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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.


October 4, 2012

Middle Tennessee Economy Slogging Along, but Bright Spots Emerging

Along with the rest of the state, Middle Tennessee's economy has been growing slowly since the end of the recession. Unemployment rates across the mid-state remain stubbornly high, but there are some positive signs appearing in manufacturing and housing.

On Friday, September 21, I attended the annual Middle Tennessee State University (MTSU) Economic Outlook Conference hosted by the MTSU Business and Economic Research Center. The center also happens to be a member of the Atlanta Fed's Local Economic Analysis and Research Network (or LEARN) program. The center's director, Dr. David Penn, offered his views on where Tennessee and the Nashville economies are headed.

Dr. Penn's presentation covered labor markets, manufacturing, housing, and state sales tax revenues. While there was some good news, I'll start with the not-so-good news.

There is an old saying: "You're moving slower than pond water." This saying could apply to the unemployment rate in Tennessee because it is not coming down very fast. Although Nashville is still generating jobs, this job generation is at a painfully slow pace. The metro area's seasonally adjusted total employment level is only up by 1,000 compared to a year ago (through August). Construction employment in Middle Tennessee has cooled off considerably, and several months of negative job growth in the education and health care sectors along with the government shedding jobs has largely offset gains in other sectors. The manufacturing sector of the job market has been rising consistently over the year. Professional services and the leisure and hospitality sectors are also demonstrating steady job growth. Durable goods manufacturing has been especially strong.

This is certainly not applicable to every part of Middle Tennessee, as some areas have already recovered from job losses experienced during the recession. Clarksville, for example, has done quite well, as they now exceed their prerecession employment level, and Nashville is getting closer to regaining all jobs lost during the recession.

The current rate of unemployment in the Nashville metro area has dropped from 8 percent to 7 percent on a seasonally adjusted basis, but has ticked up from 6.5 percent in April. One reason for the recent uptick in Nashville's unemployment rate is that the number of people reentering the labor force has increased sharply since the first quarter of the year.

On the brighter side, Dr. Penn stated that the state's housing market is getting better. The Nashville housing market is experiencing price growth for the first time since 2008. The city has seen home sales rise 27 percent over last year's low levels. As a result, the sales of building materials have risen. In addition, Nashville's sales tax collections are higher now than before the recession; however, inflation-adjusted purchasing power is 6.8 percent lower.

In the end, Dr. Penn's near-term expectations are for slow employment growth, a slower rise in the rate of sales tax collections, mild increases in construction activity, and a drifting down of the unemployment rate. Not the rosiest of forecasts, but it could be a lot worse.

By Troy Balthrop, REIN analyst at the Nashville Branch of the Federal Reserve Bank of Atlanta's Nashville Branch

July 5, 2012

Sunny in northeast Florida: More signs of a housing rebound

Residential real estate markets continued to recover in northeast Florida, according to a recent poll conducted by the Atlanta Fed. In late June, staff from our Jacksonville Branch along with the Bank's Center for Real Estate Analytics met with nearly 250 real estate professionals at the Florida Realtors conference in St. Augustine, Florida. Conference participants hailed from the Jacksonville, St. Augustine, and Gainesville areas, and most were residential real estate professionals. We asked a series of questions to ascertain the state of the residential real estate markets in northeast Florida. Their responses showed that conditions continued to improve.

For example, a significant majority reported that June home sales exceeded the year-earlier level.

Chart1

In addition, the sales outlook for the remainder of the year was positive as most expected modest gains on a year-over-year basis.

Chart2

Importantly, most participants agreed that home prices have bottomed or begun to recover.

Chart3

And the majority of respondents anticipate modest home price growth during the second half of 2012 compared with a year earlier.

Chart4

While these responses represent only a segment of the regional housing market, we read the results as further indication that the hard-hit residential real estate markets are making progress toward recovery.

Jessica DillBy Jessica Dill


and


Whitney MancusoWhitney Mancuso, senior economic analysts in the Atlanta Fed's research department

 

September 2, 2011

Irene's impact

As we witness another hurricane hit the U.S. mainland, we recount our own region's past disasters and lessons we have learned regarding the economic impact of these events. It was six years ago that Hurricane Katrina struck, and we have written about that experience in past posts. Data are still coming in, but it appears that while flooding associated with Hurricane Irene caused severe damage in several areas, destruction was not as bad as many had forecast. Looking back at previous disasters can help us understand what lies ahead in terms of the economic impact of Irene.

