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 Fall 2015

  
 Features

The 2015 SB&D 100

A Record Year!

The service sector awakes from a deep sleep; consumerism is back.

By Mike Randle

Tracy Foster, president of the Lash Group, bestowed a nice gift on South Carolina Governor Nikki Haley with the announcement that the fast-growing Charlotte health care consulting company would relocate its headquarters to Fort Mill, S.C. The deal means 2,400 new jobs and a $90 million investment.At one time, the American South’s economy was dominated by plantations. Cotton was king. Then around the start of the 20th century, industry (think steel, apparel and textiles) found the South to its liking. So, leaders in the South in the 1920s invented the practice of economic development as we know it today in order to capture more industry. After all, the South was dirt poor 100 years ago, its economy held back by post-Civil War federal policies that were still in effect. Economic development in the South back then consisted of raiding and poaching the North for prospects, aided, ironically, by consultants such as the former Fantus Company that was headquartered in Chicago. It was essentially “reverse carpet bagging.” Some of that poaching still goes on today.

Agribusiness and manufacturing ruled the region’s economy for another four decades. By the time the 1970s rolled around, migration to the South from other regions was in full swing. The South’s population was growing like kudzu to a total that is today about the same as the Northeast and Midwest populations combined. . . and its economy did the same.

To serve the millions of new stakeholders in the region, the services industry took off. By the 1990s, the service sector dominated the manufacturing sector in job generating projects in the South. Things were changing in that consumerism controlled the economy. Inexplicably, services collapsed in 2006 and manufacturing reawakened, giving the region a new pillar on which to build its economy. Today, it has all come full circle.

The dynamics of the South's economy are clearly transforming for the first time in a decade. It is a transformation that is as dramatic as when the region's manufacturing sector blew past a long dominant service-based economy in 2006. Since then, the annual SB&D 100 has been supported mostly by a rising tide of manufacturing projects, while getting little help from service sector deals from the financial, distribution, healthcare, technology and communications sectors.

But in this year's SB&D 100 there is a new player – albeit, a somewhat old, much missed, familiar one – that is contributing greatly to the growing project parade in the region. The South's battered service sector performed much better in calendar year 2014. In fact, with 293 projects meeting or exceeding 200 jobs and/or $30 million in investment, services saw its best year since 2005 when 370 deals were posted on the SB&D 100 board.

We have written in the annual SB&D 100 for years now that there is no chance for the region to reach full employment unless services brings its large job generating project totals to around 300 or more. In fact, in the cover story of the last issue, I wrote, "There is no possible way the South's economy today can reach full employment unless the service sector at least doubles its current number of large projects in the region."

Since the recession began in 2008, service sector deals have cratered, while large manufacturing projects surged each year, topping out at 410 in 2013, a 21-year record. Between 1996 and the recession of 2001, the service sector averaged 342 projects of 200 jobs or more each year in the South. That total dropped to an annual average of 179 service projects from 2008 to 2013. So the 293 large job generating service projects captured in 2014 don't quite double the low averages seen between 2008 and 2013, but it is close enough to make a huge impact on the South's economy and its methodical drive to full employment.

South Carolina solidified its position as the nation’s No. 1 tire maker in 2014. Joining the state’s tire manufacturing cluster will be Singapore-based Giti Tire. The company will invest $560 million and create 1,700 jobs.Data from the 2015 SB&D 100 suggests that service projects based on a considerably more active consumer market may be back and here to stay for a while. Technology companies are ramping up sales forces to levels not seen since the late 1990s and financial services, once a job-generating juggernaut in the region, posted its best year since 2004. Financials still have a way to go to replicate project totals from the late 1990s and the mid-2000s, when the sector peaked with an 8.3 percent contribution to GDP (2006). We may never see that level of contribution to GDP from the financial services sector again, which means we may never see years of 50 or more big deals averaging about 1,000 jobs. Of course, some said that manufacturing was dead in the late 1990s, too, and those folks were dead wrong.

With manufacturing maintaining its unbelievable momentum for the fifth straight year (375 projects this year), combined with a strong service sector performance for the first time in ages, the goal of achieving full employment in the American South is less than a year away. In fact, with a regional unemployment rate that is currently 5.6 percent, "job market nirvana" (a phrase I borrowed from a recent article written by Michael Derby for the Wall Street Journal) is right at our doorstep. It should be noted that the last time the South saw full employment was from 1997 through the first few months of 2001. Before that four- to five-year period, you have to go all the way back to the 1960s to find a lengthy run of full employment in the region. So this is rare air we are in with regard to the South's economy right now.

