Crisp White

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2006 Economic Overview
Dennis Wilson Ph.D. Sparks Bureau of Business a
nd Economic Research/ Center for Manpower Studies

The University of Memphis
December 14, 2006
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About SBBER
The Sparks Bureau of Business and Economic
Research (SBBER) and the Center for Manpower
Studies (CMS) at the University of Memphis is the
largest research center at the University of
Memphis. For over a decade, the Bureau and the
Center have been ranked among the largest and
most successful business research centers in the
nation.
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I. National Summary Positive Factors

• Five years of uneven but positive economic
  growth.
  
• Third quarter 2006 GDP increased 2.2 percent,
  while second quarter was 2.6 percent. In
  contrast, GDP grew at 5.6 percent in the first
  quarter of 2006. While GDP growth remains
  positive, it is slowing.
• Corporate profits have rebounded since slumping
  slightly in Q3 of 2005 (hurricane effects) but
  show signs of slowing.
  
• Construction activity in Non-Residential
  Structures is relatively strong.
  
• Unemployment is at a 5 ½ year low 4.4 percent
  in October 2006.

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I. National Summary Positive Factors

• Little inflation 1.8 percent in Q3 2006, and 2.0
  percent excluding fuel and energy (seasonally
  adjusted at an annual rate).
  
• Productivity remains strong enough to help offset
  relatively high fuel and energy prices.
  
• Stock markets gaining traction.
• Business inventories/sales ratio remains low.
• Retail sales remain strong despite higher fuel
  and energy prices.
  
• Energy prices have stabilized for the moment.

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I. National Summary Negative Factors

• Sharp drop in residential construction and sales.
  Particularly hard on mortgage companies/banks
  with large holdings in CA, AZ, FL.
  
• Consumer confidence falling, negatively impacted
  Middle East and North Korea turmoil.
  
• Terrorist threatsand risks are high.
• Growth in Real Disposable Personal Income has
  been stagnant.
  
• Outsourcing expected to continue, impacting the
  lowest-skilled the most.
  
• New Fed Chairman Bernanke is similar to
  Greenspan very narrow focus on inflation.

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I. National Summary - Negative Factors

• Over production of gas guzzlers, rising health
  care and pension costs continue to eat at
  long-term corporate health of the Big Three auto
  makers.
• GDP growth unsustainable unless jobs are created.
  2005 was the first year that Total Nonfarm
  Employment surpassed 2001 peak levels.
  
• Savings rates are at record lows. Higher fuel
  prices will eventually cut into consumer spending.

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Uncle Sam Fights the Bull Economy as Congress
Watches.
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II. Summary for Tennessee and Memphis
Positive Factors

• International Paper, Nissan, Service Master
  corporate moves to Tennessee.
  
• Memphis Bio-Tech sector St. Jude expanding,
  Medtronic Sofmar Danek profitable and expanding.
  
  
• FedEx, Autozone both profitable. FedEx growing
  on international trade.

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II. Summary for Tennessee and Memphis
Positive Factors
4. Canadian National intermodal and railyard
expansion in Memphis (up to 35 trains per day)
5. No housing bubble in Memphis to bust.
Residential sales up 14.3 percent YTD (August)
but permit growth is negative and average sales
price is falling. 6. Unemployment falling in most
TN counties, including Shelby County.
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Chart 1. Population Growth, 1990 2005 ()
Percent
Source U.S. Census Bureau.
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Chart 2. Employment Growth, 1990 2005 ()
Percent
Source U.S. Bureau of Labor Statistics.
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Chart 3. Shelby County Residential Construction
Permits, September 2005 to September 2006 (YTD)
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Shelby County
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Summary
A largely undereducated workforce unable to
compete with lower-cost foreign competitors.
Weak support for higher education hinders s
tates ability to compete in global economy.
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A Shortage of Quality Workers?
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Summary

• Associated loss of manufacturing jobs is
  particularly severe for rural counties.
  
• The cost of health care continues to absorb
  revenue increases for state government.

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Selected Tennessee Job Growth Statistics

• From October 2005 to October 2006
• Trade/transportation/utilities jobs increased by
  10,000.
  
• Jobs in leisure and hospitality rose by 8,700
• Educational and health services jobs increased
  by 7,400.
  
• Beverage stores increased by 1,500.
• Food administrative/support/waste services jobs
  increased by 1,200.
  
• Employment decreased in manufacturing by 1,200
• Food administrative/support/waste services jobs
  increased by 1,200.
  
• Employment decreased in manufacturing by 8,200.

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Selected Tennessee Job Growth Statistics
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Summary

• Rising violent crime in Memphis and rating as one
  of the most dangerous U.S. cities will hamper the
  ability to attract new business and residents.
  
• Fiscal year-to-date state tax collections are
  below budgeted estimates (through October).
  Could portend less sharing of revenues with
  municipal and county governments.

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Summary

• Weaker economy for 2007 is not a good sign for
  this area. Trickle down economics does not work
  for the Mid-South.
  
• Takes a strong national economy before economic
  prosperity shows in the Mid-South.

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SummaryGeneral Business Conditions Outlook
from Survey Memphis
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Summary

• Overall Outlook Slow or no growth.

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Survey Memphis
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Survey Memphis
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Survey Memphis

• Diffusion Index
• Calculation
• Better .5 x Same /
• Better Same Worse
• The result of this calculation multiplied by 100
  is the
  
• index value for that category.

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