Outlook for 2006: slow but steady

Outlook for 2006: slow but steady

3 economists take stock of Memphis and the world

By David Flaum
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December 16, 2005

Economists can usually find some cause for optimism.

The three who spoke Thursday to about 150 members of the Economic Club of Memphis were no different, although none was very specific about what he expects will happen next year.

"The good news and bad news about the Memphis economy is that it's going to be slow and steady growth," said Dennis Wilson, senior research associate in the Sparks Bureau of Business and Economic Research at University of Memphis.

"We don't see any shocks, either positive or negative, that would change that," he said.

Earlier in the session at the Holiday Inn at U of M, Gene Huang, chief economist for FedEx, said he considered the economic glass half-full.

And Howard Wall, director of the Center for Regional Economics at the Federal Reserve Bank of St. Louis, said that if the Tennessee, Mississippi and Arkansas job growth picture moved toward normal the labor market picture would be brighter in 2006 than it has been over the past four years.

In Shelby, DeSoto and Crittenden counties, local businesses are doing well, Wilson said.

Large employers, including FedEx and AutoZone, are strong, efforts to boost the bio-tech industry are making headway and firms such as Hino Motors in Marion are adding jobs to the economy, he said.

He downplayed the risks of a real estate bubble bursting in the area.

"We've had growth in prices, but the bubble is mainly an East Coast and West Coast phenomenon," Wilson said.

According to figures from the National Association of Realtors, the median home price in Memphis in October was about $145,500, up a modest 3.9 percent over the previous year.

Still, the path is not clear to strong economic growth.

The area faces challenges including an influx of hurricane evacuees, an undereducated and low-skilled workforce coupled with a weak commitment to financing education, Shelby County property and sales tax bases eroding by people and businesses moving away and rising energy prices, Wilson said.

Energy prices are the No. 1 risk to global and national economic growth next year, Huang said.

Oil is hovering at $61 a barrel with forecasts of a range in the coming year of $55 to $64 -- high by historic standards, he said.

Meanwhile, the world economy is in its midlife, Huang said.

That means rising inflation, increasing competition, strong corporate financial positions, growing merger and acquisition activity and steadily gaining labor markets.

Huang sees U.S. economic growth above the world average next year with emerging nations slightly higher than the global mark while Europe and Japan are below, but gaining ground.

Wall focused on the job situation in Tennessee, Arkansas and Mississippi.

He pointed out that the job recession hit all three states, but especially Mississippi, before the national downturn hit. It lasted longer in the Magnolia State, although the picture improved in Tennessee and Arkansas in 2004 before the national upturn.

Still, job growth in the three states has been below the national mark for several years.

While the Fed is barred from making economic forecasts -- people might think the economists have secret knowledge when they don't -- Wall said if you believe the three states will revert to average, "2006 will look brighter on that basis."

-- David Flaum: 529-2330