What's really unique about this year's SB&D 100 numbers is that in 2014, both the manufacturing and the service sectors had strong years. Because of that, a record 668 projects meeting or exceeding 200 jobs or $30 million in investment were announced in the South last year. The previous record was 636 SB&D 100 projects in 1997.

There have been few years since 1994 – the debut of the SB&D 100 – when both manufacturing and services posted high deal counts. In the previous record year of 1997, services accounted for 407 of the 636 projects captured, meaning manufacturing didn't assist much with that deal count.

In the mid-1990s the bloodletting of the manufacturing sector in the South was just beginning. Companies were leaving the region in droves, relocating production to China and elsewhere and millions of manufacturing jobs were lost. So while deal counts in the late 1990s were high and full employment was the norm, manufacturing was not a player in job generation, similar to how services haven't performed well since 2005 in the region.

Really, 2010, which is the first full recovery year from the recession, is the only year since 1994 that you can compare this year's remarkable SB&D 100 performance. That year there were 594 total projects, with 335 coming from manufacturing and 259 from services. We were optimistic that services had finally shaken off its doldrums in 2010, only to be disappointed by the following three years when the sector averaged just 178 projects each year.

So, here we are, in a situation similar to the go-go 1990s, but in a better position in that manufacturing is solidly contributing and services are ramping up, possibly to the levels of 10 years ago. If next year's SB&D 100 shows the service sector posting project totals meeting our thresholds of around 350 or more –  which we predict –  and manufacturing keeps pushing the 400 mark, well, there is no precedent for those kinds of numbers over the past quarter-century. It would be a total paradigm shift, a year we have never seen before in terms of total projects.

The question we have in projecting next year's SB&D 100. . .can the manufacturing sector in the South continue to keep the legs it’s had since 2006? We already saw manufacturing lose 35 big projects this year from 2014 (410 to 375), breaking a string of four years of year-over-year increased totals. The oil crash is certainly going to affect the manufacturing sector's performance when we do this again next year. There have been several large oil and gas projects put on hold as a result of prices.

But all in all, we are not complaining about a 21-year record number of projects announced in the South in calendar year 2014 meeting or exceeding our thresholds. In short, 2014 was a banner year for the American South's economy. It was by far the South's most complete economic development year in more than 20 years in terms of the balance of manufacturing and services.

Chart No. 1

Manufacturing vs. Non-Manufacturing

SB&D 100 1994-2014

YEAR MFG. NON-MFG. *TOTAL DEALS
       
2014 375 293 668
2013 410 185 597
2012 363 160 523
2011 350 189 539
2010 335 259 594
2009 227 140 367
2008 291 138 429
2007 301 209 510
2006 257 225 482
2005 219 370 589
2004 292 297 585
2003 189 277 466
2002 164 245 409
2001 165 282 447
2000 209 312 521
1999 194 346 540
1998 228 344 572
1997 229 407 636
1996 212 361 573
1995 310 243 553
1994 281 189 470

*Total projects announced meeting or exceeding 200 jobs and/or $30 million in capital investment. Totals are for 1993-2014 calendar years. MFG.=Manufacturing. Non-MFG.=Non-manufacturing. Source: SB&D

The manufacturing beachhead that is the American South and Mexico continues to grow

The top dollar project this year – $11 billion – is Cheniere’s Corpus Christi Liquefaction Project. The LNG export terminal will be located on the La Quinta Channel on the northeast side of Corpus Christi Bay in San Patricio County, Texas.Those that predicted as early as 2008 that a manufacturing beachhead was being formed in the American South and Mexico continue to be validated by an incredible, however unlikely, comeback story that seems to have no end. From 1979 to 2010, the South lost approximately 3.5 million manufacturing jobs. Since the end of the recession, first indicated by the eye-popping manufacturing project totals of calendar year 2010 (see Chart No. 1), the South has gained nearly 730,000 manufacturing jobs. Those job gains are occurring in an age that is taking boots off the factory floor at alarming rates as a result of new technologies that are improving manufacturing productivity like never before.

Yet, the revival of the South's manufacturing sector still has its skeptics and we certainly don't understand why. Some cite reshoring as a significant factor behind the surge. But it is much more than that. North America, particularly the American South and Mexico, have just gotten so much more competitive when it comes to attracting manufacturers. It's really that simple. Cheap and plentiful oil and gas have become one of the South's most essential advantages.

