About Alabama — Will Alabama Stay Economically Strong in 2008 and Beyond?

Alabama’s economic performance in recent years has been spectacular. The state’s economy has grown faster than the national economy in every year since 2001. Growth in after-tax income per capita ranked in the top 10 from 2000 to 2006, bringing Alabama near the income level of Georgia and North Carolina. Unemployment has been at or below the national rate for 79 straight months.

For the first time since 2000, however, national economic growth is slowing, and conditions may lead to a recession. The question is will Alabama maintain its high rankings in this environment?

The University of Alabama’s Center for Business and Economic Research (CBER) projects in its annual Alabama Economic Outlook that growth in the national economy will resume in the last half of 2008.

The report considers a recession to be possible due to serious problems in consumer spending. Consumers control 72 percent of the national economy, and when they tighten their belts in such areas as housing, travel and auto purchases, the economy slows. Energy prices and inflation are also mentioned as risks.

The national slowdown was triggered by a sharp drop in residential investment; the falloff that began in 2005 is expected to reach 33 percent in 2008 before bottoming out. It involves reductions in both home sales and prices and is squeezing households that have spent beyond their means. Household debt, foreclosures and bankruptcies are at high levels. A substantial share of home mortgage value is in adjustable-rate and relatively risky “subprime” loans, large numbers of which will be reset to higher interest rates in 2008.

The CBER report foresees Alabama continuing to out-perform the nation in 2008. Our housing sales and price declines began later and continue to be below national levels, and strong growth is expected in auto-related manufacturing and in professional and business services.

For the long run, the report points to workforce development as the key to continuing prosperity for Alabama. Revenues for these efforts have been affected by the slowdown and related uncertainty. The state of Alabama can and should improve the way it invests in educational programs to minimize such impacts.

EDITOR’S NOTE — Jim Williams is executive director for the nonprofit, nonpartisan Public Affairs Research Council of Alabama.