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Southern Business & Development's 15th Anniversary Edition - Part III 2003-2007

In 2007 and 2008, Southern Business & Development magazine, the parent company of SouthernAutoCorridor.com, celebrated its 15th anniversary. During our 15th anniversary, we wrote a four-part feature series that looked back 15 years and looked ahead five years at what occurred and what is likely to occur in economic development in the South. This is Part III of the series, which looked at economic development events and issues in the South from 2003-2007. If you would like to subscribe to SB&D, click on the "Subscribe to SB&D for Free" button on the default page of this Web site. if you qualify, you will receive SB&D the magazine for free.

Five Years of Economic Recovery, Choppy Growth and War

By Michael C. Randle

Editor's Note: This issue marks the third of four that will celebrate SB&D's 15th Anniversary. This edition is reviewing significant economic development projects, events and issues that occurred in the South in years' 2003-2007. A listing of the largest projects announced in the South from 2003-2006 follows, as does a report on the South's top major markets over the last 15 years (for you folks reading this online, subcribe to the print magazine so that last sentence makes sense to you).

The summer 2007 edition (published last September) looked back on years' 1993-1997 and the fall issue (December 2007) reviewed the years of 1998-2002. Our final issue marking our 15th Anniversary will be published in June and it will look forward five years as we predict what will likely occur in economic development from 2008-2012.

The Year of 2003

Notable Deals

Company

Radio Shack
Toyota
Nissan
Texas Instruments
Northrop Grumman

Jobs

3,000
2,000
1,500
1,000
1,839

$Inv*

$200
$800
$250
$3000
$170

Location

Fort Worth, Tex.
San Antonio, Tex.
Decherd/Smyrna, Tenn.
Dallas, Tex.
Jackson Co., Miss.

* Investment in millions

In the last half of 2003, much of the South was recovering from the economic downturn and recession that was present between 2001 and 2003. The South was the first U.S. region to begin to recover, as the Midwest and the Northeast didn't really see a true recovery until mid-2004. The primary reason the South's economy came back first can be chalked up to one industry sector. The automotive industry did not miss a beat during the economic malaise of 2001 to 2003. In fact, 2003 could be argued as the best performing year in the history of the Southern Automotive Corridor.

There was an incredible statistic published in our Winter 2003 edition (first three quarters of data from the 2003 year). In that issue we published 97 deals in our Relocations & Expansions section that were announced in the South during the 2003 winter quarter. Of those 97 announcements, 27 came from the automotive industry. Never before or since has one industry dominated a quarter's list of deals like the automotive industry did in the winter of 2003. The activity in the automotive sector in the winter quarter of 2003, which included Toyota announcing its pickup truck plant in San Antonio, prompted us to launch www.SouthernAutoCorridor.com later that year.

But it wasn't just 2003 when the automotive industry helped prop up the South's economy during the tough times experienced earlier this decade. In the toughest years of 2001 and 2002, of the 395 significant relocations, expansions or startups announced in the region during those years, 94 came from the automotive industry, or 24 percent of all the notable deals announced in the South. We define "notable" or significant as a deal with a minimum of $3 million in investment and 50 jobs or more.

Even more significant, between November of 2001 and February of 2003, there were 14 major OEM automotive assembly plant expansions or startups in the South. In comparison, there were only six automotive assembly plant expansions or startups during that time in the rest of the country. So as we begin our editorial tour of the years of 2003 to 2007, it should be noted that the South had something no region had in 2003; an incredibly active transportation equipment sector.

Post Recession State Budget Deficits and Looming War with Iraq

In the winter quarter of 2003, things were beginning to look promising after a couple of lousy years in economic development here in the South. In fact, if it wasn't for the automotive industry, 2001 and 2002 would have been much worse for the region than it was. Yet, in early 2003, 12 of the 17 Southern states had budget deficits. This, after many states in the late 1990s cut taxes, in some cases significantly, after getting flush with cash during that time. But in early 2003, Texas was sporting a budget deficit of $1.8 billion. Virginia's deficit was close to $1 billion and Maryland and Georgia were hurting pretty badly, too.

States began to raise taxes in order to offset the budget deficits, most of which were created because of the recession of 2002. Meanwhile, President Bush was promoting and getting tax cut bills passed. But there was more negative news on the immediate horizon.