The Boston Consulting Group (BCG), which I believe has done the best job at analyzing the global shift in manufacturing sourcing decisions, keeps updating its original report titled, "Made in America, Again," that came out in August of 2011. Its latest update reads, "For the better part of three decades, a rough, bifurcated conception of the world has driven corporate manufacturing investment and sourcing decisions. Latin America, Eastern Europe, and most of Asia have been viewed as low-cost regions. The U.S., Western Europe, and Japan have been viewed as having high costs. But this worldview now appears to be out of date."

A close second on the SB&D 100 Investment list with a $10 billion price tag. . .shown here is a rendering of the Freeport LNG liquefaction facilities to be located on Quintana Island near Freeport, Texas.  Image courtesy of Freeport LNGBCG's latest report continues with, "To understand the shifting economics of global manufacturing, The Boston Consulting Group analyzed manufacturing costs for the world's 25 leading exporting economies along four key dimensions: manufacturing wages, labor productivity, energy costs, and exchange rates. These 25 economies account for nearly 90 percent of global exports of manufactured goods. Cost structures in Mexico and the U.S. improved more than in all of the other 25 largest exporting economies. Because of low wage growth, sustained productivity gains, stable exchange rates, and a big energy-cost advantage, these two nations are currently rising stars of global manufacturing," the BCG report stated.

So to the skeptics who argue that we are not in an era when manufacturing is dominating the South's economy, not unlike the late 1990s when services ran the economy, chew on this: In 2001, when China joined the World Trade Organization, there were exactly 165 manufacturing projects announced in the region that created at least 200 jobs or saw capital investments of $30 million or more. In 2013, manufacturers announced 410 projects meeting or exceeding those benchmarks, and last year the total was 375.

Not only has the South experienced a surge in manufacturing projects for five years now, the value of those projects set another record in 2014 (see Chart No. 2). The top 100 investment deals announced in the South in 2014 totaled $78.2 billion. No SB&D 100 over the past 20 years has seen investments even close to that total. In fact, just the top three projects in value –  Cheniere Energy (Corpus Christi), Freeport LNG (Freeport, Texas) and Cheniere Energy (Cameron Parish, La.) –  equaled a typical year of all of the top 100 investment deals prior to 2006. That fact represents, more than anything, how this fracking frenzy is not only making the South more competitive in capturing manufacturers, it is also creating manufacturing projects of size values we have never seen before.

Chart No. 2

Total Investment per The SB&D 100 - 1994-2014

YEAR INVESTMENT
   
2014 $78.2 Billion
2013 $53.9 Billion
2012 $50.8 Billion
2011 $41.9 Billion
2010 $35.9 Billion
2009 $27.4 Billion 
2008 $53.7 Billion
2007 $45.1 Billion
2006 $44.2 Billion
2005 $26.7 Billion
2004 $22.2 Billion
2003 $22.1 Billion
2002 $18.3 Billion
2001 $25.0 Billion
2000 $25.8 Billion
1999 $25.8 Billion
1998 $22.6 Billion
1997 $19.8 Billion
1996 $23.8 Billion
1995 $22.6 Billion
1994 $18.8 Billion

*Totals are derived from the 100 largest investment announcements made in the American South from 1994-2014. Source: SB&D

Automotive rules, again

Even though the big news with this year's SB&D 100 is an improving service sector, there is always one constant when it comes to the South's economy. Check out Chart No. 3. With 81 projects of 200 or more jobs or $30 million or more in capital investment, the automotive industry has no peer when it comes to the South's economy.

This is the 21st SB&D 100 and for 20 of those 21 years, the automotive sector has topped all other sectors in projects announced meeting or exceeding 200 jobs and/or $30 million in investment. The only year automotive didn't top all other sectors in critically important large projects was in 1998 when there were 83 call centers announced in the South.

How constant is automotive in the region? Over the past four years, or since the automotive industry's comeback, the South has captured 81, 83, 81 and 82 big automotive projects. It is simply remarkable how consistent the automotive sector is in the region.

The automotive sector got a big boost this year with Volvo's announcement that it will build a new plant on a greenfield site in Berkeley County, S.C., near Charleston. It's the first new car plant announced in the Southern Auto Corridor since Volkswagen broke ground in Chattanooga in 2008. Those seven years represent the longest stretch between new car plant announcements made in the South since the 1980s. Since 2008, Mexico has landed several new plants at the expense of the Southern Auto Corridor.

