Louisiana economic outlook for 2011-12

Louisiana economic outlook for 2011-12
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POSTED: Thursday, October 14, 2010 - 2:49pm

UPDATED: Tuesday, June 18, 2013 - 10:38am

BATON ROUGE, La (LSU) -- The Louisiana Economic Outlook for 2011-2012 provides a glimpse of what eight of the state’s large metropolitan areas have to look forward to in the years to come.

The report was prepared by a trio of the LSU E. J. Ourso College of Business’ finest: Loren Scott, a professor emeritus of economics; James Richardson, the Harris J. and Marie P. Chustz Distinguished Professor in Business Administration and director of the Public Administration Institute; and M. Dek Terrell, Freeport-McMoRan Corporation Endowed Chair in Economics and director of the Division of Economic Development.

The eight areas the LEO forecasts economic conditions for, aside from Louisiana as a whole, are New Orleans, Lake Charles, Baton Rouge, Lafayette, Houma, Alexandria, Shreveport-Bossier and Monroe. These eight MSAs remain a picture of diversity not only in their basic makeup but also in their outlook for the future.

According to Scott, the LEO forecasts are based on the assumption that real gross domestic product is expected to grow 2.6 percent in 2010 and increase by 2.4 percent in 2011 and by 2.5 percent in 2012. Additionally, the consumer price index is expected to rise only modestly over the forecast period, oil prices will average $80-$90 a barrel and natural gas prices will average $4.50-$6 per British thermal unit.

The LEO forecasts for each of the state’s eight MSAs are summarized as follows:
• Bolstered by unusually high construction spending fueled by Hurricane Katrina recovery and Go Zone funding, the 7-parish New Orleans MSA lost only 1.3 percent of its jobs during the Great Recession – the second best performance in the state. Construction spending will actually be almost $2 billion higher over the next two years at about $13 billion, continuing to feed growth in this region. A major loss of jobs at Lockheed Martin Space Systems will be partially offset by several new firms coming to the region and the convention tourism sector has stabilized in the area. The year 2012 (outside the forecast period) will be challenging as Avondale Shipyard closes and construction spending declines markedly. Over 2011-12, we project the New Orleans MSA will add 8,300 jobs and be the second fastest growing MSA in the state.

• During the Great Recession, the nine-parish Baton Rouge MSA lost jobs only in 2009, and the decline was only 1.2 percent, the lowest among Louisiana’s eight MSAs. Construction spending ($4 billion-plus over 2011-12) will again be a major driver in the capital region’s growth. While a significant number of these projects are for infrastructure projects, a significant number are also for new and/or expanding firms that will create new jobs. A worrisome issue for the region remains the possibility of significant state government layoffs due to budgetary shortfalls. We have the MSA’s employment rising by 3,000 jobs in 2011 (0.8 percent) and by 3,700 in 2012 (1.0 percent), making it the fastest growing MSA in the state in percentage terms.

• Counter to its history, the Shreveport-Bossier MSA did reasonably well during the Great Recession, only losing jobs in 2009 (-2.7 percent). Haynesvillle Shale action, U.S. Support and the attraction of the Global Strike Force to Barksdale AFB saved the day for the region. This MSA should experience two very different years over 2011-12, adding 1,100 jobs in 2011 (.06 percent) but a much lower 300 in 2012 (0.2 percent) as the MSA feels the effect of the closure of the GM plant in this latter year. The region will continue to receive a nice boost from the Haynesville Shale activity, though this will tail off over 2011-12 as firms move to cheaper shale plays and plays where oil is a by-product of drilling. Construction on major highway projects and at Barksdale will add positively, too.

• In a performance totally counter to its past history, the Lafayette MSA actually lost jobs in 2009 and 2010 (-3.7 percent) despite relatively high energy prices. President Obama’s proposed $36 billion tax on the extraction industry and reduced drilling in the Gulf along with a general uncertainty about the direction of energy policy in the United States have contributed to this hesitation about investment in oil and gas in Louisiana. The moratorium and its length and new environmental and safety regulations imposed after the oil spill in April 2010 will contribute to the continued reduction in employment in 2010. Because of weakening activity it the Gulf, we expect Lafayette to have the worst performance in the state over 2011-12, losing 3,800 jobs (-2.6 percent). If the moratorium extends beyond about the first of the year, we believe this MSA may lose an additional 9,000 jobs in 2011.

