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    Alabama employment rate expected to rebound

    The Montgomery region has been somewhat resilient to the ups and downs of the economy because of a strong public sector foundation with Maxwell Air Force Base and Gunter Annex and the benefits of being a state capital.

    Yet, widespread layoffs in federal and state government have hindered the region’s recovery. Government employment accounts for fully one-quarter of the region’s workforce. The No. 2 sector behind government – trade, transportation, warehousing and utilities – is 17.8 percent of the workforce.

    Government employment is so key to the Montgomery region that the area’s largest employers are:

    > Federal government (12,280 employees).

    > State government (11,830 employees).

    > Montgomery Public Schools (4,524 employees).

    > The City of Montgomery is seventh on the list with about 2,500 employees.

    There are still layoffs at the federal level, but it is slowing from 2,000 (November 2012 to November 2013) to 800 (November 2013 to November 2014).

    State government jobs have been increasing during the same time periods. The state added 1,900 jobs from November 2012 to November 2013 and added another 1,400 jobs from November 2013 to November 2014.

    Meanwhile, local governments added 700 jobs from November 2013 to November 2014 after losing 1,300 from November 2012 to November 2013.

    Employment growth in Alabama has been muted with a 0.8 percent increase in 2012; 1.0 percent increase in 2013; and a 0.7 percent increase in 2014. This is different – very different. This year employment in Alabama is forecast to grow 1.8 percent, according to the Center for Business and Economic Research in the University of Alabama’s Culverhouse College of Commerce. The 1.8 percent increase is close to the center’s high range of 2.0 percent. The low mark is 0.8 percent growth. The center is expecting employment growth of 1.1 percent in 2016, including a 0.2 percent increase in federal government jobs, which would break five straight years of job losses.

    The state is finally adding 30,000-plus jobs a year, according to Ahmad Ijaz, associate director and director of economic forecasting for the Center for Business and Economic Research.

    Ijaz, speaking at the 27th annual Economic Outlook Conference at the Renaissance Montgomery Hotel & Spa at the Convention Center, said that 31,600 jobs were created from September 2013 to September 2014. Nearly 34,000 jobs were added from November 2013 to November 2014, including high-paying ones in manufacturing, construction and professional and business services.

    This year, Alabama will add between 30,000 and 35,000 jobs, Ijaz said. And Montgomery, which had a job growth increase of only 0.1 percent last year or 100 jobs, will pick up the pace this year with a 0.9 percent increase. The center is also forecasting Montgomery’s gross domestic product (GDP) to increase 1.4 percent in 2015. That’s a significant increase considering GDP grew 0.3 percent in 2013.

    The state’s GDP will increase 2.3 percent this year and 2.3 percent in 2016, according to the Center for Business and Economic Research. That forecast is on the low side of the center’s range of 2.0 percent to 3.5 percent. Ijaz said that the center may revise its GDP forecast to 3.0 percent this year.

    Alabama has still not regained the approximately 200,000 jobs lost during the Great Recession, which started in December 2007 and ended in June 2009. The state was still about 50,000 jobs shy of the pre-recession level through last November, Ijaz said, and almost 42,000 of those jobs are in the metro areas. Only four of the state’s metro areas have topped pre-recession levels. Montgomery is 8,300 jobs shy of its pre-recession level while Mobile is 11,200 behind and Birmingham-Hoover is 17,300 behind.

    During previous recessions from 1980-2001, the state regained lost jobs within 41 months, but now it’s been about 70 months since the Great Recession ended. The move to low-paying services jobs “takes longer and longer for us to get back to the previous recession level,” Ijaz said.

    The construction industry is beginning to rebound after six straight years of declining, employment in the sector rose 4.0 percent last year and is forecast to increase 1.2 percent in 2015.

    It’s the automotive industry that powers the economy, producing a record number of vehicles last year – almost 1 million. The Hyundai Motor Manufacturing Alabama facility in Montgomery accounted for nearly 400,000 of those vehicles (398,851). The three manufacturers – Hyundai, Honda and Mercedes-Benz – combined to produce 997,270 vehicles last year, breaking the previous record set in 2013 by about 80,000 units. Honda was second in production with 363,419 vehicles and Mercedes manufactured 235,000-plus vehicles. An exact figure was not available.

    The state is ranked fifth nationally in automotive production, but fourth in vehicle exports with $6.5 billion shipped in 2013. The state’s automotive exports per capita are twice as much as the U.S.

    Montgomery’s exports, sparked by Hyundai, were $1.7 billion in 2013, which was ranked No. 2 state behind Birmingham-Hoover ($1.9 billion) and $200 million more than Huntsville and Mobile. The state’s exports were $19.3 billion in 2013.

