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July 29, 2002 (Atlanta) - Alabama, Arkansas, Kentucky, North Carolina, South Carolina and Tennessee, states with a relatively large manufacturing base, are shaping the Southeast's economic recovery according to the Southeast State Indicators Report published by Dr. Rajeev Dhawan, director of the Economic Forecasting Center at the Robinson College of Business at Georgia State University.
Last year's economic slowdown hit the Southeastern states unevenly as states with larger than average manufacturing bases suffered more moderate job losses than those with more diversified economies. According to the report, the states with larger manufacturing bases will actually lead the recovery in the region.
"A plausible explanation for this phenomenon is the recovery in manufacturing. The industrial production index increased 0.64% in January. While this is the first positive year-to-year change since September 2000, industrial production is still negative," said Dhawan. "On a positive note, this means that there is still room to grow and we therefore expect the states with the larger manufacturing base to recover more quickly than the more diversified ones."
In addition to manufacturing states leading economic recovery for the region, the report sites two other patterns that will shape the recovery for the Southeast.
1) States with more diversified economic structures and more reliance on the service sectors such as Florida, Georgia, Texas, and Virginia will mimic the recovery in the nation and will lag the manufacturing states in the next expansion.
2) Significant declines in state and local tax collections and the volatile recovery will pose a challenge for state governments to maintain their current spending levels. Going forward into the recovery, the economic risks of sustained tax revenue shortfalls need to be carefully assessed by policy makers, especially when Medicaid expenditures are growing at a faster pace than tax collections
As for growth, the report estimates the real GRP growth for the region will be a moderate 1.8% in 2002, followed by a stronger 3% in 2003 when the recovery gains more momentum.
According to the Dhawan, "the emphasis on the 'war on terror' will cause an increase in employment in the federal government sector as federal screeners are hired in the larger airports in the region. However, the outlook for the state and local government sector does not look as positive due to a decrease in tax revenues for many states which limit their borrowing activities."
Non-farm employment in the region is expected to decline in 2002 by 0.8% given the slow recovery and the "CEO gloom." The pattern is, again, for slower employment growth (employment losses) in Georgia (-2.1%), Texas (-1%) and Virginia (-1.3%) since they are well diversified states. Florida will recover at a faster rate because of the optimism regarding the recovery of its tourism industry. Consistent employment growth (three months of consecutive job gains) will resume in the fourth quarter of 2002 and will post a stronger 1.7% increase on the whole in 2003.
Highlights from the report on individual states:
Alabama - A recovery is expected in the manufacturing service sector boosted by defense contracts and the depreciating dollar. The reversal in the manufacturing sector's fortunes can already be seen in the positive quarterly gain in average weekly hours in manufacturing. Look for negative job growth of 0.8% this year. However, once the recovery takes shape in 2003, the employment growth will be 0.9%.
Florida - Ongoing economic problems in Argentina and the recession in Mexico has wreaked havoc with Florida's economy which relies heavily on exports to Latin America. Therefore, despite a recovery in domestic tourism this year, Florida's economy is expected to post -0.5 employment growth this year. Expect international tourism to recover next year in response to the ongoing weakness of the dollar and employment in the state to grow by 2%.
Louisiana - Due to the limited role of the manufacturing and high tech sectors in Louisiana, the economy experienced a softer slowdown in 2001. An increase in domestic tourism will help Louisiana's recovery this year. Expect job gains of 0.4% in 2002, followed by a solid 1.2% increase in 2003
North Carolina - The rapid growth in manufacturing and high tech made the state vulnerable during 2001 which contributed to the stateÕs sharp slowdown and high unemployment rate. The employment growth for 2002 is expected to be -0.8%, but the nationÕs recovery will take shape in 2003 and boost employment in the state by 1.8%
Virginia - The limited exposure to the manufacturing sector helped the state's economy in 2001, but as the manufacturing sector is expected to experience a robust recovery, this limited exposure will fail to help the state. The annual rate of employment growth is expected to be -1.4% in 2002. However, 2003 employment growth is expected to be around 1.7%.
Texas - Expect the real GSP growth in 2001 to be 2.1%. Because of the large exposure to the Mexican economy, the speed of recovery in the manufacturing sector in Texas is expected to be slowed throughout the first three quarters of 2002. This, coupled with the current projections for energy prices suggests that the economy of Texas is going to experience particularly slow growth in 2002. Look for nonfarm employment growth to be -1% in 2002. In 2003, the employment growth is expected to be 2%.
For More Information:
Rajeev Dhawan
Director, Economic Forecasting Center
404/651-3291
Media Contacts:
Tammy DeMel
Associate Director, Communications and External Affairs
Robinson College of Business
Phone: 404/413-7078
Cell: 404/702-9743 | 
