The Memphis economy in 2008.

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There is good news for the Memphis economy in 2008, even as the U.S. economy appears to be in or headed for a recession. In particular, the Memphis area is being surrounded by auto assembly and auto parts plants. Of greatest importance is a new Toyota assembly plant under construction Tupelo, Mississippi. The $1.3 billion plant will be used to produce Toyota's Highlander SUV. When operations begin in 2010, the plant will employ around 2,000 employees, with a planned expansion to 4,000 employees if Toyota adds a second vehicle line.

While the greater Memphis area may not be thought of as an auto industry player, there are factors in place or coming into place that could make it one. In addition to the Toyota plant in Tupelo, Hino Motors in Marion, Arkansas, makes parts for Toyota's Tundra pickup line and has been up and running since 2006, employing over 600 persons. The company announced expansion plans in May 2007 based upon the anticipation of growing demand for Toyota trucks. (1) Whether Hino's Marion plant will manufacture parts for the Tupelo-built Toyota Highlanders remains to be seen, but it is a possibility.

Further, Bodine Aluminum, Incorporated's, manufacturing facility in Jackson, Tennessee, (2) makes aluminum-cast parts for Toyota engines used in North American-made Toyota Avalon, Camry, Corolla, Sienna, and Tundra models and also in Toyota's luxury-brand Lexus RX300 model. With just a two-hour drive separating Jackson, Tennessee, from the new Toyota plant north of Tupelo, Mississippi, it is quite possible that Bodine's Jackson, Tennessee, plant could be expanded to support Toyota's Tupelo facility.

Additionally, Nucor Steel (3) will soon be opening a greatly expanded plant at the old Birmingham Steel operation in Frank C. Pidgeon Industrial Park. Nucor's Memphis facility will produce high-quality steel products for automobile and heavy equipment manufacturers. With direct Mississippi River access, a location adjacent to Canadian National's Memphis Intermodal Facility, and close proximity to Interstates 40, 55, 69, and the future Interstate 22 (U.S. Highway 78) between Memphis and Birmingham, Alabama (via Tupelo), a distinct possibility exists for Nucor Memphis to supply steel to Toyota and its network of suppliers in the U.S. Start up at Nucor's Memphis facility is slated for the first quarter of 2008.

Canadian National Railroad and BNSF Railroad are continuing major expansions of their rail yards and intermodal facilities in Memphis, including facilities at the Frank Pidgeon Industrial Park, the Johnson Yard, and the BNSF yard in Capleville, Tennessee. The increase in capacity should allow both railroads to reduce rail car dwell times in addition to handling a substantially larger volume. Rail intermodal facility expansions, along with the development of Interstates 69 and 22, will only improve Memphis' position as the primary North American distribution center.

While the housing sector has fallen sharply across the U.S., there has been no housing bubble in Memphis. Even so, the Memphis residential market is being pulled down by the same subprime lending problems that are plaguing the rest of the nation. As shown in Table 1,2007 Memphis residential sales (units) were down nearly 15 percent over 2006, while median and average sales prices were also declining.

While Memphis home values are falling, Chart 1 shows that in comparison to other metropolitan areas and the nation as a whole, Memphis did not benefit as much from the housing boom of the past few years as did other metro areas. On average, housing prices in Knoxville grew by over 40 percent during the last five years, while Memphis housing prices grew by an average of just over 19 percent, the lowest rate of growth of the four major Tennessee MSAs. Growth in home equity and equity-backed loans contributed significantly to economic growth around Tennessee and the nation over the past five years, much of which Memphis missed.

In terms of employment, the Memphis MSA has experienced substantial growth over the past three years. However, 2007 marked the first year that the MSA finally exceeded the prior peak level of employment set in 1997. The first part of this decade was marked by an employment recession, with employment among Memphis MSA residents falling from 2000 to 2004, but finally reaching and exceeding recovery levels in 2007.