In the Wall Street Journal's Real Time Economics blog, Conor Dougherty writes that:

"Areas hit by some of the biggest natural disasters have in many cases recouped the economic losses in the form of federal aid and insurance payments, according to data from Moody's Analytics and the Insurance Information Institute. Here's a chart of past disasters, their cost and the eventual tally of aid and insurance payments.

"Hurricane Katrina, which hit in August 2005, has been by far the most costly natural disaster in recent history, resulting in $140 billion in damage and lost output. (That figure is in 2011 dollars and does not include the impact of higher energy prices after the storm.) But over the following months and years, businesses, residents and governments in the area collected a total $149.2 billion in aid and insurance payouts.

"There is no dollar figure that can be attached to the loss of life, emotional toll and massive loss of population that lingers six years later. But with Hurricane Irene barreling down on the Eastern seaboard, it's worth noting the damage of lost property and output is often made up in the end."

A recent Brookings Institution publication, Resilience and Opportunity Lessons from the U.S. Gulf Coast after Katrina and Rita, makes another point about economic recovery from natural disasters:

"Opportunity is a critical component of post-disaster recovery. It is defined by the extent to which a community uses a disaster as an occasion not simply to return to normal but also to achieve a new and better standard of living."

What is the Fed's role in helping the economy recover from natural disasters? The first response is through our role in the payments system. Federal Reserve officials helped to ensure the country's payments and financial systems get back online as quickly and efficiently as possible. The Atlanta Fed's response to Hurricane Katrina is one example.

Our superb economic education staff also used Hurricane Katrina to develop a financial and economic education tool in Katrina's Classroom: Financial Lessons from a Hurricane. The program is a four-chapter, DVD-based curriculum developed to help people prepare for disasters and recover from them.

Another question to be addressed in the wake of a natural disaster is what the role of monetary policy should be. Again, looking back to Katrina, the discussion was primarily about the potential impact on overall economic activity and inflation from reduced oil supply and transportation disruptions on the Mississippi River. At the Atlanta Fed, the view was that trying to mitigate a temporary supply shock by easing policy may have adverse implications for the economy down the road. Some economic research goes so far as to suggest policy should tighten in response of temporary supply disruptions from disasters. In 2007, the St. Louis Fed published a study, "Monetary Policy and Natural Disasters in a DSGE Model: How Should the Fed Have Responded to Hurricane Katrina?" Authors Benjamin D. Keen and Michael R. Pakko wrote:

"In the immediate aftermath of Hurricane Katrina, speculation arose that the Federal Reserve might respond by easing monetary policy. This paper uses a dynamic stochastic general equilibrium (DSGE) model to investigate the appropriate monetary policy response to a natural disaster. We show that … a nominal interest rate increase following a disaster mitigates both temporary inflation effects and output distortions that are attributable to nominal rigidities."

Similar to how hurricane forecasters have improved their models by taking advantage of past experience and applying lessons learned, economic forecasters are also trying to improve their understanding of the economic effects of disasters and the optimal policy responses.

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

June 15, 2011

Beige Book: Only part of the story

The Federal Reserve released its latest Beige Book on June 8. The Beige Book is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by district and sector. An overall summary is prepared as well. Much attention is paid to the first sentence of the summary and the first sentence of each Bank's report because they give an overall take on conditions as reported.

The first sentence of the summary for the June 8 report reads:

"Reports from the twelve Federal Reserve Districts indicated that economic activity generally continued to expand since the last report, though a few Districts indicated some deceleration."


The following recounts the first sentence of each Reserve Bank's submission:

  • Boston: Many business contacts in the First District report improving economic conditions.
  • New York: The Second District's economy has continued to expand since the last report, though at a somewhat diminished pace.
  • Philadelphia: Business activity in the Third District has improved overall since the last Beige Book, although the pace has softened.
  • Cleveland: Business activity in the Fourth District continued to expand at a modest pace since our last report.
  • Richmond: Economic activity has been sending increasingly mixed signals since our last report.
  • Atlanta: Sixth District business contacts reported that economic activity moderated somewhat in April and May.
  • Chicago: Economic activity in the Seventh District expanded more slowly in April and May.
  • St. Louis: The economy of the Eighth District has continued to expand at a moderate pace since our previous report.
  • Minneapolis: Economic activity in the Ninth District grew steadily since the last report.
  • Kansas City: Growth in the Tenth District economy remained solid in May.
  • Dallas: The Eleventh District economy expanded at an accelerated pace over the past six weeks.
  • San Francisco: Twelfth District economic activity continued to expand at a moderate pace during the reporting period of late April through the end of May.