President Bush had already sent troops to Afghanistan a year earlier. Tensions were mounting that he was going to make the decision to invade Iraq. Few remember that there were protests by millions all over the world about the U.S. invading Iraq prior to the invasion. Yet, on March 20, 2003 the U.S. began its bombardment of Iraq and the war was on.

It was a war, we wrote back then, that was “unnecessary” and one that “we could not afford to participate in.” Now that we look back at what we wrote about the war back in early 2003, we were off base about the actual cost of the war. Our point back then was the money that would ultimately be spent on the war was sorely needed here at home. We wrote in the Winter 2003 edition:

"Unless federal money is steered -- no, poured -- to U.S. states, virtually every one of them will be forced to raise taxes this year," we wrote on February 25, 2003, one month before the war with Iraq started. “These states will not only raise taxes again on their citizens this year, they will target the corporate community as well and those tax increases will be in place well before anyone or any company will see a dollar from Bush's planned tax cuts. State tax increases will simply offset any tax reductions made on the federal level, which is not an "economic stimulus" at all, but rather an economic standoff. Yet, Bush wants to lower taxes when his own government is in no better shape than the states? It doesn't make sense. I say let's get this economy going, then lower taxes if that is what Bush is dead set on doing."

In the same editorial we wrote, "It's estimated that a war with Iraq will cost us about the same as the total deficits shown by states this year, or about $60 billion." (The cost of the war is now estimated at $600 billion and could rise to $2.4 trillion if we are still there seven or eight years from now. That second figure represents $8,000 for every person that lives in the U.S.) "And at this time, late February (2003), Bush apparently has made the choice to spend $60 billion on a war with Iraq because at the winter meeting of the National Governors Association, he told those governors in attendance that 'you’re own your own' and 'we've got an issue with our own budget.'"

So, as we went into war with Iraq, even President Bush apparently had no idea how America was going to pay for it. Our question now is, how did the cost grow from an estimated $60 billion at the start to $600 billion today (that's with a "B")? Is it any wonder now how we got to this point with our economy? Everyone is borrowed up to their eyeballs, including the federal government.

A Couple of Other Things About 2003

In 2003, California-based Scripps Research Institute announced it would build a campus in South Florida next to the Everglades. Environmentalists in South Florida went berserk. The life sciences deal was projected to create up to 50,000 direct and indirect jobs in Palm Beach County and surrounding areas. The Florida Legislature actually approved up to $320 million in incentives to Scripps. The project is still alive, but the shine is off the deal. There are 160 employees at Scripps Florida -- five years after the grand announcement -- at temporary space located at Florida Atlantic University in Boca Raton. The Scripps Florida Web site (http://www.scripps.edu/florida/) features a headline at the top that reads, "Watch Us Grow."

We will be watching and we hope Scripps does grow and we wish them well. But, it's obvious either the media expanded this deal 5,000 times its size when it was first announced, or former Florida Gov. Jeb Bush's administration did or Scripps did. Or, maybe it was all of the above. At any rate, Scripps has got to be the biggest bomb from the years of 2003-2007. Also add in DaimlerChryler's commercial van plant in Savannah. That deal never materialized even though it was announced in 2003 as well.

Let's end 2003 on a positive note. Again, the automotive sector spent billions expanding in the Southern Auto Corridor. As significant as the growing transportation equipment industry was to the region, another growing sector, one that was new to the South in 2003, began to show. Between 1975 and 2002, only three Fortune 500 companies relocated their headquarters to markets in the South from the Northeast, Midwest or West. But in 1993 alone, that number was matched as three Fortune 500 companies relocated their HQs to the South and three others that are in the Fortune 1000 relocated to the region that year. So, in 2003, the South saw a new industry come its way: the relocation of major corporate headquarters. That phenomenon is still going on. Major corporate relocations to the South have continued each year this decade.

The Year of 2004

Notable Deals

Company

Infineon Technologies
Vought Aircraft
Dell Products
Sematech
Toyo Tire

Jobs

1,200
3,000
2,000
4,000
900

$Inv*

$1000
$598
$100
$190
$392

Location

Henrico Co., Va.
Grand Prairie, Tex.
Forsyth Co., N.C.
Austin, Tex.
White, Ga.

* Investment in millions

The momentum of the financial services sector started back up again in 2004. Citicorp, Wachovia, Bank of America, Countrywide, USAA, Fidelity and others seemed to be adding jobs every day. Now we know why. Easy credit thresholds and low interest rates kept those and others in the financial services arena quite busy.

