Montgomery Business Journal

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Alabama’s Economy is Gaining Momentum

March 2014

By David Zaslawsky

Photography by Robert Fouts

The director of The University of Alabama’s Center for Business and Economic Research said he is accused of being overly optimistic in his assessments of the state.

Sam Addy, who is associate dean for research and outlook in the Culverhouse College of Commerce at UA, said he does not look at the short term, but prefers what he calls “go long,” or look at the big picture. “Alabama has done well; is doing well; and Alabama will continue to do well,” he said at the university’s 2014 Economic Outlook Conference at the Renaissance Montgomery Hotel & Spa at the Convention Center.

“Alabama has challenges, but we also do really well,” he said. Alabama has made incredible progress from being about 45 percent of the U.S. per capita income in 1929 to 83 percent in 2012. “This tells the story of how well we’ve done over time,” Addy said. “I think this deserves applause for ourselves and our state.”

The state’s economy (gross domestic product) is projected to grow 2.4 percent this year and an even stronger 3.1 percent in 2015 after increasing 1.9 percent increase in 2013 and just 1.3 percent in 2012. The range of the 2014 forecast is from a low of 2.0 percent to a high of 3.2 percent and the range for 2015 is a low of 2.5 percent to a high of 4.0 percent.

Total tax revenue forecasts show steady 4.0-plus percent increases for 2014, 2015, 2016 and 2017, reaching $11 billion in 2017. Sales tax revenues are projected to grow 1.8 percent this year; 2.0 percent in 2015; 2.5 percent in 2016; and 2.2 percent in 2017. The bulk of the projected increases in tax revenue is coming from individuals with 5.0-plus percent increases through 2017, including a high of 5.9 percent in 2016.

Employment is projected to increase a modest 1.3 percent this year, but that means 24,300 jobs. The majority of those jobs will be in services with other strong sectors including transportation equipment manufacturers. That 1.3 percent growth in employment is a full 1 percent more than 2013 (0.3 percent) and tops the 0.7 percent growth in 2012. The employment forecast has a range of 0.5 percent to 1.8 percent.

Montgomery topped the state’s three other metro areas for job growth from October 2012 to October 2013. That increase was 1,600 jobs (1.0 percent), but Mobile gained only 600 jobs during that time span (0.3 percent) while Birmingham-Hoover lost 2,600 jobs (-0.5 percent) and Huntsville lost 2,500 jobs (-1.2 percent).

Nearly all of Montgomery’s job gains were in service-providing industries of retail trade; professional and business services; education and health; and leisure and hospitality.

Montgomery is ranked second to Huntsville ($71,500) in median family income at $61,500 and much more than the state ($53,600). Birmingham is third among the state’s metros at $57,100 and Mobile is fourth with a median family income of $52,400.

While the state’s General Fund is projected for increases of 1.0 percent to 1.3 percent this year, the Education Trust Fund is forecast to grow a range of 2.8 percent to 5.6 percent, including 3.7 percent for 2014.

Manufacturing is driving the Center for Business and Economic Research’s forecasts and that sector’s GDP is expected to grow 4.6 percent this year, which includes a 13 percent increase in motor vehicle and parts production.

An expected 6.6 percent increase in U.S. automotive sales this year bodes well for Alabama with its Hyundai, Honda and Mercedes Benz manufacturing plants as well as a Toyota engine plant. The state enjoyed an all-time vehicle production record of 915,000-plus last year.

The state’s aerospace industry is another key catalyst for economic growth, Addy said. Exports for aircraft, spacecraft and parts has surged from less than $200 million in 1996 to nearly $680 million in 2012. “One of our hottest growing areas for exports is aerospace,” Addy said. Those figures are expected to increase considering the following:

> Boeing adding up to 400 engineering jobs at a new research center in Huntsville.

> Lockheed Martin’s new, $3.9 billion missile contract and an expected 100 additional employees at the company’s facility in Troy.

> A new GE Aviation factory in Auburn that will have up to 400 employees by 2020.

> The new $600 million Airbus facility in Mobile with up 1,000 employees at the firm’s final assembly plant for the A320 planes. Delivery will begin in 2016 and it is expected that it would produce 40 to 50 planes a year.

Addy said that the aerospace industry “pays very well” and indeed it does. “That manufacturing component pays better than manufacturing in general – so aerospace is a good target,” Addy said. It pays an average of $1,500 a week while the average weekly pay for manufacturing is $969. The average annual pay difference in the aerospace industry compared with all industries has more than doubled from 2001 to 2012.

Montgomery is “probably the most logical, closest and most capable community” outside of Mobile to land Airbus suppliers, Airbus Americas Chairman Allan McArtor told the Montgomery Advertiser.

Aerospace is one of the areas “for advancing our economy and making life better for people,” Addy said. The state’s economic development program – Accelerate Alabama – focuses on advanced manufacturing, technology, logistics and distribution and corporate headquarters.

Those jobs require highly skilled workers and Addy said that Alabama is moving in the right direction. He praised Alabama Gov. Robert Bentley for creating the College and Career Ready Task Force.

“If you want to increase our income all we have to do is address education,” Addy said. He said that higher educational attainment leads to higher salaries. He said there is no economic development without education. “The elephant in the room is very clear – we have to address education and its funding,” Addy said. “You cannot address education funding without talking about taxes and tax reform in this state.”  He said that every study has concluded the same thing about the tax structure: it is inadequate, inefficient and unfair.

Addy warned that the state will be facing labor shortages – 113,000 in 2020 and 307,000 in 2030, according to projections, but there is an available labor pool of 600,000-plus who are underemployed or unemployed.

“There is great job growth potential in this state,” Addy said. “We have a lot of available labor. That’s why I am so gung-ho about Alabama’s chances. “We do have work force potential and many educational programs – we are doing well.”

The top issues facing companies, according to a poll conducted by the Center for Business and Economic Research are:

> Government – uncertainty, taxes and regulations.

> Company finances and development – customer concerns, cash flow, credit availability, profitability, business opportunities and competition.

> Economy – demand, consumer confidence, housing market and economic growth

> Health care – cost and Affordable Care Act.

> Work force – Lack of skilled labor and employment development.






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