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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.


January 6, 2012

More on the Sixth District's exposure to Europe

Europe remains in the news as 2012 begins. Developments there continue to influence global financial markets and might be pushing the euro area's economy into recession. Many forecasters have identified contagion from the European financial crisis and recession as a significant risk to U.S. economic growth in 2012.

Atlanta Fed President Dennis Lockhart noted this in his November 29, 2011, remarks during the University of Georgia's Terry College of Business 2012 Economic Outlook conference:

"My baseline forecast for 2012 builds on the picture I've just painted of the second half of 2011. I'm expecting continued moderate growth, decently behaved inflation, continuing net job creation, but slow progress on unemployment. You will note I used the word ‘baseline.' I need to emphasize that at this juncture I perceive considerable downside risk to this baseline forecast. The most prominent source of risk is Europe. "

Steven B. Kamin, the director of the Division of International Finance at the Federal Reserve's Board of Governors, discussed the economic situation in Europe and its impact on the U.S. economy in testimony before the U.S. House of Representatives on December 16, 2011:

"Here at home, the financial stresses in Europe are undoubtedly spilling over to the United States by restraining our exports, helping to push down business and consumer confidence, and adding to pressures on U.S. financial markets and institutions."

A few weeks ago, SouthPoint looked at trade connections between Europe and the Southeast, noting that

"While there is concern about the financial impact of instability in Europe, a souring of economic activity across the Atlantic would also affect international trade. In either case, the region is not immune."

We thought we'd dig a little deeper into the issue and look more closely at which parts of the Southeast economy are vulnerable to the crisis in Europe.

Clearly, U.S. companies that depend on sales of their products to the euro area are likely to see the weakening of demand for their Europe-bound products as the euro area's economy contracts and if the euro continues to depreciate. According to the U.S. International Trade Administration, the exposure of Southeast's exporters—as measured by the share of goods sold in the euro area as percent of total goods exports—is relatively low, but the share varies significantly across the Southeast states.

Alabama's exporters appear to be the most vulnerable to changes in European demand—almost a fifth of the state's merchandise exports are shipped to the euro area. About half of those exports are sold in Germany, mainly autos. The good news is that Germany seems to be one of the more resilient European economies, along with the Netherlands, Belgium, and France—the other large euro area markets for Southeast's exporters. The economically weakest countries in the euro area—Greece, Ireland, and Portugal—account for a small fraction of the region's exports.


While Florida's exporters appear to be least exposed to the euro area compared to other states in the Southeast (most of Florida's exported goods go to Latin America), the state's large tourism industry may feel some impact if a recession and a weakening euro keep Europeans from traveling to the United States. Based on data from the Office of Travel and Tourism Industries and VISIT FLORIDA, an estimated 1.2 million residents of the euro area visited Florida in 2010. Fortunately, this number represents less than 2 percent of all the visitors to the state.

Another important part of Florida's economy that to some extent depends on European spending is residential real estate. In Florida, sales to nonresident foreigners account for about 25 percent of total residential sales (compared with only 3 percent nationally). For the state as a whole, Western Europeans (excluding U.K. residents) account for about 11 percent of all nonresident foreign buyers. While the number is relatively low, some parts of the state are much more dependent on Europeans. For example, in the Miami-Fort Lauderdale-Miami Beach market residents of Germany accounted for nearly a quarter of all nonresident foreign buyers in the 12 months ending in June 2011, according to the National Association of Realtors.

In general, whether through exports, tourism or real estate, the Sixth District's exposure to Europe appears relatively small. The bigger concerns are the possibilities of severe financial contagion (via the banking system and financial markets) and a hit to business and consumer confidence, which apply as much to the District as to the nation overall.

Photo of Galina Alexeenko By Galina Alexeenko, director of the Atlanta Fed’s Regional Economic Information Network

 

and

Photo of Michael Chriszt Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

November 22, 2011

Exploring trade connections between Europe and the Southeast

Thanksgiving. What a great holiday. Family, friends, turkey, stuffing, apple pie (not a big pumpkin pie fan). And perhaps, if we are true to the spirit of the holiday, a time to pause and remember all there is to be thankful for. My list contains the usual suspects—wife, kids, parents, friends, and others that no doubt would be on your list as well. One item that's on my list that would surprise me to find on yours would be Europe.