The semiconductor industry came back to a degree with Texas Instruments announcing a huge $3 billion fab in Richardson, Tex., the previous year and in 2004 Sematech, Infineon and IBM expanded a few of their existing fabs. Defense and homeland security deals began to spring up as well, as evidenced by SAIC Fairfax hiring 2,920 workers in Fairfax County, Va. in 2004. The aviation sector got active after years of slow growth. Vought, Global Aeronautica, Cessna and Northrop Grumman all announced big aviation deals in 2004.

Shocker: In 2004, Manufacturing Topped the Service Sector in Big Deals

Manufacturing came back strong in 2004. We had always predicted that, even when economists were claiming in the early 2000s that manufacturing was dead and was not coming back. Manufacturing may hit bumps in the road from year to year as it probably will do in the next year or two. But it will always return to the South. Why? The South is the least expensive place to make things in the largest economy in the world. Manufacturers will always embrace the South.

The year of 2004 proved us right. For the first time since 1996, the manufacturing sector topped the services sector in the South in deals of 200 jobs or more. In 2004, there were 198 manufacturing deals with 200 jobs or more, while the services sector rang up 183 deals of 200 jobs or more. It had been eight long years since manufacturing topped services in big job deals in the South.

Other significant events and trends that occurred in 2004 included a proliferation of data centers being built. The data centers are heavy on investment totals, but light on employment. Regardless, several were built in 2004 in the South by a variety of companies and those deals are still prevalent today.

Also, the automotive industry continued its incredible run, topping all other industry sectors in major announcements with 73 projects of 200 or more jobs and/or $30 million in investment or more. It was the fifth consecutive year that the automotive sector led all other sectors in big deals announced in the South. Call centers, distribution, biotech and oil and gas followed the auto industry, respectively, in big deals in 2004.

The Year of 2005

Notable Deals

Company

Texas Institute of Medicine
Micron Technology
Aflac
SeverCorr
Freescale Semiconductor

Jobs

5,000
860
2,000
450
500

$Inv*

$66
$1200
$100
$880
$600

Location

College Station, Tex.
Manassas, Va.
Columbus, Ga.
Lowndes Co., Miss.
Austin, Tex.

* Investment in millions

The South's economy began to settle in during 2005. Job creation by the SB&D 100, the 100-largest corporate and industrial announcements in 2005, topped 92,000 jobs, the third straight year of increases since hitting rock bottom with 68,651 jobs in calendar year 2002. Also, the SB&D 100 represented a total capital investment of $26.7 billion, a record at the time.

There were some huge defense contractor announcements in calendar year 2005. In fact, in 2005 over 10,000 people were hired in Maryland by the Department of Defense itself, 8,000 of which came from just two deals in Harford County and Howard County, Maryland. And in just one day, defense contractors' SAIC, Booz Allen Hamilton and SRA International announced 11,000 new jobs in Virginia in 2005.

But 2005 will be remembered as the "Year of the Hurricanes" as Katrina and Rita ripped up much of the central Gulf Coast and changed South Louisiana, particularly New Orleans, and the Mississippi Gulf Coast for what will be years if not a decade or more. Few remember that 2004 was an especially active year for big storms, too, as hurricanes Jeane, Ivan, Francis and Charley did significant damage to several states. Florida was especially hard hit in 2004.

In 2005, the automotive industry finally hit a snag in the Southern Auto Corridor. While the auto sector led all other industries on the investment side of the ledger with 33 big deals, it failed for the first time in five years to lead all sectors in the number of large employment deals. Call centers claimed the number one spot in 2005 with 63 deals with 200 jobs or more, distribution followed with 31 and automotive fell to third place with 28 big job deals.

Also, in 2005 Ford and GM announced they would close at least five assembly plants in the South and many more than that outside the region. So, the year of 2005 was the first in many years where the automotive industry slowed in the Southern Auto Corridor.

And finally, in early 2005 hints of what would turn out to be the housing crisis of 2007/2008 emerged. We wrote a piece titled, "Is Florida Headed for a Real Estate Crisis?" We picked up a stat from the FDIC that showed the median household income in Florida was 26 percent below the amount needed to purchase a median-priced home in the Sunshine State. In short, the cost of housing in Florida was rising much faster than wages in 2005, therefore making housing unaffordable for many residents in the state. "Expect to see a correction of home prices in Florida," we wrote. At the time, we had no idea just how big that correction would become.

