Get documents about "The diverse local economies that make up The U.S
Document Sample
Economic Update
Spring 2002
The Division of Research, Moore School of Business, University of South Carolina
(http://research.moore.sc.edu)
Donald L. Schunk
T
he diverse local economies that make up The inventory drawdown paved the way for the
The South Financial Group’s markets production rebound that has been evident during
across the South Atlantic region have the first months of 2002. The Federal Reserve’s
weathered the U.S. recession well. The strongest industrial production index has risen each month
evidence of this comes from a look at the perfor- this year. The lack of inventory coupled with
mance of the housing sector during 2001 in the stable demand for manufactured goods, has
cities of Jacksonville, Orlando, and Tampa Bay in resulted in this increase in production.
Florida; Wilmington in North Carolina; and The rate of capacity utilization at U.S. firms
Charleston, Columbia, Greenville, and Myrtle has also been rising. However, this capacity
Beach in South Carolina. Thanks to the utilization rate is still relatively low, that is, firms
confluence of positive economic and demo- are still operating with excess capacity. Because
graphic trends in these markets, the housing sec- of this, substantial gains in new business invest-
tor outperformed the national and state averages. ment are unlikely in the immediate future. How-
This Economic Update provides a closer look ever, toward the end of 2002 and into 2003, firms
at the region’s residential construction trends should once again be approaching full capacity,
along with a focus on The South Financial and business spending should pick up.
Group’s newest market, Tampa Bay. First, Resiliency is a prominent feature of the U.S.
however, is an overview of the current U.S. economy. This has been demonstrated by the
economic outlook. tremendous strength of the housing sector since
the recession began. This resiliency has also
The U.S. Economic Outlook been shown by the apparent rapid recovery from
T
he U.S. economic recession that the terrorist attacks on the U.S. Since September
officially began in March 2001 is over. 11, stock markets have posted substantial gains,
Indications of recovery have been com- consumer confidence has improved, and jobless
ing at an increasing rate since the first of the year. claims have returned to more average levels.
The U.S. housing sector has remained strong,
manufacturing has turned around, and labor mar- Figure 1. Industrial Production
kets have begun to stabilize. Meanwhile, despite
and Capacity Utilization
rising energy prices for several months, there is
virtually no inflationary pressure in the U.S. 148
146
84
economy. In a rare moment of clarity, the ever-
82
144
80
obfuscating Alan Greenspan recently stated that
percent of capacity
142
78
IP index
the U.S. economy is “experiencing significant
140
138 76
expansion.” 136
74
After the business investment boom of the 134
72
132
late 1990s, U.S. producers were faced with high 130 70
inventories and excess capacity as the economy
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began to cool in late 2000. Throughout 2001,
M
M
Industrial Production Capacity Utilization
firms underwent a massive inventory correction. Source: Federal Reserve
The South Financial Group Economic Update, 1
Figure 2. Implied Effective gains and economic growth in the Carolinas
Federal Funds Rate throughout the year. Florida’s rebound will be
dictated more by the return of tourists this year.
3.5
Indications are that tourism activity in Florida
and the Carolinas is returning to normal levels or
3
2.5
better.
implied fed funds rate
2 Even though they suffered through the
1.5 recession of last year, the South Atlantic States
1
enjoyed several bright spots. Florida and the
0.5
Carolinas posted above average population
growth in 2001. The U.S. population rose 0.9
0
Jun-02 Sep-02 Dec-02 percent in 2001. Meanwhile, Florida’s popula-
Source: Calculated from futures market data
tion swelled by 2.1 percent. This was the fourth
One result of the overall heightened tension fastest growth in the country, behind just Nevada,
in the Middle East has been rising energy prices Arizona, and Colorado. North and South Caro-
during 2002. While higher gasoline prices could lina posted the 10th and 19th fastest growth rates in
limit the strength of the economic recovery, they the nation at 1.3 percent and 1.0 percent respec-
should not prevent it. Though energy prices have tively.
risen, the core rate of inflation remains low. This
lack of inflationary pressure means that the
The housing sector, though remarkably strong
sector,
Federal Reserve should be able to allow the
economic expansion to become firmly rooted across the U.S. in 2001, was even more
before raising interest rates to head off price Atlantic
impressive in the South Atlantic states.
pressure.
