cber.cba.ua.edu
alabama.business
Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama
Volume 77, Number 1
First Quarter 2008
Economic Outlook:
1st Quarter 2008
United States
Current Economic Conditions. The
U.S. economy grew by almost 5 percent in
the third quarter of 2007, its fastest pace
in nearly four years, despite the fact that
homebuilders reduced spending by 20.5
percent, the steepest decline in 16 years.
While the economy looked like it might
be headed for a recession in the fourth
quarter, growth came in at a meager, but
positive, 0.6 percent. Still, residential
fixed investment, which includes both
home sales and construction, declined by
an estimated 30 percent in the fourth
quarter. Residential construction’s share
of GDP has fallen from over 6 percent in
2005 to 3.4 percent in 2007. Growth in
consumer and business spending slowed
in the fourth quarter, with increases of
2.0 percent and 7.5 percent, respectively.
High energy costs and rising food prices
are imposing additional burdens on both
consumers and firms, causing inflation
to increase at the same time that the
economy is faltering.
Overall inflation rose by 4.1 percent yearon-year in November 2007, one of the
highest rates in decades. Prices usually
fall during a downturn because of
declining demand from consumers and
producers. The Fed has the option to
curtail rising prices by raising short term
interest rates; however, with economic
conditions deteriorating, the Fed is
expected to keep lowering rates until the
economy shows signs of a recovery. There
is now a 50 percent chance that the U.S.
economy could go into recession in 2008,
primarily due to weakening consumer
spending, rising prices, and faltering
employment growth. Furthermore, the
financial crisis in the housing markets has
resulted in tighter credit conditions for
both consumers and businesses.
Selected Economic Indicators
2007
2008
Economic Growth (Annual Percent Change)
United States
Alabama
2.2
2.3
1.9
2.2
Employment Growth (Annual Percent Change)
United States
Alabama
1.3
1.0
0.8
1.0
Consumer Expenditures (Annual Percent Change)
Total
Durable Goods
Nondurable Goods
Services
Inflation Rate
2.9
4.9
2.5
2.8
2.9
1.9
1.1
1.8
2.2
2.2
Prime Interest Rate
3-month Treasury Bill Rate
10-year Treasury Note Rate
30-year Fixed Mortgage Rate
8.0
4.4
4.6
6.3
6.8
3.1
4.1
6.0
3.1
$72.28
3.1
$77.37
Employment Cost Index (Annual Percent Change)
Average Price of West Texas Intermediate Crude
Source: U.S. Department of Commerce, Global Insight, and Center for Business and
Economic Research, The University of Alabama.
Consumer and business confidence in the
economy fell significantly at the start of
2008. Both the University of Michigan
and the Conference Board’s surveys of
consumer confidence have dropped to
near recession levels in recent months.
Further retrenchment on the Michigan
survey to around 70 would clearly signal
a consumer-led recession. The Institute
for Supply Management (ISM) index of
factory activity fell from 50.8 in November
to 47.7 in December, its lowest reading
since April 2003; a value below 50 indicates contraction in the manufacturing
sector. The index of new orders, an
indicator of future business activity, fell
6.9 points in December to 45.7, while the
production index dropped 4.6 points to
47.3. Businesses are becoming more
cautious about hiring and spending.
Payrolls increased by only 18,000 in
December, with heavy losses reported in
construction, manufacturing, and retailing.
The U.S. unemployment rate increased
from 4.7 percent in November to 5.0 percent in December, a 0.3 percent monthly
rise not seen since the recession in 2001.
Residential fixed investment fell 23.9
percent in the fourth quarter, its steepest
decline yet in the current downturn and
its eighth consecutive quarterly drop.
With the inventory of new homes at
Inside the BLCI: Fewer employees to see compensation gains in 2008 as business optimism declines.
record levels, conditions in the housing
markets seem to be getting worse.
