Southeastern forecast: return to growth in New Year: the Southeastern economy suffered the effects of competition, declining demand for manufactured goods, shrinking business investment and a sharp reduction in travel-related activities during 2001. For 2002, a gradual recovery is on tap for the region, but growth is likely to be slower than what was the norm for the latter part of the 1990s - Regional Focus

EconSouth, Winter, 2001 by John Robertson, David Avery, Whitney Mancuso, Navnita Sarma, Gustavo Uceda

ALABAMA

OUTLOOK DEPENDS ON MANUFACTURING

By most measures Alabama's economic performance was poor in 2001. Service industries displayed almost no growth, and factory employment fell by around 5 percent. Declining payrolls had a significant impact on all areas of economic activity in Alabama, from retail spending to housing demand to state government revenues. A revival in demand for manufactured products will be key to Alabama's witnessing more prosperity in 2002 though many industries are likely to remain under pressure for some time.

Services face mixed prospects

Employment in Alabama's miscellaneous service sector, which encompasses jobs such as business services, health care and entertainment, grew at less than 0.5 percent from the third quarter of 2000 to the third quarter of 2001; this rate compares to almost 3 percent growth for the same period a year earlier. Accounting for about 24 percent of the state's nonfarm payrolls, compared to 32 percent for the entire region, Alabama's service sector was adversely affected by slower economic activity.

Employment at hotel and lodging places was especially weak, falling by more than 1 percent over the 12-month period; it likely also fell in the fourth quarter of 2001 as a direct consequence of the Sept. 11 attacks. However, the share of Alabama's total employment concentrated in hotels is around half the national average, so job losses in the hotel sector have less of an impact on total state payrolls than they would otherwise.

Data for the Birmingham metropolitan area show that employment levels in the state's large hospital services sector displayed solid growth of about 1.5 percent between the third quarters of 2000 and 2001. This increase follows almost no growth in the previous year and represents a significant improvement over the decline in jobs in the industry in the late 1990s as industry consolidation took hold.

The service industry will likely remain under pressure in 2002. Services linked to the manufacturing sector, such as worker supply firms and transportation companies, will not recover until demand for manufactured goods picks up. Health services will be a primary stabilizing influence in the state as demand from aging baby boomers remains strong.

Manufacturing woes cloud state outlook

Factory employment growth in Alabama declined substantially in 2001 following a moderate fall in activity last year. Manufacturing jobs fell by almost 5 percent from the third quarter of 2000 through the third quarter of 2001 compared with a nearly 1.5 percent decline a year earlier.

Most of the weakness was concentrated in nondurable goods manufacturing, with employment falling by over 4 percent in 2001. The state's textile and apparel firms posted job losses of 8 and 9 percent, respectively, as they either went out of business or moved facilities offshore to take advantage of cheaper labor.

Because of lagging computer sales, an electronics manufacturer shuttered one of its largest plants, eliminating over 300 jobs.

Strong foreign competition and weakening domestic markets also adversely affected durable goods producers in the state. Primary metals employment fell by nearly 10 percent over the year. Birmingham's Trico Steel recently shut down, idling over 300 workers at the plant and as many as 1,000 workers in satellite industries. Excess capacity and slack demand also led to declining job rolls in the state's important lumber and wood products industry. As part of a restructuring process, International Paper Corp. closed its mill in Mobile, eliminating 800 jobs, and a plant in Courtland cut another 400 jobs. Lumber companies, including Boise Cascade, also cut back operations because of poor market conditions.

With nearly $9 billion in capital investment statewide, Alabama is now home to over 130 automotive suppliers and three major manufacturing plants. The transportation equipment sector should remain a bright spot for the state's economy in coming years. Toyota Motor Co.'s new $220 million V-8 engine plant under construction in Huntsville will employ about 350 workers and could generate about 1,000 jobs for surrounding industries. The plant is scheduled to open in the summer of 2003. The expansion of the Mercedes-Benz plant near Tuscaloosa will create up to 2,000 new jobs by mid-2003, when it is scheduled for completion. However, Goodyear Tire and Rubber recently eliminated 475 jobs at two Alabama plants.

The state's shipbuilding sector should also get a boost from a number of large projects under way. For example, Austal U.S.A., Mobile's newest shipbuilder, was awarded a contract to build two high-speed aluminum vessels that will deliver crews and supplies to oil and gas rigs in the Gulf of Mexico.

Manufacturing prospects for 2002 will depend on the pace of recovery in consumer and business spending. If residential construction remains robust, the lumber and wood industry should experience some stability. But continuing weakness in the textile, apparel and metal industries is likely to put a damper on the prospects for factory employment growth as these industries will likely continue to be adversely affected by low prices and foreign competition. The prospects for job growth in hightech firms is uncertain because consumer and business demand for new electronic equipment is low and may pick up rather slowly.