About
The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.
The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.
Postings are weekly.
July 28, 2010
Regional labor markets continue struggle
Similar to the national employment report for June, the regional employment report showed a loss in payroll employment for the month. According to the U.S. Bureau of Labor Statistics' establishment survey, the Sixth District lost 26,800 jobs in June after adding 77,400 jobs in May (see chart 1). Job losses in most District states were affected by the end of Census-related temporary jobs. For the United States as a whole, 125,000 jobs were shed in June, reflecting the end of 225,000 temporary Census jobs. Private payrolls in the District have increased over the past few months, albeit at a slow pace. In June, the District added only about 17,000 private jobs.
Looking at another labor market indicator, we also see a slight improvement in the sluggish labor market. In the U.S. Bureau of Labor Statistics household survey, June's unemployment rate decreased in all District states except for Louisiana, where it increased slightly that month. Despite the easing of the unemployment rate, all states in the District have unemployment rates above the national rate of 9.5 percent with the exception of Louisiana, which has an unemployment rate of 7 percent. Much of the decrease in the unemployment rate during the past few months is attributed to a decrease in labor force participation.
To gauge employment's short-term trend versus its long-term trend, employment momentum can be examined through the use of bubble charts (see chart 3).
The employment momentum chart simultaneously plots both short- and long-term employment trends as well as states' total employment share. The vertical (Y) axis measures short-term trends (three-month average annualized percent change). The horizontal (X) axis measures long-term trends (year-over-year percent change). The size of each state's bubble reflects its relative share of total employment among the six measured states.
The position of a state's bubble in a quadrant—the intersection of the state's short- and long-term plot—reflects its employment momentum by using four quadrants that indicate certain situations:
Quadrant 1: Both short- and long-term employment growth are positive. (The higher in the right-hand corner of the chart a state's bubble appears, the stronger the state's employment momentum.)
Quadrant 2: Short-term growth is negative, but long-term growth is positive. (Recent data point to slipping employment momentum.)
Quadrant 3: Both short- and long-term employment growth are negative. (The lower in the left-hand corner of the chart a state's bubble appears, the weaker the state's employment momentum.)
Quadrant 4: Short-term growth is positive, but long-term growth is negative. (Recent data point to improving employment momentum.)
In June, the employment momentum of the Sixth District states is positioned in the improving quadrant, so although long-term growth is still negative, short-term growth is positive. Some states were even entering the expanding quadrant in June. If we take a look back to where the Sixth District was in January (see chart 4), all District states were in the contracting quadrant with both short- and long-term employment growth negative. Although these indicators point to improvement, they show that the labor market in the Sixth District still has a ways to go before getting back to where it was prerecession, with state bubbles in the expanding quadrant and lower unemployment rates.
By Sandra Kollen, a senior economic analyst in the Atlanta Fed's research department
November 10, 2009
Recession lessons
As business owners and CEOs in the Southeast react to the positive media stories on third quarter GDP, they have also been quick to remind us that while the recession may be over technically, there is still fallout to be dealt with.
Our contacts note that economic headwinds (things like high unemployment, cautious consumers, and uncertainty about commercial real estate, just to name a few) are having an effect on their business decisions, but all is not negative.
On the contrary, companies positioned to ride out a deep downturn like the one we are experiencing are providing a glimpse into how our region's most successful organizations got that way. Here are a few "lessons from the recession" from some of our business contacts:
- It's great to have access to credit and even better to have access when you don't need it. Many of our contacts have emphasized the importance of maintaining an "emergency fund" for their businesses much like financial planners encourage for individuals.
- Managers should take advantage of the unprecedented level of talent that is available in the labor market. We hear repeatedly that one of the best places to deploy emergency fund dollars is with new employees who can add immediate value to the enterprise. Some of the stories we've heard paint the picture of highly productive new staff doing the jobs of two and even three staff, and at the same time, challenging other staff to increase their own productivity. Our contacts also note that slow periods provide an opportunity to further develop strong performers in anticipation of deploying more productive and flexible human resources when demand picks up.
- While many organizations have reduced both staffing and other expenditures, it's been noted by some contacts that even after the "first wave" of cuts, they were able to find additional savings through more creative uses of current resources. The point here is that when conventional wisdom would make one think that there was no more opportunity for efficiency gains, a deeper gaze can identify additional opportunities that will set them apart from the competition.
