The Mississippi economic outlook, 2008.

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The economic future is never certain, but it looks especially risky at this early stage of 2008. The subprime mortgage credit crisis, $90-$100 per barrel oil, falling consumer and business confidence, weak December 2007 employment growth, Christmas retail sales that fell 0.4 percent, and a falling stock market are the foundations upon which we must build a state economic forecast. While state economies are not immune from these forces, they may or may not mirror those trends based upon their own economic structures and special circumstances. For that reason, it is important to begin our forecast with some discussion of the structure of the Mississippi economy and the lingering impact of Hurricane Katrina.

Changing Structure of the Mississippi Economy

Historically, the Mississippi economy has had a relatively large manufacturing sector. In 1997, manufacturing employment accounted for 21.0 percent of total nonfarm employment in the state, compared to 14.4 percent for the U.S. By 2007 (November), that share had fallen to 14.6 percent for Mississippi and 10.0 percent for the U.S. This decline in the relative importance of the manufacturing sector in Mississippi constitutes the biggest shift among all the sectors in the state's economy.

The decline in overall manufacturing employment Mississippi followed national trends, but Mississippi's nondurable goods sector showed a far larger relative drop compared to the rate for the U.S. Using 1997 as a base, nondurable goods employment in Mississippi fell to 71.0 percent of the 1997 level, while for the U.S. the comparable decline was 81.0 percent.

A total of 56,200 manufacturing jobs were lost between January 1997 and November 2007, almost 25.0 percent of total manufacturing employment. It now appears that the rate of job losses in this sector has moderated, although further consolidation in the nondurables sector is likely.

The other significant change in structure, although much smaller in absolute size, occurred in the state's information sector. In the 1990s, a Jackson telecommunications company called LDDS, led by Bernie Ebbers, began an aggressive strategy of acquiring other telecommunications companies. This strategy continued until 1998 when the company, then called WorldCom, merged with MCI and became MCI-WorldCom. As firms were added to the WorldCom family, employment in the information sector in Mississippi grew rapidly, peaking in December 2000 at 17,900 employees. The collapse of MCI-WorldCom in a financial scandal resulted in a bankruptcy filing in 2002, followed by relocation of the company to Virginia in 2003. The result of this collapse of the telecommunications sector in Mississippi was a loss of 4,500 positions from the peak in December 2000 to November 2007.

The drag on the Mississippi economy from the restructuring occurring in the manufacturing and information services sectors made recovery from the 2001 recession even more difficult. A period of almost seven years elapsed between Mississippi's peak employment in May 2000 until it returned to that level in April 2007.

Growth Sectors

There have certainly been some positive developments in the employment picture over the 1997-2007 period. Positive employment growth, in order of importance, occurred in the construction, leisure and hospitality, transportation, trade and utilities, professional and business services, and government sectors.

The state's construction sector received a strong stimulus from the impact of Hurricane Katrina. Following a strong period of growth in the mid to late 1990s associated with the development of the gaming industry, the construction sector leveled off and showed some slowing during the 2002-2005 period. Following the impact of Katrina in August 2005, employment grew by 10,900 positions in less than two years.

The leisure and hospitality sector grew rapidly from the early 1990s through to the year 2000, peaking at 127,000 workers in December 1999. The effects of the 2001 recession resulted in some consolidation in this sector, followed by moderate growth until Katrina hit in 2005. The loss of some 13,000 jobs in the period immediately following Katrina cast a large shadow over the sector for several years. However, as casinos were rebuilt, the employment base slowly recovered and as of November 2007 had returned to pre-Katrina levels. A total of 20,000 jobs were added to this sector between 1997 and 2007.

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Employment in the transportation, trade, and utilities sector peaked in May of 2000 at 228,000 jobs. Following a loss of some 8,000 positions over the next two years, employment stabilized at about 220,000 until the impact of Katrina in 2005. Following a drop in employment immediately after the impact, increased spending for materials for rebuilding created additional employment opportunities in the trade sectors. Indeed, 85.0 percent of the increase in employment from 1997 to 2007 in this sector occurred in trade (wholesale and retail trade), with most of the increase occurring in the retail sector. Much of this Katrina-driven spending has slowed, and the rapid growth in employment in this sector is expected to moderate.

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The second largest sector in terms of job growth over the 1997-2007 period was the business and professional services sector, which added 24,500 positions. We can again see the impact of Hurricane Katrina in this employment story with 65.0 percent of the growth occurring in the administrative and support and waste management services sectors. Almost all of the growth occurred in the post-Katrina period. We believe that growth in employment in this sector will be moderating as the cleanup phase of Katrina has been largely completed.

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The sector with the largest absolute change in employment was the government sector, which added 32,900 jobs over the period. Almost all of this employment growth was in the state and local government sectors (99.9 percent), with only a 0.1 percent increase in federal government employment. Within state and local government, 84.0 percent of the growth was associated with local government employment, and much of that in the provision of local government educational services. Much of this growth can be explained by a policy to reduce classes in the state by adding more teachers to the classrooms with 81.0 percent of the post-Katrina increase occurring in the local government educational services sector.

The Katrina Impact

As noted above, the Mississippi economy was buffeted by three significant forces during the 1997-2007 period: continued secular declines in the manufacturing sector, restructuring of the telecommunications sector, and Hurricane Katrina. The first two events resulted in a loss of almost 58,000 jobs. While the specific impact of Hurricane Katrina on employment levels cannot be accurately measured, it is clear from the timing of the gains that a significant portion, though certainly not all, of the growth in the construction, professional and business services, and trade sectors may be directly tied to Katrina. While much remains to be done to restore the infrastructure and employment base of the Coast counties, the Katrina impact is not expected to be as large in 2008 as that already recorded.

The Forecast

A slowing national economy, the declining impact of post-Katrina expenditures, significantly slowing state tax revenues, and an economy still relatively heavy in non-durable manufacturing employment argues for a modest forecast for 2008. The relatively large year-over-year employment growth rates experienced in the months immediately following Katrina have already moderated.

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We expect further moderation due to the driving forces noted above, with the employment growth rate averaging less than 1.0 percent (0.8 percent) on a year-over-year basis by December 2008. This will amount to between 9,000 and 10,000 new jobs for the year. This growth is likely to be back-loaded with a much softer economy in early 2008, followed by an improving situation by the fourth quarter. While our forecast does not call for significant employment growth in 2008, Mississippi may escape the larger declines that are likely to occur in states where the housing bubble was more pronounced.

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William D. Gunther, Ph.D.

Dr. Gunther is Professor of Economics, the College of Business Administration, the University of Southern Mississippi. Dr. Gunther received his undergraduate degree in Accounting and Master's degree in Economics from Kent State University (Ohio). He earned his Ph.D. in Economics at the University of Kentucky. Dr. Gunther taught at the University of Alabama, last serving as Associate Dean for Research and Service and Director of the Center for Business and Economic Research from 1988 to 1998. He was Dean of the College of Business Administration at the University of Southern Mississippi from 1998 to 2003.

He has been a Visiting Fulbright Professor at the University of Veracruz, Mexico; Senior Fulbright Professor, University of Amazonas, Brazil; and a Visiting Scholar at the University of Sussex, England. He was selected as a Summer Faculty Fellow, U.S. Air Force Office of Scientific Research, and was elected a Service Fellow of the Academy of Finance and Economics. He received a Certificate of Commendation from the Governor of the State of Alabama for his contributions while on the Alabama Tax Reform Commission and the Certificate of Distinction from the Association of College Honor Societies.