Alabama economy shrinking? Some doubt federal estimate for 2011
by Paige Rentz
Jun 06, 2012 | 4076 views |  0 comments | 7 7 recommendations | email to a friend | print
While numbers out of Washington Tuesday suggest that Alabama’s economy is shrinking, local economists think the situation may not be so bad.

According to the Bureau of Economic Analysis — an arm of the U.S. Department of Commerce — Alabama’s gross domestic product shrank in 2011. Alabama and neighboring Mississippi each saw a 0.8 percent reduction in GDP, were out-shrunk only by Wyoming, which saw a 1.2 percent decline. By comparison, 43 other states showed growth, and national GDP grew, albeit by a slow 1.5 percent.

But a separate analysis from the University of Alabama’s Center for Business and Economic Research estimates that the state’s GDP growth should have registered somewhere between 1 and 2 percent, most likely around 1.5 percent, according to Ahmad Ijaz, the center’s director of economic forecasting.

“I think these are just very preliminary estimations which [will] most likely be revised upwards,” he said, “because none of the other statistics from 2011 support these numbers.”

That’s what happened with BEA’s projection for Alabama’s GDP in 2010. Originally estimated at 2 percent, revised numbers show an even stronger 2010 with a relatively healthy 2.3 percent growth rate.

Growth in the gross domestic product, explained Ijaz, essentially amounts to an increase in civilian labor force plus an increase in productivity. GDP measures the value of everything produced within the state, regardless of where it is sold. Ijaz noted that tax collection and employment figures looked much better in 2011 than 2010.

Ijaz said the GDP for the durable goods manufacturing sector – which includes cars, refrigerators and other large consumer items – was underestimated. The BEA numbers say growth in durable goods was nearly flat, at less than a tenth of a percent.

But employment in durable goods manufacturing increased by approximately 1.8 percent in 2011, Ijaz said, so he believes that the overall GDP growth in durable goods manufacturing must be higher than that. Ijaz estimated the durable goods sector growth at 3 to 4 percent.

In many states that saw growth in the BEA report, the rise was driven by durable goods. Nationwide, the BEA reports, durable goods grew 7.9 percent.

Ijaz argues that with a large auto industry, Alabama should be showing more growth.

“If you’re producing high value-added products, you should be growing at a faster rate,” he said, comparing the efficiency of car manufacturing to something more labor intensive like sewing in the textile industry.

Catherine Wang, who analyzes goods production for the BEA, said that states’ growth rates could move up or down once all the data is in and the bureau revises its numbers.

“It is very possible, but I cannot say definitely you will see a more promising number for 2011 next year,” she said.

What the BEA released Tuesday, Wang said, is based on a very small data set that has been extrapolated.

“It’s the best we can have because all data we have at this point have been incorporated,” she said. “It’s a ballpark for you to look at [for] each state and each industry.”

Jennings B. Marshall, a professor of economics at Samford University in Birmingham, said that even if the BEA’s numbers get revised, he doubts they will be revised to the point that they will show economic growth.

Marshall agreed with Ijaz’s assessment of the durable-goods numbers, saying that he thought the automobile industry in the state was doing well and would have prompted bigger growth rates than reported by the BEA.

Steve Sewell, executive vice president of the Economic Development Partnership of Alabama, said that in 2011, Alabama produced an all-time record 745,000 vehicles, which he said was enough to put the state in the top five automakers in the nation.

The last time the state was close to that number was in 2007, when 739,000 automobiles rolled out of Alabama plants. The numbers show a steady increase since the low point in the economic downturn in 2009, when slightly fewer than 468,000 cars and trucks were produced in the state. In 2010, totals grew to almost 698,000. Production in first five months of 2012 has been similar to last year’s numbers.

Marshall’s hypothesis is that last year’s tornadoes are to blame for part of the sluggishness in Alabama’s numbers. “When you had all that destruction, there was probably a week all across the state where people slowed down their consumption,” he said.

Businesses were destroyed, and many of the homes and businesses that were spared were left without power for up to a week, Marshall said.

According to Alabama Power spokesperson Michael Sznajderman, more than 412,000 customers were without power during the peak of the tornado-related outages. After a week, about 10,000 customers remained off the grid, and six months later 3,800 of those still hadn’t returned, most likely because their homes or businesses had been completely destroyed or were still in the process of being rebuilt.

Marshall sees the lack of electricity in a huge swath of the state, including large metro areas, as slowing down output and causing the interruption of hourly incomes while businesses couldn’t operate. Plus, he said, jobs were lost and there was a “sheer stop of economic activity for nearly a week as people across the state tried to comprehend what happened.”

Alabama’s real estate and construction sectors saw t shrinkage in the report, with each falling by less than 1 percent. While that doesn’t seem to match with the months of post-storm rebuilding, Marshall said that what economists typically see is a 6-to 12-month lag between a disaster event and the economic bump that accompanies building efforts. Any construction-related growth, he said, would likely show up in 2012 rather than 2011.

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