- It appears there is a new paradigm for managing inventories at lower levels as compared to the past and that this won't change once the recovery gains momentum. Managers in the best companies will work harder to ensure idled assets are minimized.
- We have also heard repeatedly about the importance of relationships with both vendors and customers. There is a heightened sense of the importance of knowing whom the organization works with, why they are important to the enterprise, and how the relationship can be strengthened through increased communication and flexibility.
While these are only a few of the lessons our contacts have shared, perhaps it is even more important to recognize that tomorrow's most successful businesses are those that are planning for the future today.
Chris Oakley serves as vice president and regional executive of the Jacksonville Branch. His territory includes all of central and north Florida, including the Panhandle. He and his counterparts in other parts of the Sixth District work to develop networks of individuals with "boots on the ground" who provide economic insight and intelligence to the Federal Reserve Bank of Atlanta. This information supplements the data that are analyzed and used in forecasting, and ultimately, policymaking.
November 4, 2009
State revenues and recessions, part two
Last week we noted that this recession has hit state government finances hard. Declines in revenue have been deep, and Southeastern states are no exception. The reason is rather straightforward—the economic downturn was deep in the region, and the falloff in economic activity led to unprecedented declines in state revenues. States in the region responded by reducing spending, cutting services, and reducing employment. Direct federal assistance to state governments through the American Recovery and Reinvestment Act (ARRA) has helped mitigate revenue shortfalls, but pressure on budgets remains significant. How long this pressure remains is an important component of the outlook for 2010 and beyond.
Gauging the downturn and its impact on state finances
Since state level GDP data are only available on an annual basis, we look to higher-frequency series to more closely track economic activity. The Federal Reserve Bank of Philadelphia produces a monthly coincident index for each of the 50 states. The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP) so long-term growth in the state’s index matches long-term growth in its GDP.
Chart 1 shows the year-over-year percent change in the weighted average coincident indicator for the six states in the Sixth Federal Reserve District (Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee) and total tax revenues for these states. The current downturn represents the deepest decline for both measures, and it also reveals how the two are related as the decline in economic activity hits revenue resources—especially sales tax intake—quite hard during recessions.
The current decline in Southeastern states' revenues is also deeper than in previous downturns. Chart 2 takes the data used in Chart 1 for total state tax revenues back to the early 1970s. In April 2009, the year-over-year measure reached –13.7 percent before improving to –10.2 percent by September. Before the current year, the deepest decline in total state tax revenues for the region was –3.5 percent, reached in March 2002.
The impact on state budgets
State spending is generally procyclical. When economic activity is positive and tax revenues are strong, states tend to spend more on services and programs like education and transportation. During economic downturns, states tend to spend more on social welfare programs. However, this spending is constrained by limited revenues. State budget shortfalls have been significant in the region. The table below estimates these shortfalls for the current fiscal year.
States have responded by cutting spending and services. According to The Center on Budget and Policy Priorities (CBPP), four Southeastern states have enacted cuts in Medicaid or children's health insurance programs: Florida, Georgia, Louisiana, and Tennessee. Cuts include reduced or frozen reimbursements to health care providers. The CBPP also reported that several states have also made cuts to education budgets, including K-12 and higher education budgets. In addition, state employment has also been curtailed. For example, Georgia imposed furloughs and/or pay cuts for some state employees, and Tennessee’s governor announced the elimination of more than 2,000 state positions, about 5 percent of the state workforce. Hiring freezes have also been ordered in Alabama, Florida, and Georgia.
The American Recovery and Reinvestment Act
Christina Romer, chairman of President Obama’s Council of Economic Advisors, testified before Congress in October that a total of $43.8 billion in federal stimulus has been devoted to state fiscal relief. An informal Atlanta Fed survey of Southeastern state budget officials found that the majority of these funds was being applied to address budget shortfalls in Medicaid and education. But as noted earlier, budget gaps persist. While it’s clear the ARRA has helped states under fiscal stress, it has not completely bridged budget gaps.
Outlook
FRB Atlanta President Dennis Lockhart noted in a September 30 speech in Mobile, Alabama, that "I agree with all who are declaring that a technical recovery is under way."
Improvements can also be seen at the state level. Two Southeastern states showed monthly increases in their coincident economic activity indexes in September compared with zero in July and one in August. For those states that continued to experience month-to-month declines, the rate of the deterioration was much smaller than earlier in 2009. Unfortunately for states budgets, the emerging recovery will not result in immediate relief.