While the Beige Book is an important instrument in reviewing recent economic developments across Reserve Banks, it's important to understand the context of the individual Bank reports. (By context, I mean the broader picture of economic performance across regions.)

One way to do that is to look at overall economic activity in each region, and the Philadelphia Fed's State coincident indexes is a useful tool to do just that. The Philadelphia Fed produces monthly coincident indexes for each of the 50 states that 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.

In the chart below I use the state indexes to ascertain the depth of the downturn and the extent of recovery experienced by each Federal Reserve District. I weighed each state's coincident index by average state GDP from 2006–10 to develop a coincident index for each Reserve Bank. (A technical note: Most Federal Reserve Districts cut across state boundaries. In these instances I estimate the portion of state GDP that falls within Reserve Bank Districts that share the state in question. It's a back-of-the-envelope calculation. I could look at metro area GDP to be more precise, but for the purposes of this exercise I'm comfortable with this more basic approach. In other words, I didn't have time to do it, but I'm pretty confident that the results would be similar).

In chart 1, I calculate the percent change from peak-to-trough and trough-to-present for each Reserve Bank's coincident indicator. The red bar represents that peak-to-trough percent change—another way to look at it is that the red bars represent the depth of the recession experienced by each Reserve District. The blue bar is the percent change since the trough—or the extent of recovery.

Coincident Economic Activity

The Atlanta Federal Reserve District experienced at 10.8 percent decline in its coincident indicator during the downturn and has seen a 1.9 percent increase since the trough. The Chicago Fed's measure fell by more than Atlanta's but has come back handsomely since the trough. (Bill Testa of the Chicago Fed wrote about the Seventh District's resurgence in a recent blog post.) You can see the other Reserve Banks' measures in the chart as well.

Chart 2 combines the two percent changes presented in chart 1:

Coincident Economic Activity Net Percentage Change

The Atlanta Fed's measure is by far the weakest. Dallas and Boston are close to zero, indicating that their respective coincident indicators are close to where they were before the downturn began. So when you read that the Atlanta Fed reported in its Beige Book that "business contacts reported that economic activity moderated somewhat," it is particularly troubling. We have a long way to go, and any pause simply makes the time it will take to get back to where we were even longer.

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

October 4, 2012

Middle Tennessee Economy Slogging Along, but Bright Spots Emerging

Along with the rest of the state, Middle Tennessee's economy has been growing slowly since the end of the recession. Unemployment rates across the mid-state remain stubbornly high, but there are some positive signs appearing in manufacturing and housing.

On Friday, September 21, I attended the annual Middle Tennessee State University (MTSU) Economic Outlook Conference hosted by the MTSU Business and Economic Research Center. The center also happens to be a member of the Atlanta Fed's Local Economic Analysis and Research Network (or LEARN) program. The center's director, Dr. David Penn, offered his views on where Tennessee and the Nashville economies are headed.

Dr. Penn's presentation covered labor markets, manufacturing, housing, and state sales tax revenues. While there was some good news, I'll start with the not-so-good news.

There is an old saying: "You're moving slower than pond water." This saying could apply to the unemployment rate in Tennessee because it is not coming down very fast. Although Nashville is still generating jobs, this job generation is at a painfully slow pace. The metro area's seasonally adjusted total employment level is only up by 1,000 compared to a year ago (through August). Construction employment in Middle Tennessee has cooled off considerably, and several months of negative job growth in the education and health care sectors along with the government shedding jobs has largely offset gains in other sectors. The manufacturing sector of the job market has been rising consistently over the year. Professional services and the leisure and hospitality sectors are also demonstrating steady job growth. Durable goods manufacturing has been especially strong.

This is certainly not applicable to every part of Middle Tennessee, as some areas have already recovered from job losses experienced during the recession. Clarksville, for example, has done quite well, as they now exceed their prerecession employment level, and Nashville is getting closer to regaining all jobs lost during the recession.

The current rate of unemployment in the Nashville metro area has dropped from 8 percent to 7 percent on a seasonally adjusted basis, but has ticked up from 6.5 percent in April. One reason for the recent uptick in Nashville's unemployment rate is that the number of people reentering the labor force has increased sharply since the first quarter of the year.

On the brighter side, Dr. Penn stated that the state's housing market is getting better. The Nashville housing market is experiencing price growth for the first time since 2008. The city has seen home sales rise 27 percent over last year's low levels. As a result, the sales of building materials have risen. In addition, Nashville's sales tax collections are higher now than before the recession; however, inflation-adjusted purchasing power is 6.8 percent lower.

