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Spring 2012

The 2012 SB&D 100

Manufacturing Rules the South, Again!

By Mike Randle and SB&D Staff

Eight of the top 25 job-generating announcements made in the South in 2011 came from the automotive sector. With 82 projects overall of 200 jobs and/or $30 million or more in investment, automotive set a new single industry record for the most projects in the 19-year history of the SB&D 100. Pictured is a worker at GM's Spring Hill, Tenn., plant, which is scheduled to open again for assembly in the fall. GM's Tennessee project was the No. 1 job announcement in the South in 2011. Since 1993, the American South has rung up 9,767 corporate and industrial projects and each announcement called for at least 200 jobs and/or $30 million or more in investment. In 2010, there were 594 projects meeting or exceeding those thresholds, the second-best total since 1993, which is the year the SB&D 100 debuted. Only in 1997 -- with 636 big deals -- did the South turn more "game changers" than it did in 2010.

So, how did the South follow up a 2010 year that was the best since 1998 in projects of 200 jobs/$30 million or more in investment? In the case of calendar year 2011, you follow it with a better-than-average year. The total of 539 projects meeting or exceeding our thresholds announced in the South in 2011 beat the 19-year average of 514, but not by a as much as it did in 2010. Yet, in today's choppy economy, most of those involved in business and economic development in the region will take anything that's better than average.

More than that, though, the South's economic development performance in 2011 means that 2010's noted achievements were no fluke. From calendar 2009 to 2010, projects jumped by 277 deals, the largest one-year rise in SB&D 100 history. That was after 2009's disastrous year that saw just 367 big projects, the worst total ever. The drop from 2010's record year from 594 to 539 in 2011 means the region saw one great year and one good year, back to back.

Manufacturing rules

Of the 539 big projects posted in this year's SB&D 100 listing, exactly 350 came from the manufacturing sector. That figure represents the best year ever for manufacturing in the 19 years the SB&D 100 has been published. The previous best from the South's manufacturing sector came last year with 335 deals of 200 jobs and/or $30 million or more.

Yep, manufacturing rules the South and even the best economists anywhere couldn't have predicted this about-face in the region's economy. After all, from 1996 to 2005, the services sector outperformed manufacturing projects in dominating fashion. In the 10 years from 1996 through 2005, there were 3,241 service-oriented projects meeting or exceeding our thresholds. The manufacturing sector could only muster 2,101 deals in those 10 years. That's 61 percent services and 39 percent manufacturing. No wonder you heard things such as, "We don't make anything anymore in this country," or "Manufacturing is gone and those jobs are never coming back."

Now let's turn to the past six years, or 2006 through 2011. There have been 1,761 manufacturing projects announced meeting or exceeding SB&D's thresholds and only 1,160 service industry projects (see Chart No. 1). In those six years, the percentages are manufacturing with 60 percent and services with 40 percent. Indeed, the tables have been turned to nearly identical percentages. As for the record years, manufacturing's record year was 2011. The services sector's record year was way back in 1997. Those facts should change the catch phrase from "we don't make anything anymore" to "we don't serve anyone anymore."

Chart No. 1

Manufacturing vs. Non-Manufacturing
 
SB&D 100 1993-2011

YEAR MFG. NON-MFG. TOTAL DEALS
       
2011 350 189 539
2010 335 259 594
2009 227 140 367
2008 291 138 429
2007 301 209 510
2006 257 225 482
2005 219 370 589
2004 292 297 589
2003 189 277 466
2002 164 245 409
2001 165 282 447
2000 209 312 521
1999 194 346 540
1998 228 344 572
1997 229 407 636
1996 212 361 573
1995 310 243 553
1994 281 189 470
1993 303 182 485

*Total projects announced of 200 jobs and/or $30 million or more in calendar year 2011. Source: SB&D

Job totals anemic

While we may not miss the days in the 1990s of mostly low-wage service positions dominating the South's economy, we do miss the job totals. Back in the 1990s, when services topped manufacturing projects by more than 60/40, job creation was at its peak in the South. In fact, I remember one of my all-time favorite Southern economic developers, Fred Harris, the former President of the Nashville Chamber of Commerce, telling me in the late 1990s, "Mike, it is amazing. We have people who are working who don't even want to work."

Things aren't so rosy on the job front today. Check out job totals from each SB&D 100 from 1993 to 2011, as Chart 2 illustrates. The SB&D 100 -- the 100 largest job announcements made each year -- generated totals well over 100,000 each year from 1994 to 2000. Then the recession of 2001 came and those job totals came crashing down. Except for years 2004 and 2005, when SB&D 100 job totals topped 90,000, there hasn't been a year when those incredible sums generated in the 1990s were threatened. As for 2011, well, it was no different than any year in the last six years, except that it was worse.