There's a little more to it than just "Europe." In 1985, my parents sent me to study in Europe for my junior year of college. Miami University (the one in Ohio) has a small campus in the Grand Duchy of Luxembourg, and I studied there from September to May of 1986. I still don't know how my parents did it on their wages—but they did, and I'm ever thankful because my year in Europe did as much to mold me as any other experience.

Of course today, not many people are feeling particularly thankful for the European debt situation, which is causing much-discussed pain and uncertainty in the global economy. It's a topic that's been on Atlanta Fed President Dennis Lockhart's mind. He shared this concern last month in a speech in Chattanooga, Tenn., when he noted that the U.S. fiscal situation and "financial instability from developments in Europe" were the most significant risk factors facing the U.S. economic outlook. As more news has come out of Europe in the weeks since then, many have discussed the risk of possible financial contagion from the situation there spreading "across the pond" to the United States.

Federal Reserve Vice Chair Janet Yellen mentioned the issue in her November 11 speech in Chicago:

"We are monitoring European developments very closely, and we will continue to do all that we can to mitigate the consequence of any adverse developments abroad on the U.S. financial system."


Fed Chairman Ben Bernanke offered some thoughts about the European situation in response to a question at his press conference following the FOMC meeting on November 2:

"...what we can do, really, is only a couple of things. One is that we can look at our own financial institutions and try to assess the exposures and the linkages between our institutions and those in Europe and the sovereign debt in Europe, and we've been doing that on a consistent basis. We've looked also, of course, with other regulators at money market mutual funds and other types of financial institutions that have connections to Europe...


"And the other thing that we can do is stand ready, if necessary, to provide whatever support the broader economy needs and the financial system needs, should things worsen. I mean, we are hopeful that the latest measures, vigorously implemented, will indeed ultimately reduce these stresses, but in the case that things do get worse, both monetary policy and our policies of lender of last resort are available to insulate the U.S. economy from the effects."


The other channel where problems in Europe can affect the United States is through international trade. The members of the European Union have accounted for roughly 20 percent of U.S. exports over the last decade. Thus, any slowdown or decline in economic activity in Europe would most likely lead to a decline in demand for U.S. goods there, which in turn would lead to a decline in U.S. exports to Europe.

How would such developments affect the Southeast? Over the past decade, the states of the Sixth District have shipped an average of nearly $22 billion worth of goods per year to the European Union member countries. The dollar value of these goods accounts for almost 19 percent of total exports from the six states in the region—a number similar to the United States as a whole.

The importance of Europe as an export market varies by state, as the table below shows. Complete data are available through 2009, but by using the 10-year average we can see the longer-term pattern.

Exports to Europe (2000-09 average)

Based on these figures, Florida ships the most goods in terms of value to Europe, but Alabama is more dependent on exports to Europe than any other state in the region. Georgia also sends a significant portion of its total exports to Europe. While there is concern about the financial impact of instability in Europe, a souring of economic activity across the Atlantic would also affect international trade. In either case, the region is not immune.

I'll be thankful when Europe's debt issue is resolved.

Photo of Michael Chriszt By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

April 26, 2011

Beige Book: Southeast economy improved through March; but what about April?

On April 13, the Sixth District's most recent Beige Book was released. The opening paragraph, which summarizes the entire report, said, "Sixth District business contacts described economic activity as advancing modestly from mid-February through March. Retailers cited that consumer spending improved while auto dealers reported strong sales growth. Tourism activity remained positive as occupancy rates and air travel mostly increased. Residential brokers and builders indicated that sales growth of new and existing homes were mixed, but generally remained weak, while commercial contractors mentioned improving conditions as development increased slightly. District manufacturers experienced increasing levels of new orders and production. Transportation firms noted modest advances in shipments and tonnage. Banking contacts reported soft but improving loan demand. Labor markets continued to recover at a gradual pace. Cost pressures grew for most District firms, but the ability to pass through price increases continued to vary by industry."

