Hope for a Slight Uptick in State’s Economy

The forecast for 2002 calls for a slight improvement in the state economy, according to Dr. Carl Ferguson, associate dean for research and director of The University of Alabama Center for Business and Economic Research at the Culverhouse College of Commerce and Business Administration.

“The recovery is expected to be modest and slow,” Ferguson said, “with economic conditions gradually starting to improve but remaining weak at least through the first half of the year.”

The gross state product, Ferguson said, will pick up a little over 1 percent in 2002 and nonagricultural employment will increase by 0.5 percent with the addition of 9,600 jobs.

“The low energy prices, the low inflation rates, and low interest rates we have now are favorable conditions for economic recovery. If consumer confidence returns and spending recovers to the early 2001 levels, we could see some recovery sooner than expected. However, a major downside risk is the current trend in payroll layoffs. If such layoffs continue at their present rate, recovery could be very slow and delayed.”

As for the all important state tax revenues, Ferguson said he thinks state tax revenues will increase by 1.3 percent in fiscal year 2001-2002, after declining by 0.7 percent in fiscal year 2000-2001, which means a tax bump of about $78 million. State sales tax receipts are estimated to increase by 0.7 percent, generating $10 million in additional dollars to total $1.523 billion.

But Ferguson said look for the manufacturing sector to remain weak through 2002. “Improvements in the sector’s output and employment are not likely to begin until late 2002 or early 2003. Usually, manufacturing firms do not start hiring till they see clear signs of recovery and increasing demand. Initial improvements are made by increasing productivity of existing workers and using overtime.”

He said services output and employment will grow in 2002 with health care and related services growing the fastest. The retail trade sector is also expected to remain weak through the first half of the year. “Even if consumer spending recovers quickly, retailers will first work off excess capacity and inventory before hiring new workers.”

Dr. Carl Ferguson, Jr. can be reached at 205/348-2943 (office) or 205/349-4026 (home).