Job totals from the 100 largest projects in 2011 were the second worst on record, with only the recession year of 2002 generating less. The 70,573 jobs created in this year's SB&D 100 fell by over 13,000 from last year's total of 83,739.

Chart No. 2

Total Jobs Created by SB&D 100 - 1993-2011

YEAR *JOBS CREATED
   
2011 70,573
2010 83,739
2009 78,075
2008 75,211
2007 71,188
2006 82,513
2005 92,847
2004 91,135
2003 75,418
2002 68,651
2001 82,826
2000 111,758
1999 113,136
1998 116,721
1997 125,226
1996 136,442
1995 124,011
1994 118,550
1993 94,431

*Totals are derived from the 100 largest job announcements made in the American South from 1993-2011. Source: SB&D

Every state and community in the South is dead-set on advanced manufacturing and there is plenty of it to go around. There is another form of manufacturing that is beginning to find its way back to the region, too. Furniture and textiles, two sectors left for dead, are making a comeback in the rural South and much of that activity is the result of re-shoring from China. This photo was taken by editor and publisher Mike Randle as he toured the Genesis furniture parts plant in Keysville, Va. in the spring quarter. Genesis is a supplier to Virginia-based Bassett Furniture (see story page 33). I was very impressed with the product quality, the work ethic I saw with the plant's team and the entire Genesis operation, Randle said. The future looks bright in the South for industries we thought we had lost forever.What is happening? We can only speculate on what is happening. But this we do know. . .there is no way manufacturing -- even in record years like 2010 and 2011 -- with all of the technology found on today's factory floor, is going to challenge the service industry in job generation. Generally speaking, manufacturing jobs are better jobs than service jobs. But the days of thousands of folks working on one factory floor are numbered. And with services sucking wind, it's up to manufacturing to create the bulk of the new jobs right now in the South and it just isn't built for that anymore.

I will give you just one example: In the spring quarter, I visited Ford's brand new, old plant in Louisville. It is brand new because Ford gutted the facility and installed state-of-the-art equipment to build its new Escape SUV model. It is old because the building has been there since the 1950s.

The plant officially reopened for business in the spring and I toured the facility before the reopening. I was amazed as a Ford worker showed me the latest in robot technology being used at the plant. This one robot was installing doors to vehicles coming down the line. The doors were also moving on another line. Both lines were stopped as this one door was sitting in place for the robot to grab it and install it. The Ford employee said, "Now move that door four inches to the right." So I did. He then explained that these new robots have eyes. So as the lines moved again, the robot hunched over the door, stopped, gazed at the door for a second or two, moved four inches to the right, and then it grabbed the door and placed it perfectly on the car.

Now you can easily imagine how many boots on the factory floor are being replaced by robots, especially now that they have eyes! It is no different than technology replacing farm workers over the decades. Does it mean we have failed in agriculture or manufacturing? Nope, it is the exact opposite. Today, with new technologies, we produce ten-fold over when the two sectors were so labor intensive.

Service sector has to step up

While we can speculate on at least one reason why job growth is anemic in the South, we can also theorize on what needs to happen for job growth to improve. The aforementioned rise in manufacturing is creating jobs, just not near the level that services did for many years before the Great Recession began. And if you look back at Chart No. 2, you will see that while manufacturing increased its deal total again -- something it has done with regularity over the last several years -- the service sector had another huge setback in 2011.

In 2005, services generated 370 projects of 200 or more jobs in the South. That total collapsed in the recession, to 138 in 2008 and 140 in 2009. That's a loss of more than 550 game changing projects averaging more than 500 jobs each during those two years. So it wasn't manufacturing that collapsed in the Great Recession; it was services.

When the 2010 numbers came out, they gave us hope that the service sector was staging a comeback with 259 large job generating projects. Yet, in 2011, the total number of service deals of 200 jobs or more fell back to 189.

From 1996 -- when services beat manufacturing for the first time ever in total deals announced of 200 jobs or more in the South -- until 2005, the services sector averaged 324 big job generating announcements. The average since shortly before the Great Recession officially began until the end of 2011 (2006 through 2011), is 193 projects of 200 jobs or more. When your best job generating sector -- services -- performs as if it is still in a recession and new manufacturing technology is replacing boots on the factory floor, you don't have a good combination for job growth. 

Financial services: The canary in the coal mine

I was the keynote speaker at the Tampa Bay Partnership's annual meeting in April 2005. During the Q&A segment, I was asked by a member of the audience, "What do you think about the housing crisis?" Housing crisis? I had never heard of the phrase "housing crisis" at the time, but apparently one was underway in Florida as early as April 2005.

