Once again, the Center for Business and Economic Research at the University of Alabama expects modest growth in Alabama’s economy. The projected economic expansion in 2015 is 2.3 percent, about the same level of growth our state has seen for the past four years.
ALABAMA ADDING JOBS
The best news out of the center’s 2015 forecast is job growth. Alabama more than doubled its job growth in 2014, adding 33,700 new jobs between November 2013 and November 2014, according to the Alabama Department of Labor. Ahmad Ijaz, the center’s director of economic forecasting, said that level of jobs means our state is growing. In a growing economy, Alabama should generate 30,000 to 40,000 new jobs annually, Ijaz told participants at the Alabama Economic Outlook Conference 2015 in Montgomery. The center predicts 1.8 percent employment growth for 2015.
Despite the 2014 jobs surge, as of November 2014, Alabama was still 51,300 jobs short of its pre-recession level, according to Alabama and U.S. labor statistics. The only metro areas that have employment above the peak year (2007 or 2008) are Auburn-Opelika, Tuscaloosa, Huntsville and Florence-Muscle Shoals.
Job growth also has not reached retail with a loss of 1,300 in Alabama’s retail sector last year (November to November). The bright spots in retail employment in 2014 (October to October) were motor vehicle and parts dealers who added 1,600 jobs and food and beverage stores, which increased their payroll by 600, according to the center’s research.
While Alabama continues to trail the national average in labor force participation, nationally, “we will reach normal in U.S. labor markets” in 2015 and 2016, David Altig, executive vice president and director of research for the Federal Reserve Bank of Atlanta, told those at the January conference.
In the first quarter 2015, Alabama’s business confidence level reached its highest point since the third quarter of 2006, according to the Alabama Business Confidence Index™. Meanwhile, a national index found that U.S. consumers are more confident than they’ve been since 2004. Still, retailers don’t expect an increase in profits or a pickup in hiring in the first quarter, according to the Alabama index. Register to be a survey panelist for the Alabama Business Confidence Index.
TAXES AND TAX REFORM
Alabama is most comfortable taxing transactions, Ira Harvey, executive assistant to the vice president for financial affairs at the University of Alabama, told conference participants as the discussion shifted from the economy to the related subject of taxes.
Harvey said the Alabama Legislature can reallocate 45 percent of state’s sales and use tax to other uses, but added, “we may have run out of our ability to add or adjust transaction taxes.”
Samuel Addy, director of Center of Business and Economic Research, had more pointed comments. “Our tax structure is not sufficient, efficient or fair,” he said. “At some point, we have to solve the problem.”
Alabama is dead last in nation in all taxes per capita and property taxes per capita, said Harvey. Meanwhile, “we’ve seen tremendous improvement in per capita income in Alabama, but we’ve stagnated over past three decades,” Addy said.
Still, Harvey predicted Alabama will not be able to deal with tax reform “in my lifetime or yours.”
“Is tax reform on the horizon? I doubt it,” he said, “because if you re-sort your current revenue stream to apply the tax to a different base at a different rate there are always winners and losers, and no one wants to lose.”
The Center for Business and Economic Research expects tax receipts in Alabama to grow 2.4 percent in 2015.
Consumer spending to offset lag in investment spending, Fed exec predicts
The year 2014 ended with stronger consumer spending and weaker investment spending, said David Altig, executive vice president and director of research for the Federal Reserve Bank of Atlanta. He predicts the drag in investment spending will be overcome by the boost in consumer spending.
The Federal Reserve expects the economy will have improved enough to start raising interest rates around midyear, Altig said. It will be the first time since December of 2008 that the U.S. central bank will set rates “somewhat north of zero,” he said.
Altig also predicts inflation will move to 2 percent in 2015. “The trend in inflation hasn’t budged much off of 1.5 percent for a couple of years,” he said.