Chart No. 3

TOP INDUSTRIES PROJECTS
  2014 2013 2012 2011
1. Automotive 81 83 81 82
2. Oil & Gas 51 53 73 57
3. Distribution 51 26 39 30
4. Chemicals 47 37 51 46
5. Food & Beverage  45 50 36 33
6. Healthcare 43 37 23 39
7. Financial Services 42 31 19 9
8. Headquarters 42 14 15 10
9. Misc. Mfg. 36 18 40 35
10. Call Centers 33 26 15 25
11. Building Materials 35 29 15 15
12. Aviation/Aerospace 28 30 18 23
13. IT 25 16 7 9
14. Traditional Energy 19 8 5 14
15. Data Centers 16 15 7 6
16. Metals 15 22 12 5
17. Agribusiness 13 5 2 2
18. Renewable Energy 12 15 8 24
19. Apparel 8 6 9 0
20. Textiles 7 13 4 0
21. Electronics 6 18 15 12
22. Paper 5 4 6 7
23. Telecomm 5 7 7 2
24. Furnishings 3 7 6 1

*Totals projects announced meeting or 200 jobs and/or $30 million or more in investment. Source: SB&D

Service sector drives job generation machine in 2014

The manufacturing sector's performance is the same as it has been since 2010. It’s on a strong run that experts predict will continue. But, as we have written, the manufacturing sector will never be the answer to mass job creation in the South. There is just too much technology available each year that reduces what would be a 1,000-job plant 10 years ago to what is more like 200 jobs today.

Chart No. 4

Total Jobs Created per The SB&D 100 - 1994-2014

YEAR JOBS CREATED
   
2014 111,926
2013 90,421
2012 63,932
2011 70,573
2010 83,739
2009 78,075
2008 75,211
2007 71,188
2006 82,513
2005 92,847
2004 91,135
2003 75,418
2002 68,651
2001 82,826
2000 111,758
1999 113,136
1998 116,721
1997 125,226
1996 136,442
1995 124,011
1994 118,550

Missouri Gov. Jay Nixon labeled it the largest economic development project in Missouri history.*Totals are derived from the 100 largest job announcements made in the American South from 1994-2014. Source: SB&D

So, for the first time in many years, the massive job machine of the late 1990s is back. And only a strong year from the service sector could duplicate similar years of the late 1990s when the top 100 job projects created more than 100,000 jobs. If you recall, the tech sector drove the South's economy in the late 1990s. For the first time since then, the tech sector is the fastest growing part of the region's economy.

This year's SB&D Job 100 created almost 112,000 jobs. It's been 15 years since we have seen job numbers like that. From 1994 to 2000, the SB&D 100 created over 100,000 jobs each year. By 2001, that total dropped to 82,000 and hit an all-time low of 63,000 in 2013. To create nearly 112,000 jobs from just 100 projects –  just two years after the top 100 job projects created just 64,000 jobs –  is quite impressive.

In addition to financial services having its best year in more than a decade, headquarter projects surged to 42 big deals from 14 projects the previous year. Two huge headquarter announcements –  Cerner adding 15,000 jobs in Kansas City and Toyota's North American headquarters relocation from California to Plano, Texas –  will eventually create 19,000 jobs.

Chart No. 5

Number of Projects of 1,000 or More Announced Jobs

YEAR PROJECTS
   
2014 35
2013 37
2012 17
2011 16
2010 25
2009 28
2008 14
2007 15
2006 24
2005 25
2004 28

On the Gulf Coast between Corpus Christi and Houston, Formosa Plastics petrochemical complex in Point Comfort, Texas is a $2 billion project. Image courtesy of The Center for Land Use InterpretationSource: SB&D

Conclusion

The 2015 SB&D 100 puts an end to any more talk about a jobless recovery. It also puts an end to an eight-year service sector slump that has baffled economists. With 668 projects meeting or exceeding 200 jobs or $30 million in investment, this year's "100" might go down as the best of all time. Not only was a new record set for project totals that was last set 18 years ago, the $78.2 billion in announced investments for the top 100 projects blew away last year's previous record of $53.9 billion.

So, what do you get when the total investment and total project records are broken and for one of the first times in 20 years the South's manufacturing sector and service sector performed well in the same year? You get an unemployment rate that is falling fast. You also get "an economy where collective purchasing power accelerates dramatically. This, in turn, creates more jobs and even more spending, spawning an upward cycle to full employment." I wrote that in the last cover story of SB&D and felt it needed to be written again.

Yes, the South's economy is back. Believe it. The consumer economy, something we really haven't seen much of lately, is also back. While the region's economy slowed in the first quarter of this year, we are hoping that was simply a hiccup. Yes, we predict that the moon and the stars are aligned for at least two more years like this one. If so, then "job market nirvana," or full employment, will finally be achieved in the South for the first time in 15 years.


  
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