Almost a year later, when I looked at the 2005 SB&D 100 numbers, one sector stood out. Financial services with 200 or more jobs fell like a rock that year to 21 projects in the South. The year before (2004), that figure was 52 big deals from financials. When I saw that financial services fell from 52 projects to 21 in one year, I remembered that audience member's question at that Tampa Bay speech. But at the time, I simply dismissed it.

Since that severe drop in large job generating projects coming from financial services from 2004 to 2005, the sector has performed like this:

Chart No. 3

Financial services sector performance 2004 to 2011

YEAR PROJECTS
   
2011 9
2010 27
2009 18
2008 9
2007 13
2006 14
2005 21
2004 52

*Total number of financial services projects announced from 2004 to 2011 of 200 jobs or more in the American South. Source: SB&D
 
It should be noted that from 1993 through 2011, financial services averaged 35 projects of 200 jobs or more in the region. That average was 43 per year prior to the meltdown of 2005. That was good enough to earn third place, behind only the automotive and call center sectors, in total number of projects of 200 jobs or more from 1993 to 2005. That means that for 12 years, financials were one of the "big three" job makers in the South. Today, they rank up there with wood products and appliances, two up-and-coming industries as a result of re-shoring, although these are two sectors that have no right to compete with financial services.

As you can see by Chart No. 3, the financial services industry today has struggled to create jobs unlike any sector we cover. And if the drop from 2004 to 2005 was the canary in the coal mine regarding the Great Recession, then what about the drop from 2010 to 2011? Let's hope the latest crash of financial job making deals isn't a red flag for another recession.

For the South to drop its unemployment rate significantly, we strongly believe that services -- specifically the financial services sector -- have to step up in job creation. That doesn't mean some service sectors are not doing well. In 2011, health care performed way above its 19-year average, as did headquarter projects. Distribution is right at its average, yet call centers -- a monster of a job maker for two decades in the region -- is performing as poorly as financials. With 25 projects in 2011, the call center industry falls far below its 19-year average of 58 (see Chart No. 4).

Chart No. 4

TOP INDUSTRIES 2011 PROJECTS
   
1.  Automotive 82
2.  Oil & Gas 57
3.  Chemicals 46
4.  Healthcare 39
5.  HQ 38
6.  Energy 37
7.  General Manufacturing 35
8.  Food & Beverage 33
9.  Distribution 30
10. IT/Telecommunications 26
11. Call Centers 25
12. Aviation/Aerospace 23
13. Data Centers 17
14. Building Materials 15
15. Wood Products 13
16. Financial Services 9
17. Engineering 7
18. Shipbuilding 6
19. Pharmaceuticals 6
20. Appliances 5

*Totals are derived from all projects announced in the American South in 2011 with 200 jobs and/or $30 million or more in investment. Source: SB&D

Manufacturing rules, so SB&D 100 investment totals rise

Three things jump out at you when reading the adjoining top industries chart regarding performance in this year's SB&D 100. The automotive industry went nutty-nut again, posting 82 projects in the Southern Automotive Corridor (www.SouthernAutoCorridor.com) in 2011 of 200 jobs and/or $30 million or more in investment. The automotive industry had a huge comeback year in 2010 with 60 announcements posted on the big deal board. With 82 in 2011, automotive set a record for all sectors with the most projects in any SB&D 100 year. The South's largest industry is flexing its muscles like never before. 

Another item that jumps out when reading Chart 4 is the oil and gas industry. While essentially every automotive sector deal is publicly announced, that is not true with oil and gas. For example, when a driller needs 300 more workers at its sites in Texas, that event is rarely announced publicly. So, for oil and gas to post 57 big deals is remarkable.

We ran a cover story in SB&D in the Winter 2009 issue with a headline, "Where's the bounce?" and a subhead that read, "Different industries have bounced the South out of previous recessions. This recession will see a new leader emerge." The story examined how the automotive industry had bounced the South out of the two previous recessions, but with this one, we predicted, the energy sector would do it. Well, look at Chart No. 4. Both automotive and energy are bouncing us out of the Great Recession. In fact, if you combine both oil and gas with the energy category shown in Chart No. 4 -- which includes clean-tech and traditional energy sources -- the overall energy project total in 2011 was 94 big deals, a sum that surpasses the automotive sector.

The next-best industry for big projects in 2011 was the chemicals sector. That industry has been on a roll the last few years, posting 38 big deals in 2010 and 46 in 2011. It should be noted that almost all of those projects are centered in Louisiana and Texas.

