Acadiana Economy Still On Solid Ground
● By Aimee Cormier
By Dr. Anthony J. Greco
Generally, the Acadiana area continues to outperform the national and the state economies due largely to its healthy diversity of industries and educational institutions. Though no longer anemic, the national economy is not robust. Consumer spending rose by 4.3 percent in the fourth quarter of 2014, the biggest quarterly increase since 2006. This was fueled by significant growth and declining gasoline prices which boosted consumer confidence and their spending power. The U. S unemployment rate dropped to 5.6 percent in December 2014 with 252,000 jobs being added. For 2014, 2.9 million jobs were added, an average monthly increase of nearly 242,000. However, the rate declined largely because 273,000 people stopped seeking work, lowering the Labor Force Participation Rate to its historic low of 62.7 percent. Further, many of these jobs are part-time jobs.
Wages increased by only 1.7 percent over the past year. Gross Domestic Product grew by five percent in the third quarter of 2014, its fastest increase in 11 years. However, GDP expanded by only 2.6 percent in the fourth quarter of 2014, short of the expected 3.2 percent. For 2014, GDP grew by 2.4 percent, slightly above the nearly 2.2 percent rate for 2010-2013. These are all less than our historical rate of growth. Further, modest growth is expected for the first quarter of 2015.
Also worrisome is the fact that the other components of GDP displayed signs of weakness. Business investment and export spending grew weakly and government spending declined from the third to the fourth quarter of 2014. Real Estate was up slightly, but the housing market continues to underperform. Our national debt exceeds $18.1 trillion, a record high. Our debt to GDP ratio has grown from 76 percent in 2009 to 101.53 percent in 2014.
Nevertheless, confidence in the economy has generally increased. The Conference Board Consumer Confidence Index increased in December 2014 and again sharply in January 2015. Sizable increases were noted in the Board’s Present Situation and Expectations Indices. In addition, the NFIB Business Optimism Index increased from November to December 2014, reaching its highest level since October 2006. This is attributable to higher sales expectations as well as an increase in hiring and business expansion plans. Further, the December 2014 Manufacturing ISM Report on Business noted that new manufacturing orders, employment and production are growing while inventories are contracting. The nation’s supply executives noted that economic activity in the manufacturing sector has expanded for 19 consecutive months.
The Acadiana Score Card
From 2009-2014, shown in Table I, the unemployment rate in RLMA4 fell from 6.97% to 5.6%, but has been trending upward since 2011. Lafayette City’s unemployment rate has fallen from 4.9% to 4.2% over this period, trending downward since 2011.
Table II shows unemployment rates for the eight parishes comprising RLMA4 for November of 2013 and 2014. Lafayette Parish had the lowest unemployment rate for both years. Rates of all eight parishes rose from 2013 to 2014.
Table III shows average employment for the eight parishes of RLMA4 from 2008-2013. Employment rose in Lafayette Parish and fell in Iberia Parish, though it has risen in Iberia Parish since 2010. Lafayette and Iberia Parishes rank one and two throughout. They and two other parishes had employment increases from 2012 to 2013, while four others had decreases.
Average weekly earnings in Table IV increased over 2008-2013 by 10.2% for RLMA4, 10.1% for Lafayette Parish, and 14.0% for Iberia Parish.
Inflation-adjusted wages for Louisiana, RLMA4 and Iberia and Lafayette Parishes, are shown in Table V. The average annual wage for both Iberia and Lafayette Parishes exceeded those of the state and RLMA4 for each year of 2008-2013. Preliminary unemployment rates for November 2014 for U.S. metropolitan areas further attest to the soundness of the Lafayette labor market. The Lafayette MSA was tied, at 4.9 percent with eight other MSA’s for 139th place out of 372 MSA’s. Unemployment rates ranged from 2.1%-23.1%.
Table VI illustrates that the value of residential activity in Lafayette Parish has increased significantly over the 2009-2013 period from $98,964,219 to $206,855,414. It did drop to $164,522,840 in 2014. However, commercial activity, down from 2008 to 2013, more than doubled from 2013 to 2014. Total construction value increased from 2013 to 2014.
Lafayette home sales have increased since a decline in 2011, rising by 22.5% in 2012 and by 21% in 2013. The rise was 3.2% in 2014. Iberia Parish sales declined 2.7% in 2014, but sales dollar value rose by 6.1%.