According to the U.S. Department of
Commerce, construction of new homes
fell to an annualized level of around 1.0
million in December, the slowest pace
since May 1991. A sharp decline in both
multi- and single-family homes dropped
the pace of new home construction to
almost 50 percent below its peak of
January 2006. Sales of new homes
declined by 26.4 percent to around
774,000 in 2007, the largest downturn
since the recession of 1980. In December
overall single-family home sales fell 13.0
percent, the largest drop in almost 25
years, while sales of condominiums
declined 25.0 percent.
The number of home mortgages entering
foreclosure reached an all-time high in
2007, and with almost $352 billion in
subprime mortgages due to reset in 2008
(approximately 1.5 million loans), housing
markets are expected to get much worse
before the current home inventory can be
sold. High loan-to-value originations in
recent years, together with falling home
prices and the reset of adjustable mortgages, have left many people unable to
meet their monthly mortgage payments,
refinance their homes, or extract equity.
The nonprime share of mortgage originations (including both Alt-A and subprime
mortgages) increased from 11.3 percent in
2001 to 33.5 percent in 2006; typically
there is a substantial increase in monthly
payments when these adjustable rate
loans reset. According to the National
Association of Realtors, the average
median price of a single-family home fell
by 1.8 percent to $217,800 in 2007, the
first decline in nearly four decades. From
December 2006 to December 2007, the
price of existing homes declined 6.0
percent
Outlook. After cutting the federal funds
rate by 1.25 basis points to 3.0 percent in
January, the Fed is expected to continue
aggressive cutting, taking the rate as low
as 2.5 percent by its April 30 meeting,
despite inflationary pressures. Housing
will remain the biggest drag on the
economy. Elevated inventories of both
existing and new homes will continue
to exert downward pressure on home
construction, sales, and prices. However,
falling prices will make homes more
2
Alabama Business
affordable—a necessary condition to work
through the current high level of housing
inventory. Housing starts are expected to
be below the 1.0 million unit annualized
rate during the first half of 2008. Home
prices are expected to drop by around 6
percent during the year.
Declining home prices and tightened
lending conditions will make consumers
relatively more cautious about their
spending. In recent years, growth in
consumer spending has outpaced gains
in income, with the gap fueled primarily
by home equity extraction. Home equity
extraction as a share of disposable income
increased from about 1 percent in 1994 to
close to 8 percent in 2004; for the first
three quarters of 2007, it amounted to
around 5.5 percent of disposable income.
rebates to individuals will have a positive
impact on consumer spending, while
business tax cuts of approximately $50
billion through depreciation allowances
should boost spending on capital
equipment and other investments.
The housing sector will remain a drag on
the economy. Residential investment,
including both home construction and
sales, will decline by almost 25 percent in
the first half of 2008, and is not expected
to improve before the fourth quarter of
2008 or perhaps early 2009. Housing
starts are expected to drop by over 30
percent in 2008, while sales of existing
homes will plunge more than 20 percent.
Sales of new homes are forecasted to drop
by over 15 percent in 2008.
Alabama
The current forecast has the U.S. economy
growing by about 1 percent in the first
half of 2008 and by around 2 percent in
the second half. Consumer spending,
which normally accounts for almost 70
percent of the growth in GDP, will rise by
just 1.2 percent in the first half of 2008,
followed by a 2.5 percent increase during
the second half. Consumer expenditures
on durable goods are expected to decline
by 3.4 percent in the first half of the year.
After increasing by 4.5 percent in 2007,
business spending is forecasted to rise
only 0.5 percent in the first half of 2008,
followed by an increase of close to 1
percent in the second half. The fiscal
stimulus package of $150 billion that is
currently being worked on should provide
some help for the economy during the
second half of the year. The $100 billion in
Current Economic Conditions. The
state’s economy grew 2.3 percent in 2007
to $141.1 billion. The fastest growing
sectors were professional and business
services and leisure and hospitality,
particularly food services and drinking
places. For the first nine months of 2007
compared to the same period in 2006,
exports from Alabama rose 3.8 percent
to $10.9 billion. Motor vehicle manufacturing is one of the strongest industries in
the state; a total of 738,832 vehicles were
produced in 2007 by Alabama’s Honda,
Hyundai, and Mercedes plants. Transportation equipment is the state’s largest
export sector; exports increased from $4.0
billion in the first nine months of 2006 to
$4.5 billion for the same period in 2007.
