Surveying the Southeastern Economy in 2014

January 2015

Tom Heintjes: Welcome to the Federal Reserve Bank of Atlanta's EconSouth Now podcast. Today we're joined by Mike Chriszt, vice president in the Atlanta Fed’s public affairs department, and Shalini Patel, a director in the Atlanta Fed's research department. They'll be speaking about the regional economy. Thank you for joining us today, Shalini and Mike.

Shalini Patel: Thank you, Tom.

Mike Chriszt: Thanks, Tom.

Heintjes: Mike, let me start off by asking you: How did the region's economy perform in 2014? Would you characterize it as better than 2013, and if so, why?

Chriszt: I would characterize it as better, with one caveat: the first quarter was very weak, not only here in the Southeast but across the nation. The second and third quarters, with the data that we have in hand, look much stronger, and taken as a whole I think the momentum that we see building in 2014 puts us ahead of where we were last year.

Heintjes: Let me follow up on that by asking about real estate. Real estate in general—and housing specifically—has been a worrisome part of the southeastern economy since pretty much the end of the recession. How would you describe the sector now?

Patel: I'm going to actually say that it's in the process of continuing to recover. We saw the first half of the year, where home sales and new home construction were slow to start, a lot of that was noise about the weather holding back things. Inventories were low, but we did have pretty good home price appreciation. But by midyear, sales and construction had started to pick up, but they were picking up from low levels. And then we actually saw, based on our real estate survey, home price appreciation somewhat slow down. But going forward, the expectation is that things are going to continue on this slow and steady pace. We're probably not going to see gangbusting sales and things, but overall, it's doing pretty well.

Chriszt: If I could just add a thought, Tom: We probably don't want to say "gangbuster activity" in this sector. I think that's one thing that we learned in the crisis was if there's a huge build-up, a huge acceleration in activity, it could be not reflecting some more fundamental economic conditions. A slow, steady recovery, I think, makes me a little bit more confident that this is a recovery that's built on the fact that the economy as a whole is getting stronger.

Heintjes: OK, we'll avoid "gangbuster" descriptions. Mike, the Southeast was one of the areas hardest hit by bank failures, but failures are way down regionally. What's the state of banking in the Southeast, and what do you see as its near-term prospects?

Chriszt: You characterized it just right, Tom. The recovery is continuing, the number of bank failures is well down from, of course, what it was at the height of the crisis and during the recession. Our contacts in the sector are reporting increases in credit demand, which is something that has been very slow to come back—and again, another sign that the economy is doing better. And a slow, steady recovery is something that, for the financial sector in the Southeast, is something that we’re looking to continue in 2015.

Heintjes: Speaking of something that's not exactly "gangbusters," let's talk about employment, which has been slow to moderate in the region. How would you describe the employment sector in the region in 2014. Do any sectors stand out either positively or negatively?

Patel: I would say your characterization of "slow to moderate" is correct. But it is slowly improving. We saw over the course of the year, with the exception of January, month-over-month job creation across the district. For a reference point, [in] 2013 we averaged about 33,600 jobs created every month, whereas in 2014 thus far we've seen about 36,200 jobs being created. And then the unemployment rate for the district has been tracking above the nation, but it has been trending down since about 2009.

Chriszt: No, about 2010...I think it peaked in 2010 in most of our states and slowly came down since then, with some hiccups along the way. But the long-term trend since mid-2010, I think you're right, is down.

Patel: The particular sectors that we've seen during this year, based on anecdotal reports and data, we hear construction jobs, tourism has been a sector that's been doing really well, energy, manufacturing—those are the ones that we've heard good stuff about.

Chriszt: And our contacts in those sectors, and really, across the board—I think, Shalini, correct me if I'm wrong—but they've been telling us how they've been approaching their workforce or adding to their workforce, with great caution. They want to see an increase in demand for their goods or services be sustained for a long period of time before they add to their permanent workforce. There's been use of contingent workers much more than has been in the past, but overall the increase in employment—again, this is reflected [in] the data—but I think it's backed up with what we're hearing from businesses in the Southeast, and that is much more confidence with regard to the future. And therefore we're seeing that acceleration and workers being added to payrolls.

Heintjes: Let me follow up on tourism for a second, if I can. Tourism is obviously a largely discretionary expenditure. Does the growth in tourism indicate that there's greater consumer confidence and people are willing to spend, whereas maybe they weren't so willing in past years? What do you attribute the growth in tourism to?

Patel: I actually attribute some of that to international travel. We've had a lot more international visitors this year than before, so I would say some of it is the consumer here, your domestic consumers, but I think also a lot of it is international.

