TUSCALOOSA, Ala.—The Alabama Business Confidence Index™ (ABCI) came in at an optimistic 54.8 on the third quarter 2015 survey. That’s 2.8 points lower than last quarter and less than a point below the ABCI of 55.5 recorded a year ago. Most component indexes decreased this quarter. Among statewide indicators, the largest losses in expectations were for hiring and sales. The state economy fared well in the survey, as confidence among Alabama business executives remained in solidly positive territory.
Panelists were tepid on the national economy, however, as the index lost almost six points to a near neutral reading of 50.7. About 29 percent of the state’s business executives expect the U.S. economy to expand at a faster pace than seen in the second quarter, while another 46 percent expect growth to continue at about the same pace.
Business executives expect Alabama’s economy to see further gains in the third quarter of 2015. At 56.6, the index is down two points from last quarter but has now enjoyed nine consecutive quarters of positive confidence. Over 39 percent of panelists anticipate growth at a higher rate than in the second quarter.
The sales index component of the ABCI lost 3.2 points to land at a still robust 58.3. Approximately 83 percent of panelists expect sales in their industry to increase or remain the same compared to second quarter levels, while just 17 percent forecast a decrease. Every industry except retail trade anticipates at least a moderate gain; sales growth should be strongest in professional services, wholesale trade, financial services, and construction.
Third quarter profits are likely to rise in all industries except retail trade. The profit index value of 55.7 is about one point below its second quarter reading. Approximately 80 percent of respondents expect profits to be the same or better than last quarter.
With construction, healthcare, and financial services posting the largest confidence gains for hiring, the state’s business executives are signaling further job gains this quarter, albeit at a slower pace. The hiring index fell 3.2 to 53.9. Nevertheless, 87 percent of the surveyed executives plan to maintain or increase the rate of job creation.
Capital spending is expected to grow statewide in the third quarter of 2015; the index fell by 2.2 to a confident 53.2. A quarter of panelists plan to increase investment, while over 57 percent anticipate spending to continue at about the same level as last quarter. All industries except construction and retail trade could see modest gains. The largest increases in spending are most likely be seen in healthcare and manufacturing.
Firms in professional services and financial services are the most optimistic this quarter, with ABCI readings of 58 or above. Professional services, wholesale trade, and financial services also have very strong outlooks for sales.
ABCI Montgomery edged down 2.7 points to 57.4, still coming in on top among the large metro areas. A weaker outlook for both sales and profits contributed to a small decline in Birmingham-Hoover’s ABCI to 53.1. All industry indicators declined in the Huntsville metro as the area’s index fell to 55.1 and in the Mobile metro as its ABCI declined to 54.3.
Businesses of all sizes are feeling positive about their third quarter prospects. Every indicator shows at least moderate optimism for each of the three groups categorized by number of employees. Small firms, those with fewer than 20 employees, were the most confident, registering an index of 57.3. Medium-sized businesses, those with 20 to 99 employees, were also optimistic with a reading of 56.1. The reading for large firms held steady at 55.3.
The Alabama Business Confidence Index™ (ABCI) panelists voiced their opinions about the top issues facing the state and their companies in a survey conducted by the Center for Business and Economic Research (CBER) in November 2014. Business executives reported that education and workforce training was the top issue facing the state, followed by competence in government, economic and business development, job growth, healthcare costs, and infrastructure improvements.
Alabama business leaders perceived company finances and development as the top issue facing their companies. Government taxation, regulation, and uncertainty was ranked second, followed by the lack of a qualified workforce, economic recovery, and healthcare costs.
Each quarter, business executives across Alabama take the ABCI survey, a project of CBER in UA's Culverhouse College of Commerce. Many of ABCI panelists (84 percent) use the results as a general indicator of local or regional economic outlook. Nearly 56 percent of business executives also compare personal projections to others’ viewpoints and 43 percent use the ABCI results as a background information for estimating future trends. Additionally, 30 percent of business executives use the ABCI results in short-term planning.
The ABCI panel is open to business executives across the state. Registration and current and historical results are available on the ABCI website. Newsletters with results are provided for Alabama and for the Birmingham-Hoover, Huntsville, Mobile, and Montgomery metro areas. Panelists can take the Q2 2015 survey March 1-15.
Alabama is expected to see stronger growth in both economic output (GDP) and employment during 2015, 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 and Ahmad Ijaz, Associate Director and Director of Economic Forecasting, presented an encouraging outlook for the state in 2015 at CBER’s 27th annual Economic Outlook Conference. Around 150 attended the meeting, held January 15th in Montgomery.
After expanding by approximately 2.0 percent in 2014, Alabama’s economy could grow at a stronger 2.3 percent pace during 2015, with GDP reaching around $189.5 billion (inflation-adjusted 2009 dollars). Manufacturing will remain an important contributor to output gains. Manufacturers of motor vehicles and parts and other transportation equipment, as well as fabricated metals, computer and electronic products, and petroleum and coal products should post above-average increases in output. Professional and business services as well as educational services are also expected to make significant contributions to the rise in Alabama GDP.