Germany was the destination for almost
26 percent of the state’s total exports,
followed by Canada, Mexico, Japan, and
the United Kingdom.
During the twelve month period ending in
December 2007, Alabama gained 25,400
new jobs. Approximately 20,000, or 79
percent, were located in the 11 metropolitan areas, comprising 28 counties. The
remaining 39 counties added 5,400 new
jobs. The Birmingham-Hoover metropolitan area led the state with 6,300
jobs, followed by Huntsville (5,200),
Montgomery (3,100), Mobile (2,500),
and Tuscaloosa (900). The majority of
(continued on page 7)
First Quarter 2008 • Volume 7, Number 1
National Economic Outlook
Q1 2008 compared to Q4 2007
55.0
60
Percent
50
40
28.2
30
20
12.3
10
0
3.9
0.6
Much Somewhat Remain Somewhat Much
Worse
Worse the Same Better
Better
THE OUTLOOK
100
National Economy
37.7
80
Alabama Economy
50.2
70
Industry Sales
51.4
60 53.6 56.0 56.8
50.7 47.2
50
Industry Profits
47.4
Industry Hiring
47.9
90
40
30
Capital Expenditures 48.7
20
BLCI
10
0
47.2
Index above 50 indicates expansion.
Q1 Q2 Q3 Q4
2007
Q1
2008
increase from previous quarter
decrease from previous quarter
Probability of U.S. Recession Rises Expectations for the U.S.
economy fell 5.2 points to 37.7 in the first quarter of 2008, with
almost 59 percent of panelists finding it likely that economic conditions
will be worse than in the fourth quarter of 2007. Pessimists outnumber
optimists by almost five-to-one, pushing the index well below the neutral
point of 50. Only 12.9 percent of survey respondents forecast improvement during the first quarter. The continuing decline in housing starts,
sales, and prices and the credit crunch, which makes it harder for both
households and businesses to secure funding, are the primary culprits—
forecasting group Global Insight estimates that housing will cut GDP
growth by one percentage point in 2008. High fuel costs and their
effect on consumer well-being is another major factor; consumer
spending normally accounts for about two-thirds of the U.S. economy.
Steady growth in exports, helped by a weak dollar, is a key factor in
keeping the U.S. economy out of recession. Looking back, Alabama
business leaders correctly forecasted the third quarter as the high point
for the national economy in 2007.
Alabama Economy Stays the Course Early in 2008 Growth in the
state’s economy is generally expected to continue the pace seen in
the fourth quarter of 2007. At 50.2, this component index indicates that
economic conditions will be stable during the first quarter of 2008.
Almost 43 percent of panelists anticipate no change, while about equal
shares forecast worsening versus improving performance. Large-scale
projects, including the National Alabama railcar plant in Muscle Shoals,
the ThyssenKrupp steel plant in the Mobile area, and BRAC-related
development in Huntsville, will contribute to construction employment
in 2008. Federal spending for national defense, a growing aerospace
industry, burgeoning biotech and information technology, and additions
to the state’s auto supplier network should help Alabama maintain a
relatively healthy economy. The state’s housing market is holding up
better than the nation’s—for the year ending with the third quarter of
2007, the Alabama OFHEO House Price Index rose 5.3 percent, while
the U.S. average increase was 1.8 percent.
60
Alabama Economic Outlook
Q1 2008 compared to Q4 2007
50
42.7
Percent
Three of the four industry indicators dropped into negative
territory; sales is the only category expected to show an
increase during the first quarter of 2008. The stressed
consumer has companies planning to reduce hiring and
capital expenditures as they reign in costs in the wake of
weakening profits and slowing sales. This tightening by
businesses is also reflected in a forecast for smaller
increases in employee compensation in 2008, as shown
in this quarter’s topical question series.