The Rockefeller Institute of Government estimates that it takes three to five years after the onset of serious revenue declines before states again reach their precrisis levels. The chart below, taken from a September presentation by Senior Fellow Donald Boyd, plots this analysis.
Summing up, the impact of the recession on state government finances has been and remains severe. The downturn in economic activity has led to declines in state sales tax intake as well as drops in other revenue resources. Budget cuts have been enacted, and the relief from federal stimulus funds has not fully mitigated the budget shortfalls. As a result, pressure on state budgets remains significant. Despite the fact that the economy is growing again, state finances are expected to remain challenged over the next several years.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
September 30, 2009
Some good news from the labor market
Initial unemployment insurance claims are a very useful economic indicator, providing insight into general labor market conditions as well as serving as a good gauge for the path of overall economic activity. The Atlanta Fed's Q1 2009 issue of EconSouth highlighted these data, and you can read the most recent report on the Department of Labor's Employment and Training Administration Web site. So what do we see when we look at these numbers?
The deceleration in initial unemployment claims seems to indicate that the end of recession is near. Chart 1 shows that the deceleration in U.S. initial claims occurred near the end of recessionary periods in 1991 and again in 2001. In the second quarter of 2009, U.S. initial claims averaged 624,000 per week. In July and August that average fell to 565,000. Is the current deceleration in initial unemployment claims a sign that the recession is over? Well, it's clearly a good sign. As you probably read, Chairman Bernanke earlier this month indicated that the recession "is very likely over."
Can we say the same for the region? Well, Chart 2 shows that initial claims for unemployment in the Southeast have also decelerated in much the same manner as have U.S. initial claims. (We define the Southeast as the states of the Sixth Federal Reserve District—Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee.) In the second quarter the average number of initial unemployment claims was just over 80,000. In July and August that average fell to just above 72,000. The chart also shows that, in the United States, the deceleration in regional initial claims occurred near the end of recessionary periods in 1991 and 2001.
While the drop in initial claims appears to suggest the end of recession, it does not equate to a net job gain. The Southeast is still shedding jobs, according to the latest report on national and state employment from the U.S. Bureau of Labor Statistics. Maybe the best way to think about the initial claims data for the nation and region is that they show that labor market healing is under way.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
July 28, 2010
Regional labor markets continue struggle
Similar to the national employment report for June, the regional employment report showed a loss in payroll employment for the month. According to the U.S. Bureau of Labor Statistics' establishment survey, the Sixth District lost 26,800 jobs in June after adding 77,400 jobs in May (see chart 1). Job losses in most District states were affected by the end of Census-related temporary jobs. For the United States as a whole, 125,000 jobs were shed in June, reflecting the end of 225,000 temporary Census jobs. Private payrolls in the District have increased over the past few months, albeit at a slow pace. In June, the District added only about 17,000 private jobs.
Looking at another labor market indicator, we also see a slight improvement in the sluggish labor market. In the U.S. Bureau of Labor Statistics household survey, June's unemployment rate decreased in all District states except for Louisiana, where it increased slightly that month. Despite the easing of the unemployment rate, all states in the District have unemployment rates above the national rate of 9.5 percent with the exception of Louisiana, which has an unemployment rate of 7 percent. Much of the decrease in the unemployment rate during the past few months is attributed to a decrease in labor force participation.
To gauge employment's short-term trend versus its long-term trend, employment momentum can be examined through the use of bubble charts (see chart 3).
The employment momentum chart simultaneously plots both short- and long-term employment trends as well as states' total employment share. The vertical (Y) axis measures short-term trends (three-month average annualized percent change). The horizontal (X) axis measures long-term trends (year-over-year percent change). The size of each state's bubble reflects its relative share of total employment among the six measured states.
The position of a state's bubble in a quadrant—the intersection of the state's short- and long-term plot—reflects its employment momentum by using four quadrants that indicate certain situations:
Quadrant 1: Both short- and long-term employment growth are positive. (The higher in the right-hand corner of the chart a state's bubble appears, the stronger the state's employment momentum.)
Quadrant 2: Short-term growth is negative, but long-term growth is positive. (Recent data point to slipping employment momentum.)
Quadrant 3: Both short- and long-term employment growth are negative. (The lower in the left-hand corner of the chart a state's bubble appears, the weaker the state's employment momentum.)
Quadrant 4: Short-term growth is positive, but long-term growth is negative. (Recent data point to improving employment momentum.)
