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Louisiana Economic Outlook 32nd Annual Edition 2014 – 2015 Prepared by: Loren C. Scott and James A. Richardson


THE LOUISIANA ECONOMIC OUTLOOK: 2014 AND 2015

Prepared by: Loren C. Scott Professor Emeritus in Economics James A. Richardson John Rhea Alumni Professor of Economics Louisiana State University

And Judy S. Collins, Managing Editor

Published by: Division of Economic Development E. J. Ourso College of Business Louisiana State University Baton Rouge, LA

October, 2013


ACKNOWLEDGEMENTS

Grazie. Merci. Danke. Gracias. When the final proof of the Louisiana Economic Outlook is completed and this page has to be written, we struggle each year with how many different ways we can say ―thanks‖ to all the people who make this publication possible. We have to start with the terrific financial support generously provided by our gold sponsors---Blue Cross Blue Shield of Louisiana, ExxonMobil, MidSouth Bancorp, and the Roy O. Martin Corporation. BCBSLA adds to their basic financial contribution by also printing the paper and CD issues of the LEO. Financial support from these companies not only gets the LEO out, but it also provides some extra support to a cash-strapped Economics Department at LSU. Unlike forecast published in other states, a reader of the LEO can actually find out what is happening in individual firms in Louisiana. That is because we make 100+ phone calls a year to businesses in the state, and we are fortunate enough that you take our calls and share your experiences and forecasts with us. There are too many of you to list individually, but please know we are thankful for your trust and time. Louisiana is lucky to have an excellent cadre of economic developers out there to promote our state. You will see the results of their hard work as you thumb through the LEO. Our Louisiana Department of Economic Development has enjoyed the most successful year in its history. A very busy Secretary Stephen Moret spends extra time with us each year to make sure we capture all the new action in the state. Regional developers like Michael Hecht, Adam Knapp, Larry Collins, Courtney Hornsby, Jon Grafton, Greg Gothreaux, George Swift, Rick Ranson, Eric England, Scott Martinez, Diana Simek, Steve Nosacka, Linda Prudhomme, Bob Fudickar, and Michael Eades put together reams of valuable data for us on developments in their areas. We are fortunate to have a ready and willing contact on any issues regarding the state budget in our friend Greg Albrecht with the Louisiana Legislative Fiscal Office. Our forecasts are primarily about non-farm labor in the state, which means throughout the year we keep the phone lines humming to the most helpful people in the Research Division of the Louisiana Workforce Commission. Each year a successful release of the LEO is ensured by long-time, and valuable, friends Rolfe McCollister and Julio Melara of Baton Rouge Business Report Magazine. When you mark their Top 100 Luncheon on your calendar, you know you are in for a special event. It is great to work with professionals! Lastly, a loud shout-out to two key people---Interim Dean Richard White for his strong support of the LEO, and to our most efficient Managing Editor Judy Collins, who has kept us on track this year. Grazie. Merci. Danke. Gracias. Thanks to you all.

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EXECUTIVE SUMMARY

This 32nd edition of the Louisiana Economic Outlook has been much more fun to pen than past LEOs, because the news is generally very good. At this writing, Louisiana is one of only 12 states in the U.S. with more people employed today than in January 2008. Our projections are for growth sufficiently robust over 2014-15 that sometime in the latter year, employment will surpass the 2 million mark for the first time in the state’s history. Progress however will be geographically uneven, with regions along and below I-10 performing much better than the central and northern areas of the state. Behind our forecasts are certain ―drivers‖ that are typically beyond the control of state decision makers but yet have a profound influence on the state’s economic path. Included here are the following: 

While escaping a recession over 2014-15, real gross domestic product growth is expected to be plodding, hovering in the 2.5% a year range;

Our forecasts are based on the 30-year fixed mortgage rate rising only slightly--about 1 ½ percentage points---and only a very modest bump in inflation;

In keeping with present futures market data, oil prices are expected to decline into the $95 range by 2015 as more and more oil comes on the market from the shale plays. This price will still make the Gulf of Mexico a very profitable field for exploration;

Natural gas prices are projected to stay near $4 per mmbtu due to the ocean of this fuel that has been discovered in the U.S. via fracking. It will also continue to support an historical construction boom in the chemical industry;

We cast a wary eye toward three key issues in Louisiana’s future: (1) how much money will be pumped into our economy via BP payments, (2) will the new National Flood Insurance Program be restrained or fully implemented, and (3) what will be the impact of the sequester and other cuts to the Defense Department budget on Louisiana’s substantial military presence?

