Southern Business & Development's 15th Anniversary Edition Part II - 1998-2002
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 II of the series, which looked at economic development events and issues in the South from 1998-2002. 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.
1998-2002: A Five-Year Span that Saw it All
By Michael C. Randle
Editor's Note: This issue marks the second 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' 1998-2002. A listing of the largest projects announced in the South from 1998 to 2002 follows, as does a section on the South's No. 1 market over the past 15 years -- Dallas-Fort Worth. Also, a ranking of the South's top performing mid-markets from 1993-2007 is included as well.
The summer edition (published September 2007) looked back to years' 1993-1997 and the winter issue (March 2008) will focus on 2003-2007. The last issue celebrating Southern Business & Development's 15th Anniversary (spring -- June 2008) will look forward as we predict what will likely occur in economic development in the South over the next five years.
The year was 1998 and the World Wide Web was buzzing with startups, most of which would turn to vapor in the Dot-com bubble that would burst by 2000. Yet, in 1998, the South's economy was peaking like few years in the region's history. Only 1997 saw more large job-generating and capital investment deals in the region from 1993 to 2006. While the South's economy was incredibly sound in 1998, one major red flag flew, one few noticed at the time but us here at Southern Business & Development.
Since 1993, total jobs created by the annual Southern Business & Development 100 -- a ranking we publish revealing the top 100 job deals announced by corporations investing in the South -- rose each year. That was the case until 1998. Nineteen-Ninety-Eight's total of 125,226 jobs created by the 100-largest projects announced in calendar year 1997, represented the first decline in total jobs generated by the "100" in six years. That total would drop each year in the South until it rose again in 2004 (See chart).
*Total Jobs Created by the SB&D Job 100 - 1994-2007
* Job totals are derived from announcements made the previous calendar year
So, as you can see by the adjoining chart, the 1998 SB&D 100 was an impressive year in big job deals, the second-best in SB&D 100 history. But, at the same time, 1998 was a huge indication of things to come, even though no one knew it at the time. From 1998 to 2002, the period we are focusing on in this, Part II of SB&D's 15th Anniversary celebration, the "100" lost jobs each year. In 2002, large projects in the South finally hit rock bottom.
Drunk with Optimism
That's not to say that the late 1990s wasn't a wonderful time to live and work in the South. It was. From the highest paid employees to the lowest, to the angels of startup capital, to the entrepreneurs who were drawn to the Dot-com era -- virtually across the economic development board -- the late 1990s was a period of time that overflowed with optimism and for most, plenty of cash. The region's population, in fact, was drunk with optimism. The belief held by most was that the economy would continue to grow each and every year. While warm fuzzies were all around, the bubble was beginning to deflate.
A Solid Industrial and Technology Base Formed
The years of 1993-1997 saw the South's economy mature like few five year periods before it. That continued in 1998 and 1999, but by 2000 it was obvious that a drag on the economy was finally happening. The automotive, telecommunications and financial services sectors dominated major investments and job-generating deals from 1998-2002. Distribution, which is certainly a huge player in the South's economy today, showed to a degree, but nothing like today. The Dot.com bust, which many people pointed to as the beginning of the recession that followed, really didn't have the negative economic impact in the South that it may have had in California and elsewhere. More than anything, the spiraling economy of 2001 and 2002 was felt in just about every sector in the South, even though manufacturing in general suffered the most.
1998-2002: Automotive Rules the South
In the five years that are being featured in this edition, Honda (Alabama), Nissan (Mississippi) and Hyundai (Alabama) all picked sites in the Southern Auto Corridor (www.SouthernAutoCorridor.com) for huge automotive assembly plants. Those three facilities currently house almost 15,000 workers. Never before in the South's history had three major automotive plants announce in a five-year span.
But those three plants represented just a small portion of the automotive industry's impact on the South's economy from 1998 to 2002. The top 10 automotive deals announced in the South from 1998 to 2002 averaged $743 million in capital investments and 1,847 jobs per project. Saturn, Nissan, Honda, Hyundai, Mercedes-Benz, Michelin and BMW were just a few of the major automotive players that invested incredible amounts of money and hired tens of thousands in the Southern Auto Corridor in the years of 1998-2002.
Top 10 Automotive Deals in the South 1998-2002
|2. General Motors
||Anderson Co., S.C.
||Spring Hill, Tenn.
