Winter 2011

Top Ten Stories

Each year in this spot we give you what we believe were the top 10 stories in economic development in the American South over the last year. You may disagree with some of them and if you do, please send us your suggestions.

The Deepwater Horizon Oil Spill

Also called the BP oil spill, the Gulf oil spill and the Macondo blowout, what started when the Deepwater Horizon rig exploded on April 20, 2010 killing 11 workers and then spewing an estimated 4.9 million barrels of oil into the Gulf of Mexico before being capped on July 15, is far from over. Each day The Randle Report (www.RandleReport.com – an online sister publication of Southern Business & Development) posts stories about something regarding the spill, usually a story about Ken Feinberg's handling of claims against BP.

The final ecological effects of the Deepwater Horizon spill may never be known, but that doesn't mean some folks haven't tried to come up with their own projections. Ecologically there was tremendous damage initially from the spill in the form of dead marine life. Long lasting effects from dispersed oil on the seabed and from dissolved oxygen are likely long lasting. But in short, the spill is the "worst environmental disaster the U.S. has faced," according to energy advisor Carol Browner. The spill was 20 times larger than the Exxon Valdez oil spill. The fact that the spill occurred in very deep water and in much warmer water than that of the Valdez spill experts say may have lessened the ecological impact.

The economic impact from the spill is more easily figured. BP has spent over $20 billion on spill response, cleanup, claims, federal costs, containment, relief well drilling, grants to Gulf States and other costs. It expects the eventual cost to be $32.2 billion.

But that is just a drop in the bucket compared to other losses directly caused by the spill. The U.S. Travel Association estimated that the economic impact of the spill on Gulf Coast tourism over the next three years could exceed $23 billion. In fact, in just Alabama there were 1 million fewer people who visited the beach in 2010.

Worse yet, the Deepwater Horizon accident, according to Cumberland Advisors, a Florida-based investment firm, will be responsible for about 1 million lost jobs over the next five years in and around the Gulf Coast. If those jobs averaged $35,000 in annual pay, that's $35 billion in lost wages each year over the next five years, or $175 billion in lost wages. To give you an idea of how much money that is, the recent U.S. Air Force tanker project that Boeing won, believed to be one of the South's largest to ever to compete for, totals about $4 billion in wages a year once in full production.

The South Emerges from the Deepest Recession in 80 Years

After three years of spiraling down, the South's economy finally hit rock bottom last year. Since bottoming out about 15 months ago, most Southern states have seen an increase in job-generating projects, albeit a small increase. But that's better than a constant spiral, which is what we were in from 2006 through almost all of 2009.

One bright spot even during the worst part of the recession has been the South's manufacturing sector. Ever since the downturn began in 2006, manufacturing in the region has surprisingly increased in the total number of projects and output, even though overall employment has suffered. Regardless, manufacturing has performed so much better than services in the region over the last few years.

It used to be that the South would be bruised by an economic downturn while the rest of the U.S. would be broken. That was not the case with the Great Recession of 2007-2009. The South's economy fared no better than the rest of the country. But there is no question that things are looking up.

Seven New Governors Take Power in the South

Seven new Southern governors have now transitioned power in the region. The seven new governors are in South Carolina (Gov. Nikki Haley), Oklahoma (Gov. Mary Fallin), Florida (Gov. Rick Scott), Georgia (Gov. Nathan Deal), Tennessee (Gov. Bill Haslam), West Virginia (Gov. Earl Ray Tomblin) and Alabama (Gov. Robert Bentley). The transitions will surely make for an interesting shift in economic development in the region.

Considering the economic plight almost every Southern state is in right now, you have to almost feel sorry for the new leaders. But as the cliché goes, tough times don't last but tough people do. And this new group of governors is as tough as any we have seen.

Southern State Budget Woes

This is certainly one of the top ten stories of the year but we predict it won't be for long. Tax deposits are increasing somewhat dramatically in just about every Southern state and with severe cuts in services to try and balance budgets, we believe the financial woes of Southern states are about to loosen up. That doesn't mean states in the South are on the verge of surpluses. It simply means that like the economy in general right now, more money is being made than being lost.

The Automotive Industry's Big Comeback

There is no industry sector that has had a more positive effect on the South's economy than the automotive industry over the past 20 years. In just 20 years, the South has recruited 11 major automotive assembly plants and more than 7,000 parts suppliers. Two new plants will open this year; Volkswagen in Chattanooga, Tenn. and Toyota in Blue Springs, Miss.

To give you an idea of the magnitude of the automotive industry in the South, try chewing on this: the automotive industry in the Southern Automotive Corridor has averaged 61 new or expanded projects a year of 200 jobs or more since 1992, more than any other industry sector and that includes all in the services sector except for retail.