Chriszt: And during the recession we did see a decline in the number of vacations that U.S. citizens were taking here, but it didn't decline by as much as, at least I would have expected it to, given the depth of our recession. People still went on vacation. They might not have stayed as long or spent as much, but the data and the reports that we received from a number of the main locations here in the Southeast that are more domestic destinations held up pretty good, and they've continued to rebound.

Heintjes: We heard a lot about “staycations” back then, now we’re hearing more of actual vacations, which is a healthy trend. Returning to the topic of employment, each state is different in some ways. Each state in the Southeast has its own character. How varied is the job situation across the region?

Patel: On balance, we've seen job growth in each of the states. I would say that in Alabama and Mississippi we've seen probably what I would consider relatively modest job growth, where all the other ones, in looking at the data, it looks like we're almost back to our prerecession levels.

Chriszt: So it'd be mainly Florida, which saw a huge decline, not just in terms of total jobs that were lost, but in percentage terms, significant decreases. So, what you're saying is that the data shows that those states—Florida, Georgia, Tennessee, Louisiana—are back to prerecession levels?

Patel: Yes.

Heintjes: Interesting. Mike, we've been hearing a lot about energy production lately, but most of the discussion has been shale oil, which is really not that big a part of the Southeast's energy production mix. How has the southeastern energy sector been affected by declining oil prices, and what are its prospects down the road?

Chriszt: You're right in the increase in shale activity. Not a whole lot of it is happening here in the Southeast, but a number of companies that are located here in the Southeast—especially in Louisiana—have benefited greatly from the expansion of this activity or across the country because they offer services and drilling equipment that is being used across the country. So those firms have seen a huge pickup, even though the increase in shale activity hasn't been here in the Southeast.

The decline in oil prices, I think, is something that is twofold. One, you are likely to see some deceleration in drilling activity, but that would probably happen with a lag. I think more importantly, the skills that are needed to keep these fields going are ones that companies here in the Southeast—again, Louisiana in particular—are skills that we provide to places all over the country. The drop in oil prices might see some deceleration, but—this is just my gut feeling here—I don't see a huge decline in how these companies perform because they're set up for the long term.

Heintjes: Right. Well, let me ask you both about your outlook for the region in 2015, if I can get you to take out your crystal balls for a minute. What in particular do you see as upside and downside risks?

Patel: So on the upside, we're seeing that energy prices are coming down. In talking about tourism, that's great for us because we're going to have more international travelers.

Chriszt: With the gasoline prices being lower, perhaps more likely to take a longer vacation.

Patel: Spending more because they feel like they have more in their pocket.

Chriszt: Spending more at the destination, rather than at the gas station. Now, about a downside—one is the global outlook. Thinking of some of our major trading partners, their outlooks have deteriorated somewhat over the past several months. So if we see a decline in exports, I think that would be something that might have an impact on the Southeast.

Patel: Something that bubbled up just recently, anecdotally, is a disruption in the Los Angeles port traffic and how that could be a potential outside risk for next year. It's something that we're going to keep our eye on.

Chriszt: Now, is that a downside risk because the amount of goods that would be flowing in and out would be delayed?

Patel: Yes.

Chriszt: One other thought when we think about the outlook: we've been talking fairly positively about how things are going here in the Southeast, but we haven't talked about wage growth, and it's not something that's just unique to the Southeast. It's really a natural story about how wages have been slow to increase and follow those stronger employment numbers up. We are seeing some initial signs that wages are starting to improve.

So when we think of how the economy is likely to perform and how the recovery from the devastating recession and financial crisis is going, I think it's always important that we keep in mind that it's about not only the numbers with regard to employment, but just the quality of jobs that are being created, the wage growth that has positive impacts across the entire economy. As Shalini mentioned, that state-by-state comparison, I think, is an important one. I'm much more positive about this recovery becoming more broad in 2015 than it has been up to this point, so that stronger momentum that we see building this year really having positive effects on more and more people as we go into 2015.

Heintjes: Right. Well, that's a very balanced point of view to take into the new year, and I appreciate that. You can put away your crystal balls now. I want to thank you both for sharing your time and insights with us.

Patel: Thank you.

Chriszt: Thanks, Tom.

Heintjes: Again, we've been speaking today with the Atlanta Fed's Mike Chriszt and Shalini Patel. This concludes our EconSouth Now podcast on the regional economy. For more information, please see the final 2014 edition of EconSouth.

On our website, frbatlanta.org, you can read our articles about the regional, national, and international economies. Thanks for listening, and please return for more podcasts. If you have comments, please send us an email at podcast@frbatlanta.org.