* Investment in millions ** New or Expanded
African-American Poverty Drops below National Average in the South for the First Time Ever
Of all the accomplishments made by the South's economy during years' 1998-2002, this one is our favorite. The perception remains that the South is a bastion of poverty for African-Americans in this country. The region continues to have its challenges, but blacks in the South have lifted themselves up like no other U.S. region of late. In the Winter 2001/2002 edition, the headline of my "Southbound" column read, "I have a Dream." And the subhead read, "Martin, Your Dream is being Realized in the American South."
We have republished that column in this edition (see page 4), since it is my personal favorite in the 15 years of publishing Southern Business & Development. But to summarize the story here, we reported that in 2001, for the first time in history, the poverty level of African-Americans in the South was below that of the national average. More specifically, in March of 2001, 21.4 percent of blacks in the South were at or below the poverty level. The national average was 22 percent in March of 2001 (24.4 percent in the Midwest and 22.5 percent in the Northeast). I thought that was an incredibly significant statistic -- that in March of 2001, African-Americans earned something they had never earned in the South.
Focusing on the Rural South
In the late 1990s, officials from Southern states realized that creating jobs in their metropolitan areas was like shooting fish in a barrel. As mentioned, so many industry sectors were expanding. After all, borrowing money was cheap, available capital was abundant and the stock market was setting records rarely seen in the Dow's history.
That being the case, many of the South's governors and other officials decided to give the region's major markets little assistance in landing new commerce and industry. The reason? Major markets in the South didn't need the help. Furthermore, growth management had become a major issue (read on) and the rural South was suffering from literally thousands of plant closures that occurred in the 1990s.
So, leaders of economic development in the region focused their attention on their distressed areas. They had decided to make a major attempt at creating jobs where they were needed the most. That meant new and bigger incentives for locating industry to the rural South.
Many Southern states enacted legislation that made it a lot more attractive for industry to locate in rural areas. The federal government did the same with Enterprise Zones and other enticements to locate in distressed areas. The efforts made perfect sense because the rural South was watching its traditional job base -- wood products, apparel and textiles -- disappear into thin air. It should be noted that the incredible job generating performance of the automotive industry helped the rural South out in a huge way in the late 1990s and in the really tough times of 2001 and 2002, as it continues to do today.
Smoke and Mirrors: Energy Trading and the Deregulation of the Utility Industry
The late 1990s and the early 2000s saw a level of smoke and mirrors in business and economic development that we have not seen since. Probably the most powerful word to emerge in economic development in the late 1990s was "deregulation." The word was being used everyday in the utility sector, a critical factor in economic development.
State governments in the South were deciding whether to deregulate the energy industry and make completely competitive what had been a very stable utility environment. Only a few states did. California was one of the first states to deregulate. Shortly after, California experienced an energy crisis, repeated blackouts in 2001 and PG&E, one of its largest utilities, filed for bankruptcy.
Georgia deregulated its natural gas sector. At first the move became a circus before it ultimately became a joke. Gas marketers came and left the Peach State and the lawsuits followed. Texas deregulated its electric utility industry in 2002. Not much has been made of it. But one thing is for sure. The prospects of deregulation faded and they faded fast. For all practical purposes, Southern states continue to operate in a regulated utility environment.
Energy trading emerged as well in the late 1990s. Remember Enron? Of course you do. Enough said. That was a cruel joke.
The Growth Management Craze
In the late '90s, economic development in general was so prolific that some governments in the South, influenced in large part by the media, sought to slow or even stop growth. It was deemed "growth management." Some called it "smart growth" and in places like Atlanta, Northern Virginia, much of Maryland, Houston, Orlando, Miami and Dallas/Fort Worth, among other large, growing metros, the words "sprawl" and "gridlock" were used time and time again by the media to influence and slow growth. Many metropolitan governments agreed that growth was out of control and placed restrictions on just about anything you could think of.
Back then you would read about moratoriums placed on new interchanges, bans on new sewer lines and new housing developments were shot down every week. Some markets even placed a limit on the recruitment of new commerce and industry. Then 2000 arrived and the presidential election. Things were about to change.
The best thing to come out of the growth management craze in the late 1990s was new interest generated in many Southern market's central business districts. Even blighted areas of many downtowns, uptowns and midtowns were looked at differently by developers. If growth management was designed to reduce sprawl, then that simply meant that cities in the South slowed linear growth and began to focus on the heart of the market.
