Alabama should see stronger growth in both output and employment during 2014. That's the outlook in the first quarter 2014 forecast update from the Center for Business and Economic Research (CBER) in The University of Alabama's Culverhouse College of Commerce. CBER uses its own Alabama Econometric Model to drive these forecasts.
The state's economy is expected to expand by 2.4 percent in 2014, up from growth of 1.9 percent during 2013. Output gains could be substantially higher than this average for manufacturers of motor vehicles and parts and other transportation equipment, petroleum and coal products, fabricated metals, machinery, nonmetallic minerals, and computer and other electronic products. In the service providing sector, output growth will be strongest among professional and business services firms.
Nonfarm employment is forecasted to rise by 1.3 percent during the year, with about 24,300 jobs added across the state. The largest percentage increases in employment are likely to be with motor vehicles and parts and other transportation equipment manufacturers. Most new jobs will be in services, though, where broad-based gains could result in around 20,000 positions.
Alabama's seasonally-adjusted unemployment rate was 6.1 percent in December 2013, down from 6.8 percent a year ago. However, a 1.5 percent decrease in the state's labor force between December 2012 and December 2013, coupled with a smaller 0.8 percent decline in total employment was largely responsible for this improvement in the unemployment rate.
A total of 10,500 nonfarm jobs were added during the 12 months ending in December 2013 for a gain of 0.6 percent. Construction sector employment rose by 400, the first increase in almost six years. Manufacturers added a net 5,900 workers during the past 12 months, with gains concentrated in transportation equipment and nondurables goods industries. The state's service providing sector gained just 4,100 jobs. Services job creation continues to be strongest in industries such as accommodation and food services, retailing, and administrative and support services—sectors that typically pay relatively lower wages and often offer fewer benefits.
Alabama exports totaled $19.3 billion in 2013, down a slight 1.4 percent from the $19.6 billion in merchandise exported during 2012. At that level, 2013 exports accounted for 12.1 percent of the state's GDP. Although exports declined in many industries, shipments of transportation equipment rose 8.6 percent to $8.35 billion. Primary metals exports also increased, up 3.9 percent to $1.46 billion.
With the state's economy expected to grow at a higher rate in 2014, tax revenues are forecasted to increase about 4.1 percent for FY2014. Total tax revenue should rise from $9.3 billion in FY2013 to $9.7 billion. Appropriations to the Education Trust Fund are expected to increase 3.7 percent, while appropriations to the General Fund could be about 1.0 percent higher than in FY2013.
Business executives are cautiously optimistic about their prospects in the first quarter of 2014. CBER's Alabama Business Confidence Index™ (ABCI), slipped 0.7 points to 51.2, but still indicates a positive outlook overall. Statewide, survey results forecast stronger growth for the Alabama economy this quarter; U.S. economic growth could weaken compared to the fourth quarter. Industry sales and profits should generally improve, while hiring and capital investment will pick up in some metro areas.
UA CBER's Alabama Business Confidence Index™ (ABCI) registered a cautiously optimistic 51.2 on the first quarter 2014 survey. Although down 0.7 points from the fourth quarter 2013 reading, sentiment is positive overall for the third consecutive quarter. That's a much better outlook than the pessimistic 45.4 recorded for first quarter 2013.
Concerns about the U.S. economy continue to constrain business expectations, particularly in the Huntsville metro area. The national economy index is down 2.6 points to 47.8, indicating that growth will be weaker than in the fourth quarter. At 53.8, the Alabama economic outlook is 6.0 points above the outlook for the U.S. economy. Almost 80 percent of executives completing the first quarter survey expect the state's economy to grow at the same or a stronger pace than last quarter.
Sales are forecasted to increase at about the same rate as in the fourth quarter. The index value of 54.1 indicates generally moderate improvement in sales. The profits outlook improved 0.8 points to 52.3. Almost 74 percent of panelists expect profits to be about the same or higher in first quarter 2014. Construction, manufacturing, and financial activities firms have the most optimistic outlooks for sales and profits trends. Businesses in transportation, information, and utilities; retail trade; and healthcare are pessimistic about both sales and profits this quarter.
Although selected industries could post employment gains, Alabama is not likely to see job creation pick up overall during the first quarter. The index slipped 1.2 points to 49.6, suggesting slightly weaker job prospects. Close to 54 percent of firms forecast no change in hiring plans. Most job gains will be in construction and manufacturing, with modest growth indicated for payrolls in retail trade and financial activities.
