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Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama
Volume 79, Number 2
Economic Outlook:
Second Quarter 2010
Second Quarter 2010
Alabama Forecast
Percent Change
Alabama
Employment. During the 12-month period ending in February
2010, the state lost a total of 49,200 nonagricultural jobs, a
drop of 2.6 percent from a year ago. Jobs were up 11,300
compared to January 2010, however, clearly indicating that the
pace of losses continues to slow. Goods producing industries
(mining, construction, and manufacturing) saw payroll declines
totaling 30,900 during the year, while the services sector shed
18,300 jobs. Alabama’s not seasonally-adjusted unemployment
rate of 11.4 percent was down slightly from the 11.8 percent
seen in January, but well above the 9.4 percent rate of February
a year ago. The 233,338 residents counted as unemployed in
February 2010 represents a 17 percent increase from a year ago.
Sixty of the state’s 67 counties reported unemployment rates of
10 percent or higher in February. Wilcox County’s 27.0 percent
was the highest, while Madison County had the lowest rate at
8.3 percent. Including the segment of the workforce that would
like a job but is not currently looking and workers who would
like full-time work but can only find part-time hours, the state’s
unemployment rate would likely be around 15 to 16 percent.
Goods producing industries lost 8.5 percent of their workers
during the year ending in February—construction firms shed
11,400 (6,400 jobs related to specialty trade contractors and
3,900 associated with building construction), while manufacturing saw a net loss of 18,900 jobs. The only manufacturing
industry that added jobs during this period was aerospace
products and parts (100 jobs). Most manufacturing job losses
(14,000) were on the durable goods side—a testament to how
far Alabama has come in replacing textiles and apparel with
motor vehicles and parts production. Among durable goods
manufacturing firms, job losses were concentrated in primary
and fabricated metals (3,700); transportation equipment
(3,500), including 1,400 jobs lost in motor vehicle and parts
manufacturing; wood products (2,300); computer and electronic
products (1,200); and furniture and related products (1,000).
Nondurable goods industries lost 4,900 jobs, primarily in
textiles and apparel (2,100) and paper manufacturing (1,000),
including 600 in pulp, paper, and paperboard mills.
Service providing businesses were not hit as hard during the
past year, with job losses of 18,300 amounting to a 1.2 percent
decline. Still, only a few sectors added jobs between February
2009 and February 2010—educational services gained 3,200
Alabama GDP
Nonagricultural Employment
Total Tax Revenue
Note: Tax revenue is on a fiscal year basis.
2009
2010
-2.1
-4.9
-6.2
2.2
-0.5
-1.5
The state’s 11 metro areas bore the brunt of the job losses, with
employment down 46,100 (-3.15 percent) over the 12 months
ending in February 2010, while the 40 nonmetro counties shed
3,100 jobs. The impact was steepest in the Birmingham-Hoover
metro, where nonagricultural employment fell 5.0 percent as
25,000 jobs disappeared. Mobile also suffered a substantial
decline, with employment falling by 7,800 (-4.4 percent). Job
losses for the February 2009 to February 2010 period were
moderate in the Anniston-Oxford and Dothan areas (each
-2.6 percent), Decatur (-2.4 percent), and Montgomery (-2.3
percent). The Auburn-Opelika area fared the best over the past
year, dropping 300 jobs for a 0.6 percent decrease. Employment
declines were also well below the state average of 2.6 percent
in the Florence-Muscle Shoals (-0.9 percent), Gadsden (-1.1 percent), Huntsville (-1.2 percent), and Tuscaloosa (-1.6 percent)
metro areas. Unemployment averaged 10.8 percent across the
metros in February, up from 8.8 percent a year earlier. At 12.7
percent, unemployment was the highest in Decatur, while
Huntsville’s 8.8 percent rate was the lowest.
Exports. Alabama exports declined from $15.9 billion in 2008
to $12.4 billion in 2009, a 22.2 percent decrease. Exports to
Germany fell a larger 43.1 percent, dropping from $3.2 billion
in 2008 to $1.8 billion in 2009, as passenger vehicle exports
declined sharply. Germany’s share of the state’s exports fell
from 20.0 percent in 2008 to 14.7 percent in 2009. Alabama
exports to Canada slipped just 8.1 percent during the year and
Canada replaced Germany as the state’s largest export destination, with a 20.7 percent share ($2.6 billion, down from $2.8
billion in 2008). Other major Alabama export destinations in
2009 included China ($800 million, down from $817 million);
Mexico ($727 million, down from $1.0 billion); Japan ($556
million, compared to $731 million in 2008); and the United
Kingdom ($460 million versus $650 million in 2008).
employees, healthcare and social assistance added 1,200, and
federal government employment increased by 2,000. Wholesalers saw the largest decline in jobs, with employment falling
by 5,400; retailers shed 2,000 workers. The state’s leisure and
hospitality industry lost 3,100 jobs; accommodation and food
services businesses cut 1,800 employees as consumer and
business spending and travel declined. Professional and
business services, one of the strongest creators of jobs in
Alabama until the recession, dropped 2,100 positions during the
past year. On the bright side, administrative support and waste
management and remediation services added 2,900 workers
during the 12 months ending in February; however, firms in
professional, scientific, and technical services lost 4,300 jobs.
