September 18, 2002
There is no question that Atlanta has suffered more
economic weakness than most metro areas in the past year. After all, employment is down 2.9 percent here as compared to
only a 1.0 percent drop for the nation over the past twelve months.
What is not clear is why Atlanta is struggling so much.
Atlanta is an air hub, a communications center and a
convention city, all of which were severely impacted by national changes in the
past year. Is that enough to
explain why jobs vanished three times as fast locally as in the nation?
One economic device that regional economists use to
determine the importance of economic activity in a local area is the location
quotient. This is derived as
Determine what percentage of local employment is in each
economic sector. Do the same for
the nation. Then divide the local
percentage by the national percentage.
If the result is greater than one, the local area has
relative importance in that sector. A
number below one means that the local economy is dependent upon external sources
for meeting its local needs.
For example, in July, the latest monthly data available for
Atlanta, employment in transportation services was 5 percent of Atlanta's jobs.
For the nation, transportation services were only 3.3 percent of all
employment. As a result, Atlanta's
location quotient in transportation services is 1.51.
Several assumptions must be used about comparable consumer
spending patterns and similar production methods used locally as in the nation.
If those assumptions are reasonably valid, then Atlanta is providing
substantial transportation services to the rest of the nation.
Atlanta's largest location quotient for any major sector is
in communications, verifying that Atlanta is a major communications center.
As communications has suffered dramatically nationwide, being a center of
a weak sector means substantial employment loss for Atlanta.
However, Atlanta does not appear as a significant
convention city, at least as measured by employment in hotel and lodging.
The location quotient for lodging is a paltry 0.76.
Greater detail to determine
business versus leisure lodging needs might reveal the importance of
conventions, but also would expose the absence of tourists to our city.
printing and publishing, manufacturing is not that important to Atlanta.
Surprisingly, construction no longer is reflecting the concentrations of
a growing metropolitan area. The
location quotient there is only 0.97. When
Atlanta was experiencing more underlying growth, construction location quotients
were regularly in the 1.2 to 1.3 range. This
suggests that underlying growth may have suffered during the recession and
Atlanta will be slow to rebound in the recovery.
An alternative explanation is that Atlanta was seriously
over-built and has experienced an unusually large construction correction to
remove the excesses. The fact the
construction employment has fallen about the same in the remainder of Georgia
(where overbuilding is less troublesome) suggests that a slowing in underlying
growth is the more likely explanation.
What may surprise many observers is that Atlanta not only
is a transportation, communications and distribution center, but it also is a
gatherer of skilled people. The
location quotients for employment agency workers and data processing workers are
1.54. Even engineering and
management consulting has a strong 1.19 location quotient.
And of course, Atlanta is a federal government center with
a location quotient of 1.13. However,
little employment benefit appears to be generated from being a state capital.
That quotient is a surprisingly small 0.71, far less than for the state
as a whole.
Atlanta is not an important financial center, although
insurance and real estate are stronger than in the nation.
About half the poor performance for Atlanta is the result
of heavy concentrations in sectors that have suffered disproportionately in this
recession. However, the rapid
decline in wholesale trade suggests that Atlanta is losing significance as a
distribution center. The plunge in
transportation services is twice as rapid as in the nation.
Fundamental loss of competitiveness may be developing in these important
sectors of Atlanta's economy.
Then there is clear evidence that retail over-building is
requiring a larger adjustment in this recession than in the past.
Unlike construction, which reflects reduced underlying growth, this may
be merely excess expansion that must be pared back during a recession.
At the end of the day, I have reached several conclusions.
First, the 5.5 percent employment gains of the 1990s probably will be
followed by less than 3 percent annual gains in this decade.
Second, transportation and distribution is losing its competitiveness in
Atlanta. Why requires further
analysis. Third, we are in danger
of losing our newest competitive advantage, the gathering of skilled workers, if
we cannot provide easier access to jobs.
That simple process, the location quotient, can lead to powerful insights. Unfortunately for Atlanta, those insights are not now painting a pleasant picture.