Employment growth is forecasted to be around 1.8 percent, with about 33,800 jobs added across the state during 2015. That is a slight improvement compared to a gain of 1.7 percent in 2014 and builds on the 115,000 jobs created from January 2011 to November 2014. Expansions and new additions in the state’s motor vehicle and other transportation equipment manufacturing industries will help boost employment. Professional and business services, along with leisure and hospitality are among the other sectors where above-average employment growth is anticipated.
Total state tax revenues are expected to rise 2.4 percent in FY2015, greater than the 1.3 percent rate of increase seen in FY2014. With household income improving, individual income tax receipts should see the largest increase. Appropriations to the Alabama Education Trust Fund are forecasted to be 2.4 percent higher than in FY2014, while General Fund appropriations could increase 2.5 percent, a stronger outlook than gains of 2.1 and 1.0 percent, respectively, seen in FY2014.
Mr. Ijaz presented the 2015 Alabama outlook and 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.
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 2014. Growth is expected to average around 3.2 percent in the country in 2015, somewhat higher than global growth, which is expected to average around 3.0 percent for the year. Federal Reserve policy is expected to remain accommodative, with tentative slight increases in interest rates in the second half of 2015.
Mr. Ira Harvey, Executive Assistant to the Vice President for Financial Affairs at the UA, examined tax revenue issues in Alabama for 2015 and Mr. Jo Bonner, Vice Chancellor for Government Relations and Economic Development at the University of Alabama System, discussed Alabama economic development issues. The Constitution of 1901 places limits on taxation of wealth and income that continue to create revenue problems for state and local governments. While Alabama has the lowest property taxes per capita among other states, the state ranks near the middle as regards general sales taxes per capita. Further, Alabama ranks among the top five states in the nation for taxes on public utilities and alcoholic beverage. Meanwhile, public education in Alabama has been ruled a nonessential function of state government and can expect to suffer further shortfalls under proration.The 2015 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, and Sterne Agee.
View presentations from the 2015 Economic Outlook Conference:
David Altig: A View from the Fed: The Answer is Yes and No
Ahmad Ijaz's: 2015 AlabamaEconomic Outlook
Dr. Ira W. Harvey: Tax Revenue Issues in Alabama for 2015
Recent numbers indicate that Alabama job growth may finally be picking up from the slow pace seen since the last recession. The state added 31,600 jobs between September 2013 and September 2014. That’s one of the highest rates of job growth during a 12-month period since the U.S. economy fell into recession in December 2007.
Job gains were spread across most sectors. Goods producing businesses added 11,000 workers, including 7,900 in manufacturing. Firms producing transportation equipment, particularly motor vehicle parts, and primary and fabricated metals saw the largest employment growth. With improvement in residential and commercial real estate markets, the construction sector is rebounding. The addition of 2,800 construction jobs in the past year includes 1,700 in building construction.
Payrolls in the state’s services sector grew by 20,600 between September 2013 and September 2014. Food service and drinking places added 10,000 workers, professional and business services gained 7,900, and educational services added 1,900. However, relatively sluggish consumer spending and demand conditions are hurting retailers, who shed 2,000 jobs over the past year. In the government sector, federal employers cut 1,000 jobs, while the state added 500 and local governments gained 1,600 jobs.
Economists from the Center for Business and Economic Research in UA’s Culverhouse College of Commerce have raised their annual employment forecast for 2014. The state should create about 25,000 to 30,000 new jobs this year, a gain of around 1.1 percent that compares to just 0.5 percent in 2013. Job growth is expected to be somewhat stronger in 2015.
Inflation-adjusted Alabama GDP is expected to increase by about 1.5 percent in 2014, followed by stronger growth of around 2.3 percent for 2015. However, the concentration of job gains in sectors of the economy that pay relatively low wages and/or hire temporary or part-time workers will likely contribute to subdued growth in income tax collections and relatively weak consumer demand.
Alabama business executives remain optimistic about their prospects for the fourth quarter of 2014. CBER’s Alabama Business Confidence Index™ (ABCI) slipped 1.3 points to 54.2, indicating growth at a slightly slower pace than in the third quarter. The state’s business community is, however, more optimistic than a year ago when the ABCI reading was 51.9. Panelists continue to have a more positive outlook for the state than the national economy. For fourth quarter 2014, confidence in the Alabama economy registered 56.4, while the U.S. outlook reading was 51.6.
State tax revenues for FY2014, which ended in September, totaled $9.4 billion, up 1.3 percent from the previous fiscal year. Sales tax revenues rose 2.6 percent to $2.1 billion, while corporate income tax receipts increased 4.2 percent. Individual income tax revenues fell a slight 0.04 percent to $3.8 billion. Appropriations to the Alabama Education Trust Fund increased 2.1 percent compared to FY2013 and General Fund appropriations were up 1.0 percent. CBER forecasts tax revenue growth of 1.5 to 2.0 percent for FY2015.
Alabama exports totaled $9.673 billion during the first half of 2014, just below the same period in 2013. Exports to Canada were down slightly, while China, the state’s second largest trading partner, saw an increase. Shipments of transportation equipment rose by $215 million to total around $4.3 billion.
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.
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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