The 2010 SB&D 100

The Great Recession is Over, Dead ... Finito in the South

If you really are an economic development numbers geek, you know that data from each year's Southern Business & Development 100 has a history of foretelling the regional economy's immediate future. For example, in 1996 the South's economy saw high levels of growth and unemployment that year dipped to levels not seen since 1973. As if on cue, total jobs generated by the 1997 SB&D 100 (1996 calendar year data) rose to 136,442, the highest total in the 17-year history of the "100."

Contrastingly, in calendar year 2001, total jobs created by the SB&D 100 fell sharply from 111,758 in 2000 to 82,826, the largest one-year drop ever. Of course, 2001 was the last time a significant recession hit the South and the U.S. Then, in 2002 total jobs from the 100-largest job generating projects in the South fell to 68,651, the lowest total on record, a sign that the 2001 recession continued through 2002. Also, you might remember that shortly after the recession of 2001 and 2002, the phrase "a jobless recovery" was first coined. Ring a bell?

Regarding this latest recession, the red flags started flying when the 2007 SB&D 100 (2006 data) was published in June of 2007. That year the total number of jobs dropped to 82,513, a reduction of 10,000 jobs from 2005, and that was more than a year before the Great Recession officially began. Those 2006 numbers clearly indicated that the economy was headed in the wrong direction and fast. Little did we know at the time that calendar years 2007 and 2008 would even be worse. The SB&D 100 created 71,188 and 75,211 total jobs respectively those two years, two of the three worst performances since the SB&D 100 was created in 1994.

If the 2010 Southern Business & Development 100 is as accurate as other "100s" over the years in revealing emerging trends in the economy, then the worst economic environment since the Great Depression is now over, dead ... finito. The 2010 SB&D 100 created 78,575 jobs, the highest total in three years. Surprised? So were we.

It was clear early on to our editors while crunching the numbers from calendar year 2009 to the n-th degree that things are on the upswing, albeit slowly, in the South. The 3,000-plus job increase created by the 2010 SB&D 100 over 2009 was the second consecutive year that total jobs rose after falling by about 10,000 in both the 2006 and 2007 SB&D 100s.

Further proof supporting the fact that things are improving in the South can be found at the top of this year's big project list. There are 28 deals of 1,000 jobs or more on the 2010 SB&D 100. Compare that to a mere 14 announced projects of 1,000 or more jobs in last year's SB&D 100 and the 15 posted the year before and it is easy to see that economic development is getting back on its feet in the South. The last time the South saw 28 or more deals with 1,000 jobs or more was in 2005 when exactly 28 were announced that year. And the only other year in the last 11 years when there were 28 or more projects of 1,000-plus jobs was in 2000 when 34 big deals led that list.

Chart No. 1

Total Jobs Created by the SB&D 100 1994-2010

Year	*Jobs
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994	78,575 75,211 71,188 82,513 92,847 91,135 75,418 68,651 82,826 111,758 113,136 116,721 125,226 136,442 124,011 118,550 94,431

*Annual job totals are derived from the top 100 job generating projects announced in the South the previous calendar year. Source: SB&D

While the rise and fall of jobs created in the SB&D 100 over the years has always been an accurate assessment of the South's economy as a whole -- many times the first indicator of major economic trends that are about to break such as recessions or periods of economic expansion -- it isn't always an accurate measure of micro economies, such as states and markets. And state and market performances -- good or bad -- in the SB&D 100 shouldn't be viewed as the sole measure of economic development success or failure, particularly if you make an analysis using just one year's worth of data.

For example, it wasn't too long ago that the word "retention" made its debut in the Southern economic development practitioner's and politico's vocabularies. Prior to the advent of retention, there were few economic development success stories featuring headlines that referred to retaining a company and its jobs in a county or state. Back then, it was all about recruiting new companies and helping expand the ones you had. And since the SB&D 100 ranking is nearly 20 years old now, its rankings are based on new jobs and investments, not keeping what a state or market already has. In other words, you won't find points earned by states and markets in this year's "100" because of their abilities to retain jobs.

So, when you see that Oklahoma earned a paltry 25 points in this year's SB&D 100 from only three projects of 200 jobs or more and/or $30 million or more in investment in 2009, don't make the assumption that Oklahoma's economy has collapsed. Twenty-five points is a low mark that has only occurred one other time by any Southern state in the history of the "100." Yet, while large new and expanded projects were almost nonexistent in Oklahoma last year, The Sooner State posted the South's lowest unemployment rate in 2008 and 2009, never rising about 6.9 percent. In fact, Oklahoma's unemployment rate has consistently been the lowest of any state in the South since the beginning of 2007. Go figure.