The Fed is unlikely to enact any change to The housing sector, though remarkably
monetary policy before late summer. Consistent strong across the U.S. in 2001, was even more
with current expectations in the futures markets, impressive in the South Atlantic states. Single
the Fed’s target for the federal funds rate will family building permits rose a remarkable 7.9
probably climb from 1.75 percent currently to 3 percent in 2001 compared with a 1.9 percent gain
percent by the end of the year. With the overall for the entire U.S. This housing boom has
strength and speed of the recovery in doubt, the occurred despite rising unemployment.
Fed will probably target short-term rates at Why has the housing sector remained so
roughly 3 percent to 3.5 percent over the next vibrant? Nationally, there are two primary
two years. This would be similar to the Fed’s reasons. First, mortgage rates have been favor-
strategy coming out of the recession of the early able, hovering around 7 percent since early 2001.
1990s.
Figure 3. Metro Area Population
The South Atlantic States
T
he economies of Florida, North Caro-
lina, and South Carolina are poised to Tampa Bay 2,395,997
reap the benefits of the improving na- Orlando 1,644,561
tional economy, though for different reasons. Jacksonville 1,100,491
The downturn in the Carolinas was driven by the Greenville 962,441
manufacturing recession. Manufacturing remains Charleston 549,033
an important source of employment in the Caroli- Columbia 536,691
nas. The loss of industrial jobs in the Carolinas Wilmington 233,450
then spread to the service and retail trade sectors. Myrtle Beach 196,629
The turnaround in manufacturing will spark job Source: Census Bureau, 2000 data
The South Financial Group Economic Update, 2
Second, even though unemployment has trended
upward, it remains at a very low level. In March, Figure 5. Residential Construction,
the U.S. jobless rate stood at 5.7 percent. If Growth in Building Permits, 1995 - 2001
economists could have known five years ago that TSFG Markets
the unemployment rate in early 2002 would be
Florida
under 6 percent, they would generally have
assumed that the economy was performing quite North Carolina
well. South Carolina
The superior performance in the South
United States
Atlantic states, and in The South Financial
Group’s markets in particular, is due to the fact 0 10 20 30
percent growth
40 50
that low mortgage and unemployment rates were Source: Census Bureau
combined with above average population growth. 1995 and 2001, the annual number of single
family building permits in the U.S. increased by
Markets
Housing Boom in the Local Markets 22.5 percent, and the number of multi-family
D
riven by rapid population growth and permits rose by 16.2 percent. For the three-state
strong and diverse economies, the local region, single and multi-family permits advanced
markets served by The South Financial by 35.9 percent and 27.6 percent over the same
Group have witnessed a greater residential con- period. Meanwhile, The South Financial Group’s
struction boom than either the U.S. or the states local markets experienced a 45.7 percent increase
as a whole across the region. This is the case in single family permits and a 47.6 percent surge
whether looking at longer term trends or the per- in multi-family permits.
formance during the recession of 2001. Now, a
booming housing sector does not by itself trans-
late into continued strength. However, in the The continuance of this housing boom during a
case of the local markets in Florida and the Caro- national recession underscores the beneficial
linas, economic and population growth is ex-
population and economic trends in
pected to remain above average for the coming
years. Therefore, the positive housing trends of The South Group’s major markets.
recent years are expected to continue into the
future. Because of the population and economic
To gauge the performance of the housing gains that have contributed to this record of home
sector in these local markets, the number of construction, many of these areas are faced with
building permits and the total dollar value of concerns over how to handle this tremendous
residential construction can be compared with growth. It is important to note that while dealing
the U.S. and relevant state averages. Between with issues of “smart growth” can be difficult, it
Figure 4. Metro Area is actually a great problem to be faced with.