Alabama
BLCI
Index
Business Leaders Increasingly Pessimistic The
Alabama Business Leaders Confidence Index® (BLCI) fell
into negative territory for the first quarter of 2008, marking
the first time that the index has been below the neutral
point of 50 in the six years of the survey. At 47.2, the
BLCI is down 3.5 points from the fourth quarter of 2007
and is 6.4 points below its reading a year ago. Problems
in the U.S. economy weigh heavily on the expectations of
Alabama business leaders; at 37.7, the national economy
index is well below the other five BLCI component indexes.
While the probability of a recession in the U.S. economy
has increased, the performance of the state’s economy
should be approximately the same as last quarter, with
growth continuing at a moderate pace.
40
28.2
30
26.5
20
10
0
0.7
1.9
Much Somewhat Remain Somewhat Much
Worse
Worse the Same Better
Better
THE UNIVERSITY OF ALABAMA
Q1 2008 compared to Q4 2007
Percent
50
40
35.7
30.2
30
27.6
20
10
3.9
0
2.6
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Industry Capital Expenditures
Q1 2008 compared to Q4 2007
50
Percent
40.8
40
30
26.7
20.3
20
10
9.0
3.2
0
2
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
40
30.5
30
34.1
28.0
20
10
4.2
3.2
0
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Six-Year Trend of Increasing Profits Coming to an End Profit
expectations slipped to 47.4 for the first quarter of 2008. This is down
3.2 points from the component index value of 50.6 in the fourth quarter
of 2007. Equal shares of panelists, 30.2 percent, predict profits will be
unchanged or higher for the first quarter of 2008, while almost 40
percent expect earnings to decrease. Slower productivity growth, wage
gains, a falling dollar, and an inability to raise prices due to weak
consumer demand are among factors cutting into profits for many firms.
However, profits from foreign divisions and from exports are helping
some companies. Global Insight forecasts a 3.9 percent decline in aftertax profits during 2008, the first negative year since 2001. Panelists in
most Alabama industries are predicting lower profits in the first quarter;
the drop-off will be most pronounced in retail trade and construction.
Profit growth should continue in the services sector, with the strongest
increases in professional, scientific, and technical services.
Job Growth Slowing in 2008 An increasing number of firms are
trimming hiring plans—the 28 percent of BLCI panelists forecasting a
decrease in hiring in their industry during the first quarter of 2008 is
approximately 7 percentage points above the 20.9 percent expecting
an increase. This discrepancy throws the hiring component index into
negative territory at 47.9, despite the fact that 51.1 percent of respondents expect hiring to continue at fourth quarter 2007 levels. While
these reports indicate reductions in hiring at existing businesses and
perhaps curtailment of expansion plans, recently announced projects
entering the construction phase and new firms and expansions coming
online early in 2008 will contribute to job growth in many areas of
Alabama. Companies in transportation, information, and utilities (TIPU)
and in the services sector are most likely to add jobs during the first
quarter, while construction and retail trade businesses will cut back
most severely. Panelists in manufacturing and FIRE expect modest
reductions in hiring.
60
Q1 2008 compared to Q4 2007
50
Industry Hiring Plans
Q1 2008 compared to Q4 2007
60
51.1
50
Percent
Industry Profits
60
Industry Sales
60
Percent
Gains in Sales Help Support State’s Economy Sales by Alabama
businesses are forecasted to increase modestly in the first quarter of
2008, as indicated by a component index of 51.4. Rising exports are
helping some companies; approximately $10.9 billion in products were
exported during the first nine months of 2007, up 3.7 percent from the
same period in 2006. Other businesses are hurting, however, from the
negative effects of high energy prices and housing and credit market
problems on the U.S. consumer. The Reuters/University of Michigan’s
Index of Consumer Sentiment reading of 75.5 in December 2007
compares to 91.7 a year ago. While 38.3 percent of BLCI panelists
think sales in their industry could increase during the first quarter of
2008, 33.7 percent expect a decline. A marked decrease in sales is
forecasted for construction and retail trade, with a modest drop in sales
among the state’s manufacturing industries. Flat sales are expected in
finance, insurance, and real estate (FIRE).
