UA Economists See State’s Economy Continuing to Contract in Second Quarter

TUSCALOOSA, Ala. — While Alabama fell into recession much later than the official U.S. date of December 2007, the state is facing the same challenges as the rest of the nation.

Slowdowns in consumer and business spending, tightened lending conditions, and a weak housing sector are negatively impacting both output and employment across Alabama. That is the latest update from the Center for Business and Economic Research at The University of Alabama.

The job picture in the state began to dim in June 2008 and has continued to darken.  Nonfarm jobs averaged 1,920,230 for the first quarter of 2009, down 74,170 (-3.7 percent) from the same period in 2008.  But the decline seems to have stabilized in March, with jobs just 400 below their January level. 

CBER analysts expect employment to average 2.0 to 3.0 percent below year-ago levels in 2009, with the loss of around 40,000 to 60,000 jobs.

The national and global nature of the current recession makes it likely that workers who lose their jobs will continue to live and look for work in their current location.  While total employment of Alabama residents fell by about 20,000 from January to March 2009, the civilian labor force dropped by fewer than 3,000.  Unemployment jumped to 9.0 percent, more than double the 4.2 percent rate seen in March 2008.

Alabama still is faring better than nearby states:  March unemployment rates were at 9.2 percent in Georgia, 9.4 percent in Mississippi, 9.6 percent in Tennessee and 9.7 percent in Florida.  CBER expects Alabama unemployment to rise throughout 2009, peaking at year-end or in the first quarter of 2010.

Alabama’s manufacturing sector has been hit hard by the recession, shedding 12,600 jobs since the start of the year and 30,100 since March 2008.  The automotive industry is suffering as consumers postpone purchases of new vehicles; motor vehicle and parts manufacturing employment is down 3,400 over the past year, with Honda and its suppliers laying off about 800 temporary employees in late March and early April. 

Jobs in textiles continue to decline, falling by 6,400 during the 12-month period.  But service providing businesses are also feeling the pain, losing 35,100 jobs between March 2008 and March 2009.

The largest impact in services has been on administrative and support jobs, where companies have cut 15,500 positions as they try to rein in costs.  Mass layoff announcements indicate further deterioration of retail jobs in the second quarter:  liquidation of Bruno’s would lead to the loss of around 3,000 jobs in mid-May.

Contraction in the state’s economy could result in a decline in GDP of about 3.0 percent for the year as a whole, according to the forecast from the Center’s Alabama econometric model.  At least $3.0 billion in fiscal stimulus and stabilization funding should begin to gradually revive the Alabama economy by mid- to third quarter 2009.

The opinions of Alabama business leaders on the second quarter BLCI^® survey conducted by BBVA Compass and CBER suggest that Alabama’s downturn could be leveling off this quarter; the index rose half a point to a still-contracting 32.0, while the outlook for industry indicators, particularly sales, turned up.

CBER Director Dr. Sam Addy remains cautious, however, noting that “While the national economy seems to have hit bottom, it’s a little early to say the same for the state due to the continuing effects of the recession on our important manufacturing sector.”

For more on the second quarter 2009 U.S. and Alabama economic outlooks, see the current issue of Alabama Business at http://cber.cba.ua.edu.  Detailed quarterly forecast tables for Alabama with the latest updates can be purchased from the Center for Business and Economic Research.