The Southeast’s economy outperformed the rest of the country during the
pandemic, new research from the Federal Reserve Bank of Atlanta shows.
Although the southeastern economy has long experienced faster growth than the
national average, the region’s lead has significantly widened since 2019.
Research conducted by Laura Kuehl, Emily Mitchell, and Jon Willis of the
Atlanta Fed combines analysis of economic data with business insights from
interviews and roundtables the Atlanta Fed’s Regional Economic Information
Network (REIN) team conducted with business leaders. (In the Atlanta Fed’s
Research Department, Kuehl is an economic research analyst, Mitchell is a REIN
director, and Willis is a senior economist.)
Regional economy a microcosm of US economy
For some time, the Southeast’s economy has represented an instructive
bellwether for the broader national economy when it comes to assessing overall
economic conditions. The diverse mix of firms across the region is broadly
representative of the overall composition of GDP by industry for the US
economy.
Although the Southeast’s firm composition generally reflects that of the
country as a whole, the region has seen notable economic growth compared to
the rest of the nation. A key contributor to the strength of the Southeast has
been rising population growth. Regional population growth during the past 50
years has been 0.5 percentage points per year faster than that of the nation
overall, according to the analysis the Atlanta Fed conducted in Alabama,
Florida, Georgia, Louisiana, Mississippi, and Tennessee (the states that, in
whole or in part, make up the Sixth District).
More recently, in the decade prior to the pandemic, the Southeast grew around
0.2 percentage points per year faster than the United States in most major
metrics of economic performance, including population, labor force,
employment, and real personal consumption expenditures (see the blue bars in
the figure).
However, since the start of the pandemic, this growth differential has widened
significantly. Between 2019 and 2022, the Southeast more than doubled the
differential in growth rates of population between the Southeast and the
nation overall, likely reflecting an acceleration of migration to the region
during the pandemic (see the orange bars in the figure). During the same time,
the growth differential for consumption demand (real personal consumption
expenditures) more than quadrupled to a nearly 0.9 percentage point growth
differential per year.
The excess demand grants firms more pricing power in the region. Several firms
noted during interviews that although pricing is very localized and
regionalized, southeastern firms have more pricing power compared to those in
other regions.
The labor force undergoes changes
This rapid growth exerted pressure on southeastern firms to meet increased
demand for their products and services, but one area of constraint was the
number of workers available. Though the labor force growth differential
between the Southeast and the United States was the same as that of population
growth, that amount of labor force growth was insufficient to meet the demand
for workers by firms in the Southeast. Consequently, many businesses struggled
to meet the surge in demand for their goods and services.
Regarding the composition of their workforces, business contacts have noted
several trends. First, several firms have observed a significant number of
retirees knocking on their doors once again, a development that firms
appreciate as retirees are much more experienced and don’t demand salaries as
high as younger workers. Second, one firm speculates that prime-age workers
(those 25–54 years of age) are increasingly attracted to the gig economy
because these jobs offer greater flexibility than traditional jobs.
Firms expanded their workforces at a faster pace in recent years, illustrated
by the employment growth differential between the national and southeastern
economies. exceeding the growth differential in population and the labor
force. As a result of the rapid employment growth, the unemployment rate in
the Southeast is now lower than the prepandemic level, while national
unemployment basically didn’t change during the same time period.
These dynamics have created a very tight labor market in the region, posing a
challenge for firms as they attempt to deliver on demand. During interviews, a
large insurance brokerage noted that workers have been extremely sensitive to
wage changes, arguing that the heightened demand for labor—especially at the
blue-collar level—has exacerbated wage sensitivity.
Continued growth in the region will depend in part on the Southeast’s ability
to combat production constraints brought on by the labor supply’s anemic
growth. Additionally, some firms point to a spillover effect in which this
growth could hamper the region’s public service infrastructure.
Several firms with a national footprint reported experiencing some geographic
bifurcation in their firms’ sales growth, with growth in the Southeast
outpacing that of other regions. Mike Honious, president and chief executive
officer of GEODIS in Americas, said “When comparing the Southeast region to
other regions in the US during the pandemic recovery period on shipment
volumes, the Southeast region shows a very stable and consistent recovery as
compared to other regions. Most importantly, the volume shifts were less
volatile in year over year comparisons and consistently in the ‘middle of the
pack’ each year when compared to the rest of the United States.”
Because of such strong demand in the Southeast, contacts at other firms in the
region noted that companies are accelerating investment here, expecting that
these trends will continue. For example, a large national retailer described
plans to speed up investment specifically in the Southeast. The company views
the region as a safe bet as it caters to residents who continue to move to the
Southeast for reasons including quality of life (such as pleasant weather) and
the cost of living (such as states with low or nonexistent state tax rates).
Although residents in the Southeast are facing rising costs along with the
rest of the nation, five out of the six states in the Atlanta Fed’s district
were below the national average cost of living in 2023.
Maintaining the momentum
National fiscal policy is contributing to a surge in public and private
investment. The Infrastructure Investment and Jobs Act, a bipartisan deal
targeting transportation and other infrastructural improvements, and the
Inflation Reduction Act, set to stimulate domestic clean energy production,
have significantly stimulated investment in infrastructure and the supply
chain, including in electric vehicle manufacturing and clean energy
production.
According to Rebekah Durham, an Atlanta Fed REIN director, “Our energy sector
contacts describe billions of dollars in investment across the Southeast
fueled by the Inflation Reduction Act, from facilities that produce clean
energy feedstocks to technology that traps hydrocarbons produced by
petrochemical production and stores them underground, a process called ‘carbon
sequestration.'”
Several firms noted that the region’s inability to compete in certain areas of
public services (namely, public education and transportation infrastructure)
has and will continue to pose challenges in recruiting new businesses and
households, especially those relocating from regions with strong public
investments in those areas.
The analysis concludes that the Southeast has been on a steady path of growth,
outpacing the nation according to a range of major economic indicators. The
region is poised to grow if it can rise to the challenge associated with labor
supply constraints and infrastructure limitations.
By Laura Kuehl, an economic research analyst; Emily Mitchell, a REIN director; and Jon Willis, a vice president and senior economist, all in the Atlanta Fed’s Research Department
