Federal Reserve Bank of Atlanta 2 nd Annual LEARN Conference Atlanta, Georgia March 29, 2010 Samuel Addy, Ph.D. Center for Business and Economic Research Culverhouse College of Commerce

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 2 The Alabama Business Confidence Index™ (ABCI) is a forward-looking quarterly measure of business sentiment across the state. The online survey is in its 9th year (34 consecutive quarters). The second quarter 2010 ABCI is up 0.7 points; a jump of 14 points in third quarter 2009 indicated a clear turnaround in confidence. With an index of 49.5, panelists feel economic conditions will be better in the second quarter. However, they do not think the state will yet see a broad-based recovery encompassing output, sales, profits, employment, and capital spending. Two of the six components, sales and profits, are above the expansion threshold of 50 this quarter. Hiring and capital spending are the weakest links in the recovery. CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 2

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 3 National Economy47.0 Alabama Economy49.8 Industry Sales56.4 Industry Profits50.5 Industry Hiring47.3 Capital Expenditures46.1 ABCI49.5 Index above 50 indicates expansion. Index below 50 indicates contraction. increase from previous quarter decrease from previous quarter CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 3

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 4

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 5

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 6

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 7

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 8

Many economic and workforce development successes with accolades for state agencies. A number of cities listed as best places to live and do business. Continued and faster than expected population growth; moving companies report sharp reductions nationwide but net gain for Alabama in Per capita income reached highest levels relative to the nation’s. Fast-growing tourism and exports industries. Continuing diversification of the state economy into biotechnology, healthcare, aerospace, automotive, national defense, education, steel, shipbuilding, and other high-paying manufacturing and white-collar jobs. CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 9

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA to 2009 NumberPercentNet 7/1/2009ChangeChangeMigration Alabama4,708,70831, ,363 Anniston-Oxford114, Auburn-Opelika135,8832, ,993 Birmingham-Hoover1,131,0707, ,975 Decatur151,3991, Dothan142,6931, Florence-Muscle Shoals144, Gadsden103, Huntsville406,3169, ,077 Mobile411,7212, Montgomery366, ,130 Tuscaloosa210,8391, ,063 Non-metro (29.5%)1,390,4222, Source: U.S. Census Bureau, Population Estimates Division.

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 11 Source: U.S. Department of Commerce, Bureau of Economic Analysis. Alabama Per Capita Income as Percent of U.S. CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 11

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 12

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 13 Challenges facing the Alabama economy in 2010 and on Continuing, but slowing, job losses Declines in consumer spending and income Declining revenue to fund public education Long-term workforce development Cutbacks in federal government spending for some programs Continuing problems in commercial and residential real estate CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 13

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 14 Great recession effects on Alabama The number of employed residents declined at a slower rate from the start of the recession until mid-2008, but has fallen sharply since; 288,441 have lost their jobs and many have become discouraged. After being below the national rate from 2002 through 2008, the state’s unemployment rate has been above the nation’s since February Most job losses were in manufacturing, construction, retail trade, and professional and business services; except for retail, these sectors pay high salaries and wages. Tax revenues have declined sharply. Unemployment Rate (%) Number Employed ChangePercent Change Dec ,100,370 Jun ,060,097-40, Dec ,995,929-64, Jun ,916,297-79, Dec ,837,542-78, Jan ,811,929-25, Source: Alabama Department of Industrial Relations (non-seasonally adjusted). CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 14

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 15 Four main components –Output State Real Output in Sector i = F(The Corresponding U.S. Sector Output or Industrial Production, The Relative Sector Wage Rate, The Relative Tax Burden,…) –Employment State Wage and Salary Employment in Sector i = F(The Corresponding State Industrial Real Output, The Real Industry Wage Rate,…) –Wage rates State Wage Rate in Sector i = F(The Corresponding U.S. Sector Wage Rate, The State Unemployment Rate,…) –Income, includes personal income and its components and detailed wages and salaries by industry State Income category = F(The Corresponding U.S. Income Category,…)

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 16 (Percent change unless otherwise noted) Real GDP Consumption Residential Investment Business Fixed Investment Federal Government State & Local Government Exports Imports Payroll Employment (% growth) Unemployment Rate CPI Inflation Light Vehicle Sales (Millions) CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 16 Source: IHS Global Insight.

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 17 Annual Percent Change (2000 Chained Dollars)

CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 18 The state’s economy will be recovering in 2010: Forecast Range –Alabama GDP 1.9 percent 1.0 to 2.5 percent –Alabama employment-0.1 percent -1.0 to 1.0 percent –Total tax collections 0.1 percent -1.5 to 1.5 percent Education and diversification must be priorities –Workforce and economic development funding challenges remain Focus on optimality, sustainability, equity, and flexibility –Public policy (education, infrastructure, health & safety, taxes, …) –Business and consumer behavior CENTER FOR BUSINESS AND ECONOMIC RESEARCH, THE UNIVERSITY OF ALABAMA 18