Policy Analysis | January 2013
Fiscal and Economic Trends in the South
The Great Recession was the longest and deepest recession since the Great Depression. The 19 months that the U.S. economy was in recession between December 2007 and June 2009 was only exceeded by the Great Depression when the U.S. economy was in recession for 43 months. Some of the key national economic indicators are positive though the recovery has been rather anemic.
For instance, real gross domestic product (GDP) grew at an annual rate of 3.1 percent in the third quarter of 2012, an improvement 1.3 percent growth in the second quarter of 2012 but is still far below what is necessary for robust job growth. The national unemployment rate was 7.8 percent in December 2012, a tremendous improvement from the high of 10.2 percent in October 2009. Last week's unemployment claims fell to the lowest since January 2008, another indication of the slowly improving job market. At the state level, in December 2012, 22 states reported over-the-month unemployment rate decreases, 16 states and the District of Columbia had increases, and 12 states had no change.
Housing, which was one of the major reasons for the collapse of the U.S. economy, is recovering nicely and in 2012, housing sales rose to their highest level in five years. U.S. builders started work on homes in December 2012 at the fastest pace since the summer of 2008. There is strong confidence that the housing market is recovering impressively in terms of new construction, sales and values, even in states that were hit the hardest during the recession. Foreclosure rates are also declining and in 2012, according to Realty Trac, foreclosure filings were down 3 percent from 2011 and down 36 percent from the peak in 2010.
Finally, the stock market, reflected in the Standard & Poor's Index, is on a remarkable run and as of January 24, 2013, closed at its highest level since December 2007. While the stock market's performance alone is not a solid indicator of the economy's performance, it is a major boost to consumer confidence given its positive impact on the finances of American households.
State Fiscal Outlook
The Great Recession impacted state finances with a wallop, forcing states to slash hundreds of billions of dollars from their budgets. Given that 49 of the 50 states are required by their constitutions to balance their budgets, between fiscal years 2009 and 2013, states have either cut or will cut a staggering $593 billion from their budgets. State fiscal conditions are improving along with the broader economy, but states are coming out of a very deep hole. For instance, in fiscal year 2008, total state revenue amounted to $680 billion. After plunging to $606 billion at the height of the Great Recession in fiscal year 2010, they crawled back up to $656 billion in fiscal year 2012.
The latest revenue figures suggest that state tax collections are back at the levels they reached before the recession. But adjusted for inflation, tax revenues are still below their 2008 peak. Enacted fiscal year 2013 budgets (the current fiscal year) estimate that revenues will increase by 3.9 percent from fiscal year 2012. A number of states are enjoying revenue surpluses including Iowa, Indiana, Florida, Wisconsin, Mississippi and even California.
The recovery is also uneven with energy-rich states like North Dakota, Nebraska, South Dakota, Montana and Texas experiencing the benefits of oil and natural gas extractions. While state revenues are gradually recovering from the dramatic recession-period decline, they are still not growing quickly enough to keep pace with Medicaid costs, looming pension bills, and increased expenditures for education, unemployment insurance, transportation and infrastructure. So, states still have some intractable problems to contend with.
Growth Areas in the U.S. Economy
In assessing economic development trends in the states, there are three important growth areas that continue to provide an impressive platform for advancing state economies. Specifically, the economy is witnessing resurgence in three critical areas of the U.S. economy: Manufacturing, exports; and energy.
There are nascent signs of a turnaround of the U.S. manufacturing sector in recent years and in 2011, the sector's current-dollar share of GDP increased for the second consecutive year, to 12.2 percent, its highest share since 2006.
Experts note that since the end of the Great Recession, exports have accounted for about half of the nation's economic growth. For the first nine months of 2012, U.S. exports amounted to $1.2 trillion, an improvement from the $1.1 trillion and $931 billion exported during the same period in 2011 and 2010. At the height of the Great Recession, for the first nine months of 2009, U.S. exports had slumped to a paltry $762 billion.
There has been a flurry of successful oil and gas exploration projects ‐ facilitated by technological advancements - in North America, including in fields that were deemed uneconomical only a few years ago. As a percent of overall gas production, shale gas production in the U.S. has rocketed from 4 percent in 2005 to 24 percent in 2012. Domestic oil output in the U.S. the highest in eight years.
Bright Sparks in the Regional Economy
Tennessee has emerged as a dominant player in the solar industry and Hemlock Semiconductor and Wacker Chemie, the world's leading producers of polycrystalline silicon, have invested a total of $2.7 billion in the state recently. They join other solar-related companies in the state including Sharp, AGC Flat Glass and Shoals Technologies. Despite recent setbacks at Hemlock and Wacker Chemie, the state's solar operations are impressive. Another important solar development in Tennessee involves Volkswagen's assembly facility in Chattanooga. Not only will nearly 13 percent of the facility's power needs emerge from solar, Volkswagen is building a $30 million, 13-gigawatt solar park - the largest in the state - to accomplish this goal.
Apple's Maiden, North Carolina, $1 billion data center is a massive 100-acre solar farm - the largest in the country - that will be completed soon. A second facility, also 100 acres, will be built a few miles away.
The "drive to move South," i.e., the location of a dozen or so foreign automobile manufacturers and an array of parts suppliers in many Southern states remains a major economic boost not only for the individual state economies but also the regional and U.S. economies.
BMW announced a $900 million expansion at its Spartanburg County, South Carolina plant in early 2012, bringing to nearly $6 billion the amount the carmaker has invested in the state since 1992.
In Alabama, the state's four auto plants have ramped up production and created more than 2,500 direct jobs and thousands of indirect and induced jobs just in the last year.
Volkswagen's Chattanooga, Tennessee plant, after a year in operation, announced in July 2012 that it would hire an additional 1,000 workers to expand production and introduce two 10-hour shifts per day, six days per week.
Gulfstream Aerospace is in the midst of a $500 million expansion effort at its headquarters in Savannah, Georgia that began in 2010.
Last spring, at its Charleston, South Carolina facility, Boeing rolled out its first ever large commercial aircraft built in the South, the 787 Dreamliner passenger jet. Now this aircraft is experiencing some hiccups but officials are confident that they will sort out the issues soon.
In July 2012, Airbus, the European airplane maker, announced that it would invest $600 million to build an assembly line for its popular A-320 single-aisle jet in Mobile, Alabama, the company's first factory in the U.S.
Ports are a huge economic driver and ports in the South are particularly important in both regional and national economic calculations. Nearly two-thirds of all U.S. exports and imports transits through a port in the South. In response to the Panama Canal expansion and the growing trend towards significantly larger container ships, ports across the region are embarking on massive infrastructure projects.