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Report: Decatur economy sluggish

By Eric Fleischauer
eric@decaturdaily.com · 340-2435

Decatur’s economy is sluggish, its labor market is shrinking and it is overly dependent on a manufacturing base.

This is the latest conclusion in a report by Moody’s Economy.com.

There were bright spots, but Moody’s recently published aggregation of hundreds of economic indicators for the three months ending in June painted a generally gloomy picture.

The numbers don’t lie, said some, but they fail to depict developments that could transform Decatur’s economy.

While noting the upside potential presented by the Base Realignment and Closure process at Redstone Arsenal and the Tennessee Valley Authority megasite established recently in Limestone County, Moody’s summer 2007 analysis focused on disturbing trends.

“Decatur’s economy is moving along at a sluggish pace,” the analysis begins, “with overall payrolls remaining relatively flat in the last six months and underperforming relative to the state and nation.”

The analysis ends on the same note: “An outdated infrastructure and proximity to outperforming Huntsville will keep (Decatur) at best an average performer.”

Jeff Thompson, senior analyst at the Office for Economic Development at The University of Alabama in Huntsville, said Moody’s has a solid reputation among economists.

“It’s difficult to dispute the assessments they’re making here when you’re looking at objective measures,” said Thompson.

He has done considerable study of Decatur’s economy and reviewed the Moody’s report.

“The report is something that should be looked at,” he said.

The data and analysis in the report dealt with the Decatur Metropolitan Statistical Area, which includes Morgan and Lawrence counties.

Moody’s projected Decatur’s employment growth would be in the bottom half of the nation for the next five years.

Decatur’s “vitality,” although rated higher than it was in Moody’s previous report, still was in the bottom half of the nation. It ranked below Huntsville, Anniston, Birmingham, Montgomery and Tuscaloosa. Of the MSAs listed in the report, only Florence scored lower.

Moody’s “vitality” index is an aggregation of economic factors “determined to be important to location decisions.”

Manufacturing

As in previous reports, Moody’s takes a pessimistic view of Decatur’s heavy reliance upon manufacturing.

“Overall manufacturing is expected to slow in line with the national trend,” the report states.

Manufacturing represents 23 percent of Decatur’s employment, compared to 15 percent in Alabama and 10 percent in the United States.

Decatur manufacturing, however, generates much higher income for employees than in the larger economy. On average, Decatur manufacturing employees earn $83,747. By contrast, the statewide average is $56,324 and the nationwide average is $68,318.

In its analysis, Moody’s only positive statement regarding Decatur’s manufacturing base pertains to the aerospace industry — dominated by United Launch Alliance in Decatur.

“Aerospace supplies the only real upside risk in the short term,” the analysis says. “The manufacturing drag will filter through to the rest of the economy, with retail suffering payroll declines by the end of the year and into 2008.”

Diversification

Decatur-Morgan County Chamber of Commerce President John Seymour said Moody’s concern about Decatur’s heavy reliance on manufacturing is one he and other community leaders share.

“Manufacturing has always been good to us, but if there’s an overall decline in the manufacturing sector it won’t be,” Seymour said. “We have to be more diverse.”

There are promising signs in Decatur’s manufacturing base, however. Seymour pointed out that many companies are hiring, and that Nucor’s planned industrial park will add manufacturing jobs.

Manufacturers are uniquely susceptible to the whims of the larger economy, Thompson warned. Steel and chemical plants, a backbone of Decatur’s manufacturing base, are especially vulnerable to global competition.

“You have to always consider how diverse your economic base is so you can hedge the ups and downs within a particular sector,” Thompson said. “You need to find industries that complement economic cycles so that you can create a strong foundation.”

Seymour said BRAC — particularly the placement of the procurement office at Redstone Arsenal — could assist Decatur in the diversification effort.

“That will bring more defense jobs, more research jobs, more engineering jobs. Basically, more jobs that are not manufacturing,” Seymour said. “We’ll have a lot of opportunities to have people here do business with the Army.”

Research park

Seymour said another way the city can promote diversification is through the creation of a research park, a strategy that was successful in Huntsville. He said efforts are under way to secure the Lurleen B. Wallace Developmental Center property for that purpose. He sees Alabama 20, with its easy access to Huntsville, as another possible site.

Diversification within the manufacturing sector also can help protect Decatur from future economic swings. Thompson said development of the aerospace presence would be a good move for Decatur. Other manufacturing categories that are less susceptible to global pressures, Thompson said, include robotics, sensors and medical products.

Incentives for growth

Despite Decatur’s reliance on manufacturing, it continues to court new manufacturing entities with incentive packages.

Seymour said without those incentives, few manufacturers would come. He said he has always believed that manufacturing jobs make the incentives a good investment, but he acknowledged some recent ambivalence.

“Lately I’ve been concerned about companies taking the incentives, and then their people end up living in Madison,” Seymour said. “That doesn’t give the city a chance to recoup what it invests. But I don’t know what we can do about it.”

Aging streets, sewers

One problem in attracting residents, mentioned in the Moody’s report, is the city’s aging infrastructure.

Seymour pointed out that the city is in the midst of several road and sewer projects that will help this. The Target-anchored Crossings of Decatur, scheduled to open next month, should help fund infrastructure improvements by stemming the loss of sales tax dollars to Madison and Huntsville.

For the quarter ending in June, the Moody’s report said, employment growth in Decatur was 2 percent higher than in the year-ago quarter. Manufacturing employment was down 1.7 percent compared to the same quarter of 2006, but construction and “education and health services” were up more than 6 percent. “Professional and business services” were up more than 8 percent.

Construction employment is so volatile that it is not a good indicator of economic health, Thompson said.

The analysis notes Decatur’s low unemployment rate (Morgan County was at 3.6 percent in August, according to a state compilation released Friday), but attributes the low number less to economic growth than to a shrinking labor force.

Affordable housing

Despite depressed building-permit numbers, the analysis is fairly positive in its discussion of Decatur housing. Housing is appreciating in value faster than the national average, but remains more affordable than it is nationally.

Low housing costs, the analysis predicted, could help Decatur enjoy “spillover growth” from BRAC.

The report also is favorable in its treatment of the cost of doing business in Decatur, which is well below the U.S. average.

Low housing and business costs are in part the flip side of a struggling economy, but they still present an important opportunity for Decatur, Thompson said. The turbulence of the national economy has companies on edge. They are focusing more on their costs, and that focus could benefit Decatur.

“There are some tremendous opportunities ahead for Decatur,” Thompson said, “but efforts are going to have to be taken today to realize the potential. Efforts at economic diversification, attractiveness for residential growth and the development of higher-than-average-wage jobs. They’ll have to be pursued today if they are to come to fruition.”

Decatur: Strengths and weaknesses

In a “strengths and weaknesses” section, a recent report by Moody’s Economy
.com cited the following Decatur strengths:

  • More advantageous cost structure than Huntsville.

  • High-skilled work force.

  • Superb transportation linkages.

    It cited the following weaknesses:

  • High dependence on declining manufacturing base.

  • Weaker demographics, including a lower skilled workforce and poorer migration trends, than Huntsville.

    Jeff Thompson, senior analyst at the Office for Economic Development at The University of Alabama in Huntsville, said Huntsville’s proximity is a strong positive for Decatur, but it makes it “hard for Decatur’s economy to shine” by comparison.

    “The commonalities between Morgan County and Madison County are much greater than most people realize,” Thompson said. “There are tremendous opportunities for both areas. They need each other to realize the full potential.”

    Eric Fleischauer

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