Other service providing sectors that experienced a net loss of
payrolls included: transportation, warehousing, and utilities
(1,000); information (2,100); financial activities (4,400); and
other services (1,800). Both state and local governments also
saw employment decline.
2 | Second Quarter 2010 Alabama Business
Transportation equipment was still the state’s top export in
2009 at $4.0 billion, but the value of shipments was down
almost 30 percent from 2008. Other major exports in 2009
included: chemicals ($1.4 billion), bituminous coal ($1.0
billion), paper products ($809 million), machinery ($804
million), and primary metals ($710 million).
Tax Revenues. Even though state tax receipts are still contracting, the rate of decline has slowed considerably from the
same period a year ago. For the first six months of the current
fiscal year (FY2010), state tax revenues totaled $4.1 billion,
down 2.4 percent ($102 million) from the same period last fiscal
year. Sales tax revenues were 1.5 percent lower (about $14
million) at approximately $900 million. With receipts of $202
million, corporate income taxes came in $9 million lower.
Individual income tax revenues declined by 4.6 percent through
March 2010 compared to the first half of last fiscal year,
dropping $42 million to approximately $1.5 billion. A
slowdown in job losses and a gradually improving economy
should help stabilize tax receipts in the coming months.
For the first six months of FY2010, appropriations to the
Alabama Education Trust Fund, mainly drawn from income and
sales taxes, decreased approximately $46.5 million (-1.8 percent)
to around $2.6 billion. The state’s General Fund, which provides
for most noneducation spending, saw appropriations decline by
approximately $164 million to about $634 million, a drop of
20.5 percent compared to the same period in FY2009.
Outlook. Alabama’s economy is expected to expand in 2010,
although the rate of growth will be modest. For the year as a
whole, real GDP is forecasted to increase 2.0 to 2.5 percent,
while payrolls will continue to shrink across most sectors, at
least through the first half of the year. However, the pace of job
losses will moderate substantially going forward; for all of 2010,
nonagricultural employment is forecasted to drop just 0.5
percent. The unemployment rate will continue to rise, though,
as the labor force holds steady or begins to grow. Any significant improvement in payrolls is not expected to materialize
until the second half of 2010 or even early in 2011.
Business sentiment, measured quarterly by the Center for Business and Economic Research’s Alabama Business Confidence
Index™ (ABCI), has steadily improved since a low of 31.5 in the
first quarter of 2009. The second quarter 2010 ABCI of 49.5
indicates that a broad-based recovery in terms of GDP will most
likely occur in 2010. However, although improving, the hiring
index reading of 47.3 this quarter is still well below the expansion threshold of 50, supporting our forecast of sluggish job
growth.
While Alabama fell into recession almost seven months later
than the nation, the rapid deterioration in employment has
made the downturn more severe, with unemployment above
the U.S. rate since February 2009. Significant slowdowns in
consumer and business spending, tight lending conditions, and
weakness in both commercial and residential real estate markets
will continue to dampen growth, at least through the first half
of 2010 and perhaps even into 2011. The biggest risk to gradual
improvement in the state’s economy is payroll employment;
further job losses would continue to depress consumer
spending, which in turn could revert the economy back into
recession.
Manufacturing output is forecasted to grow 3.0 percent in 2010,
although employment is expected to lag, with payrolls declining
2.0 percent. Motor vehicle production could rise 5.0 percent
during the year, with most of the increase in demand generated
through incentives and sale promotions. Business services will
see some growth, albeit at a modest pace and without adding
any substantial number of workers. Commercial construction is
expected to remain a drag on the economy as developers face
continued tight lending conditions, frozen securitization markets
for commercial loans, and rising vacancy rates in an already
overbuilt market. Commercial construction is not expected to
begin to recover until 2011.
