December 2011

Tom Heintjes: Welcome to the Federal Reserve Bank of Atlanta's EconSouth Now podcast. Today, we're joined by Julie Hotchkiss of the Atlanta Fed's research department. She'll be speaking with us today about the economy. Thank you for joining us today, Julie.

Julie Hotchkiss: Well, you're welcome Tom; it's good to be here.

Heintjes: Julie, I'd like to ask you about the postrecession period we're in now. How similar is this postrecession period to other periods coming out of recession, and if there are differences, to what would you attribute them?

Julie HotchkissHotchkiss: Well, the most popular measure of performance is GDP [gross domestic product], which, as you know, is a measure of our total domestic output. And the funny thing is—well, I guess it's really not all that funny—but the growth of GDP coming out of the 2007 recession doesn't look very different from GDP growth coming out of the previous two recessions. Unfortunately, it fell much further during this recession than it did during the 1990 or 2001 recessions. The result is that even two and a half years after the declared end of the recession, our level of production has not regained its prerecession levels.

Now, employment, of course, is another important measure of the strength of our economy. We simply want people to be working, and people simply want to work. At nearly two and a half years after the end of the recession, however, we're only at 95 percent of our prerecession employment levels, according to the [U.S. Bureau of Labor Statistics] Establishment Survey. Now, it took us nearly three years after the 2001 recession to regain employment levels seen prior to that recession, and that was unprecedented at the time. To make matters worse, total employment fell only roughly 2 percent during the 2001 recession, but we had a roughly 6 percent job loss during the 2007 recession.

As far as why we haven't fully recovered, the U.S. economy got a double whammy from the most recent recession—the recession was both long and deep. It lasted, officially, 18 months, and GDP dropped a total of 5 percent off its peak prior to the recession. The next-longest recession, which was in 1981, lasted 16 months, but GDP dropped only 3 percent off of that prerecession peak.

Now, of course, we can't talk about the dismal state of the recovery without giving a nod to the financial crisis and ongoing instability in both the financial and real estate sectors. It's sort of like we are trying to claw our way out of a very deep hole with steep sides, and we can't get any traction because of the continued domestic and global financial uncertainty.

Heintjes: Well, you touched on employment, and I want to circle back. I know you pay a great deal of attention to employment. The high unemployment rates have been in the news a great deal lately. What are your observations on employment, and especially in the Southeast? The Southeast's jobs situation is a little worse than the national average, and what are some reasons for that?

Hotchkiss: Well, you're right. Persistently high unemployment rates have definitely been frustrating for both economists and policy makers. In addition to roughly 9 percent of our labor force wanting jobs and not being able to get one, the persistence of anemic job growth has added insult to injury for the unemployed, in the form of the duration of unemployment spells. In November 43 percent of the unemployed had been looking for work for more than six months. Spells of unemployment haven't reached the current lengths since 1983 when the share of unemployed who had been looking for work for more than six months reached only 23 percent, so we are nearly double that share today.

And you're right, Tom, about the Southeast struggling even more than much of the rest of the nation. One of the contributors highlighted in this EconSouth article is that population growth has come to a grinding halt, at least relative to growth prior to the recession. Now, when a region has been experiencing an average annual growth rate of 2 to 2.5 percent for almost 20 years, as was the case in Florida and Georgia, businesses begin to expect a certain amount of growth in sales and revenue. Well, the recession cut that growth in half, leaving businesses basically scrambling for survival.

Now, we've also seen the dramatic effects of the financial crisis in the region. Georgia leads the nation overall since 2008 in the number of bank failures and Florida came in number two for the year in 2011. This is a symptom of how badly the region was hit by the dramatic decline in the housing market. In addition, Florida's rate of home foreclosures peaked in 2010 at about 16 percent of all mortgages, whereas the national rate peaked at about 6 percent.

Heintjes: That is remarkable. Julie, does the performance of the southeastern economy in 2011 and heading into 2012, differ significantly from that of the U.S. overall?

Hotchkiss: Well, continuing this analogy of being in a very deep hole without any traction, I guess one could argue that the hole in the Southeast is deeper than it is in some other parts of the U.S., which means, basically, unfortunately, that it will take us longer to climb out, particularly in the real estate market. There is such a surplus of homes on the market; population growth will have to rebound significantly to clear that out.