Per Capita Income These cities are asking themselves, “How can we
better prepare for the strong growth we expect in
Tampa Bay $28,145 the future?” Many areas across the country
Jacksonville $27,625 would love to have these kinds of concerns as
Columbia $27,444 opposed to dealing with a declining population
Orlando $26,568 base and stagnant economies.
Wilmington $25,309 These markets have also posted tremendous
Greenville $24,869 gains in the total dollar value of residential
Myrtle Beach $24,492 construction. Again, between 1995 and 2001, the
Charleston $22,944 annual dollar value of all residential construction
Source: Bureau of Economic Analysis, 1999 data
in the U.S. rose by 60 percent. In the three-state
The South Financial Group Economic Update, 3
region, total value increased 75.8 percent. The
South Financial Group’s markets saw residential T ampa Bay is expected to post particularly
value soar 90.4 percent. This housing boom has strong performance in terms of per capita income
been experienced in each of the local markets. In growth in the future.
terms of single family building permits, the most
rapid growth since 1995 has been in Charleston, for over 40 percent of all jobs. Meanwhile, just
South Carolina, and in Tampa Bay, Florida. over 7 percent of total employment comes from
Similar trends appear when looking at the the manufacturing sector.
housing sector during 2001 only. Again, despite Tampa Bay is another example of a diverse
the recession, the U.S. saw single family permits local economy. The area’s relatively small reliance
rise 1.9 percent for the year. Permits increased on manufacturing as a source of employment and
7.9 percent in Florida and the Carolinas. The income helps insulate it from cyclical downturns
markets across the region posted a gain of 10.4 in the national economy. The recession of 2001,
percent. The continuance of this housing boom though much less severe than previous recessions,
during a national recession underscores the was similar in that the manufacturing sector bore
beneficial population and economic trends in The the brunt of the job losses. However, Tampa’s
South Group’s major markets. reliance on non-manufacturing sectors allowed it
to post a job increase of 1.9 percent between 2000
Tampa Bay, Florida
Bay, and 2001. Only in the wake of the terrorist attacks
T
he metropolitan area of Tampa Bay-St. and the ensuing drop in tourism did the local
Petersburg-Clearwater on Florida’s gulf economy begin to weaken. However, tourism’s
coast is another example of a Florida mar- return this year should bring the Tampa economy
ket that has enjoyed above average population, back with it.
income, and per capita income growth. Tampa The remarkable performance of the housing
Bay is expected to post particularly strong perfor- sector during 2001 is clearly evident in Tampa.
mance in terms of per capita income growth in The area’s 18.7 percent increase in single family
the future. In addition to excellent growth pros- permits in 2001 was second across the region only
pects, the Tampa Bay metro area already has the to Jacksonville. Meanwhile, Tampa posted the
highest per capita income level of any of The largest advance of total residential construction
South Group’s markets, with Jacksonville, value of any of the local markets with a gain of
Florida, and Columbia, South Carolina, coming 23.6 percent, compared with a statewide increase
close behind. of 13.7 percent.
The economic structure of Tampa Bay is Tampa Bay, like the rest of The South Finan-
similar to most of the other markets around the cial Group’s major markets, is reaping the benefits
region. The service sector is by far the largest of the link between positive demographic and
source of employment in Tampa Bay, accounting economic trends.
Figure 6. Job Growth, Figure 7. Residential
2000 - 2001 Construction Growth, 2000 - 2001
2.5 25
2 20
percent growth
percent growth
15
1.5
10
1
5
0.5
0
0 Permits Dollar Value
Tampa Bay Florida United States
Tampa Bay Florida United States
Source: Census Bureau
Source: Bureau of Labor Statistics
Moore School of Business, University of South Carolina The South Financial Group, www.thesouthgroup.com
Joel A. Smith III, Dean For information, please contact Mary M. Gentry, Treasurer, at
Douglas P. Woodward, Director, Division of Research (864) 255-4919 or mary.gentry@thesouthgroup.com
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