4.5
4.6
2006/Q3 2006/Q4 2007/Q1 2007/Q2 2007/Q3
1,958.5
2.4
1,986.5
2.0
1,983.6
1.8
2,000.8
1.5
1,991.9
1.7
2,014.5
1.4
2,005.2
1.1
304.3
3.9
305.5
2.3
302.8
0.8
299.6
-1.0
300.4
-1.3
300.6
-1.6
299.8
-1.0
186.0
7.8
188.0
5.6
187.8
4.2
188.5
2.5
188.6
1.4
189.4
0.8
189.1
0.7
118.3
-1.8
117.6
-2.6
115.0
-4.2
111.2
-6.5
111.7
-5.6
111.2
-5.4
110.7
-3.8
80.0
2.5
234.0
0.7
3.8
21.6
40.6
2,126.2
10.2
899.9
12.4
478.5
7.4
81.1
2.7
233.9
-0.4
3.4
17.8
41.4
2,365.9
10.0
1229.2
12.9
498.9
6.7
81.8
2.9
234.1
-0.3
3.8
20.0
41.2
1,963.7
10.3
854.9
11.5
496.5
8.6
82.3
3.3
241.1
0.0
3.4
21.7
40.6
2,029.2
6.6
879.7
15.2
503.3
1.7
82.5
3.1
236.0
0.8
3.5
23.2
40.1
2,206.5
3.8
932.5
3.6
496.1
3.7
83.2
2.5
237.8
1.7
3.2
17.3
40.2
2,468.5
4.3
1,317.6
7.2
517.6
3.8
83.6
2.2
238.0
1.7
3.9
23.0
40.3
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
Underemployment
in Alabama
Labor force data are often limited to what is
routinely available from government sources.
Existing data provide information on the employed and the unemployed. While valuable,
such information may not be complete from
the perspective of employers. New or expanding businesses are interested in “underemployment” as well, because incumbent workers are
also potential employees. In fact, the quality
worker that many prospective employers want
is not unemployed.
Workers in occupations that do not fully utilize
their experience, training, and skills are considered underemployed. These workers might
be receiving salaries below what they believe
they can earn; they might also not be satisfied
with their jobs. Underemployment occurs for
various reasons including productivity growth,
spousal employment and income, and family
constraints or personal preferences. Productivity growth creates underemployment as
workers learn to do their jobs better and more
efficiently. Spousal employment and income
and extended family relationships or responsibilities may limit workers’ ability to be in jobs
that make full use of the value of their education, training, skills, and experience. Geographic immobility due to family constraints or
personal preferences can also be a factor. The
various contributing factors combined with
economic, social, and geographic characteristics of an area make underemployment very
different among communities.
Underemployment provides opportunities for
selective job creation and economic growth.
For example, a firm with needs for skills
prevalent among the underemployed could
locate in an area with underemployed workers,
regardless of the area’s unemployment rate.
Low unemployment, suggesting limited labor
availability, is not a hindrance to such a firm.
The underemployed present a significant pool
of labor because they will respond to job
opportunities that better match their skills,
training, and experience. The underemployed
also create opportunities for entry level workers
as they leave lower-paying jobs and move into
better-paying ones. Even if their previously
held positions are lost or not filled (perhaps
due to low unemployment), there is economic
growth for the area in gaining higher-paying
jobs.
Underemployment Survey
Recently The University of Alabama conducted
a study of underemployment in the state. The
10
Alabama Business
study involved a telephone survey of about
9,000 respondents. Slightly more than half
were employed, of which 1,141 were underemployed. To probe for underemployment, the
survey asked questions about employment
status, nature of employment, willingness of
part-time workers to work full-time, number of
jobs, commute time and distance, occupation
and industry, job tenure, income, job fitness,
income incentive to leave current job for a
better one, incremental commute time and
distance, and job search activity. Respondents
were also asked their opinions about whether
or not they were underemployed as well as the
reasons for that status.
Survey Results
Findings of the study are provided in the table
and map. In 2006 underemployment in the
state stood at 25.2 percent. This means that
about 542,000 employed Alabama residents
are underemployed. Adding the unemployed
gives a total available labor pool of about
615,000 for the state. This pool is more than
eight times the number of unemployed and is a
more realistic measure of the available labor in
the state.
Underemployment ranged from 18.5 percent
for Workforce Investment Advisory Area
(WIAA) Region 4 to 29.3 percent for WIAA
Mobile. Among counties, Coffee had the
highest rate of underemployment, at 38.6
percent, and Franklin reported the lowest rate
with 14.3 percent. Underemployment rates
in 32 counties were above the state’s 25.2
percent.