In June, the employment momentum of the Sixth District states is positioned in the improving quadrant, so although long-term growth is still negative, short-term growth is positive. Some states were even entering the expanding quadrant in June. If we take a look back to where the Sixth District was in January (see chart 4), all District states were in the contracting quadrant with both short- and long-term employment growth negative. Although these indicators point to improvement, they show that the labor market in the Sixth District still has a ways to go before getting back to where it was prerecession, with state bubbles in the expanding quadrant and lower unemployment rates.
By Sandra Kollen, a senior economic analyst in the Atlanta Fed's research department
November 10, 2009
Recession lessons
As business owners and CEOs in the Southeast react to the positive media stories on third quarter GDP, they have also been quick to remind us that while the recession may be over technically, there is still fallout to be dealt with.
Our contacts note that economic headwinds (things like high unemployment, cautious consumers, and uncertainty about commercial real estate, just to name a few) are having an effect on their business decisions, but all is not negative.
On the contrary, companies positioned to ride out a deep downturn like the one we are experiencing are providing a glimpse into how our region's most successful organizations got that way. Here are a few "lessons from the recession" from some of our business contacts:
- It's great to have access to credit and even better to have access when you don't need it. Many of our contacts have emphasized the importance of maintaining an "emergency fund" for their businesses much like financial planners encourage for individuals.
- Managers should take advantage of the unprecedented level of talent that is available in the labor market. We hear repeatedly that one of the best places to deploy emergency fund dollars is with new employees who can add immediate value to the enterprise. Some of the stories we've heard paint the picture of highly productive new staff doing the jobs of two and even three staff, and at the same time, challenging other staff to increase their own productivity. Our contacts also note that slow periods provide an opportunity to further develop strong performers in anticipation of deploying more productive and flexible human resources when demand picks up.
- While many organizations have reduced both staffing and other expenditures, it's been noted by some contacts that even after the "first wave" of cuts, they were able to find additional savings through more creative uses of current resources. The point here is that when conventional wisdom would make one think that there was no more opportunity for efficiency gains, a deeper gaze can identify additional opportunities that will set them apart from the competition.
- It appears there is a new paradigm for managing inventories at lower levels as compared to the past and that this won't change once the recovery gains momentum. Managers in the best companies will work harder to ensure idled assets are minimized.
- We have also heard repeatedly about the importance of relationships with both vendors and customers. There is a heightened sense of the importance of knowing whom the organization works with, why they are important to the enterprise, and how the relationship can be strengthened through increased communication and flexibility.
While these are only a few of the lessons our contacts have shared, perhaps it is even more important to recognize that tomorrow's most successful businesses are those that are planning for the future today.
Chris Oakley serves as vice president and regional executive of the Jacksonville Branch. His territory includes all of central and north Florida, including the Panhandle. He and his counterparts in other parts of the Sixth District work to develop networks of individuals with "boots on the ground" who provide economic insight and intelligence to the Federal Reserve Bank of Atlanta. This information supplements the data that are analyzed and used in forecasting, and ultimately, policymaking.
November 4, 2009
State revenues and recessions, part two
Last week we noted that this recession has hit state government finances hard. Declines in revenue have been deep, and Southeastern states are no exception. The reason is rather straightforward—the economic downturn was deep in the region, and the falloff in economic activity led to unprecedented declines in state revenues. States in the region responded by reducing spending, cutting services, and reducing employment. Direct federal assistance to state governments through the American Recovery and Reinvestment Act (ARRA) has helped mitigate revenue shortfalls, but pressure on budgets remains significant. How long this pressure remains is an important component of the outlook for 2010 and beyond.
Gauging the downturn and its impact on state finances
Since state level GDP data are only available on an annual basis, we look to higher-frequency series to more closely track economic activity. The Federal Reserve Bank of Philadelphia produces a monthly coincident index for each of the 50 states. The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP) so long-term growth in the state’s index matches long-term growth in its GDP.
Chart 1 shows the year-over-year percent change in the weighted average coincident indicator for the six states in the Sixth Federal Reserve District (Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee) and total tax revenues for these states. The current downturn represents the deepest decline for both measures, and it also reveals how the two are related as the decline in economic activity hits revenue resources—especially sales tax intake—quite hard during recessions.