40
30
24.1
18.3
20
10
0
3.9
2.6
Strong Moderate
No
Moderate Strong
Decrease Decrease Change Increase Increase
Some Firms Putting the Brakes on Investment The 9 percent share of
Alabama BLCI panelists who expect capital spending in their industry to
show a strong decrease in the first quarter of 2008 is almost double the
percentage on the previous quarterly survey. At 48.7, the capital expenditures component index is down 2.8 points. Pessimism about the course
of the national economy is causing firms to be cautious, particularly concerning investments in structures—a position that will deal a further blow
to the already-depressed construction sector. Weak consumer demand
has reduced the need for investment at some businesses, while declining
profits have cut into resources available for capital expenditures. Higher
credit costs and less available credit have also hurt capital spending.
While Alabama firms in wholesale and retail trade, manufacturing, and
construction expect to curtail capital spending, businesses in professional,
scientific, technical, and other services, as well as those in TIPU plan to
increase investment during the first quarter of 2008.
Center for Business and Economic Research, The University of Alabama
Topical Question Series:
Revisiting Alabama Compensation Issues
Percentage of Alabama Workers Seeing Compensation Gains
Could Slip Among panelists completing the first quarter 2008
BLCI survey, 76.2 percent expect employee compensation
(excluding benefits) at their firm to increase during 2008. This
is the weakest report of the last three years—83.7 percent of
respondents forecasted gains in 2007 and 81 percent anticipated
increasing wages and salaries in 2006. In the face of a stretched
consumer and with little pricing power, companies are more likely
to be conservative with regards to pay increases in 2008. Survey
results indicate that, for employees who receive a raise, the
average amount will be around 3 percent, modestly above
projected inflation of approximately 2.2 percent for the year. The
41.1 percent of businesses surveyed in the fourth quarter of 2007
that expect compensation increases to average 3 percent or
more during the coming year is down from 46.4 percent on last
year’s survey. And the 18.2 percent of firms anticipating that their
employee compensation will be the same as in 2007 compares to
12.5 percent expecting compensation to be flat last year.
Over the next year do you expect employee
compensation* in your firm to:
Decrease
3.3
Stay the same
18.2
Increase 0.1-1.99%
10.9
Increase 2-2.99%
24.2
Increase 3-3.99%
22.2
Increase 4-4.99%
11.6
Increase 5% or more
7.3
Don’t know
2.3
0
5
10
15
20
Percent
25
30
* Compensation excludes benefits.
What portion of the change in total compensation
will each of these categories comprise?
Cost of living adjustment 41.4%
Other 2.1%
Granting of stock options 1.6%
2007 year-end bonus 12.9%
Merit/performance increase 41.9%
Use of Bonuses Increases About two-thirds of Alabama
panelists report that their firm offered a bonus to employees at
year-end 2007, a sizeable jump from the 39 percent awarding
bonuses at the end of 2006. This increase supports findings by
benefits consulting firm Hewitt Associates that businesses are
increasingly using pay (in the form of bonuses) to reward and
retain, as well as motivate, employees. Bonuses were generally
larger in 2007—28.4 percent of firms indicated that bonuses
averaged 9 percent or more of employee wages, up from 21.6
percent in 2006. And the share of companies where bonuses
averaged 5 to 8.99 percent of wages rose from 19.1 percent in
2006 to 26.4 percent in 2007. During the same period, the
percentage of businesses giving employee bonuses of less
than 1 percent fell from 23.2 to 11.9 percent.