    The center is forecasting a healthy increase in total tax revenue – 2.4 percent growth (about $200 million) after an increase of just 1.3 percent in 2014. The range of the tax revenue forecast is 1.5 percent to 4.0 percent.



    March 2015
    By David Zaslawsky

    The U.S. economy is “expected to expand at a significantly faster pace in 2015,” according to one of the country’s top forecasting firms.

    IHS Global Insight is forecasting real gross domestic product (GDP) growth of 2.7 percent this year and 2.5 percent in 2016. At the beginning of 2014, IHS Global Insight did forecast a GDP increase of 2.6 percent and it ended up being 2.2 percent.

    The firm anticipates the consumer coming back this year – a 3.0 percent increase to $11 trillion in spending compared with a 2.3 percent increase in 2014. IHS Global Insight is forecasting consumer spending to increase another 2.9 percent in 2016.

    Consumer spending could get a $100 billion jolt from lower gasoline prices, according to IHS Global Insight, and that would add 0.3 percent to 0.4 percent to GDP. The firm’s forecast is based on Brent crude averaging $66 a barrel this year. The January average was less than $50 a barrel.

    This could be a banner year for the automotive sector. Consumers are expected to spend some of their money on new vehicles, which are forecast to rise 7.7 percent for automobiles and 1.9 percent for light trucks. Meanwhile, the National Automobile Dealers Association expects new-vehicle sales in 2015 to reach nearly 17 million, an increase of about 500,000 from 2014. A Ford executive told CNBC that his forecast has a range of 16.8 million to 17.5 million. New vehicle sales have not reached 17 million since 2006 and 17.5 million units were last sold in 2001.

    An auto analyst with Bank of America Merrill Lynch told Automotive News that new vehicle sales will be 17.3 million this year and will reach 20 million in 2018 before a sharp downturn.

    Employment is forecast to rise 1.9 percent this year with a 5.6 percent unemployment rate and 1.4 percent increase in 2016 with a 5.4 percent jobless rate. The construction sector is forecast to increase employment by 5 percent.

    The housing market is expected to rebound some more this year. Residential investment is forecast to jump 10.2 percent this year after increasing just 1.6 percent in 2014. Even with a 10.2 percent expected increase to $546 billion, that still is more than 30 percent less the housing peak of $800 billion. IHS Global Insight is forecasting a 17 percent surge in construction spending for single-family homes. Single-family housing starts are expected to rise 131,000 from 2014.



    March 2015
    By David Zaslawsky
    Photo by Robert Fouts

    After a year “of positive surprises” in 2014, the Federal Reserve is optimistic about this year and its forecast of the economy growing 3 percent this year may be on the conservative side.

    Energy prices will have a lot to say in the matter.  If the prices at the pump continue to stay low, it could add a full 1 percent to the Fed’s forecast of gross domestic product (GDP) growth of 3.0 percent this year, according to David Altig, executive vice president and director of research for the Federal Reserve Bank of Atlanta. The Fed is also looking for GDP to grow 2.9 percent in 2016.

    Low energy prices will hamper the economy during the first half of the year, Altig said, but the additional consumer spending from saving money on reduced gas prices will overcome it. The Fed does expect a 20 percent reduction in energy-related investments and that spending accounts for nearly one-third of all structure investment.

    “The good news is that we’re getting pretty good GDP growth even with that restraint,” he said at the 27th annual Economic Outlook Conference. “This is going to be another good year …”

    This year could also mark a reversal of business investment leading the recovery. Consumer spending “has been creeping up slowly,” Altig said and will be boosted by low energy prices. Consumer spending surged 4.3 percent in the fourth quarter last year, which is the sharpest rise since the first quarter of 2006.

    The economy has been heating up, growing more than 4 percent during the last three quarters in 2014, after a negative, weather-driven first quarter. “The economy performed much better than we expected,” Altig said about 2014. Although final numbers have not been released, the Fed had forecast fourth-quarter growth in 2014 at 2.0 percent, but later revised that earlier forecast to 3.0 percent. The preliminary figure for fourth-quarter GDP growth was 2.6 percent. The economy grew 5.0 percent in the third quarter.

    “ … (W)e always felt that every year something would come along that would kick us into a growth trajectory that would basically start in the recovery in earnest” and that happened last year, Altig said.

    The unemployment rate in 2014 “has consistently surprised us,” Altig said. He said that when the Fed stopped its bond-buying program last year, its forecast for unemployment in 2016 was higher than it is today. The Fed’s unemployment forecast “is always wrong on the pessimistic side in our recent record,” Altig acknowledged.