The report discusses economic activity that took place from mid-February through March, but the official release date lagged by a couple of weeks. In a time when data and information are so easily available, this type of lag can make the information seem dated. The Atlanta Fed is continuously gathering information via meetings with our Regional Economic Information Network contacts. Recently, we held two advisory council meetings, which gave us more insight into their particular sectors. On April 12 our Trade and Transportation Advisory Council met in Atlanta, and on April 14 our Travel and Tourism Advisory Council met in Miami. What follows is some of the anecdotal information collected from these meetings.

Trade and transportation
Demand is up for almost all industries in the transportation sector, especially for those involved in export activity. The trucking industry is seeing a return to pricing power but is challenged with finding qualified drivers and mechanics and faces a shortage of drivers amid new regulations. Increases in the cost of fuel are challenging all modes of transportation, but fuel surcharges remain intact. Intermodal volume is benefiting from increased fuel costs as customers move certain types of goods from truck to rail. Inventories remain very low and inventory turns are high; slow steaming in maritime shipments is creating floating inventories. All industries reported increases in capital expenditures for replacement and new equipment, information technology, and infrastructure and buildings. Hiring is taking place at some level in most industries, and wage pressures are just beginning to surface in parts of the sector. Events in Japan have not caused major disruptions but lags in shipments of certain goods and equipment have been reported.

Travel and tourism
Activity is up in almost all industries of the sector. Occupancy, room rates, and cruise and convention bookings are increasing. A modest level of pricing power has returned; however, increasing fuel and commodity costs are challenging all segments of the sector. Restaurant activity is mixed, and price increases are being passed through. Capital expenditure is increasing in most of the sector, and the overall tone was one of optimism with a cautious eye toward rising commodity costs. The areas and locations adversely affected by last year's BP oil spill have regained business, and many are back to normal levels.

Based on these meetings, it appears that the Sixth District's economy is still moving in a positive direction.

By Shalini Patel, a senior economic analyst in the research department, Sarah Arteaga, a senior REIN analyst, and Lon Lazzeri, a REIN director

January 6, 2012

More on the Sixth District's exposure to Europe

Europe remains in the news as 2012 begins. Developments there continue to influence global financial markets and might be pushing the euro area's economy into recession. Many forecasters have identified contagion from the European financial crisis and recession as a significant risk to U.S. economic growth in 2012.

Atlanta Fed President Dennis Lockhart noted this in his November 29, 2011, remarks during the University of Georgia's Terry College of Business 2012 Economic Outlook conference:

"My baseline forecast for 2012 builds on the picture I've just painted of the second half of 2011. I'm expecting continued moderate growth, decently behaved inflation, continuing net job creation, but slow progress on unemployment. You will note I used the word ‘baseline.' I need to emphasize that at this juncture I perceive considerable downside risk to this baseline forecast. The most prominent source of risk is Europe. "

Steven B. Kamin, the director of the Division of International Finance at the Federal Reserve's Board of Governors, discussed the economic situation in Europe and its impact on the U.S. economy in testimony before the U.S. House of Representatives on December 16, 2011:

"Here at home, the financial stresses in Europe are undoubtedly spilling over to the United States by restraining our exports, helping to push down business and consumer confidence, and adding to pressures on U.S. financial markets and institutions."

A few weeks ago, SouthPoint looked at trade connections between Europe and the Southeast, noting that

"While there is concern about the financial impact of instability in Europe, a souring of economic activity across the Atlantic would also affect international trade. In either case, the region is not immune."

We thought we'd dig a little deeper into the issue and look more closely at which parts of the Southeast economy are vulnerable to the crisis in Europe.

Clearly, U.S. companies that depend on sales of their products to the euro area are likely to see the weakening of demand for their Europe-bound products as the euro area's economy contracts and if the euro continues to depreciate. According to the U.S. International Trade Administration, the exposure of Southeast's exporters—as measured by the share of goods sold in the euro area as percent of total goods exports—is relatively low, but the share varies significantly across the Southeast states.