In the end, Dr. Penn's near-term expectations are for slow employment growth, a slower rise in the rate of sales tax collections, mild increases in construction activity, and a drifting down of the unemployment rate. Not the rosiest of forecasts, but it could be a lot worse.

By Troy Balthrop, REIN analyst at the Nashville Branch of the Federal Reserve Bank of Atlanta's Nashville Branch

July 5, 2012

Sunny in northeast Florida: More signs of a housing rebound

Residential real estate markets continued to recover in northeast Florida, according to a recent poll conducted by the Atlanta Fed. In late June, staff from our Jacksonville Branch along with the Bank's Center for Real Estate Analytics met with nearly 250 real estate professionals at the Florida Realtors conference in St. Augustine, Florida. Conference participants hailed from the Jacksonville, St. Augustine, and Gainesville areas, and most were residential real estate professionals. We asked a series of questions to ascertain the state of the residential real estate markets in northeast Florida. Their responses showed that conditions continued to improve.

For example, a significant majority reported that June home sales exceeded the year-earlier level.

Chart1

In addition, the sales outlook for the remainder of the year was positive as most expected modest gains on a year-over-year basis.

Chart2

Importantly, most participants agreed that home prices have bottomed or begun to recover.

Chart3

And the majority of respondents anticipate modest home price growth during the second half of 2012 compared with a year earlier.

Chart4

While these responses represent only a segment of the regional housing market, we read the results as further indication that the hard-hit residential real estate markets are making progress toward recovery.

Jessica DillBy Jessica Dill


and


Whitney MancusoWhitney Mancuso, senior economic analysts in the Atlanta Fed's research department

 

September 2, 2011

Irene's impact

As we witness another hurricane hit the U.S. mainland, we recount our own region's past disasters and lessons we have learned regarding the economic impact of these events. It was six years ago that Hurricane Katrina struck, and we have written about that experience in past posts. Data are still coming in, but it appears that while flooding associated with Hurricane Irene caused severe damage in several areas, destruction was not as bad as many had forecast. Looking back at previous disasters can help us understand what lies ahead in terms of the economic impact of Irene.

In the Wall Street Journal's Real Time Economics blog, Conor Dougherty writes that:

"Areas hit by some of the biggest natural disasters have in many cases recouped the economic losses in the form of federal aid and insurance payments, according to data from Moody's Analytics and the Insurance Information Institute. Here's a chart of past disasters, their cost and the eventual tally of aid and insurance payments.

"Hurricane Katrina, which hit in August 2005, has been by far the most costly natural disaster in recent history, resulting in $140 billion in damage and lost output. (That figure is in 2011 dollars and does not include the impact of higher energy prices after the storm.) But over the following months and years, businesses, residents and governments in the area collected a total $149.2 billion in aid and insurance payouts.

"There is no dollar figure that can be attached to the loss of life, emotional toll and massive loss of population that lingers six years later. But with Hurricane Irene barreling down on the Eastern seaboard, it's worth noting the damage of lost property and output is often made up in the end."

A recent Brookings Institution publication, Resilience and Opportunity Lessons from the U.S. Gulf Coast after Katrina and Rita, makes another point about economic recovery from natural disasters:

"Opportunity is a critical component of post-disaster recovery. It is defined by the extent to which a community uses a disaster as an occasion not simply to return to normal but also to achieve a new and better standard of living."

What is the Fed's role in helping the economy recover from natural disasters? The first response is through our role in the payments system. Federal Reserve officials helped to ensure the country's payments and financial systems get back online as quickly and efficiently as possible. The Atlanta Fed's response to Hurricane Katrina is one example.

Our superb economic education staff also used Hurricane Katrina to develop a financial and economic education tool in Katrina's Classroom: Financial Lessons from a Hurricane. The program is a four-chapter, DVD-based curriculum developed to help people prepare for disasters and recover from them.

Another question to be addressed in the wake of a natural disaster is what the role of monetary policy should be. Again, looking back to Katrina, the discussion was primarily about the potential impact on overall economic activity and inflation from reduced oil supply and transportation disruptions on the Mississippi River. At the Atlanta Fed, the view was that trying to mitigate a temporary supply shock by easing policy may have adverse implications for the economy down the road. Some economic research goes so far as to suggest policy should tighten in response of temporary supply disruptions from disasters. In 2007, the St. Louis Fed published a study, "Monetary Policy and Natural Disasters in a DSGE Model: How Should the Fed Have Responded to Hurricane Katrina?" Authors Benjamin D. Keen and Michael R. Pakko wrote:

"In the immediate aftermath of Hurricane Katrina, speculation arose that the Federal Reserve might respond by easing monetary policy. This paper uses a dynamic stochastic general equilibrium (DSGE) model to investigate the appropriate monetary policy response to a natural disaster. We show that … a nominal interest rate increase following a disaster mitigates both temporary inflation effects and output distortions that are attributable to nominal rigidities."

