Tuesday, October 25, 2016

Expect slowdown in growth in the Savannah area, according to Armstrong State University

Armstrong State University’s latest Coastal Empire Economic Monitor is forecasting a slowdown in the Savannah area’s economy, which is bad news for Georgia as the area has been one of the state's strongest success stories, along with the Atlanta and Athens areas.

Savannah metro area nonfarm employment, 12-month net change, Jan. 2009 to Sep. 2016
 
“If we look at the gains achieved in the first half of the year, we can, by comparison, expect growth to slow in the coming months,” said Michael Toma, Fuller E. Callaway Professor of Economics and the Director of Armstrong’s Center for Regional Analysis. “The effects of Hurricane Matthew will further test the resiliency of the economy during the fourth quarter.”

The Savannah area has been one of the fastest growing areas in the state, adding 6,800 jobs over the past year for a growth rate of 3.9 percent, the, but the Center is questioning some of the employment data being reported by the Georgia Department of Labor and the Bureau of Labor Statistics.

According to the Center, “the addition of employment in each of the major sectors (tourism, education, healthcare, manufacturing, etc.) does not match the total number reported for the region by the Bureau of Labor Statistics (BLS). Sector-level employment was stable from the first to second quarter at 177,000 workers, while the total reported by BLS indicates growth of approximately 1,900 jobs during the quarter, to reach 177,500. Much of the reported second quarter gain is anomalous because reported first quarter total employment was less than the total of sector-level employment.

Further, it is likely that regional manufacturing data is currently overreported by as much as 1,000 jobs, and will be revised downward in the annual data benchmarking process conducted by the Georgia Department of Labor in the first quarter of 2017.”

Looking at leading and coincident indicators, positive signs include increasing total regional employment, along with increases in boardings at the airport and a rebound in consumer confidence.

The Center notes that these indicators offset flatness in hotel and retail sales and weaker activity at the port. In the housing market, building permit issuance for single-family homes fell sharply by 10% from the first quarter and was below year-ago levels by the same amount.

The latest report suggests that “expectations about the regional economy’s growth should be adjusted downward through late 2016 and early 2017, due to mixed signals and the anticipated lingering effects of Hurricane Matthew.”

You can read their full analysis here.




Monday, October 10, 2016

Hurricane Matthew’s impact on workers in Georgia? Low-wage service workers will be hit worse than others

Conventional wisdom would say that the hurricane will show few long-term effects on overall earnings but that certain groups of workers will be affected more severely than others.

Low-wage workers in service industry jobs in the affected areas, such as Savannah, will see a decline in their income for the year.


Hurricane Matthew was felt severely in the coastal counties of Georgia. Required evacuations in Chatham County (Savannah) and other counties disrupted some of the fastest growing parts of the state.

In some respects, the disruptions were minimized by the storm coming at the end of the week. Nevertheless, Chatham County schools, which can be seen as a proxy for area’s return to “normal,” were not to reopen until Wednesday, October 12.

Looking at impact, it is tempting to see the disruption as causing a major economic blow to coastal Georgia, and to a less extent, the entire state, but this overstates the true impact.

Looking at impact, it is tempting to see the disruption as causing a major economic blow to coastal Georgia, and to a less extent, the entire state, but this overstates the true impact.

But it is important to note that while overall impact may be minimal in most areas, the effect on earnings will vary for different groups of employees. Low wage employees who do not hold occupations needed for cleanup and recovery will not be able to make up wages lost during the natural disaster, while those employees who do have skills needed for repair and restoration activities should see a net increase in their earnings as the increased recovery work more than offsets the loss of wages caused by the temporary shutdown of businesses during the event.

What conventional wisdom tells us

Here is the conventional wisdom when it comes to dealing with the effects of a natural disaster such as Hurricane Matthew:

Prior to the event, business picks up as consumers and businesses purchase additional supplies in anticipation of shortages. These include food and fuel.

When the event causes evacuations, people leave the affected areas. Within the affected areas, business slows, while there is an increase in economic activity in the areas receiving the evacuees.

After the event, people return to the areas previously evacuated, and economic activity increases above the normal level as people spend money and effort to restore the areas to their pre-event levels.

Over the medium term, the dip in economic activity is cancelled out by the higher-than-usual rise in economic activity post-event.

Depending on the amount of post-event activity, the natural disaster can result in an overall boost to the local economies as they receive an influx of assistance from outside sources such as state governments and the federal government.

By all appearances, Hurricane Matthew should fit this model: Short-term disruption but no longer-term impact.

Effects on workers’ income in affected areas

For workers, the effect of a natural disaster depends, somewhat, on their type of employment. Hourly workers lose income because businesses close during the natural disaster. The cleanup period benefits hourly workers who work in industries that assist in repairing and restoring areas to their pre-event level. This includes construction workers and those in the utility industry who find increased demand and benefit from working more hours and receiving overtime pay.

Low-wage workers in other industries, such as hospitality workers or hourly school employees, suffer longer dips in their pay. They lose income during the time of the natural disaster as businesses slow or shut down temporarily. After the event, businesses in industries such as tourism and hotels, and even higher-end restaurants, find reduced economic activity and so workers in those industries continue to feel the effects.

In most all industries, salaried workers continue to be paid during this time, so their income loss is less. Their income levels feel neither the effect during the event nor see a particular boost after the event.

Workers paid on commission, such as sales workers, lose that business during the natural disaster and even, to some extent afterwards, as cleanup takes precedence over new purchases. Some purchases are postponed, so they are pushed to a future date, while other purchases are cancelled and are never regained.

Effects on workers’ income outside affected areas

For areas taking in evacuees, it means an unexpected but welcome increase in economic activity. These unexpected “guests” purchase goods and services, including hotel rooms, food, and gasoline causing extra work in these areas and creating demand that translates into additional wages for hourly workers in meeting their needs.

Workers in the areas taking in evacuees see a wage “bonus” from the extra demands resulting in a temporary boost to their earnings. When evacuees return to their home areas, this demand slows and earnings return to more normal levels.

Summary

Hardest hit will be low-wage workers who lost wages during the natural disaster and who do not have jobs related to the subsequent cleanup. Those workers suffer a decline in earnings that will not be recovered.

Workers who have skills related to repair and restoration of areas affected by the natural disaster will see a net gain in earnings as work lost due to the natural disaster is more than offset by additional work caused by recovery operations.

While the actual economic impact will not be known for months, maybe for a year, it will be interesting to economists to see how the real impact measures against “conventional economic wisdom”.

It is important that policymakers understand that while the overall impact may not be significant, you cannot overlook how individuals’ earnings are affected by such events.