What that clearly indicates to us is that (1) Oklahoma is doing a great job at retention, (2) is probably very successful at turning deals that are below the SB&D 100 minimum thresholds of 200 jobs and/or $30 million in investment and (3) doesn't have to land large job projects every year for the simple reason that it is not an in-migration Southern state. Oklahoma only added about 235,000 residents in the last decade. In comparison, neighboring Texas added 4 million residents in that same time frame, Florida almost 3 million and Georgia 1.7 million.

In addition to Oklahoma, other states in the South that experienced record lows in SB&D 100 points this year include Kentucky (45), North Carolina (150) and Mississippi (45). Mississippi has jumped out of the gate very quickly so far in 2010 with some huge deals including Wilh. Schulz GMBH's $300 million, 500-job pipe plant, GE Aviation's 350-employee jet engine facility and Twin Creeks Technologies' $175 million, 512-job solar technology plant, to name a few. Just those three deals will give Mississippi more points than it earned in this "100" when we publish the 2011 SB&D 100 this time next year.

North Carolina has also just about equaled its point total found in this year’s SB&D 100 so far in 2010. Regardless, large deals were tough to come by in Kentucky, North Carolina, Mississippi and Oklahoma in 2009 in particular. But, again, that doesn't necessarily mean their economies are hurting any more than other states in the South.

Other Southern states that saw their points drop from their 2009 SB&D 100 totals are Alabama, Arkansas, Georgia, Missouri, South Carolina, Texas, Virginia and West Virginia. Almost all of those states saw a small decrease in points earned and projects turned in this "100" compared to the 2009 SB&D 100. In other words, they simply held their own in what was a very challenging year.

Since 12 of the 17 Southern states lost points in this year's SB&D 100, how then did the top 100 projects announced in the South last year account for over 3,000 more jobs than the year before? The answer to that is easy: the projects this year are larger with an average of 785 jobs created per deal. Furthermore, the threshold, or the number of jobs created by the 100th-largest project (the last one making the list) rose to 335 jobs from 310 last year. And again, we haven't seen 28 1,000-plus job deals make the SB&D 100 in six years.

Chart No. 2

SB&D Job 100 Threshold 2000-2010

Year	*Threshold
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000	335 Jobs 310 Jobs 372 Jobs 400 Jobs 483 Jobs 450 Jobs 400 Jobs 320 Jobs 483 Jobs 600 Jobs 600 Jobs

*The number of announced jobs created by the 100th announcement each year in the South since 2000. Source: SB&D

Of the 17 Southern states SB&D covers, two stand out in the 2010 SB&D 100 and they are the same two that stood out last year. Louisiana and Tennessee have performed at a higher level in big deal recruitment than all other Southern states for a while now. Of the 368 deals of 200 or more jobs and/or $30 million in investment or more, 93 came from Tennessee (45) and Louisiana (48) or about a quarter of all big projects announced in the South last year. Throw in Texas' 53 projects meeting or exceeding our thresholds and you will find that 40 percent of all large job and investment generating projects announced in the South making this year's SB&D 100 came from just three states: Louisiana, Tennessee and Texas.

While Texas posted the largest number of projects for the 17th straight year, it is Louisiana and Tennessee who stand out because of their per capita performances. Other than Kansas, no other states were even close to Tennessee and Louisiana for the second straight year in the all-important points per million ranking. That being the case, they are sharing "State of the Year" honors for the second straight year simply because we can't really discern any difference between the two state's performances. Both states performed equally well in calendar year 2009.

“When Gov. Bobby Jindal took office in January 2008, we set a goal of becoming one of the best performing state economic development agencies in the U.S., so we’re obviously delighted to be named Co-State of the Year by SB&D for the second year in a row,” said Louisiana Economic Development Secretary Stephen Moret. “We are especially grateful and fortunate that Gov. Jindal and the Louisiana Legislature have provided us the new tools necessary to secure this terrific outcome. Our aspiration is to position Louisiana to become the economic powerhouse of the South. We’ve made great progress in that direction, yet we know we have a lot of work left to do to position Louisiana to outperform the South and the U.S. on a regular basis.”

Matt Kisber, Moret's peer in Tennessee, had this to say about his state's performance in 2009. "Since taking office in 2003, Governor Bredesen and I have worked hard to make Tennessee one of the top business locations in the U.S." said Kisber, commissioner, Tennessee Department of Economic and Community Development. "We've worked closely with local communities to make sure they're prepared for development and today, more than 180,000 jobs and $32 billion in capital investment later, Tennessee is well-positioned to take advantage of economic growth with shovel-ready sites, flexible incentives and outside-the-box thinking that focuses on making projects succeed. We've built a strong partnership with our colleagues at the Tennessee Department of Revenue to make sure a company's treatment after an announcement matches the promises we've made and the results we've enjoyed are a testament to that vision," Kisber said.