Merit Increases Barely Beat Cost of Living
Adjustments Merit or performance-based increases as
a share of the change in employee compensation slipped
from 43.2 percent for 2007 to an anticipated 41.9 percent
for 2008. At the same time, cost of living adjustments
rose from 40.5 percent of average total compensation
gains in 2007 to a projected 41.4 percent in 2008. With
the current economic environment negatively impacting
profits at many companies, it appears that more firms are
trying to make certain that employee wages and salaries
at least keep up with inflation. A year-end bonus is of
growing importance in compensation packages—12.9
percent of the total increase in the coming year will come
from bonuses, up from 10.1 percent last year. Stock
options will contribute just 1.6 percent of the gains in
2008. Sixty-eight percent of businesses responding to
the BLCI survey planned to use more than one form of
compensation in their total package.
If your firm offers a year-end bonus, what
percentage of employee wages does it average?
Less than 1%
11.9
1-2.99%
17.9
3-4.99%
15.4
5-6.99%
17.4
7-8.99%
9.0
9% or more
28.4
0
5
10
15
20
Percent
25
30
35
Center for Business and Economic Research, The University of Alabama
3
Alabama BLCI by Component and Area Expectations for the
national and Alabama economies both dropped by more than
5 points in the first quarter 2008 survey. While the forecast
indicates a larger probability of recession in the U.S. economy,
the state’s economy should remain on a steady course. Panelists
are much less optimistic now than they were on the BLCI survey
a year ago—the BLCI is down 6.4 points from its first quarter
2007 reading, while expectations for the U.S. economy have
fallen 10.7 points, and the Alabama outlook is down 6 points.
Among industry indicators, only the sales component index
managed to stay above 50 this quarter—at 51.4, the index
portends a modest increase in sales overall. Profits came in as
the lowest of the four industry indicators, falling 3.2 points to 47.4.
Sliding profits and weaker sales growth contribute to the declines
in both the hiring and capital expenditure component indexes.
Panelists in the Mobile metro area are the most upbeat coming
into 2008; a BLCI of 54.4 forecasts a moderate uptick in economic activity. Construction of the ThyssenKrupp steel plant
should get underway during the first quarter of 2008, while business at the Alabama State Docks and in the area’s aerospace
and shipbuilding industries is strong. Mobile is expected to see
good growth in capital spending in the first three months of 2008.
Huntsville panelists are also optimistic, with a BLCI reading of
53.3, indicating that economic growth will increase from the
already healthy pace seen during the past year. BRAC construction and job moves are ongoing, while national defense work at
area companies is increasing. Aerospace initiatives are bringing
new firms and contracts to the area. Profit gains should be
robust among Huntsville businesses. Respondents in both
Mobile and Huntsville are forecasting strong growth in sales
and moderate increases in hiring during the first quarter.
Forecasts of economic activity slipped farther into negative
territory for both the Birmingham and the Montgomery metropolitan areas in the first quarter 2008 BLCI survey. The
Birmingham metro area’s BLCI index value of 45.9 was down
3.9 points from the previous quarter. While sales growth in
Birmingham is expected to be flat during the quarter, profits,
hiring, and capital expenditures are all forecasted to decline.
The area’s sizeable construction and FIRE industries contribute
to a 6.3 point drop in profit expectations; 46 percent of panelists
forecast lower profits during the first quarter. Montgomery’s
BLCI is the lowest among the four major metro areas at 44.5,
with panelists particularly pessimistic about hiring and capital
spending trends.
Component Index by Area, Q1 2008
Q1 2008
Alabama
Change from Q4 2007
Birmingham
MSA
Huntsville
Mobile
Montgomery
National Economy
37.7
-5.2
36.9
40.5
40.5
37.5
Alabama Economy
50.2
-5.6
48.0
54.3
59.5
50.0
Industry Sales
51.4
-1.4
50.2
60.3
60.0
49.4
Industry Profits
47.4
-3.2
44.8
58.6
54.0
46.2
Industry Hiring
47.9
-2.5
47.0
56.0
56.0
41.9
Capital Expenditures
48.7
-2.8
48.6
50.0
56.5
41.9
BLCI
47.2
-3.5
45.9
53.3
54.4
44.5
BLCI Survey Enters Seventh Year The first quarter of 2008
marks the 25th quarter that Alabama panelists have recorded their
opinions in the online Business Leaders Confidence Index survey.