While most economic factors in the Memphis MSA look positive for the near future, there are some long-term negative factors that could limit the MSA's economic growth. Population growth is one of those factors. As shown in Chart 3, the decade of the 1990s was a period of population growth for Tennessee and all of its major MSAs. However, that growth slowed substantially between 2000 and 2006. The Memphis MSA had the slowest growth in both time periods of all the major MSAs in Tennessee. Further, Shelby County's population growth came to a virtual stop between 2000 and 2006. While the Memphis MSA's population is growing, most of the growth is occurring outside Shelby County, in particular in DeSoto County, Mississippi (57.9 percent from 1990 to 2000 and 33.2 percent from 2000 to 2006).

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Population growth is strongly related to employment growth. As shown in Chart 4, there was a period of strong employment growth in the 1990s in Tennessee and its major MSAs, including Memphis at 17.4 percent. Yet, Tennessee's employment growth dropped off sharply during the first five years of this decade, from 24.4 percent in the 1990s to 3.6 percent during 2000 to 2006. Similarly, Memphis' employment growth dropped to 0.8 percent, which is 4.5 times less than the state's increase for the same time period. Noticeably, the only major MSAs in Tennessee with substantial employment growth were Knoxville and Nashville.

While it certainly appears that the national economy is slowing and will continue to slow in 2008, growth in the Memphis MSA is likely to slow also. However, the continued improvement and expansion of the areas transportation infrastructure will help offset a weak national economy. With such a strong transportation infrastructure and the arrival of the Toyota assembly plant in Tupelo, Mississippi, the Memphis area, including Eastern Arkansas, Western Tennessee, and Northern Mississippi, is likely to see further auto sector-related development in the future. These factors bode well for the future of the Memphis economy.

(1) 2008. "Hino Motors Expanding Marion Automotive Parts Plant." www.Arkansas.gov.http://www.arkansas.gov/governor/newsroom/index.php?do: newsDetail=1&news_id=172 (accessed January 23, 2008).

(2) 2008. Bodine Aluminum, Inc. http://www.toyota.com/about/our_business/operations/manufacturing/bodine/ (accessed January 23, 2008).

(3) 2008. Nucor.com. http://www.nucor.com/divs.asp?iwhichone=27 (accessed January 23, 2008).

Jeff Wallace, Ph.D.

Dr. Jeff Wallace is an Economist and Research Associate Professor of Applied Economic Research at the Sparks Bureau of Business and Economic Research at the University of Memphis. He has been in this position since 1994.

Dr. Wallace specializes in economic impact studies, having most recently completed an economic impact study of the University of Tennessee's College of Pharmacy (2006-2007), a study of the economic impact of Baptist Memorial Health Care Corporation (2005), and the economic impact of Memphis International Airport (2005).

Dr. Wallace also has substantial experience in tax revenue forecasting, government fiscal analysis, survey research, labor market analysis, product-market pricing analysis, state labor training program evaluation, and other state and local government program evaluations. Table 1. Memphis Area Home Sales, 2006 and 2007

Percent

2006 2007 Change Total Home Sales 19,738 16,791 -14.9% Median Sales Price $138,000 $136,000 -1.4% Average Sales Price $173,200 $171,000 -1.3% Sales volume $3.42 billion $2.87 billion -16.1% Source: Memphis Area Association of Realtors. Chart 1. Memphis Area Home Sales, 2006 and 2007

1 Year 1 Quarter 5 Year Memphis, TN 3.4% -0.1% 19.1% Nashville, TN 6.6% 1.4% 35.4% Chattanooga, TN 5.8% 1.9% 32.5% Knoxville, TN 6.6% 1.0% 40.3% Seattle, WA 7.8% 1.2% 67.2% Miami, FL 3.5% -0.8% 115.0% U.S. 1.8% -0.4% 46.9% Source: Office of Federal Housing Enterprise Oversight, November 29, 2007. Note: Table made from bar graph. Chart 2. Employed Memphis MSA Residents, 1997-2007 (000) 1997 581 1998 564 1999 572 2000 571 2001 567 2002 559 2003 560 2004 557 2005 564 2006 576 2007 591 Note: 2007 data are preliminary. Source: U.S. Bureau of Labor Statistics, Current Population Survey (residence base), and Tennessee Department of Labor and Workforce Development. Note: Table made from bar graph. Chart 3. Population Growth, Tennessee and Selected MSAs, 1990-2006