In addition to Louisiana and Tennessee, there were three other states that performed better in the 2010 SB&D 100 than they did the year before. Those states are: Florida (200 points from 175 in 2009); Kansas (145 from 120); and Maryland (135 from 90).

It is good to see Florida improving its large job-generating project total after everything that The Sunshine State has gone through over the last several years. In addition to tourism, construction, real estate and financial services are the life blood of Florida's economy. No three sectors have been hit harder than construction, real estate and financial services during the Great Recession. Although there are more financial services projects floating around in the South right now than at any time in over two years, that industry sector's growth is still very choppy.

Maryland's and Kansas' performances in 2009 earned them "Honorable Mention" in the state category. It is the first time that those two border Southern states have been recognized by SB&D. Kansas, it should be noted, had a monster year with 145 points and a 3rd place finish per capita (PPM) of all states in the South.

Investment Totals in the 2010 SB&D 100

Total capital expenditures came back down to earth in calendar year 2009. Investments made by the 2010 SB&D 100 totaled a mere $28.9 billion, or not much more than half of last year's record $53.7 billion. That $28.9 billion total is more in line with total investments made by the "100s" between years' '96-'06.

The reason for the significant decrease in investment totals this year is simple: there was only one large electric power plant announced last year in the South. In 2008 (the 2009 SB&D 100) there were 13 coal, gas-fired or nuclear power plants that made the list with a combined investment total of over $23 billion.

Typically, fossil and nuclear fuel power plants are much more expensive to build than wind energy plants or biofuel facilities. That is not necessarily the case with one other renewable energy source and that's solar. Large solar power generating projects remain the most expensive way to produce energy at this time.

This year's "100" features more renewable energy projects than ever before, meaning less money being spent in the energy sector in the region. While renewable energy projects might mean less money, affecting overall capital investment totals made in the region last year, few would disagree that it is not smarter money in this day and age.

Still, the energy sector in general led all industrial and business sectors with 39 big deals on this year's "100" even though there was only one fossil fuel facility making the list (if you don't count refineries). As mentioned, the vast majority of energy projects earning a spot on the 2010 SB&D 100 were renewable energy deals, primarily wind farms (10 projects) and new biofuel/biomass facilities (8 projects). It is the first SB&D 100 where the majority of energy projects came from renewable sources. That is a trend that will continue for years to come. Mark the date that calendar year 2009 was the first year in the South’s history when renewable energy projects topped fossil fuel energy projects in total deals.

Chart No. 3

Total Capital Investment Created by the SB&D 100 1994-2009

Year	*Total Investment
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994	$27.4 Billion $53.7 Billion $45.1 Billion $44.2 Billion $26.7 Billion $22.2 Billion $22.1 Billion $18.3 Billion $25.0 Billion $25.8 Billion $24.6 Billion $22.6 Billion $19.8 Billion $23.8 Billion $22.6 Billion $18.8 Billion $17.4 Billion

*Annual investment totals are derived from the top 100 capital investment projects announced in the South the previous calendar year. Source: SB&D

Manufacturing vs. Service

The bad news coming out of this year's SB&D 100 is clearly the drop in the number of total deals meeting our thresholds of 200 jobs or more and/or $30 million or more in investment. There were only 368 projects in calendar year 2009 that met those thresholds. That is the lowest total in the ranking's history, 61 deals off of last year's total (see chart No. 4), which was then the lowest since 2003.

But the low total is misleading to a degree. As mentioned, the jobs side of the 2010 SB&D 100 hung in there, adding over 3,000 jobs over last year's total. At the same time, total job deals are down, but not down significantly from last year. The problem with this year's SB&D 100 sits squarely on the investment side. Of the 368 projects meeting the 200-plus jobs/$30 million-plus investment levels, only 165 projects had announced investments of $30 million or more. That is undoubtedly indicative of a very tight credit market in 2009. And it is very likely a sign that in 2009 companies increased their staffing as a result of more business, specifically in the summer and fall of the year, but for the most part they did not invest in new equipment and facilities.

A continuing trend found in this year's SB&D 100 is the surge on the manufacturing side of the ledger and the four-year struggle going on in the service sector. This “100” clearly shows that the services side still hasn't dug itself out of the hole it created four years ago.

In 2006, the year before the recession officially began and the last year that services overtook manufacturing in total SB&D 100 deals (see Chart No. 4), there were 31 distribution, 44 call center and 38 financial services deals that exceeded 200 or more jobs and/or $30 million in investment announced in the South. That's 113 projects that averaged 567 jobs per project that came out of the big three in the services sector in the South in 2006. Those projects created over 64,000 service sector jobs in the region four years ago and that wasn't a particularly good year from those three service sector hiring machines.

This year, 54 deals came out of the distribution, call center and financial services sectors. Those 54 projects, a total that is less than half of what were turned in 2006, averaged 523 jobs for a total of 28,242 jobs. That total is less than half the number of jobs financial services, distribution and call centers created in the 2006 SB&D 100.