At the state level, 82 percent of the employed
are full-time workers. A tenth of workers hold
more than one job and just over 25 percent of
part-time workers wish to work full-time. The
one-way commute is less than 20 minutes for
55 percent of workers. But 12 percent spend
more than 40 minutes traveling to work,
including 2.3 percent taking more than an
hour. The commute is less than 10 miles for
47 percent of the employed, while almost 20
percent travel more than 25 miles. Nearly half
Underemployment by Workforce Investment Advisory Area in 2006
Labor force
Employed
Underemployment rate
Underemployed workers
Unemployed
Available labor pool
Labor force
Employed
Underemployment rate
Underemployed workers
Unemployed
Available labor pool
Alabama
Region 1
Region 2
Region 3
Region 4
Region 5
Region 6
2,223,774
2,151,381
25.2%
542,148
72,393
614,541
109,530
105,650
22.3%
23,560
3,880
27,440
446,560
433,863
24.1%
104,561
12,697
117,258
133,040
128,855
26.4%
34,018
4,185
38,203
183,992
179,266
18.5%
33,164
4,726
37,890
183,380
176,285
25.7%
45,305
7,095
52,400
42,173
39,859
25.1%
10,005
2,314
12,319
Region 7
Region 8
Region 9
Region 10
Jefferson
Mobile
191,030
184,814
25.6%
47,312
6,216
53,528
136,267
131,032
24.3%
31,841
5,235
37,076
128,170
123,802
24.9%
30,827
4,368
35,195
153,970
148,928
27.0%
40,211
5,042
45,253
327,433
316,909
28.6%
90,636
10,524
101,160
188,226
182,116
29.3%
53,360
6,110
59,470
Note: Rounding errors may be present. Based on December 2006 labor force data.
Source: Center for Business and Economic Research, The University of Alabama; Alabama Department of Industrial Relations; and
U.S. Bureau of Labor Statistics.
of all workers have 10 or more years on the job
and a quarter have worked at the same job for
more than 20 years.
The participation of the employed and underemployed in occupations and industries is
similar at the state level. Some differences
exist in the WIAAs and those may be due to
variations in economic structure.
Among all employed workers, 87 percent
claim their jobs fit well with their education,
training, skills, and experience, but 61 percent
believe they are qualified for a better job. One
in five workers had looked for a job in the three
months prior to the survey. If offered jobs
paying up to 15 percent higher wages, about
602,000 workers across the state (28 percent
of total employment) say they would leave
their current jobs; 155,000 of this group would
accept just 5 percent higher income. This
suggests that it would not take much to keep
these workers happy and loyal to their present
establishments, especially when hiring and
training costs are considered. It takes a much
bigger paycheck to get most workers away
from their current jobs. About 43 percent of
workers would consider leaving only if the
increase in income is greater than 15 percent.
An estimated 164,000 Alabama workers will
only consider offers that raise their income by
more than 50 percent. And about 26 percent
claim that no amount of money will lure them
away from their current jobs.
Workers are prepared to make some sacrifices
to obtain a higher paying job. They are prepared to commute longer and farther. Twothirds are willing to commute over 10 more
miles each way, but a third of workers will only
consider a maximum of 10 additional miles.
Slightly less than half are prepared to spend an
extra 20 or more minutes commuting one way.
The underemployed represent about 25 percent
of the state’s workers. They cite lack of job
opportunities and low wages at available
jobs as the primary reasons for being underemployed. Nonworkers note disability or other
health concerns and retirement or social
security limitations as their primary reasons
for not working. Among the underemployed,
75 percent work full-time, 12 percent hold
more than one job, and 41 percent of those
who work part-time want full-time jobs.
More than half of underemployed workers now
have less than a 20-minute one-way commute,
but a tenth drive for over 40 minutes, and
about 2 percent take more than an hour. The
commute is less than 10 miles for slightly
under half of the underemployed, but 27
percent travel more than 25 miles. The
underemployed have less job tenure and also
earn less than the state average. While 42
percent of all employed workers earn $2,000 or
less a month, 59 percent of the underemployed
fall into this wage category. Over 40 percent
have had 10 or more years on the job.
Although about 75 percent of the underemployed say their jobs fit well with their
education, training, skills, and experience,
83 percent believe they are qualified for a
better job. A third of the state’s underemployed had sought better jobs in the three
months preceding the survey. Higher wages
are more likely to entice an underemployed
worker to leave a current job at every level of
wage increase, except when more than a 50
percent wage increase is offered. About 37
percent of the underemployed will leave their
current jobs for up to 15 percent higher wages,
compared to 28 percent of all employed. Over
10 percent of the underemployed will accept a
5 percent higher income to change jobs, while
almost half want more than 15 percent higher
earnings. Fewer underemployed workers would
remain loyal to their jobs no matter what the
wage offer—13 percent compared to 26
percent of all employed. And the underemployed are willing to commute farther
and longer for what they see as a better
opportunity. In short, these people are very
active in the labor market.
Michaël Bonnal
[email protected]
The underemployment survey report, as well
as other reports on the Alabama workforce,
is available on the Alabama Department of
Industrial Relations website at
http://www2.dir.state.al.us/workforcedev/
workforcedevelopment.aspx.
Alabama Business
11
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alabama.business
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