Expectations for the U.S. and Alabama economies and for industry
sales, profits, hiring, and capital expenditures are equally weighted
in the composite BLCI index. Six years of forecasts have been
prescient in indicating both slowing and accelerating trends in
economic activity. BLCI values consistently above the neutral point
of 50 from the first quarter of 2002 through the fourth quarter of
2007 have correctly forecast six years of expansion. With the index
falling to 47.2 on the first quarter 2008 survey, panelists predict the
strong possibility of recession.
Thank you to the more than 300 Alabama business leaders who
completed the first quarter 2008 BLCI survey during the first two weeks
of December 2007. Please join us in the first two weeks of March for
the second quarter 2008 survey at www.blci.com/alabama.
70
Alabama BLCI History
65
60
55
50
47.2
45
40
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2002
2003
2004
2005
2006
2007 2008
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.
Order your copy of the
Alabama Economic
Outlook 2008 now at
http://cber.cba.ua.edu.
(continued from page 2)
jobs added in the Birmingham-Hoover area
were in retailing; professional, scientific,
and technical services; food services and
drinking places; and local government
entities. Strongest sectors for job growth
in the Huntsville metro area were professional, scientific and technical services;
local government entities; educational and
health services; and information. About
52 percent, or 1,600, of the new jobs in
Montgomery were in retailing, with
another 800 in professional and business
services. Payroll gains in the Mobile metro
area were strongest in educational and
health services and at food services and
drinking places. Tuscaloosa added 600
jobs in state and local government
entities.
From December 2006 to December 2007,
the largest statewide payroll gains were in
construction (2,800); retail trade (2,600);
professional and business services (5,500);
educational and health services (3,500);
food services and drinking places (3,600);
and local government institutions (4,500).
Manufacturing suffered a net loss of 1,800
jobs. While durable goods manufacturing
gained 100 workers, nondurable goods
manufacturing lost 1,900. Within durable
goods manufacturing, the only industries
that gained jobs were transportation
equipment manufacturing—which
includes motor vehicle and parts manufacturing and aerospace products and
parts manufacturing—with 1,000 new
jobs, and primary and fabricated metals,
which added 600. Among nondurable
goods manufacturing industries, gains of
1,400 jobs in plastics and rubber products
manufacturing and 300 in animal slaughtering and processing were negated by
losses in all other industries. Textiles and
apparel manufacturers saw 2,500 jobs
disappear during the year.
For the first quarter of the current fiscal
year compared to the first quarter a year
ago, total state tax revenues increased 4.3
percent to $2.1 billion. Individual and
corporate income tax receipts rose 1.9 and
12.1 percent, respectively. For September
through December 2007, sales tax receipts
totaled $512.7 million, up 1.9 percent
over the first quarter a year ago. First
quarter appropriations to the state’s
General Fund increased 21.5 percent to a
total of $487.6 million. Appropriations to
the Alabama Education Trust Fund climbed
4.2 percent, compared to the first quarter
of the previous fiscal year, to $1.4 billion.
The state is faring much better than the
nation when it comes to the housing
market crisis. One major reason is that
home prices in Alabama have historically
risen at a pace below the national average.
Over the 10 years from the third quarter
of 1997 through the third quarter of 2007,
the OFHEO (Office of Federal Housing
Enterprise Oversight) House Price Index
shows Alabama’s house prices increasing
60.3 percent compared to a U.S. average
100.8 percent gain. House prices held up
much better in the state than the nation
during the year ending in the third quarter
of 2007—the state’s index increased by
5.3 percent, while the U.S. index rose only
1.8 percent.