The 54 projects coming from distribution, call centers and financial services in this year's SB&D 100 essentially matched last year's total of 59. But that's not the whole story. In 2008, financial services accounted for only eight deals of 200 jobs or more, a total collapse of that industry and by far the lowest total on record. Banks, insurers and credit card companies placed 18 projects on the big board this year (2009 figures), a sign that those companies are starting to hire again in the South, even though the total of 18 is less than half the 17-year SB&D 100 average for financials.

The largest gain in service sector deals last year came from the headquarters sector. We predicted more than a year ago that headquarter relocations from other parts of the U.S. to the South would increase in 2009 with an editorial titled "Watch for a Slew of Major Headquarter Relocations to the South" in the Spring 2009 issue. That is exactly what happened in 2009 as 19 headquarter deals made it on this year's SB&D 100, the largest total since 2003.

Chart No. 4

Total Deals - Manufacturing vs. Non-Manufacturing SB&D 100 1994-2010

Year	Mfg.	Non-Mfg.	*Total Deals
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994	228 291 301 257 219 292 189 164 165 209 194 228 229 212 310 281 303	140 138 209 225 370 297 277 245 282 312 346 344 407 361 243 189 182	368 429 510 482 589 585 466 409 447 521 540 572 636 573 553 470 485

*Total announced deals 1994-2010 with 200 jobs or more and/or $30 million in investment separated as manufacturing and non-manufacturing. Source: SB&D

After playing second fiddle to the services sector every year from 1997 to 2006, the manufacturing side has topped services in the total number of deals for the fourth straight year in the South.

However, with 228 projects of 200 jobs or more and/or $30 million or more in investment, large manufacturing projects were off by 63 deals compared to last year. But, compared to the 17-year SB&D 100 average of 228 manufacturing projects, the figure this year is dead on. Services didn't come close to meeting the 17-year average in this “100” and haven't since 2006. That figure is 269 or way above the 140 total service deals making this year's list.

The manufacturing side of this year's "100" was led by some colossal automotive and aerospace deals from Boeing, HK Motors, Nissan, V-Vehicle, the Air Force, GM and Mercedes-Benz. With 29 total projects, the automotive industry continued its run near the top of the deal list even though this year it is way off its 50-deal mark set last year and the all-time record of 90 big automotive projects in 2001. Yet, with automotive demand so pent up still, watch those deals rise dramatically in the South over the next few years if the economic recovery continues even at a slow pace.

The only manufacturing industries turning more deals in this year's SB&D 100 over last year are food processing, chemicals, building materials and defense contractors. In 2009, food processing had an especially good year.

Chart No. 5

Industry	*Deals
1. Energy 2. Food Processing 3. Automotive 4. Oil & Gas 5. Call Centers 6. Chemicals 7. IT/Telecom 8. Headquarters 9. Aerospace 10. Financial Services 11. Building Materials 12. Distribution 13. Defense 14. General Manufacturing 15. Healthcare/Medical Devices 16. Data Centers 17. Wood Products 18. Electronics 19. Biotech/Medical Research 20. Ship Building	39 34 29 23 21 21 20 19 18 18 17 15 15 13 12 9 8 7 7 4

*Total deals of 200 jobs or more and/or $30 million in investment or more announced by selected industry sectors in the American South in calendar year 2009. Source: SB&D

Conclusion

Some experts believe that the U.S. and the South's economy remain in recession mode or will revert back to it after a brief reprieve once the federal stimulus ends. Well, that may or may not be the case. Regardless, the numbers from this year's SB&D 100 are encouraging to us in that jobs actually increased over last year by the companies that make up the 100-largest new and expanded corporate and industrial projects announced in the American South in 2009. Furthermore, big projects of 1,000 jobs or more doubled this year over other recession years of 2008 and 2007, indicating that many sectors are in need of more personnel as a result of an improved business climate.

On the other hand, there's no question that the last few years have been huge challenges for state and local communities as well as Corporate South as a whole. While the struggles went on and on for more than two years, everyone has been anxiously waiting the reaching of the bottom so to speak so that economic recovery can begin and added job and investment activity returns. We firmly believe the bottom was reached in the South (not necessarily the rest of the country) some time in the late summer of 2009.

Finally, as of June 1, 2010 there have been 218 projects announced in the South that will meet the thresholds required to make the 2011 SB&D 100 that will be published this time next year. That figure is well over half the 368 total deals found in this, the 2010 SB&D 100 and it was accomplished in just five months. That being the case, let's hope that when we look back at this devastating recession three or four years from now or even a lifetime from now, we can say that 2009 was a tough year, but it was also the year when the Great Recession died. R.I.P.

mike@sb-d.com