The Louisiana economy.

An examination of the Louisiana economy provides a study in contrasts. Not only is the state split between two Federal Reserve Districts, it is similarly geographically split between those areas severely affected by the hurricanes of 2005 in the South and those fortunate enough to largely escape the wrath of nature in the North. Economically speaking, Louisiana is mainly driven by large southern metro areas at or below I-10 which were affected by the hurricanes--most importantly New Orleans and Baton Rouge. New Orleans was affected very negatively. Baton Rouge was also affected, not so much by the storms, but by their aftermath in the form of an increased population that it had limited capacity to absorb. To provide some insight into the severity of this resettlement issue, a quick examination of statistics is necessary. Louisiana had a population of almost 4.5 million persons prior to the storms and slightly over 4.2 million afterwards--a loss of over a quarter of a million persons. New Orleans had a population of approximately 1.4 million persons prior to Hurricane Katrina, but this number dwindled because the city was only capable of supporting less than 300,000 on dry land after the storm. Almost overnight, Baton Rouge added over 35,000 persons (4.8 percent) to its population. Almost 76,000 businesses employing over 1.2 million persons existed within those parishes declared as disaster areas after the hurricanes. Unfortunately, within these parishes, the affected industries and associated employment were mostly in the areas of greatest need--healthcare and social services, retail, and accommodations. These statistics provide a very limited backdrop to what the state was facing as it entered 2006.

A short trip back into history would reflect that 2006 was simply a year of challenges in recovery, resettlement, and cleanup, but little rebuilding. As 2006 waned and 2007 began, the southern part of the state began to experience more and more rebuilding as federal, state, and private recovery resources became available in increasingly larger amounts. By the middle of 2007, almost 50,000 of the quarter million persons who left the state had returned. Economic conditions further improved during 2007 as hotels and motels came back on line to support a slowly recovering tourism industry in New Orleans, Lafayette, and Lake Charles. Because of the sources of money for rebuilding--largely insurance or government--residential building in the southern part of the state increased significantly in 2007 despite the decline in construction occurring elsewhere in the nation.

Agriculture, which plays an important role in the Louisiana economy, was variously affected by the hurricanes depending upon the crops involved. Fortunately some of Louisiana's heavily exported crops escaped extensive hurricane damage because their harvest seasons were over. Sugar cane, rice, and sweet potatoes, which tend to be produced in the southern part of the state, were affected by saltwater intrusions-an effect that will be long lasting. Similarly timber, which is found throughout the state, was heavily damaged in the South by the high winds and could not be harvested easily or was completely lost. In the year after the hurricanes, challenges occurred in the form of late spring rains that delayed planting, followed by near-drought conditions during the summer, then heavy fall rains that delayed harvest. Despite all of these hampering conditions, the state experienced production above five-year averages for many commodities during 2006 that foretold events for 2007 continuing into 2008. With commodity prices for corn at record levels as a result of its use in ethanol production, the northern and central parts of the state shifted extensively to this crop from cotton and soybeans, which had been historical mainstays. In 2007, corn yields hit record highs, and the smallest soybean crop in years helped maintain strong soybean prices. Increasing foreign demand occurring as a result of the declining value of the dollar should allow these agricultural products to contribute significantly to continued recovery within the state during 2008. Moreover, most of the state's port facilities are back on line, which allows the five major ports in the state to resume handling over 25.0 percent of the nation's waterborne cargo annually.

Statewide nonfarm employment was up over 42,000 jobs as of November 2007 from the previous year, and unemployment at 3.5 percent was significantly below the 4.7 percent rate for the nation. The New Orleans MSA is experiencing very slow recovery and added some 15,200 (3.0 percent) nonfarm jobs back into its economy during 2007. Year-end estimates place the New Orleans MSA population at about 87.0 percent of its pre-Katrina levels. It is obvious that progress in this MSA during 2008 will be slow given the non-availability of housing and difficulties in reestablishing necessary infrastructure.

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Since Louisiana is home to approximately 10.0 percent of known U. S. oil reserves and over 25.0 percent of U. S. natural gas supplies, these commodities would be anticipated to contribute significantly to recovery. Oil prices are expected to remain at historically high levels that will support not only the Louisiana economy, but also continued exploration and expansion of drilling activity in the Gulf. Additionally, the shipbuilding that is closely associated with oil platforms will be positively affected by continued high demand and high prices for oil. Mineral production or anything associated with this industry should be excellent in the upcoming year..

All in all, absent any new devastation, Louisiana is expected to continue to experience continued recovery in 2008, which is likely to occur at a rate beyond that of the nation. All of the relevant sectors of the state's economy appear to be moving in a positive direction and a new governor, who made ethical reform and economic development the primary pillars of his election platform, is expected to impact positively upon this continued improvement. The nation's problems in the subprime lending market and the downturn in the national housing market should not affect the state to a great extent unless these cause softening of business interest in capital outlays that are critical to recovery in New Orleans and the southern part of the state.

Jerry L. Wall, Ph.D., SPHR, APD

Dr. Jerry L. Wall is Dean of the College of Business and a Professor of Management at Northwestern State University of Louisiana. He earned his doctorate from the University of Missouri--Columbia, and he holds earlier degrees from East Carolina University and Oklahoma State University. He also holds advanced accreditations in Human Resources Management. He is a graduate of Leadership Louisiana, was a member of the Louisiana Data Base Commission, LIDEA, and the CABL Tax Institute, among other activities. He served as the President of the national Association for University Business & Economic Research (AUBER) and on the national board of directors of the Military Officers Association of America (MOAA), a 370,000- member organization. He just stepped down from the presidency of the 225-member Downtown Monroe Rotary Club and has been very active in Rotary for almost 25 years.

In his previous job as Director of the Center for Business and Economic Research (CBER) at the University of Louisiana at Monroe, Dr. Wall collected, processed, analyzed, and disseminated information on Louisiana and was frequently called upon by statewide and national media for commentary on economic and business issues.

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