October 30, 2012

State of Alabama
Press Release: Alabama Department of Commerce

Alabama’s Economy Continues Its Slow Recovery

October 30, 2012

Alabama’s economy is continuing a slow recovery and its performance for the year will be an improvement over 2011, according to a fourth quarter forecast from the Center for Business and Economic Research at the University of Alabama.

But most of the economic progress this year occurred in the first half of the year, said Ahmad Ijaz, an economist at CBER. During the second half, the recovery has slowed, he said.

Exports continue to be a source of strength for the state’s economy with shipments up 15.9 percent to $10.1 billion for the first half of 2012 compared to the same period in 2011. Transportation equipment exports, in particular, climbed more than 31 percent.

But during second half of the year, exports have not kept pace.

There’s been a drop in exports and businesses are putting off new spending during the second half of the year, which has affected the state and tempered the economic recovery, Ijaz said. Those factors are likely to continue through the rest of year, he said.

The state’s export market has been adversely affected by the economies in Europe, which Ijaz said is in recession, and China, whose economy is growing, but at a much slower pace than in the past. Both are major markets for state exports.

The economic problems in Europe and China have affected business spending here. But other factors, too, have caused businesses to be more cautious about spending, hiring and expansions, he said.

There is uncertainty about who’ll win next Tuesday’s election and how the outcome might affect two pressing issues — Bush-era tax cuts that are slated to expire at the end of the year and automatic across the board federal spending cuts that could occur in absence of a congressional plan to reduce the deficit.

“Everyone wants the federal government to slow down spending, Ijaz said. “But that has a big ripple effect on the private sector.”

Business sentiment among executives surveyed statewide, measured by CBER’s Alabama Business Confidence Index, fell 1.9 points to 48.3 on the fourth quarter 2012 survey. Companies are concerned about the economic environment and expect profits, hiring, and capital investment to decline modestly this quarter, CBER said.

One area of the state economy that is looking up during the final months of the year is retailing.

“Christmas spending will look better than last year,” Ijaz said. “Consumers are a little more upbeat this year.”

CBER is forecasting a 1.7 percent increase in Alabama’s gross domestic product for 2012, compared with GDP of 1.5 percent in 2011. A slight uptick in output growth to 1.8 percent is forecasted for 2013, it said.

CBER said it expects state employment to grow about 0.8 percent for 2012, with about 15,000 net new jobs being added. Nonfarm employment gains should strengthen to a forecasted 1.1 percent increase in 2013, it said.

The unemployment rate, however, is expected to remain relatively high as more workers enter or re-enter the labor force. Any decline in the state’s unemployment rate so far this year has been due to moderate improvement in payrolls and a modest drop in the labor force, according to the fourth quarter report.

Strong sales of vehicles made in Alabama have contributed to solid job gains in durable goods manufacturing employment over the past two years. Although the pace of auto sales is expected to slow slightly, new projects and expansions in the state’s motor vehicle, including at Mercedes-Benz in Vance, and automotive parts manufacturing industries will result in continued job gains.

Professional and business services, leisure and hospitality, retailing, other services, and finance and insurance have also been major sources of job creation so far this year, it said.

The construction and government sectors continue to be hit hard by job losses.

Residential housing is showing signs of improvement and construction job losses of 3,500 were much lower than a year earlier.

But government job losses almost doubled over the past 12 months, largely due to a decline of 7,000 in state government employment. With Base Realignment and Closure no longer bringing in new jobs and federal budget cutbacks, federal government employment also declined. A total of 8,400 education positions were among the jobs cut by state and local governments.

Alabama’s tax receipts rose almost 3.8 percent in fiscal year 2012, to total $8.93 billion. For fiscal year 2012, appropriations to the Alabama Education Trust Fund increased about 7 percent, while appropriations to the General Fund were up 9.8 percent.

CBER said it expects tax collections to increase 4 percent in fiscal year 2013.

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