The capital expenditures index rose 1.5 points to a neutral 49.9. At that level, business investment statewide should be about the same as last quarter. The Birmingham-Hoover and Montgomery metro areas saw significant improvement in capital spending expectations, with moderate increases forecast for the first quarter. However, Huntsville's index fell to a negative 38.8 as concerns about federal government spending continue to have an impact.
Businesses in construction, manufacturing, and financial activities have the most positive outlooks for first quarter 2014. Industry sentiment in healthcare; trade; and transportation, information, and utilities is negative overall.
Mobile remains the most optimistic metro area with an ABCI of 56.2 and the strongest outlooks for sales, profits, and hiring. Montgomery confidence is second at 55.4 and all indicators are positive. ABCI Birmingham-Hoover came in at 53.2, with a flat hiring forecast, but moderate gains in other business measures. Huntsville panelists continue to have a negative outlook; area confidence registered 44.9.
The state's small businesses with fewer than 20 employees eclipsed the larger firms as the most optimistic about their first quarter 2014 prospects and an ABCI of 54.5. Confidence slipped to 50.9 among large firms employing 100 or more; still, this group is slightly optimistic on all industry indicators except hiring. With an ABCI of 48.1, midsize businesses with 20 to 99 workers have a negative outlook on all performance indicators except sales. Only the small firms group has plans to increase hiring this quarter.
Alabama is expected to see stronger growth in both economic output (GDP) and employment during 2014, according to the forecast from UA's Center for Business and Economic Research (CBER). Dr. Sam Addy, CBER Director and Associate Dean for Research and Outreach in the Culverhouse College of Commerce, presented an encouraging outlook for the state in 2014 at CBER's 26th annual Economic Outlook Conference. Around 150 attended the meeting, held January 15th in Montgomery.
After expanding by 1.9 percent in 2013, Alabama's economy could grow at a stronger 2.4 percent pace during 2014, with GDP reaching around $163 billion. Manufacturing will be an important contributor to output gains; manufacturers of motor vehicles and parts and other transportation equipment, as well as nonmetallic mineral products, computer and electronic products, fabricated metals, and machinery should also post above-average increases in output. Professional and business services and firms engaged in financial activities are also expected to make significant contributions to the rise in Alabama GDP.
Employment growth is forecasted at around 1.3 percent, with about 25,000 jobs added during 2014. That's a sizeable improvement compared to a gain of around 0.3 percent in 2013 and builds on the 59,400 jobs created from January 2011 through November 2013. Expansions and new additions in the state's motor vehicle and other transportation equipment manufacturing industries will help boost employment. Transportation, warehousing, and utilities and leisure and hospitality are among other sectors where above-average employment growth is anticipated.
Total state tax revenues are expected to rise 4.1 percent in FY2014, slightly above the 4.0 percent rate of increase seen in FY2013. With household incomes improving, individual income tax receipts should see the largest increase. Appropriations to the Alabama Education Trust Fund are forecasted to be 3.7 percent higher than in FY2013, while General Fund appropriations could increase 1.3 percent, a stronger outlook than gains of 0.2 and 0.4 percent, respectively, seen in FY2013.
Dr. Addy discussed the importance of education as the basis of building a better future for all Alabamians. Equating economic development to creating a higher or better quality of life, he noted that improved education is fundamental to human capital development—one of the three pillars of economic development, along with institutional and physical capital. Given labor force participation well below the U.S. average and an above-average median age, the state can leverage education to bring more residents into the workforce to address expected labor shortfalls. Although education levels have been improving, recent data indicate that they still constrain per capita income.
Looking at prospects for the U.S. economy, Dr. David Altig, Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta, expressed optimism that the U.S. economy can continue to build on the strength seen in the second half of 2013. Although growth will slow modestly early in 2014, it is expected to average around 3.0 percent for the year. A number of factors play into this good news—global growth is expected to pick up to around 3.6 percent in 2014, with strong improvement among our major export markets; negative fiscal policy impacts are not anticipated; and household net worth is improving. Still, a shrinking labor force, which is a major factor in falling unemployment rates, is cause for concern; lower labor force participation is due in part to large increases in the numbers of individuals who are disabled or in school. Federal Reserve policy is expected to remain accommodative.