    The Fed expects the unemployment rate will be 5.2 percent this year and in 2016, “which means we will reach normal in U.S. labor markets,” Altig said. He said the unemployment rate could be less, “but almost certainly doesn’t seem like it would be higher at this point.”

    Employment is forecast to rise 3.2 percent this year and 2.9 percent in 2016. Expect the economy to add 200,000 jobs a month this year, Altig said. The economy needs between 130,000 and 140,000 jobs a month to sustain the current unemployment rate.

    Yet, those rosy unemployment and employment numbers hide some unsettling concerns that the Fed is closely monitoring. Wage growth “has been extraordinarily tepid over the course of the recovery,” Altig said. Some of that weakness is attributed to a growth in part-time workers. Labor markets “are not fully back to normal,” Altig said.

    He also said that the official unemployment rate “has not been the appropriate indicator for the condition of labor markets in this environment,” referring to a broader unemployment rate (U-6), which includes discouraged workers, marginally attached workers and part-time workers for economic reasons.

    Earlier in his presentation – the beginning of it to be exact – Altig talked about when the Fed will increase its funds rate, which has been at near zero for years. He said to expect an increase mid-year and we’ll end the year at 1 percent. That’s not his forecast. It came from his boss, Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta. Of course that forecast depends if conditions mimic the Fed economic forecast.



    March 2015
    By David Zaslawsky
    Photography by Robert Fouts

    Nearly a dozen years ago, when Alabama Gov. Bob Riley was facing a $675 million shortfall, he proposed a $1.2 billion tax increase.

    His proposal, which was rejected by about two-thirds of the voters in 2003, would have dramatically shifted the tax burden from the state’s poor; supported education; and raised income taxes on corporate and individuals, property taxes, sales tax, and cigarette taxes.

    “We have a problem on our hands and we have to solve it,” said Sam Addy, director of the University of Alabama’s Center for Business and Economic Research and associate dean for research and outreach for the Culverhouse College of Commerce at the University of Alabama.

    He noted that Riley tried to solve the annual funding issues that have haunted Alabama for decades, stemming from an antiquated tax structure. “Our tax structure is such that our revenues are not adequate,” Addy said at the 27th annual Economic Outlook Conference at the Renaissance Montgomery Hotel & Spa at the Convention Center. “Our tax structure is such that it is not efficient in collection and use; it is not fair and we’ve known this for decades. At some point we have to solve the problem. The earlier we solve it, the better for us.”

    Once again an Alabama governor – Robert Bentley – is facing a shortfall that has an estimated range of $275 million to $700 million, depending on how much the state pays back of the money borrowed from various funds.

    That tax structure was born out of Reconstruction, said Ira Harvey, executive assistant to the vice president for financial affairs for the University of Alabama. He noted that restrictions on property and income taxes hamper any talk of tax reform and force the state to emphasize sales and use taxes.

    The reliance on sales and use taxes “explains the unfairness of our tax structure,” Addy said. The state’s poor pay 10 percent to 11 percent of their income for taxes while the rich pay 3.7 percent of theirs. “We can correct that,” he said.

    He suggests removing tax exemptions, credits and abatements, but acknowledges it will be challenging to accomplish that.“There simply are not the resources to afford to maintain the infrastructure that we have created in this state at the present time,” said Harvey, who also spoke at the Economic Outlook Conference.The state ranked last in 2011 in total taxes per person of about $2,900, according to Harvey. The state ranks last in property tax; 43rd in motor vehicle license fees; 42nd in corporate income tax; 40th in tobacco tax; and 38th in individual income tax.

    Harvey said that the state does not have a spending problem – it has a revenue problem.

    “We don’t like tax and we don’t like debt, but we like a good system of education in our state,” Harvey said. “That’s the same battle we’re fighting with the Legislature; with the governor.” He said the state is struggling to find ways “to adequately fund education.”

    Addy said that some complain they cannot trust government to spend money, but the funding exists regardless of the trust level.

    “The bottom line is, there is no economic development without education,” Addy said. He lamented the defeat of Amendment One. “Our taste at the time did not match our actions and we continue to have that mismatch. If we want to achieve – being the best we can be – we have to remember it also takes the best investment we can make. We have to be willing this time around … because the harvest is good.”

    Harvey said there are no simple solutions – there is no silver bullet in the political process.

    “It’s a very difficult problem facing us,” Harvey said. “There are some real limitations that go back to the post-Civil War period and they are embedded in our Constitution. Our safety valve has always been increasing our transaction (sales and use) taxes. We may have run out of our ability to do that.”

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