Total retail sales for Lafayette and Iberia Parishes are presented in Table VII. Over 2009-2014, retail sales are estimated to increase by 30.4% in Lafayette Parish and 15.8% in Iberia Parish.
Oil Prices and Rig Activity
Oil prices continue to be important to the Acadiana Region. Table VIII illustrates that prices for South Louisiana Sweet Crude rose over 2009-2014. It hit a high of $137.91 in June 2008, fell throughout the remaining months of 2008 and generally trended upward over 2009-2011. It surpassed $100 a barrel in February 2011 and generally remained above that through August of 2014. It declined from September through December 2014.Hence, the price fell by 9.8% from 2013 to 2014.However, notice the volatility of oil prices. They actually increased by nearly 51% over 2009-2014.Within that period they rose by 72.9% from 2009-2011,and fell by 12.8% from 2011 to 2014.
The overall fall in price from 2013-2014 was expected because of increased supply and weak demand. U.S. crude oil prices have fallen sharply over the last six months for the same reasons, but have recently begun to rise. U.S. demand for gasoline had been soaring, but may taper off due to moderate increases in the price of gasoline. As usual, the overall market for gasoline is characterized by uncertainty over the maintenance of production levels and volatile conditions relative to domestic and international demand for gasoline.
Table IX shows that drilling permits are generally falling in the State of Louisiana over 2009-2014. This is probably still principally related to the aftermath of the BP oil platform explosion in 2010.
The number of oil rigs operating in Louisiana, as shown in Table X, increased markedly from 2009 to 2010, but fell through 2013. However, that count increased by 2.3% through 2014. The decline since 2010 reflects restrictive regulations imposed after the BP explosion. The recent modest increase could possibly continue due to the long run planning horizon of offshore deep well drilling.
The price of Louisiana natural gas hit a nearly three-year high in 2008, and through 2013, has risen in two years and fallen in three. The November 2014 price of $3.88 was higher than the closing price of 2013 but is less than half the average price of 2008. Supplies have been enhanced due to horizontal drilling and fracking. Natural gas production will probably decrease due to its fall in price and the cutting back of some fracking.
Hotel/Motel Tax Receipts
Occupancy tax collections decreased slightly for both Lafayette and Iberia Parishes from 2009-2010 (Table XI). However, they have increased since then. These have increased by 36.8 percent in Iberia Parish from 2010-2014 and are projected to increase in Lafayette Parish by 46.4 percent.
Lafayette Fast Track
In the cost of living study conducted by the Council for Community and Economic Research the national average for all areas is 100. A score below 100 indicates that the area’s living cost is below the national average and vice versa for a score above 100. Lafayette’s overall index is 97.9 and its indices for groceries, housing, utilities, and health care are below 100. Its transportation index is 102.8. Lafayette ranked 19th among the Milken Institute 200 Best Performing Cities in 2014, up from 24th in 2013 and 2014.
Louisiana’s unemployment rate for November 2014 was 6.5%. It was 6.3% last November. This ties it with Connecticut for 38th place. However, 7 of 11 sectors added jobs in the state. Professional and Business Services had the biggest gain and the government sector had the biggest loss.
Like many states Louisiana has budgetary troubles. Revenues have not fully rebounded since bottoming out in 2010. Weak tax collections, especially due to severance taxes and royalties associated with oil, as well as increasing education and health care obligations have led to painful spending cuts with likely more on the horizon. The state is considering various changes in its revenue generating strategy.
Yet, there are some positive signs. Oil prices have begun to increase again, presaging more revenue for the state. Personal income rose nearly one percent from the second to third quarter of 2014, ranking the state 23rd. For the third quarter of 2014, the state’s exports exceeded $46.7 billion, a 7.07 percent increase from last year. This ranks Louisiana sixth among U. S. exporters. Its share of total U. S exports rose over the years. Further, the state’s Gross State Product has risen by 28 percent since 2009. In addition, the state’s debt to GSP has fallen since 2009 by 26.5 percent and stands at 12.05 percent. The state continues to try to attract new industries and expand existing ones. Increasingly important
is the film and television industry, which ranks third in the nation and has experienced increases in certified annual productions since 2002. Continual efforts also will be made to expand the state’s export markets.
In summary, the Acadiana area should experience improved economic conditions. The situation is less certain for the state and the nation, but both should enjoy moderate improvement in 2015.