There is also a question of how exposed our region is to the ongoing financial crisis in Europe. The Southeast is a big exporter of agricultural products, which luckily aren't as sensitive to income fluctuations as durable goods, but we expect to feel some of the brunt of reduced European consumption as the EU countries continue to tighten their belts.

Heintjes: Well, let's talk for a second about some potential bright spots. What sectors of the Southeast economy might be strong performers in 2012?

Hotchkiss: Well, the Southeast manufacturing sector has really done a fabulous job over the last couple of decades diversifying its portfolio. Once a leading textile manufacturing region, we now can boast a healthy automobile manufacturing presence. Through this recovery, automobiles basically have been the bright spot of growth for the region and we expect that to continue into 2012, at least domestically.

Heintjes: For years, Julie, international markets have provided a boost to the region's exporters. With all the fears surrounding the euro zone, what are the potential effects on the southeastern economy?

Hotchkiss: Well, in terms of merchandise exports, the region's aggregate exposure to the euro zone is similar to that of the U.S.'s: 12 percent of total exports from the region go to the euro zone, and that share is 14 percent nationally; so not that much different.

However, the exposure differs notably across states and industries. The most exposed state in the Southeast is Alabama: nearly one-fifth of the state's merchandise exports are sold in the euro zone. Half of those exports go to Germany alone. Alabama's exports to the euro zone are heavily dominated by transportation equipment, such as automobiles that are manufactured in the state.

The least vulnerable, in terms of exports, is Florida, whose exports are mostly directed to Latin America. The euro zone represents only 8 percent of Florida's merchandise exports. However, you need to keep in mind, Tom, that foreign travel is extremely important for Florida tourism. A lot of tourists come from Europe, and if European incomes decline and, perhaps equally important, if the dollar appreciates against the euro, the tourism industry in Florida is likely to feel some pain of the euro zone crisis.

Overall, with the relatively low exposure to Europe, it's hard to imagine that the Southeastern economy would suffer a big hit from the euro zone through the trade channel alone. The bigger concern remains a potential for the European financial crisis to dampen business and consumer confidence, which, of course, applies as much to the region as it does to the nation overall.

Heintjes: Well, Julie, we've talked a good bit up until now about what could wrong in 2012, let's look at the flip side. Could you discuss some potential bright spots as we head into the new year?

Hotchkiss: Well, this is definitely more fun to talk about. And I've already mentioned the potential for automobile manufacturing to be a continued bright spot. Volkswagen's plant in Chattanooga, Tenn., began operation in the first quarter of 2011, and by all accounts the Kia plant in West Point, Ga., is going gangbusters—they actually added a third shift in September, bringing the total number of jobs at this plant to 3,000. Also, General Motors has also announced that it will be reopening its Spring Hill, Tenn., plant in early 2012, which will bring another 1,700 jobs or so back to the area of the region.

Energy in the form of oil and natural gas production has also been important to the region. Extraction and production equipment plants in Louisiana and Mississippi have reported increasing production levels since early in 2011. Expectations are for the oil and gas industry to continue growing in 2012.

An additional bright spot is related to state government finances. Now, I know this is going to sound like I'm trying to make lemonade out of lemons, but until the end of 2009 it looked like state revenue declines were never going to end. Since the beginning of 2010, state tax revenues have continued to gain ground on their prerecession levels. The region as a whole has regained half of the overall 12 percent loss from prerecession sales tax revenues. Now, this still means states are suffering, but at least they're going in the right direction.

And the other good news is that consumers in the Southeast continued to take vacations in 2011. Now, this is not only good news for the tourism sector in the region, but also good for the psyche of the population, I would imagine. The Florida Department of revenue reported a nearly 6 percent increase in tourism tax revenues in 2011 over 2010, and an expectation of an additional 4 percent growth in 2012. So, Tom, pull out your golf clubs and head to Florida to join in the fun.

Heintjes: Well, it's always nice to end a conversation on a cheerful note. Julie, I want to thank you so much for sharing your time and insights with us today.

Hotchkiss: You're welcome.

Heintjes: Again, we've been speaking today with Julie Hotchkiss of the Atlanta Fed's research department. This concludes our EconSouth Now podcast on the national economy.

For more information, please see the fourth quarter 2011 edition of EconSouth. On our website,, you can read our article about the national economy. Thanks for listening and please return for more podcasts. If you have comments, please send us email at