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“The South will rise again” is a mantra that emerged during the mid-19th century with significant political and social undertones. But looking at the statement from a purely economic point of view, it stands as an accurate prediction of business conditions. Led by metropolitan areas such as Houston, Dallas, Oklahoma City, Atlanta, Charlotte and Miami, the South is rising again economically, which of course translates into new construction opportunities.

Employment and Investment
Much of the regional focus recently has been on the dip in oil prices and the prospective impacts this will have on the economies of Texas and Oklahoma. According to research conducted by analysts at the Federal Reserve Bank of Dallas, the 2015 Texas job growth forecast remains healthy despite the oil price shock. According to the Dallas Fed, job growth in the Lone Star State “will likely slow from about 3.6 percent in 2014 to between 2 percent and 2.5 percent in 2015.” That equates to approximately 235,000 to 295,000 new jobs in Texas in 2015, down from an estimated 408,000 positions created in 2014.

The implication is that Texas’ economy will add jobs at roughly the national rate despite the dive in oil prices. Meanwhile, tourism and residential-oriented markets in Florida, Georgia, South Carolina and Tennessee are likely to benefit from cheaper gasoline prices, helping the South maintain its current economic momentum. During a recent 12-month period, Florida ranked fourth in percentage job growth, behind only North Dakota, Texas and Utah. North Carolina ranked sixth, Georgia ranked seventh, South Carolina and Tennessee tied for 12th, and Oklahoma ranked 15th.

Ongoing industrial investments in Louisiana will render the Pelican State a growth leader this year and into the future. Economists have attributed the surge in industrial investment in Louisiana to three factors: the shale energy boom, rebounding residential real estate and the widening of the Panama Canal. According to a study released by the NAIOP Research Foundation, nearly $5 billion in direct industrial construction spending occurred in Louisiana in 2013, well ahead of
Iowa, which ranked second with more than $2 billion in industrial projects. Louisiana also ranked second in the nation for new personal income generated via construction spending, with nearly $4 billion in earnings that year. Texas ranked first at $4.8 billion.

Correspondingly, most southern states have been leaders in construction employment gains. In terms of the absolute number of construction jobs added during a recent 12-month period, Texas ranked first, Florida was second, North Carolina was sixth and Tennessee was eighth. Louisiana, Alabama, Arkansas and Georgia also added a significant number of construction jobs during the past year, and the outlook for Louisiana and Georgia remains especially bright.

Unemployment in theSouth remains unusually low. Typically, the South is associated with higher rates of unemployment than the North, a reflection of educational attainment, the cyclicality of manufacturing segments concentrated in the region, and seasonal factors related to leisure and hospitality. However, five out of 13 southern states boast unemployment rates below the national average, led by Oklahoma and Texas with rates of 4.2 percent and 4.7 percent, respectively (based on December 2014 data). Another three states—Alabama, Arkansas and Kentucky—have unemployment rates essentially equal to the national average. At 7.2 percent, Mississippi has the region’s highest unemployment rate.

Construction Backlog Recovery
During the final quarter of 2014, Associated Builders and Contractors’ (ABC) Construction Backlog Indicator for the southern states stood at 7.2 months. During the worst of the downturn, backlog across southern firms surveyed by ABC stood at 5.1 months. Like the overall recovery, backlog has been erratic, but southern firms appear to be on the verge of getting busier with the obvious exception of certain companies active in the oil patch.

It is also important to remember that while oil production-related investment may slip going forward, investment related to natural gas is set to expand. This is nowhere as true as in Louisiana, where the U.S. Federal Energy Regulatory Commission (FERC) has authorized two liquefied natural gas (LNG) export projects. The Sabine Pass Liquefaction Expansion Project involves the construction of two new LNG liquefaction and purification plants. The entire project will lead to $18 billion in construction.

The nearby Cameron LNG project received approval in April 2014, with construction beginning in October 2014. This project will directly account for $10 billion in new construction.    

Looking Ahead
While it is tempting to fixate on energy production, more important economic dynamics are at work. At the top of the list is demographics. The South is home to several of the most rapidly growing states in terms of population.

At the head of the class is Florida, where vast amounts of retirees and near-retirees are migrating from areas such as the Northeast. With stock prices surging recently, many baby boomers feel freer to retire and move to states like South Carolina, Tennessee and Florida. This population growth triggers both residential and commercial construction.

Given that the nation remains on the front end of the baby boomer retirement tsunami, the long-term outlook for nonresidential construction in the South remains distinctly positive.

Anirban Basu is chief economist of Associated Builders and Contractors. For more information, visit www.abc.org.

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