Alabama Nonagricultural Employment
Change in Number of Jobs
February 2009 to
February 2010
Total Nonagricultural
Natural Resources and Mining
Construction
Manufacturing
Durable Goods
Wood Products
Primary and Fabricated Metal
Machinery
Computers and Electronic Products
Electrical Equipment, Appliance and Component
Transportation Equipment
Motor Vehicle
Motor Vehicle Parts
Aerospace Products and Parts
Furniture and Related Products
Nondurable Goods
Food
Textile Mills
Textile Product Mills
Apparel
Paper
Plastics and Rubber Product
Trade, Transportation, and Utilities
Wholesale Trade
Retail Trade
Transportation, Warehousing, and Utilities
Information
Telecommunications
Financial Activities
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 Government Education
Local Government
Local Government Education
-49,200
-600
-11,400
-18,900
-14,000
-2,300
-3,700
-800
-1,200
-200
-3,500
-900
-1,400
100
-1,000
-4,900
0
-600
-100
-1,400
-1,000
-300
-8,400
-5,400
-200
-1,000
-2,100
-700
-4,400
-3,400
-1,000
-2,100
4,400
-3,100
-1,800
-1,300
-1,800
-800
2,000
-600
100
-2,200
-1,500
Source: Alabama Department of Industrial Relations.
Most sectors of Alabama’s economy will experience a very
gradual recovery in 2010 and some will begin to add to
employment. Within the durable goods manufacturing sector,
transportation equipment and related industries will see modest
growth in their payrolls. However, most nondurable goods
producers will continue to lose jobs. 2010 will be another
tough year for construction, with the downturn in commercial
building a major factor in the expected loss of about 7,000 more
jobs. Many service providing businesses are likely to add new
workers, although employment growth will be very tepid. A
pick-up in demand for professional and business services could
generate about 2,000 new jobs during 2010. The leisure and
hospitality sector, including accommodation and food services,
Alabama Business Second Quarter 2010 | 3
will add around 1,000 workers, while educational and health
services is forecasted to add 3,700 employees. Still, at the end
of 2010, total employment will be significantly below its prerecession level. Alabama employment is not expected to fully
recover until at least 2014.
State tax receipts are forecasted to decline slightly in FY2010,
albeit at a much slower pace than was experienced during the
previous fiscal year. Under our most optimistic scenario, if the
economy gets back on solid footing, total receipts will increase
by 0.5 to 1.5 percent. In the baseline scenario where growth
remains sluggish without any significant improvement in payrolls, tax revenues are likely to decline by 1.0 to 2.0 percent.
But under our most pessimistic scenario, if the recession
continues to drag on, overall tax revenues could drop by 2.0
to 3.5 percent.
United States
Output. Real GDP, the value of goods and services produced
in the United States adjusted for inflation, grew 5.6 percent in
fourth quarter 2009, reflecting increases in private inventory
investment, exports, consumer spending, and business spending
on equipment and software. For 2009 as a whole, however,
GDP declined 2.4 percent. Consumer spending fell 0.6 percent
during the year; nonresidential business expenditures slid 17.7
percent; and residential investment dropped 20.4 percent.
While exports declined by 9.6 percent, imports fell a larger
13.9 percent; a decline in imports is an addition to GDP. The
only positive contribution to output in 2009 came from federal
government spending, which increased 5.2 percent.
Strong fourth quarter growth mainly reflected the inventory
cycle, with most of the production increase replenishing
inventories depleted during the recession. Inventories will
provide a much smaller boost to GDP going forward, however,
and economic growth is not expected to be this robust across
2010. GDP is expected to increase 2.6 percent in the first
quarter and 2.4 percent in the second, with output gains for
the year as a whole coming in at around 3 percent. The rise in
GDP in 2010 will reflect positive contributions from consumer
spending (2.4 percent); nonresidential business spending (1.7
percent); residential investment (2.1 percent); exports (11.5
percent); and federal government spending (3.7 percent). State
and local government spending is expected to see a further
decline of 0.4 percent, while an anticipated 11.0 percent
increase in imports will subtract from GDP.
Consumer Spending. Consumer spending accounts for
approximately 70 percent of the U.S. economy. Expenditures,
which increased 1.6 percent in fourth quarter 2009, are expected
to pick up in 2010, rising by 2.6 percent in the first quarter
and by 2.8 percent in the second. For all of 2010, consumer
spending should increase by approximately 2.5 percent, a
welcome turnaround from the 0.6 percent decline seen in 2009.
Consumer wealth has increased by approximately $5.7 trillion
4 | Second Quarter 2010 Alabama Business
since a bottom in early 2009, but still remains about $12 trillion
(18 percent) below its mid-2007 peak. While consumers continue to be constrained by high debt burdens, reduced household wealth, and tight credit and lending conditions, a gradually
improving job market over the remainder of the year is expected
to boost household incomes enough to support a sustained
recovery in consumer spending.
Following a decline of 3.9 percent in 2009, spending on durable
goods is forecasted to grow by over 7 percent in 2010. The
strongest increases will be seen in spending for new motor
vehicles (up 13.7 percent); new light trucks (about 15 percent);
information processing equipment (almost 20 percent); computers and peripheral equipment (about 23 percent); and software and accessories (12 percent). Spending on nondurable
goods is forecasted to increase by over 3.5 percent, with sales
of off-premises food and beverages increasing by around 3.5
percent, while sales of apparel and footwear are forecasted to
rise approximately 2.5 percent.
