DBJ Analysis :
The state of the State for 2004 - on the economy

by Wyatt Emmerich
Special to DBJ

State economist Phil Pepper stood before 70 of Mississippi’s leading economists at the conclusion of this year’s annual state economic conference at the R&D Center. Pepper was summing up the consensus of this year’s meeting. His words were somewhat humorous.

“We really for sure honest for real are gonna have a recovery this time,” he said with a smile. His play on words poked fun at the fact that the state’s economists, along with the national and global economists, have been predicting an economic rebound for three years.
It is a little strange. The federal government claims the recession ended two years ago, but everybody is still waiting for the recovery. That begs the question: If the recession is over, then what exactly are we supposed to be recovering from? So I’ll just refer to our recent economic softness as “this recent unpleasantness.” If the last business cycle is any guide, we are indeed about to see an end to this recent unpleasantness.

The previous recession started making itself felt in early 1989. Times were still tough by late 1993. It wasn’t until 1994 that the economy really started to get back on track.

Our most recent unpleasantness began around the summer of 2000. Now it’s 2003 and we are about to see things turn around. It’s almost like we’re stuck on a 10-year cycle of three lousy years, three okay years and four good years.

• Mississippi had strong personal income growth during the 90s, peaking at ten percent annual growth in early 2000. But for the last three years, personal income growth has been flat.

• Mississippi’s economic picture is very similar to the rest of the nation: job losses, little income growth and sluggish growth of retail sales.

• Gaming was a strong engine for job growth in the last decade, providing double digit growth, but gaming has struggled for the last few years due to the weak economy and competition from other states.

• Over the last few years, 25 percent of all manufacturing jobs were lost in Mississippi. Twelve thousand of those jobs were lost in the textile industry.

• Eighty percent of manufacturers in Mississippi reported moderate to serious problems recruiting skilled labor.

• In 2001, Mississippi lost 73 factories and 9,100 jobs. In 2002, we lost 117 factories and 11,063 jobs. In 2003, we lost 75 factories and 5,500 jobs.

• The agricultural sector looks good with strong yield and higher prices. Cattle are enjoying some of the best prices in years. Cotton and soybeans are enjoying good yields and good prices. Poultry production is up 9.1 percent; cattle production up 5.1 percent; hog production is up 7.4 percent; catfish up 7.1 percent; cotton up 47 percent; soybeans up 15.3 percent; rice up 106 percent; sweet potatoes up 115 percent and forestry up 3 percent. Government payments to farmers are up to $827 million from $249 million, much of that related to timing changes in the new programs.

• The construction industry has continued to boom from low interest rates. This has been a saving grace, keeping the recent unpleasantness from being more severe.

• With few exceptions, Mississippi industries are not adding employees.

• Retail sales in Mississippi are showing only tenuous signs of recovery. Internet sales are enjoying 20 percent growth, but continue to be an insignificant factor.

• Mississippi can expect growth of 2.0 to 2.5 percent for the next two to three years. Employment growth will be between 1.0 and 1.3 percent. Real per capita income growth will be around 1.6 percent.

• The biggest loss in state tax dollars has come from the decline in payroll, corporate and personal income tax.

Manufacturing expert Jay Moon told the group that low-skilled, lower-wage mass production jobs are or will be gone. Moon said five manufacturing categories will remain:

1) complex value-added products or systems,
2) higher margin technology intensive manufacturing,
3) protected markets,
4) big bulky items and
5) perishables.

Moon said raising taxes was not the right decision. “We believe increasing taxes right now on industry would be exactly the wrong thing to do.” Moon also advocated more funding for workforce training, adding that the existing $12 million is not enough.

Much has been made of NAFTA and free trade. People fear America and Mississippi are losing jobs to low-wage operations in Mexico and China.

But a new report is out claiming that China has actually lost a higher percentage of its manufacturing jobs than the United States over the last eight years.

China has lost 15.3 percent of its manufacturing jobs while the U. S. has lost 11.3 percent, Japan has lost 16.3 percent and Brazil has lost 19.9 percent. Only a few countries have increased manufacturing jobs led by Spain at 24.6 percent and Canada at 22 percent.

One international economist said, “We’ve got too many steel plants in the world, too many auto companies.” Excess capacity will cause further reductions.

It would be the height of folly for Mississippi politicians to squander precious tax dollars subsidizing more industries to provide even more excess capacity.

Mississippi’s economy is now global, like it or not. We ride the global tides and for the past three years the tides have been a wee bit low. It is remarkable how similar Mississippi’s problems are mirrored not only elsewhere in the nation, but elsewhere in the world.

Listening to state budget leaders, they will tell you the same story. The first year, they used some rainy day money. The second year, they moved some funds around. The third year, they really been cutting. “And now we are just praying this is the last bad year because we are really down to the bone,” one budget leader told me.

We sure had a great party in 1999. The hangover’s been most unpleasant. We sure have felt it in the newspaper business. Scrimping and cutting is a lot less pleasant than growing and expanding.

Sad but true, the business cycle is still with us. And it always will be, no matter what. The good news is that it’s almost over. The system’s not broken, just going through it’s normal ebb and flow. Hang tough everybody. Don’t lose faith. We are just about out of the woods. DBJ

(Wyatt Emmerich is president of Emmerich Newspapers and publisher of The Northside Sun.)

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