Although the state’s economy is not
immune to national economic conditions
and the slump in housing markets is being
felt in Alabama, the effect will be more
moderate than the severe downturn in
many parts of the nation. Home sales
were down just 5 percent for 2007,
according to the Alabama Center for Real
Estate, with 57,083 units sold—the third
highest recorded annual total. However,
building permits for single-family homes
totaled 16,793 in 2007, down 5,703
(-25.4 percent) from 2006. While the
housing inventory was declining at yearend, the December inventory to sales ratio
of 11.1 months remained well above the
2002 through 2006 average of 6.5 months
supply.
Outlook. The state’s economy is forecasted to grow by 2.2 percent in 2008,
close to the pace of 2007. Nonfarm employment is expected to increase by 1.0
percent, with the addition of approximately 21,000 jobs. In terms of payroll
employment, the fastest growing segments of the state’s economy are
OFHEO House Price Index
through Q3 2007
(Percent Change)
1-year 10-year
United States
Alabama
Anniston-Oxford
Auburn-Opelika
Birmingham-Hoover
Decatur
Dothan
Florence-Muscle Shoals
Gadsden
Huntsville
Mobile
Montgomery
Tuscaloosa
1.8
5.3
5.9
6.1
3.0
7.2
10.3
4.9
5.1
6.6
5.8
5.6
3.8
100.8
60.3
59.9
72.1
59.1
49.5
58.4
38.4
54.9
54.7
72.6
45.2
53.8
Source: Office of Federal Housing Enterprise Oversight.
expected to be motor vehicle and motor
vehicle parts manufacturing (11.8 percent
increase in jobs); other transportation
equipment manufacturing (3.9 percent);
professional and business services (1.9
percent); educational and health services
(1.4 percent); and leisure and hospitality
services (1.3 percent).
The Alabama economy will face the same
challenges as the rest of the nation in
2008—high energy prices, a credit crunch,
more cautious consumer and business
spending, and the housing market
recession. It should, however, weather
these challenges better than many state
economies. Recent diversification, continuing job gains, and ongoing industry
recruitment and workforce development
will complement more solid fundamentals
in housing and credit conditions than are
seen in many states. Cuts in short term
interest rates should take upward pressure
off long term rates, and provide some
stability in the state’s financial and
housing markets.
Ahmad Ijaz
[email protected]
Samuel Addy
[email protected]
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.
Alabama Business
7
cber.cba.ua.edu
alabama.business
About Alabama
Make the right decision.
From the Census Bureau:
The quality of one’s decisions grows from the quality of the
information upon which they are based. The Alabama Business
Leaders Confidence Index® (BLCI), a collaborative effort by
Compass Bank and The University of Alabama’s Center for Business
and Economic Research, provides executives like you with valuable
perspectives on the latest economic news and business trends.
Around 67,000 Alabama businesses received
2007 Economic Census questionnaires during
December. That’s 1.4 percent of the approximately 4,700,000 forms mailed out nationwide, with a February 12 deadline. The
economic census, conducted every five years,
provides a wealth of industry detail about the
U.S. and state economies and is the official
measure of output for industries and geographic areas. Data on many industries are
broken down by metro areas, counties, and
places of 2,500+ population. Results from
the 2002 Economic Census are available at
http://www.census.gov/econ/census02/.
Please log on at www.blci.com/alabama and register to
become a BLCI panelist. It only takes a few minutes and you’ll be
notified by email when the next survey opens on March 1st.
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 and access to the new Panelist
Roundtable. Join today!
Data can be mined for detailed rankings—did
you know that Alabama led all states in the
value of shipments of reproducing magnetic
and optical media per capita in 2002 and was
second in total value at $667.5 million? We
also were first in manufactured value of
asphalt shingle and coating materials and of
perishable prepared foods per capita!
The Center for Business and Economic Research gratefully
acknowledges the financial support of Compass Bank.
Copies of this publication as well as other socioeconomic data resources are
available on the Center website: http://cber.cba.ua.edu
The University of Alabama
Center for Business and Economic Research
Box 870221
Tuscaloosa, Alabama 35487-0221
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Tuscaloosa, AL 35401
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