• Louisiana’s other very energy-intensive MSA is the Houma MSA, and like Lafayette, its economy was dragged down over 2009-10 (-2.2 percent) despite relatively high energy prices. This was the next-to-worst performance in the state, fueled by concern over the proposed $36 billion tax on extraction industries and lower Gulf activity due to the oil spill. We are forecasting a continuing decline of 2,000 jobs over 2011-12 (-2.2 percent) the second worst outlook in the state. Houma will benefit somewhat due to major employment additions at the Edison Chouest shipyards and possible additions by the MSA’s large fabricators. If the moratorium extends beyond about the first of the year, we believe this MSA may lose an additional 6,000 jobs in 2011.

• The Lake Charles MSA lost 5 percent of its jobs during the Great Recession, the worst performance in the state, but better than the national rate of -6.1 percent. It was a blow to this region to learn the Sugarcane Bay Casino would not be built, costing probably 1,500 prospective jobs in 2011. In percentage terms, we have the Lake Charles MSA as the fastest growing in the state over 2011-12 (+1.8 percent) mainly due to significant job recovery at Northrop Grumman and Aeroframe at Chennault Airpark, the opening of the Shaw Modular Facility, and a significant increase in turnaround spending at area petrochemical plants. The Lake Charles MSA will be the second fastest growing region of the state in percentage terms. The possibility of construction of the proposed $1.8 billion Leucadia facility and a new grain elevator could boost this region’s prospects even more.

• The Monroe MSA has now lost jobs for the last eight years, suffering though the loss of nine important firms in the region. Over the Great Recession, the region lost 3.4 percent of its jobs, considerably better than the nation (-6.1 percent) and placing the MSA as the fourth best performer in Louisiana. We are projecting this area will begin to grow again over 2011-12, adding about 1 percent more jobs (800). The MSA awaits at this writing word from DOE about a loan that would start construction of the proposed new V-Vehicle plant, which would add 1,400 jobs.

• The Alexandria MSA had a tough 2009-10, dropping 4.3 percent of its jobs as the Rodemacher job was wrapped up and Union Tank Car imposed large layoffs because the Great Recession reduced the demand for its railcars. Looking over the next two years, UTC has begun adding back jobs as the demand for railcars has increased, an unusual level of construction spending starts up and NEW opens a new call center. A lethargic national economy will remain a problem for area lumber and wood products firms. We are projecting 800 new jobs over the next two years (+1.2 percent) – the fourth best performance in the state.

• The state as a whole did remarkably well during the Great Recession, not losing the first job until January 2009 and then falling only two percent. We are projecting that the state will remain essentially flat over 2011-12, adding 3,100 jobs in 2011 (0.2 percent) and 7,500 jobs in 2012 (0.4 percent). There are two keys to this rather anemic performance. One is our expectation that growth in the national economy will be below average for a recovery phase of the business cycle. This will act as a drag on all areas of the state. Secondly, we fear the impacts of the oil spill and the president’s proposed tax on the extraction industry will cause actual job losses in the oil patch MSAs of Lafayette and Houma over 2011-12. If the moratorium on exploration activity in the Gulf extends beyond the early part of 2011, we would actually revise our statewide forecast for 2011 down another 21,000 jobs. Hopefully that will not happen.

Copies of the LEO – electronic or hard copies – are available for purchase for $75 each. For more information, or to obtain a copy of the report, call 225-578-5211.
 

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Louisiana is expected to experience the second largest percentage drop in tax revenues of the fifty states. Furthermore, it is expected to be first in the nation in personal income tax collections declines, second in the loss of sales taxes, and in the top 10 percent in losses of corporate tax revenues. At the beginning of 2010 (mid-fiscal year), the state faced a $197 million shortfall due to general declines in sales tax and personal income tax revenues. Louisiana's projected deficit over the next year could be the largest percentage decrease of any state in the union. At present, a $1 billion shortfall is expected for 2011, followed by another $2 billion shortfall in 2012. In past years, Louisiana tended to make changes on the revenue side in the form of changed or increased taxes, but now is attempting to make adjustments almost totally on the expenses side and at a tremendous institutional and personal loans with bad credit to its residents. The recently enacted Stelly Plan has exacerbated the problem by decreasing the amount of income tax revenue available. While Louisiana did not experience the precipitous decrease in residential property values that hit a number of states, it is not able to rely significantly on property taxes because of a very large homestead exemption.

Spending on construction in the United States, a critical economic market, dropped throughout the first quarter. The fall of 1999 was the last time building spending fell so low. Foreclosures and short sales are the primary culprit, as they stifle new home construction, the traditional driver for the entire industry . This restoration can't be repaired through a simple pay day loan.

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