When this recession began, it was the automotive sector that was slammed first, but it wasn't the regional sector that was hammered the most. You remember the bailouts to GM and Chrysler? Well, the national automotive meltdown was much different than the Southern Automotive Corridor meltdown. After all, most of the assembly plants outside of the Southern Automotive Corridor are domestic and 11 of the 21 in the South are foreign. So, while the South was hit hard by the automotive meltdown of 2009, it wasn't nearly as devastating as what occurred in the Midwest, home to all three domestic automakers.

The Loss of the Aerial Refueling Tanker Project

Some on the Gulf Coast are taking the loss of the $35 billion, 50,000 jobs KC-45 tanker project that was won by Boeing and lost by EADS casually. But deep down, leaders in the Gulf Coast region were heartbroken. No. 1, it was generally believed that EADS had won the project and most experts predicted that for weeks prior to the February announcement. Therefore, when the final verdict was seen on Pentagon television, leaders in Mobile, Ala. (where EADS was to build its version of the tanker) and the entire Gulf Coast from Louisiana to Northwest Florida were shocked.

No. 2, the Gulf Coast's economy was hammered by the BP oil spill and some have predicted that when it is all said and done, as many as 1 million jobs will be lost because of that environmental tragedy. Landing 50,000 new jobs with one strike of the pen would have been incredible. But it was not to be.

Duke Energy-Progress Energy Merger

Charlotte-based Duke Energy and Raleigh-based Progress Energy announced in January of this year a merger agreement to combine the two companies. Subject to shareholder and regulatory approval, the merger of Duke Energy and Progress Energy will create the nation's largest utility, with more than 7 million customers in six regulated service territories -- North Carolina, South Carolina, Florida, Kentucky, Indiana and Ohio.

The two companies' mix of coal, nuclear, natural gas, oil and renewable resources will total approximately 57 gigawatts of U.S. generating capacity. But more than anything, it will create an economic development juggernaut in the Carolinas and Florida as the new utility will transform into a more profitable entity we believe.

If the merger occurs it means that the new utility will serve more than 93 percent of industrial customers in North Carolina and more than 50 percent in Florida and South Carolina. The combined company will be called Duke Energy and headquartered in Charlotte, N.C.

Job Creation in Texas

According to the Bureau of Labor Statistics, one Southern state really stood out in the game of job creation in 2010. The state of Texas was far and away the top U.S. state in job growth, with 230,800 jobs created. The next state, California, created only 87,500 jobs in calendar year 2010. Texas' total of 230,800 new jobs in 2010 accounted for about 25 percent of all of the 908,000 net new jobs that were created nationally in 2010.

Defense Industry, NASA Cuts

This might be one of the top 10 stories next year and the year after that. In this same issue last year, we published a cover story titled, "What if Peace Breaks Out?," which documented the economic impact of the defense industry in the South. About the same time we published the story, the new health care reform bill was signed into law and many on the far right were incensed. They maintained at the time -- and still do -- that "Obamacare" will bankrupt the country with its $938 billion price tag over 10 years.

In that issue we wrote, "But compared to defense spending, the cost of the new health care bill is chump change. For example, if spending by the Pentagon increases at the rate it has since 2006, the price tag for defense will be the same as health care -- $938 billion -- but for one year (2013) -- not 10 years." In other words, without cuts, our annual defense expenditure would equal in one year what the health care bill that everyone is still up in arms about costs in ten years."

While we don't take stands on issues such as this except in editorials, we do enjoy crunching and divulging the numbers. And by divulging them, it was clear to us that defense spending would be the first reflex to many of the Democrats and even some Republicans in Congress as the nation tries so desperately to balance the nation's budget.

Since we wrote that story, several large defense industry cuts as well as NASA cutbacks have been announced in the South. The largest to date is the U.S. Joint Forces Command that is headquartered in Hampton Roads, Va. That region will lose about 2,300 jobs from JFCOM's closure. Look for more in the next three years, many more.

A Boatload of Renewable Energy Projects finds the South

The hottest thing going right now in the South is renewable energy projects. It remains to be seen if sustainable energy projects are, well, sustainable job makers. But already the South has seen dozens of solar, wind, electric battery and biofuel deals, some that are in the $1 billion-plus investment range.

In terms of total number of large projects, "clean tech" deals are rivaling a reinvigorated automotive industry as the No. 1 corporate investors in the region right now. To date, Texas (wind), Arkansas (wind), Tennessee (solar) and Mississippi (solar and biofuels) have benefited the most in this very exciting new industry. In fact, in the summer Southern Business & Development will publish a bonus issue on opportunities in the South for the clean tech industry.