Chart No. 5

Total Investment by SB&D 100 - 1993-2011

YEAR INVESTMENT
   
2011 $41.9 Billion
2010 $35.9 Billion
2009 $27.4 Billion
2008 $53.7 Billion
2007 $45.1 Billion
2006 $44.2 Billion
2005 $26.7 Billion
2004 $22.2 Billion
2003 $22.1 Billion
2002 $18.3 Billion
2001 $25.0 Billion
2000 $25.8 Billion
1999 $24.6 Billion
1998 $22.6 Billion
1997 $19.8 Billion
1996 $23.8 Billion
1995 $22.6 Billion
1994 $18.8 Billion
1993 $17.4 Billion

*Totals are derived from the 100 largest investment announcements made in the American South from 1993-2011. Source: SB&D

As you can see by reading Chart No. 5, totals from the 100 largest investments made in the South almost hit the $42 billion mark, the fifth best total in 19 years. It is a $6 billion increase from 2010 and a $14 billion rise from the last year of the recession, which was 2009.

Here is something special from the investment side of the ledger: Never before has the South seen two $5 billion or more single project investments in any year. Not only that, those two projects were announced in the same place. Both Sasol Limited and Cheniere Energy invested in gas projects in Southwest Louisiana in 2011 that topped $5 billion each. That's an all-time record for any community. In fact, $11.3 billion in total investment would be an all-time record for many states in the South. For it to happen in one region of a state -- Southwest Louisiana -- is noteworthy.

Trends: The winners

Do you remember when the automotive industry was on its knees? Sure, GM and Chrysler filed for bankruptcy during the Great Recession. But while they were down, the foreign automakers in the South simply retooled their plants, as did Ford. The result is nothing short of incredible. The automotive industry is the "big kahuna" in the South and will be for many years to come. Over the course of the 19-year history of the SB&D 100, no sector -- service or manufacturing -- can compete with automotive in the number of large projects it posts almost every year. The 82 big projects that came from the automotive sector in 2011 is an SB&D 100 record for an industry.

The automotive industry and manufacturing in general rules the South's economy like no time in the past 20 years. Here, Southern Business & Development owner Mike Randle stands next to the first vehicle built at Toyota Motor Manufacturing Kentucky's plant in Georgetown. The 1988 Toyota Camry model only has 60 miles on the odometer. The Georgetown, Ky., plant is Toyota's largest outside of Japan. The facility and its more than 7,000 team members build approximately 2,000 vehicles a day. Job generation in the oil and gas industry is off the charts, too, in the Southern states that have it. That, of course, would be states in the western portion of the South beginning with Mississippi, and in Kentucky and West Virginia. Unless new environmental laws are put into place to slow shale gas plays, more of those jobs will be created in other places, such as Alabama, North Carolina and Virginia.

Because of the annual SB&D 100's methodology, we can't give the oil and gas industry near enough credit because, as mentioned earlier, most of those projects are not publicly announced. But we can say with confidence that if every hiring session of 200 jobs or more was announced publicly by the oil and gas industry in 2011, it would have overtaken automotive as the No. 1 performing industry last year.

Seattle-based Amazon.com was busy again with projects in the American South in 2011. We counted seven large new deals in Tennessee, Virginia and South Carolina to go with others the online retailer has built in states like Kentucky and Texas in recent years. Did you see Chart No. 4 and how many data center projects made the list? The "computer cloud" is humming with activity in the South. We already mentioned health care and its impressive performance. And what about the food-and-beverage industry or aviation and aerospace? Those two sectors had great years. And check out new, relocated and expanded headquarter announcements. There were 38 of them in 2011, far exceeding the previous record of 24 set last year.

Trends: The losers

We have already covered the problems facing the financial services industry. That sector has been down way too long. It is due for a comeback at some point soon. Another industry -- one without the long history of financials -- had a down year compared to the last two or three. Renewable energy -- solar, wind, biofuels and such -- saw but 14 significant projects in 2011 compared to more than double that number in 2010. Don't think that means renewables are fading from the scene. We believe renewables will continue to grow dramatically over the years. It is not a matter of if, but when. When solar, wind and other renewables reach "crossover," which is the point at which renewables become cheaper than fossil fuel energy, green energy will grow to its potential. Until then, though, that sector is going to be a bloodbath.

Lastly, one big loser this year has got to be biotech. There were six pharmaceutical projects that made our lists this year and no pure biotech deals. We were told about a decade ago that the bio industry was the future. Apparently, those experts were as wrong as the ones that told us that semiconductors were the future back in the early 1990s.

Well, since the 1990s there have been only three semiconductor plants announced in the South. One remains open. Biotech is still around in a few places, namely Raleigh and Durham, and in parts of Virginia and Florida. Yet, overall, this once promising sector has been one big dud when it comes to job creation in the South.

Editor's note: This section continues with the annual SB&D 100 Top Deals & Hot Markets report, followed by the state report.


  
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