Similar to how hurricane forecasters have improved their models by taking advantage of past experience and applying lessons learned, economic forecasters are also trying to improve their understanding of the economic effects of disasters and the optimal policy responses.

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

June 15, 2011

Beige Book: Only part of the story

The Federal Reserve released its latest Beige Book on June 8. The Beige Book is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by district and sector. An overall summary is prepared as well. Much attention is paid to the first sentence of the summary and the first sentence of each Bank's report because they give an overall take on conditions as reported.

The first sentence of the summary for the June 8 report reads:

"Reports from the twelve Federal Reserve Districts indicated that economic activity generally continued to expand since the last report, though a few Districts indicated some deceleration."


The following recounts the first sentence of each Reserve Bank's submission:

  • Boston: Many business contacts in the First District report improving economic conditions.
  • New York: The Second District's economy has continued to expand since the last report, though at a somewhat diminished pace.
  • Philadelphia: Business activity in the Third District has improved overall since the last Beige Book, although the pace has softened.
  • Cleveland: Business activity in the Fourth District continued to expand at a modest pace since our last report.
  • Richmond: Economic activity has been sending increasingly mixed signals since our last report.
  • Atlanta: Sixth District business contacts reported that economic activity moderated somewhat in April and May.
  • Chicago: Economic activity in the Seventh District expanded more slowly in April and May.
  • St. Louis: The economy of the Eighth District has continued to expand at a moderate pace since our previous report.
  • Minneapolis: Economic activity in the Ninth District grew steadily since the last report.
  • Kansas City: Growth in the Tenth District economy remained solid in May.
  • Dallas: The Eleventh District economy expanded at an accelerated pace over the past six weeks.
  • San Francisco: Twelfth District economic activity continued to expand at a moderate pace during the reporting period of late April through the end of May.


While the Beige Book is an important instrument in reviewing recent economic developments across Reserve Banks, it's important to understand the context of the individual Bank reports. (By context, I mean the broader picture of economic performance across regions.)

One way to do that is to look at overall economic activity in each region, and the Philadelphia Fed's State coincident indexes is a useful tool to do just that. The Philadelphia Fed produces monthly coincident indexes for each of the 50 states that 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.

In the chart below I use the state indexes to ascertain the depth of the downturn and the extent of recovery experienced by each Federal Reserve District. I weighed each state's coincident index by average state GDP from 2006–10 to develop a coincident index for each Reserve Bank. (A technical note: Most Federal Reserve Districts cut across state boundaries. In these instances I estimate the portion of state GDP that falls within Reserve Bank Districts that share the state in question. It's a back-of-the-envelope calculation. I could look at metro area GDP to be more precise, but for the purposes of this exercise I'm comfortable with this more basic approach. In other words, I didn't have time to do it, but I'm pretty confident that the results would be similar).

In chart 1, I calculate the percent change from peak-to-trough and trough-to-present for each Reserve Bank's coincident indicator. The red bar represents that peak-to-trough percent change—another way to look at it is that the red bars represent the depth of the recession experienced by each Reserve District. The blue bar is the percent change since the trough—or the extent of recovery.

Coincident Economic Activity

The Atlanta Federal Reserve District experienced at 10.8 percent decline in its coincident indicator during the downturn and has seen a 1.9 percent increase since the trough. The Chicago Fed's measure fell by more than Atlanta's but has come back handsomely since the trough. (Bill Testa of the Chicago Fed wrote about the Seventh District's resurgence in a recent blog post.) You can see the other Reserve Banks' measures in the chart as well.

Chart 2 combines the two percent changes presented in chart 1:

Coincident Economic Activity Net Percentage Change

The Atlanta Fed's measure is by far the weakest. Dallas and Boston are close to zero, indicating that their respective coincident indicators are close to where they were before the downturn began. So when you read that the Atlanta Fed reported in its Beige Book that "business contacts reported that economic activity moderated somewhat," it is particularly troubling. We have a long way to go, and any pause simply makes the time it will take to get back to where we were even longer.

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