An Overview of Economic Conditions in Memphis Heading into 2006

By Wallace, Jeff | Business Perspectives, Spring 2006 | Go to article overview

An Overview of Economic Conditions in Memphis Heading into 2006


Wallace, Jeff, Business Perspectives


A look at the Memphis economy begins with a quick of the U.S. economy, since the Memphis economy will not grow without growth in the nation The U.S. economy has shown tremendous resilience and has absorbed numerous negative shocks that might have destroyed less diversified economies. The national economy has faced a surge of challenges in the past year and survived with little or no damage. After Hurricane Katrina and Hurricane Rita that quickly followed, it was thought by many that the U.S. economy would falter quickly under the pressures of oil price shocks, rising consumer debt, and uncertainty over the Iraq war.

Yet, consumers never seemed to let up on spending even when faced with substantially higher fuel bills (gasoline, heating oil, and natural gas), and the national economy keeps humming along at growth rates higher than anyone expected. The national economy appears to have weathered the storms successfully and has recently been blessed with suddenly falling gasoline prices, thus easing the strains placed on consumers earlier in the fall of 2005. While gas prices rose some early in January 2006, they are nowhere near the levels seen around the time of Hurricanes Katrina and Rita.

The impact of rising energy prices has had a negative impact on the local economy. Northwest Airlines, FedEx, UPS, and other energy-intensive businesses have been challenged by the rising price of oil. Falling energy prices should benefit all of these companies in the coming year. However, we know from experience that energy prices can rise suddenly with the next big hurricane that hits the oil-rich states along the Gulf of Mexico or with another major crisis in the Middle East.

Higher gasoline prices and two major hurricanes during the fall of 2005 also cut into the profits of Memphis-based Autozone (1) during the first quarter of its fiscal year that ended November 19, 2005. The two major Gulf Coast hurricanes impacted many of the company's stores and employees, but excluding hurricane-related impacts, Autozone's future looks bright as it continues to expand nationwide.

Natural gas prices are also expected to rise substantially during the winter months of 2006 which will have an impact on many households in Memphis. Hot summers and cold winters generate high energy bills. With larger portions of their budgets being devoted to higher utility bills, consumers will either spend less to make ends meet or go into debt to finance current levels of consumption.

There are numerous positive factors that will influence the local economy in 2006. Despite General Motors' intention to close a production line at Springhill's Saturn plant, the state and the Mid-South continue to grow in importance in the auto industry. Some examples include:

* Nissan's corporate move to Tennessee.

* Hino Motors opening manufacturing facilities across the river from Memphis in Arkansas.

* Bodine Aluminum's Toyota engine facility in Jackson.

While none of these facilities are located directly in Memphis, Memphis finds itself surrounded by a growing auto sector. In particular, many Memphians will undoubtedly be hired to work in the Hino Motors facility in Arkansas.

Memphis' bio-tech sector is also shaping up well. With the implosion of the old Baptist Memorial Hospital, work can now begin on the bio-tech sector's new headquarters. Further, St. Jude continues to expand, while Memphis' Medtronic Sofamar Danek manufacturing facility is profitable and expanding.

Memphis is also blessed with an abundance of affordable housing. Unlike in other parts of the nation, there is no housing bubble in the Memphis area. Relatively low-cost, quality housing combined with low taxes (state and local) make Memphis an attractive area for new businesses. Along with low-cost housing, Memphis will also benefit from Site Selection Magazine ranking Tennessee as having the fifth best business climate in the nation. …

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