January is the month for outlooks. The Atlanta Fed's 2010 Outlook for the region starts by noting that:

"The region, like the rest of the United States, weathered a difficult year in 2009, but indications of a turnaround in the economy suggest a less rocky 2010. However, daunting challenges remain before Southeasterners can be confident of a full and lasting recovery."

The outlook goes on to describe current and expected performance in several sectors. Here are a few of the highlights:

Employment
The decline in initial unemployment claims suggests that job losses will continue to ease into the next year. In 2008, when employment losses accelerated, the big question was, When would job losses subside? In 2009, as job losses eased in parts of the Southeast and the nation as a whole, the question turned to, When would employment expand and labor markets recover?

Two factors should support employment growth in 2010. As of Oct. 31, 2009, Southeastern states received less than 35 percent of the federal stimulus funds they were awarded, and this influx of funding should continue to fortify the jobs picture in 2010. Additionally, after four quarters of contraction, the U.S. economy expanded in the third quarter of 2009, which should encourage hiring.

On the other hand, a number of factors could dampen employment recovery. Before hiring, firms will likely rely on current workers for increased productivity. Several Atlanta Fed regional business contacts across the Southeast have indicated that they want to see a few months of sustained growth before they consider increasing hours for current workers or recalling laid-off workers, suggesting that employers may require even longer sustained growth before they hire new workers.

Once firms begin to hire, the rate of hiring may be weak compared with previous expansions. Some business contacts indicated that they have not only reduced their work forces but have structurally changed their firms so they might need fewer workers in the future. Furthermore, the large number of firms closing across the Southeast produced permanent layoffs. For example, the region's auto parts manufacturers will continue to feel the pinch from auto plant closings. Despite some recent improvements in the economy and easing of job losses, Southeastern labor markets are far from recovered.

Auto production and manufacturing
The outlook for Southeastern auto production in 2010 is mixed. Factors such as imbalances among vehicle production and consumer demand, tight credit markets, and low consumer confidence will continue to limit discretionary spending on autos and thus production flows.

On the positive side, foreign automakers are investing heavily in the region, and the economic ripple effects will be felt for years to come. Volkswagen is opening a $1 billion facility in Chattanooga, Tenn., in late 2010 or early 2011 and plans to employ 2,000 workers. Parts suppliers for the new plant will create more than 11,000 additional jobs, according to a University of Tennessee study. Kia Motors also opened its West Point, Ga., plant in the third quarter of 2009 to manufacture its Sorento model, a move that will bring 1,200 jobs to the area and have economic effects felt fully in 2010.

Manufacturers other than automakers are also putting down Southeastern roots. Mitsubishi's Pooler, Ga., plant producing advanced steam and gas turbines and servicing turbines used in power generation is expected to add 500 jobs to the region in early 2010. High-tech firm GS Yuasa is scheduled to open its doors, creating 100 jobs in Roswell, Ga., producing lithium-ion battery packs. NCR is already making ATMs in Columbus, Ga., and plans to employ 870 people during the next three years. Additionally, Huiheng Medical is opening a Baton Rouge, La., plant that will manufacture radiation treatment devices, creating 300 jobs in the area.

Real estate
In the coming year, Southeastern housing markets will continue their recovery, but activity will remain weak by historical standards. Bank-owned properties will continue to come to market, particularly in Florida and Georgia, and will continue to depress home prices and keep construction activity in check. Homebuilders have found it difficult to compete against bank-owned properties that have typically sold below replacement cost.

Southeast commercial real estate (CRE) markets will remain challenging in 2010 although activity should stabilize and slowly improve during the year. Construction backlogs are currently at very low levels across most of the region, and financing is likely to remain tight, particularly for CRE projects. Consequently, commercial development should remain at low levels, and projects will remain largely build-to-suit.

Take a look at the entire issue of EconSouth for more detail and reports on other sectors as well.

In addition to the Atlanta Fed's outlook, several university research centers produce economic outlooks for their regions. These centers are part of our Local Economic Analysis and Research Network (LEARN), and most produce updates to their outlooks throughout the year.

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