Alabama's exporters appear to be the most vulnerable to changes in European demand—almost a fifth of the state's merchandise exports are shipped to the euro area. About half of those exports are sold in Germany, mainly autos. The good news is that Germany seems to be one of the more resilient European economies, along with the Netherlands, Belgium, and France—the other large euro area markets for Southeast's exporters. The economically weakest countries in the euro area—Greece, Ireland, and Portugal—account for a small fraction of the region's exports.


While Florida's exporters appear to be least exposed to the euro area compared to other states in the Southeast (most of Florida's exported goods go to Latin America), the state's large tourism industry may feel some impact if a recession and a weakening euro keep Europeans from traveling to the United States. Based on data from the Office of Travel and Tourism Industries and VISIT FLORIDA, an estimated 1.2 million residents of the euro area visited Florida in 2010. Fortunately, this number represents less than 2 percent of all the visitors to the state.

Another important part of Florida's economy that to some extent depends on European spending is residential real estate. In Florida, sales to nonresident foreigners account for about 25 percent of total residential sales (compared with only 3 percent nationally). For the state as a whole, Western Europeans (excluding U.K. residents) account for about 11 percent of all nonresident foreign buyers. While the number is relatively low, some parts of the state are much more dependent on Europeans. For example, in the Miami-Fort Lauderdale-Miami Beach market residents of Germany accounted for nearly a quarter of all nonresident foreign buyers in the 12 months ending in June 2011, according to the National Association of Realtors.

In general, whether through exports, tourism or real estate, the Sixth District's exposure to Europe appears relatively small. The bigger concerns are the possibilities of severe financial contagion (via the banking system and financial markets) and a hit to business and consumer confidence, which apply as much to the District as to the nation overall.

Photo of Galina Alexeenko By Galina Alexeenko, director of the Atlanta Fed’s Regional Economic Information Network

 

and

Photo of Michael Chriszt Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

November 22, 2011

Exploring trade connections between Europe and the Southeast

Thanksgiving. What a great holiday. Family, friends, turkey, stuffing, apple pie (not a big pumpkin pie fan). And perhaps, if we are true to the spirit of the holiday, a time to pause and remember all there is to be thankful for. My list contains the usual suspects—wife, kids, parents, friends, and others that no doubt would be on your list as well. One item that's on my list that would surprise me to find on yours would be Europe.

There's a little more to it than just "Europe." In 1985, my parents sent me to study in Europe for my junior year of college. Miami University (the one in Ohio) has a small campus in the Grand Duchy of Luxembourg, and I studied there from September to May of 1986. I still don't know how my parents did it on their wages—but they did, and I'm ever thankful because my year in Europe did as much to mold me as any other experience.

Of course today, not many people are feeling particularly thankful for the European debt situation, which is causing much-discussed pain and uncertainty in the global economy. It's a topic that's been on Atlanta Fed President Dennis Lockhart's mind. He shared this concern last month in a speech in Chattanooga, Tenn., when he noted that the U.S. fiscal situation and "financial instability from developments in Europe" were the most significant risk factors facing the U.S. economic outlook. As more news has come out of Europe in the weeks since then, many have discussed the risk of possible financial contagion from the situation there spreading "across the pond" to the United States.

Federal Reserve Vice Chair Janet Yellen mentioned the issue in her November 11 speech in Chicago:

"We are monitoring European developments very closely, and we will continue to do all that we can to mitigate the consequence of any adverse developments abroad on the U.S. financial system."


Fed Chairman Ben Bernanke offered some thoughts about the European situation in response to a question at his press conference following the FOMC meeting on November 2:

"...what we can do, really, is only a couple of things. One is that we can look at our own financial institutions and try to assess the exposures and the linkages between our institutions and those in Europe and the sovereign debt in Europe, and we've been doing that on a consistent basis. We've looked also, of course, with other regulators at money market mutual funds and other types of financial institutions that have connections to Europe...


"And the other thing that we can do is stand ready, if necessary, to provide whatever support the broader economy needs and the financial system needs, should things worsen. I mean, we are hopeful that the latest measures, vigorously implemented, will indeed ultimately reduce these stresses, but in the case that things do get worse, both monetary policy and our policies of lender of last resort are available to insulate the U.S. economy from the effects."