ServisFirst Bank President and CEO, Mr. Tom Broughton, examined the health and outlook for Alabama's commercial banks. Looking at the steep trend in consolidation in the banking industry between 1990 and 2012 versus sizeable growth in the number of branch offices, he noted that the East Coast, including the Southeast, is currently the most overbanked region. Alabama banks weathered the impact of the recession relatively well—of the 501 bank failures nationwide from 2007 to 2013, only 7 were in Alabama. This can at least partially be attributed to the state's 20 percent limit on the amount of a bank's capital that any single entity can borrow. Financial statement indicators for the state's banking industry are generally stronger than for the region and the nation. However, a return on average equity below the U.S. average and lower ratios of assets and loans to average employees do not bode well for employment trends for Alabama banks.
The 2014 Economic Outlook Conference was sponsored by the Alabama Department of Economic and Community Affairs, Alabama International Trade Center, Alabama Power, Alabama SBDC Network, Alagasco, BlueCross BlueShield of Alabama, Boeing, Hyundai Motor Manufacturing Alabama, Lockheed Martin Space Systems, PowerSouth Energy Cooperative, ServisFirst Bank, Sterne Agee, and Vulcan Materials.
View presentations from the 2014 Economic Outlook Conference:
David Altig's presentation: The Economy—A View from the Fed
Sam Addy's presentation: The Alabama Outlook
Tom Broughton's presentation: Alabama Commercial Bank Performance
Each quarter business executives across Alabama take the online Alabama Business Confidence Index™ (ABCI) survey, a project of the Center for Business and Economic Research (CBER) in UA's Culverhouse College of Commerce. The recent Q4 2013 survey marked 48 consecutive quarters of ABCI results. Using these survey results, CBER has completed a Validation Analysis comparing statewide trends in the ABCI and its six component indexes against selected national and Alabama economic indicators. The performance analysis also extends to the four metro area ABCIs.
This analysis validates the forecasts by ABCI panelists for an upcoming quarter against the trends documented by relevant historical economic data. Graphs in the ABCI Validation Analysis newsletter show that Alabama business executives have been right on target with their expectations—making the survey results a useful predictor of economic trends in the quarter ahead!
The ABCI panel is open to business executives across the state. Registration and current and historical results are available on the ABCI website. Results newsletters are provided for Alabama and for the Birmingham-Hoover, Huntsville, Mobile, and Montgomery metro areas. Panelists can take the Q1 2014 survey December 1-15.
After a strong boost in confidence last quarter, Alabama business expectations settled down going into the fourth quarter of 2013. The Alabama Business Confidence Index™ (ABCI) slipped one point to 51.9, staying positive despite the economic uncertainties that loomed as the 248 panelists completed the online survey during the first two weeks of September. At this level, Alabama business expectations are 3.6 points above the reading of 48.3 a year ago. However, the fourth quarter 2013 ABCI lags the long-term average of 53.5 calculated over the 48 quarters that UA's Center for Business and Economic Research (CBER) has surveyed business confidence across Alabama.
The state's business executives expect U.S. economic growth in the fourth quarter to be only slightly better than last quarter. The U.S. economy index slipped 0.2 points to 50.4, with 44.4 percent forecasting no change and a net 5.6 percent expecting improvement. Panelists are considerably more optimistic about Alabama's economic outlook. An index of 56.0 indicates moderate economic expansion. That's a much better reading than the value of 49.7 seen a year ago in the fourth quarter of 2012. The state economy index has been above the national outlook for 34 consecutive quarters.
Among industry indicators, only hiring plans improved this quarter. A slight increase in Alabama job growth is indicated, with the hiring index at 50.8. The strongest job gains could come from manufacturers. Most industries expect at least a slight increase in hiring, with the exceptions of trade and healthcare where prospects are negative.
Sales statewide should increase moderately in the fourth quarter, despite weakening expectations. The sales index of 54.3 was down 3.5 points from its third quarter reading. Holiday spending could be stronger this year than last; the fourth quarter 2012 sales index was lower at 51.1. Overall prospects for profits are not as positive as last quarter, with the index down 1.7 points to 51.5. Expectations for sales and profits growth are highest in financial activities. Manufacturers should also see strong sales gains this quarter.
A difficult environment for long-range planning could be weighing on the willingness of Alabama businesses to commit more funds to capital investment. The capital expenditures index fell 2.3 points to 48.4. While just over half of panelists expect to maintain current spending levels, a net 2.4 percent plan to cut back.