The Year of 2006

Notable Deals

Company

Kia Motors
Gulfstream
Ligfuel
Samsung
NRG Energy

Jobs

2,893
1,500
1,200
900
500

$Inv*

$1200
$322
$5000
$3500
$5200

Location

West Point, Ga.
Savannah, Ga.
Geismer, La.
Austin, Tex.
Matagorda Co., Tex.

* Investment in millions

The year of 2006 was not as robust as that of 2005 here in the South. The SB&D 100 produced a total of 82,513 jobs, the first decrease in the total number of jobs created by the South's 100-largest projects since 2002. Job creation had steadily built in the region since the recession of 2002 and if anything, 2006 was an indication that all was not right with the economy.

While total jobs dropped in our annual ranking of big deals in the South, the total investment of those same deals went off the charts. Prior to 2006, the record for investment in the SB&D 100 was 2005's $26.7 billion. The top 100 deals in 2006 saw $44 billion in investment, an astounding total.

In 2006, oil and gas took over first place in the investment category from the automotive sector. Automotive had held first place for six straight years. While automotive OEM investments are huge, they pale in comparison to many oil and gas projects.

There were four deals with investments of over $3 billion announced in the South in 2006 and three more of $1 billion or more. Throw in at the top of the investment list two billion dollar-plus automotive deals and a $3.5 billion semiconductor deal and the SB&D 100 was as top-heavy as ever.

Also notable in 2006 was the stem cell issue as it relates to the life sciences, an industry that is trying so hard to succeed in this country but seems to be blocked at every turn. On November 7, 2006, The Stem Cell Research and Cures Initiative was approved by Missouri voters. The victory ensures that Missourians will have access to any stem cell research and cures that are allowed under federal law and available to other Americans. That doesn't sound like such a significant victory. But in a day in age where stem cell research is such a controversial topic, the fact that Missouri voted for stem cell research in their state caught our attention in 2006.

And speaking of the life sciences, the state of Florida made huge strides in that sector in 2006 when The Burnham Institute chose Orlando for a major research project. The deal followed the aforementioned Scripps deal, which is trying to make it big down in South Florida.

Louisiana Comes Back

In 2006, Louisiana had its best year ever in job and investment generating deals, or since we began tracking each Southern state in 1993. To accomplish that feat less than one year after the Hurricane season of 2005 was nothing less than remarkable. Because of its performance in 2006, we named Louisiana "State of the Year" in the 2007 SB&D 100. 

The Year of 2007

Notable Deals

Company

ThyssenKrupp
National Alabama Corp.
PACCAR
LM Glasfiber
UPS

Jobs

2,700
1,800
500
1,000
5,000

$Inv*

$3700
$350
$300
$150
$1000

Location

Mobile Co., Ala.
Muscle Shoals, Ala.
Lowndes Co., Miss.
Little Rock, Ark.
Louisville, Ky.

* Investment in millions

We won't have the final results of how economic development fared in markets and states in the South and the region as a whole until the spring issue comes out in June. That data is sitting somewhere in this office and we will get to it right after this issue comes out.

We can write that the automotive industry is back in the Southern Automotive Corridor, with Kia and Toyota announcing new assembly plants in Georgia and Mississippi in 2007. Steel manufacturing, aviation and aerospace and data centers ruled last year, as did energy-related projects.

So check back with us in June when we publish the 2008 SB&D 100. It will be interesting, we promise.

2003-2007: A Conclusion and Comments

The last five years in our three-part series focusing on our 15th Anniversary can best be described in one word: Uncertainty. Why is "uncertainty" the word we chose to describe the period of 2003 to 2007? Well, the war in Iraq has been a thorn in America's heel since it began in 2003. The war in Iraq changed everything here and abroad. We are not certain about anything, really, since this current administration committed to such a task.

To me, the last five years have been a blur, with little to hold on to that felt real or comforting. The conflict has been just that, a conflict and I am sure 9/11 continues to be a part of that confliction. The last five years have been, at the least, five years of economic recovery and choppy growth -- choppy, in that it depends on the industry sector and therefore the location in the South that determines who is struggling or prospering. 

We are headed dead straight into another recovery period. We believe the South will weather this recovery much better than the rest of the country as it always does. But, I guess that remains to be seen.

In our next issue, we will preview what we believe will occur in the region from 2008-2012, the final part of our four-part series celebrating the 15th Anniversary of Southern Business & Development.

Thanks for reading, y'all.

mike@sb-d.com


    
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