The other channel where problems in Europe can affect the United States is through international trade. The members of the European Union have accounted for roughly 20 percent of U.S. exports over the last decade. Thus, any slowdown or decline in economic activity in Europe would most likely lead to a decline in demand for U.S. goods there, which in turn would lead to a decline in U.S. exports to Europe.

How would such developments affect the Southeast? Over the past decade, the states of the Sixth District have shipped an average of nearly $22 billion worth of goods per year to the European Union member countries. The dollar value of these goods accounts for almost 19 percent of total exports from the six states in the region—a number similar to the United States as a whole.

The importance of Europe as an export market varies by state, as the table below shows. Complete data are available through 2009, but by using the 10-year average we can see the longer-term pattern.

Exports to Europe (2000-09 average)

Based on these figures, Florida ships the most goods in terms of value to Europe, but Alabama is more dependent on exports to Europe than any other state in the region. Georgia also sends a significant portion of its total exports to Europe. While there is concern about the financial impact of instability in Europe, a souring of economic activity across the Atlantic would also affect international trade. In either case, the region is not immune.

I'll be thankful when Europe's debt issue is resolved.

Photo of Michael Chriszt By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

April 26, 2011

Beige Book: Southeast economy improved through March; but what about April?

On April 13, the Sixth District's most recent Beige Book was released. The opening paragraph, which summarizes the entire report, said, "Sixth District business contacts described economic activity as advancing modestly from mid-February through March. Retailers cited that consumer spending improved while auto dealers reported strong sales growth. Tourism activity remained positive as occupancy rates and air travel mostly increased. Residential brokers and builders indicated that sales growth of new and existing homes were mixed, but generally remained weak, while commercial contractors mentioned improving conditions as development increased slightly. District manufacturers experienced increasing levels of new orders and production. Transportation firms noted modest advances in shipments and tonnage. Banking contacts reported soft but improving loan demand. Labor markets continued to recover at a gradual pace. Cost pressures grew for most District firms, but the ability to pass through price increases continued to vary by industry."

The report discusses economic activity that took place from mid-February through March, but the official release date lagged by a couple of weeks. In a time when data and information are so easily available, this type of lag can make the information seem dated. The Atlanta Fed is continuously gathering information via meetings with our Regional Economic Information Network contacts. Recently, we held two advisory council meetings, which gave us more insight into their particular sectors. On April 12 our Trade and Transportation Advisory Council met in Atlanta, and on April 14 our Travel and Tourism Advisory Council met in Miami. What follows is some of the anecdotal information collected from these meetings.

Trade and transportation
Demand is up for almost all industries in the transportation sector, especially for those involved in export activity. The trucking industry is seeing a return to pricing power but is challenged with finding qualified drivers and mechanics and faces a shortage of drivers amid new regulations. Increases in the cost of fuel are challenging all modes of transportation, but fuel surcharges remain intact. Intermodal volume is benefiting from increased fuel costs as customers move certain types of goods from truck to rail. Inventories remain very low and inventory turns are high; slow steaming in maritime shipments is creating floating inventories. All industries reported increases in capital expenditures for replacement and new equipment, information technology, and infrastructure and buildings. Hiring is taking place at some level in most industries, and wage pressures are just beginning to surface in parts of the sector. Events in Japan have not caused major disruptions but lags in shipments of certain goods and equipment have been reported.

Travel and tourism
Activity is up in almost all industries of the sector. Occupancy, room rates, and cruise and convention bookings are increasing. A modest level of pricing power has returned; however, increasing fuel and commodity costs are challenging all segments of the sector. Restaurant activity is mixed, and price increases are being passed through. Capital expenditure is increasing in most of the sector, and the overall tone was one of optimism with a cautious eye toward rising commodity costs. The areas and locations adversely affected by last year's BP oil spill have regained business, and many are back to normal levels.

Based on these meetings, it appears that the Sixth District's economy is still moving in a positive direction.

By Shalini Patel, a senior economic analyst in the research department, Sarah Arteaga, a senior REIN analyst, and Lon Lazzeri, a REIN director