Huntsville business confidence edged up 0.1 points to 45.8, stable but still indicating moderate contraction. In the other large metro areas tracked by the ABCI survey, the business community is optimistic about fourth quarter prospects despite modest declines in confidence. ABCI Mobile is on top at 58.0, followed by Montgomery with 54.3, and Birmingham-Hoover at 53.3.
Alabama businesses employing 100 or more remained the most optimistic, although their ABCI slipped 0.7 points to 53.6. These larger firms are the most likely to increase hiring in the fourth quarter. Sentiment among businesses employing 20 to 99 edged up 0.1 points to 50.7, a mildly positive reading despite negative outlooks for the U.S. economy and capital spending. The ABCI for small businesses employing fewer than 20 fell 2.2 points to a still-positive 51.0. Hiring and investment are likely to slow for these firms.
The momentum in Alabama’s economy during the second half of 2012 should continue into 2013, according to the forecast from UA’s Center for Business and Economic Research (CBER). Dr. Sam Addy, CBER Director and Associate Dean for Research and Outreach in the Culverhouse College of Commerce, discussed developments in the state during 2012 and prospects for 2013 at the Center’s 25th annual Economic Outlook Conference. Around 160 attended the meeting, held January 16th in Montgomery.
Real GDP growth of 1.7 to 1.9 percent is forecasted for 2013, with employment gains of almost 1.1 percent, or around 18,500 net new jobs, during the year. Growth could be stronger if uncertainty is reduced concerning fiscal policy at the national level. Total state tax revenues are expected to rise around 3.5 percent in FY2013, slightly below the 3.8 percent rate of increase seen in FY2012.
Strong gains in Alabama’s automotive manufacturing industry, increasing exports, and an improving housing market will add to the momentum this year. Rising wages and income across the state indicate that consumer spending will be a positive for growth going forward. Firms in industries including professional and business services, healthcare, tourism, and retail trade will also contribute to employment gains during 2013.
Dr. Addy discussed the importance of addressing how we could apply resources to ensure continuing improvement in the state’s economy. Enhancing education and workforce development programs are key to providing workers with the skills needed by new and expanding businesses. Alabama currently has an available labor pool of around 650,000 residents who are either unemployed or underemployed (employed but looking for better jobs). But the demographics of an aging population together with slow population growth mean that the state will have to look to both domestic and international in-migrants and to increased labor force participation, training, and productivity to keep economic growth strong in the longer term.
Looking at prospects for the U.S. economy, Dr. David Altig, executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta, expects GDP growth in the 2.3 to 3.0 percent range during 2013 as the nation continues to climb out of a deep hole. The Federal Reserve will exercise its tools of very low interest rates and quantitative easing until the economy improves significantly. Resolving federal fiscal policy uncertainty is critical to unleashing stronger potential for growth.
Retirement Systems of Alabama CEO, Dr. David Bronner, took a look at past and future economic concerns. At the national level, investing in infrastructure and improving access to education are essential to ensuring future competitiveness. Resolving the gridlock in Washington will encourage business investment. Alabama has made a lot of progress over the last 15 years in areas including tourism, the auto industry, and aerospace. But, as Dr. Bronner noted, education is the key ingredient in a better future for all our citizens.
The 2013 Economic Outlook Conference was sponsored by the Alabama Department of Economic and Community Affairs, Alabama International Trade Center, Alabama Power, Alabama SBDC Network, BlueCross BlueShield of Alabama, Boeing, Hyundai Motor Manufacturing Alabama, Lockheed Martin Space Systems, PowerSouth Energy Cooperative, ServisFirst Bank, Sterne Agee, and Vulcan Materials.
View presentations from the 2013 Economic Outlook Conference
Dr. David Altig’s presentation: The Economy—A View from the Fed
Dr. Sam Addy’s presentation: The Alabama Outlook
Check out press coverage of the 2013 Economic Outlook Conference
al.com (Birmingham News, Huntsville Times, Mobile Press Register)
The Anniston Star
The Gadsden Times
The Montgomery Advertiser
The Tuscaloosa News
The Center for Business and Economic Research is now making its detailed forecast tables of Alabama output and employment by sector available quarterly. Table releases in January, April, July, and October are generated by the Center’s Alabama Econometric Model based on current economic conditions and expectations.
To order the current quarter's forecast tables and pay by credit card, please go to the CBER Store, or send a check for $30 payable to The University of Alabama to: Center for Business and Economic Research, Box 870221, Tuscaloosa, AL 35487-0221.
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