Business Spending. Following a decline of 17.7 percent across
2009, business investment is forecasted to increase about 2
percent during 2010. After picking up a strong 6.5 percent in
fourth quarter 2009, nonresidential investment is expected to
show gains of 1.3 percent in the first quarter of 2010 and about
5 percent in the second. Business expenditures on equipment
and software surged 18.2 percent during the fourth quarter of
2009; growth is expected to slow to around 2 percent in first
quarter 2010 and then pick up to 14 percent in the second
quarter. Lack of both consumer and business demand made
most businesses reluctant to spend, resulting in an almost 17
percent decline in purchases of equipment and software during
2009. The turnaround that began in the fourth quarter will
continue in 2010, with investment in equipment and software
increasing 9 to 10 percent for the year as a whole. Pent-up
demand will bring exceptionally strong spending on computers
and peripherals (up over 20 percent) and on communications
equipment. After falling almost 50 percent in 2009, expenditures by firms on transportation equipment will rise over 40
percent in 2010. However, industrial equipment purchases,
which fell 23.5 percent in 2009, are forecasted to see about 2
percent growth this year. Investment in business structures is
expected to decrease 10 to 12 percent in 2010, following an
almost 20 percent drop in 2009.
Residential fixed investment, which includes both home construction and sales, fell 20.4 percent in 2009 and is expected
to increase just 2.0 percent in 2010. The number of households
facing foreclosure continues to rise, with 250,000 added in
fourth quarter 2009 alone. According to the Office of the
Comptroller of the Currency and the Office of Thrift Supervision,
almost 1.6 million households are at least 90 days delinquent
on their mortgage payments. The number of foreclosures
completed in the fourth quarter rose to 128,859, a 9 percent
increase. So far, the second $6,800 credit for first time home
buyers, set to expire on April 30, has had very little effect on
home sales. According to the Mortgage Bankers Association,
despite the available tax credit, low interest rates, and relatively
low home prices, mortgage applications are at a 13-year low.
After falling by 15.0 percent in the first quarter of 2010,
residential construction should pick up some in the second
quarter. For all of 2010, residential construction could increase
by approximately 2 percent. Sales of new homes are forecasted
to total slightly over 400,000 units, compared to 372,000 in
2009. Sales of existing homes will increase from 5.1 to 5.2
million units.
hospitality (22,000), and retailing (15,000). The overall number
was artificially boosted, however, by the hiring of almost 50,000
temporary Census workers. Although the new jobs were concentrated in service-related businesses, manufacturing managed
to add 17,000 jobs in March, its third straight monthly gain.
Most of the manufacturing gains were in fabricated metals
(9,000) and machinery manufacturing (6,000). An increase in
the Institute for Supply Management’s Purchasing Managers
Index from 56.5 in February to 59.6 in March, with the employment and new orders indexes at 55.1 and 61.5, respectively,
indicates continuing expansion in manufacturing. The Institute’s nonmanufacturing index also rose in March, up 2.4
points to 55.4. The new orders index climbed 7.3 points to
62.3, while the index for export orders jumped 10.5 points to
57.5—all indications that the economy is poised to add jobs,
albeit at a very sluggish pace. Construction managed to add
15,000 jobs in March, its first gain since June 2007. However,
some sectors continued to lose jobs, including financial services
(-21,000), professional and technical services (-13,000) and
information(-12,000). Excluding all the temporary jobs, the
economy still created approximately 54,000 permanent jobs.
Nearly 15 million Americans were unemployed in March, and
four in 10 had been unemployed for six months or longer. The
underemployment rate, which counts people whose hours have
been cut along with those working part time for lack of a fulltime position, is over 16.5 percent. As the economy begins
to improve, more “discouraged” workers who are currently
not actively looking for work will begin to look again and will
be added to the labor force, keeping the unemployment rate at a
relatively high level, at least through 2010. The forecast calls for
approximately 850,000 jobs to be added in 2010, just a fraction
of the almost 8.5 million lost since the recession began. Given
population nd labor force growth, the economy needs to add
100,000 jobs a month just to keep the unemployment rate at
its current level. A sustained economic recovery will require
the addition of at least 200,000 to 250,000 jobs each month.
Samuel Addy, Ph.D.
[email protected]
Ahmad Ijaz
[email protected]
Employment. An increase of 162,000 in nonfarm payrolls in
March, the largest monthly gain in almost three years, coupled
with an unemployment rate unchanged at 9.7 percent, provides
some level of optimism that the worst part of the great recession may be over. Most of the jobs added were in temporary
help services (40,200), healthcare (27,000), leisure and
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 Second Quarter 2010 | 5