| OverviewNational economic conditions are showing no signs of a slowdown. In five more months, the current economic expansion will have been the longest since 1854, surpassing the 106-month expansion that began in February, 1961. For the first seven months this year, there were an average of 223,000 jobs created each month, versus a monthly average of approximately 217,000 for the first seven months a year ago. All in all, the U.S. economy is expected to grow at a slightly higher rate in 1999 than in 1998.
However, Alabama’s economy is showing signs of slower growth than last year. Growth in gross state product (GSP) for Alabama for 1999 is now expected to be in the 2.7 to 2.9 percent range, versus 1998’s estimated 3.3 percent. Total nonagricultural employment growth is expected to be 1.1 percent, versus 2.0 percent last year. There will be 21,000 new jobs created this year instead of our previous expectations of 28,000.
There are four major factors in the slowing pace of economic growth in Alabama for 1999:
- Significant job losses in manufacturing.
- A slowdown in consumer spending.
- Slow growth in the civilian labor force.
- The concentration of job growth in urban areas only, impeding any economic growth in rural areas.
From June 1998 to June 1999, there were 20,200 net new jobs created in the state. The state’s ten metropolitan areas (20 counties, excluding Russell County which is a part of the Columbus, Georgia metro area) gained 22,300 new jobs. The remaining 47 counties collectively lost 2,100 jobs. Most of the new jobs created in the metropolitan areas have been in services or retail trade. Those sectors pay relatively lower wages than manufacturing industries. Among the jobs created from June 1998 to June 1999, 54 percent were in the trade sector (primarily retail trade) and the remaining 46 percent were in services. The job gains in all remaining economic sectors were pretty much negated by manufacturing’s job losses.
Alabama’s Manufacturing Jobs
From June 1998 to June 1999, manufacturing industries in Alabama lost approximately 11,100 jobs. That compares to 5,700 jobs lost during the previous 12 months. Most (approximately 8,900) lost jobs occurred in nondurable goods producing firms. These industries included companies producing
- textiles and apparel;
- pulp, paper and allied products;
- chemical products; and
- rubber and plastics.
However, firms producing durable goods also lost about 2,200 jobs. The lost durable goods jobs occurred in:
- steel mills producing both fabricated and primary metals;
- industrial machinery and equipment production; and
- electronics and other electrical equipment manufacturers.
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A slight improvement is expected in both the Asian and European economies during the second half of 1999. Stronger overseas economies cause the U.S. dollar to become relatively weaker. A weaker dollar expands export opportunities for American companies. Hence, some manufacturing recovery for Alabama is expected, mainly in the durable goods sectors. And with restraints on imported steel, modest improvement in the state’s steel industry is also expected.Labor Force
Economic growth depends primarily on two basic factors: labor force and productivity. Alabama’s labor force, defined as people between the ages of 16 to 65 who are either employed or are actively seeking employment, has grown much more slowly than the national average and more slowly than other Southeastern states. From June 1998 to June 1999, the state’s labor force increased by about 0.6 percent, a gain of 13,900 people. During the same period, the U.S. labor force increased 1.3 percent.
A factor contributing to slower growth in the labor force is in- migration, or rather Alabama’s lack or it. From 1997 to 1998, the net number of people moving into the state to live was 7,953, compared to an increase of 114,483 into Florida, 59,982 into Georgia, 54,234 into North Carolina, and 23,775 into South Carolina. However, in-migration can be a mixed blessing. It increases the labor force, but it also puts strains on existing infrastructure.
In order to attract new jobs and businesses, the state needs strong infrastructure development. A state that does not maintain and improve its infrastructure has fewer chances of attracting high- wage jobs and businesses. Noncompetitive growth makes it harder for that state to maintain and expand the amenities that would attract a desirable skilled labor force.
Consumer Spending
High consumer spending during recent years has been important to employment growth in the state. Consumer spending (as opposed to governmental spending) occurs primarily in retail enterprises. Retail trade has been one of the few job engines in the state recently. In fact, retailing has been a more important part of the Alabama economy than the average for the United States.
From June 1998 to June 1999, of the 20,200 jobs created in the state, 11,000 were in the trade sector (10,000 in retail and 1,000 in wholesale trade), or about 54 percent of new jobs. Nationwide, about 25 percent of new jobs have been in the trade sectors. A retrenchment in consumer spending could be a big blow to the Alabama economy.
The consumer urge to spend has been mostly fueled by higher equity and housing prices, otherwise known as the wealth effect. Recently, valuations in both housing and the stock market have been increasing very quickly, fueling a record-setting frenzy in consumer spending. Another factor affecting consumer spending is that imported goods have been relatively cheap in this country because of a high exchange rate value of the U.S. dollar.
However, there is a limit to how long the U.S. consumer can support these levels of spending. Expected higher interest rates and higher import prices could very well bring the spending spree to an end. Measures of consumer sentiment and consumer confidence are both showing a downward trend. Repercussions from lower consumer spending could prove to be detrimental to Alabama’s economic growth.
Ahmad Ijaz
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