The current decline in Southeastern states' revenues is also deeper than in previous downturns. Chart 2 takes the data used in Chart 1 for total state tax revenues back to the early 1970s. In April 2009, the year-over-year measure reached –13.7 percent before improving to –10.2 percent by September. Before the current year, the deepest decline in total state tax revenues for the region was –3.5 percent, reached in March 2002.
The impact on state budgets
State spending is generally procyclical. When economic activity is positive and tax revenues are strong, states tend to spend more on services and programs like education and transportation. During economic downturns, states tend to spend more on social welfare programs. However, this spending is constrained by limited revenues. State budget shortfalls have been significant in the region. The table below estimates these shortfalls for the current fiscal year.
States have responded by cutting spending and services. According to The Center on Budget and Policy Priorities (CBPP), four Southeastern states have enacted cuts in Medicaid or children's health insurance programs: Florida, Georgia, Louisiana, and Tennessee. Cuts include reduced or frozen reimbursements to health care providers. The CBPP also reported that several states have also made cuts to education budgets, including K-12 and higher education budgets. In addition, state employment has also been curtailed. For example, Georgia imposed furloughs and/or pay cuts for some state employees, and Tennessee’s governor announced the elimination of more than 2,000 state positions, about 5 percent of the state workforce. Hiring freezes have also been ordered in Alabama, Florida, and Georgia.
The American Recovery and Reinvestment Act
Christina Romer, chairman of President Obama’s Council of Economic Advisors, testified before Congress in October that a total of $43.8 billion in federal stimulus has been devoted to state fiscal relief. An informal Atlanta Fed survey of Southeastern state budget officials found that the majority of these funds was being applied to address budget shortfalls in Medicaid and education. But as noted earlier, budget gaps persist. While it’s clear the ARRA has helped states under fiscal stress, it has not completely bridged budget gaps.
Outlook
FRB Atlanta President Dennis Lockhart noted in a September 30 speech in Mobile, Alabama, that "I agree with all who are declaring that a technical recovery is under way."
Improvements can also be seen at the state level. Two Southeastern states showed monthly increases in their coincident economic activity indexes in September compared with zero in July and one in August. For those states that continued to experience month-to-month declines, the rate of the deterioration was much smaller than earlier in 2009. Unfortunately for states budgets, the emerging recovery will not result in immediate relief.
The Rockefeller Institute of Government estimates that it takes three to five years after the onset of serious revenue declines before states again reach their precrisis levels. The chart below, taken from a September presentation by Senior Fellow Donald Boyd, plots this analysis.
Summing up, the impact of the recession on state government finances has been and remains severe. The downturn in economic activity has led to declines in state sales tax intake as well as drops in other revenue resources. Budget cuts have been enacted, and the relief from federal stimulus funds has not fully mitigated the budget shortfalls. As a result, pressure on state budgets remains significant. Despite the fact that the economy is growing again, state finances are expected to remain challenged over the next several years.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
September 30, 2009
Some good news from the labor market
Initial unemployment insurance claims are a very useful economic indicator, providing insight into general labor market conditions as well as serving as a good gauge for the path of overall economic activity. The Atlanta Fed's Q1 2009 issue of EconSouth highlighted these data, and you can read the most recent report on the Department of Labor's Employment and Training Administration Web site. So what do we see when we look at these numbers?
The deceleration in initial unemployment claims seems to indicate that the end of recession is near. Chart 1 shows that the deceleration in U.S. initial claims occurred near the end of recessionary periods in 1991 and again in 2001. In the second quarter of 2009, U.S. initial claims averaged 624,000 per week. In July and August that average fell to 565,000. Is the current deceleration in initial unemployment claims a sign that the recession is over? Well, it's clearly a good sign. As you probably read, Chairman Bernanke earlier this month indicated that the recession "is very likely over."
Can we say the same for the region? Well, Chart 2 shows that initial claims for unemployment in the Southeast have also decelerated in much the same manner as have U.S. initial claims. (We define the Southeast as the states of the Sixth Federal Reserve District—Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee.) In the second quarter the average number of initial unemployment claims was just over 80,000. In July and August that average fell to just above 72,000. The chart also shows that, in the United States, the deceleration in regional initial claims occurred near the end of recessionary periods in 1991 and 2001.
While the drop in initial claims appears to suggest the end of recession, it does not equate to a net job gain. The Southeast is still shedding jobs, according to the latest report on national and state employment from the U.S. Bureau of Labor Statistics. Maybe the best way to think about the initial claims data for the nation and region is that they show that labor market healing is under way.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
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