Today, cities like Charlotte, Nashville, Richmond, St. Petersburg, Columbia, S.C. and many others, large and small, have redeveloped their central business districts into vibrant centers for entertainment and business.
The Presidential Election of 2000 and the Recession of 2001
We all know about the 2000 presidential election. But one thing we might have forgotten is that once President Bush came into office, the economy was obviously slowing. Bush tried to deflect the bad news by saying that a recession was brewing a year or two earlier under Clinton's watch. Depending on whom you talk to -- partisan politics was brick-thick back then -- there remains a debate about the state of the nation's economy shortly before Bush came into office.
But, one thing is for certain. There's no doubt that the economy was slowing in the South the last year or two under President Clinton. Our data at the time indicated that quite clearly. In fact, let's go back to the aforementioned job totals from the SB&D 100 in 1998. That year was the first in six years that job growth did not top the previous year. But, as if on cue, once Bush came into power, the economy began to slow dramatically at the beginning of 2001.
For example, in calendar year 2001, the South lost 300,000 manufacturing jobs, 61,000 of which were lost in North Carolina alone. At the time, Southern Business & Development argued strongly that the lost manufacturing jobs were simply a correction, therefore they would be back. Others were surmising that the jobs were lost forever and would not come back. It turns out that we were right as manufacturing has made a decent comeback in recent years in the South. Even better, the manufacturing jobs that have returned to the South are much more advanced on the pay scale.
But, it wasn't just manufacturing jobs that were being eliminated in the South in 2001. Georgia saw a net loss of almost 100,000 jobs from all sectors in 2001. On a per capita basis, even worse things were happening in South Carolina and Mississippi that year. Those two small Southern states lost about 23,000 jobs each in 2001. But here is one statistic that says it all. From 1996 to 2000, the South averaged over 700,000 net new jobs each year. That figure fell to a net of 31,000 new jobs in 2001. We were in trouble.
Then came 9/11. Everyone reading this knows that tragic story as well. But not everyone knows how far reaching the economic effects of that disaster eventually became. I realized that in 2004 while visiting Oklahoma. I toured a massive industrial park, one of the largest and most mature in the entire South. The person who took me on the tour pointed to several empty buildings. Each time he would say, "Then 9/11 happened and they went under, too." It was then that it hit me that the fear, anxiety and confusion that came from 9/11 could actually reach economies that were 2,000 miles away. Of course, I was way too naive. I now realize economies throughout the world were negatively affected by 9/11.
The tragedy in New York that was 9/11 came at a time when the entire country was at an economic disadvantage. We were hurting on September 11, 2001. As 2002 approached, the economy, specifically the South's economy, was headed for some dark times.
As for overall performance in the last 15 years, the South's economy in 2002 was the region's worst performing year. In fact, 2002 was probably the worst year for the South's economy since 1991. Yet, it's our opinion that the recession of 2001 and 2002 was much worse than what occurred during the Gulf War period of the early 1990s. The reason centered on the fact that the 2001/2002 recession lasted much longer.
In 2002, the SB&D 100 -- our annual ranking of the top deals in the South -- took a nosedive. The 100-largest deals announced in the South in 2002 generated a total of just 68,651 jobs. That sum remains the lowest on record, less than half of the total number of jobs generated by the 100-largest employment deals announced in the region in 1996.
But there was one bright spot in 2002. The automotive sector continued to grow in what is now widely known as the Southern Automotive Corridor. Even GM, Chrysler and Ford were humming with activity in 2002. While business closures ran rampant in every other sector, you couldn't count on one hand significant shutdowns or layoffs from the automotive sector in the South in 2002. Of course, that changed later, but you won't be able to read about that until we review years' 2003-2007 in our next edition.
The 1998-2002 Conclusion
Overall, we saw just about everything that the South's economy could throw at us from 1998 to 2002. We experienced the latter part of the Go-Go '90s, where money and deals were flying all over the place. And then the economy began to drag in 2000, slowed to a trickle in 2001 and bottomed out in 2002.
We will see you next issue when we profile economic development and the South's economy during the years of 2003-2007. That issue will come out in March of 2008. Feel free to get more updated information from our Web sites, www.SB-D.com, www.SouthernAutoCorridor.com and www.BioIndustrySouth.com.