Each of Louisiana’s eight MSA’s has its own unique economic base and as a result we are projecting that each has its own unique growth path over 2014-15. Readers will find that the best outlooks are generally for regions on and below I-10. Here is a quick review of each:  The New Orleans MSA is projected to add about 11,000 jobs or 1.0% a year. An estimated $12.6 billion ($8.9 billion in the public sector) in construction spending will drive this expansion. Completion of the Big Charity Hospital in mid-to-late 2015 will generate about 1,000 jobs, and modest growth will come from the region’s manufacturing sector (which will suffer through its last round of layoffs

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at Avondale this year). GNO Inc is working a large number of potential projects that could boost our forecast number significantly.  The 9-parish Baton Rouge MSA is heading into an industrial expansion like none other in its history. The Greater Baton Rouge Industrial Manager’s Alliance (GBRIMA) has tabulated a remarkable $23.7 billion in industrial projects that are either announced or underway. GBRIMA projects the demand for construction workers in the region will jump from 17,500 to 31,000 in the next year. IBM is bringing a new 800-person technology center to Baton Rouge, and another tech company---Ameritas---will be at 300 employees by forecast end. We are projecting 21,700 new jobs (+5.6%) for this MSA over the next two years, making it the second fastest growing MSA in the state.  The Shreveport-Bossier MSA has been in an employment dive for four of the past five years, having suffered the loss of GM, cutbacks at Barksdale and Libbey Glass, and a plummeting rig count in the Haynesville Shale. The best news for this area is at the Port of Caddo-Bossier which landed a new plant and the headquarters of Ronpak and, more recently, the new $900 Benteler Steel complex. The region will also get a boost from the opening of the Margaritaville Casino, though it is unclear what the net increase in gaming employment will be. We have this MSA expanding by 900 jobs a year, or about 1% over the next two years---the 6th fastest growth rate in the state.  We are projecting that the Lafayette MSA will see employment rise by 4,100 jobs over 2014-15 or 1.3% per year. Resurgence in activity in the Gulf will bolster exploration and energy service firms in this region. The big-three employers---Acadian Companies, Stuller Settings, and the Schumacher Group---will be adding marginally to their workforces in this region.  The third fastest growing MSA in the state is projected to be Houma, adding 5,200 jobs (about 2.6% annually). Port Fourchon is exploding with activity due to the return of Gulf exploration activity, as are several key service firms like Danos and Chett Morrison. Major new hiring will occur at the Edison Chouest and Bollinger shipyards. A looming uncertainty that could have catastrophic consequences is the possible implementation of the new National Flood Insurance Program. All bets are off for Houma if modifications are not made to the NFIP.  We are projecting that the Lake Charles MSA is about to enter the finest growth period in its history. It’s projected 7,800 new jobs over 2014-15 (+8.1%) could easily be surpassed. GBRIMA has documented a monumental $46.6 billion in announced industrial expansions in this region---including the largest single capital expansion in Louisiana’s history, the $16 to $21 billion Sasol ethylene cracker/GTL complex. The Lake Area Industrial Alliance projects construction labor demand to jump from about 6,000 now to 14,000 in 2016. This number is so daunting that Global Logistics Solutions is building a $70 million man-

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camp at the Port of Lake Charles to house 4,000 of the workers. Adding to the growth will be the opening of the new 1,500-job Golden Nugget Casino and a new name at Chennault Airpark---AAR---that will be adding 500 jobs.  Monroe is expected to be the ―quietest‖ region of the state over 2012-15, adding only 400 jobs (+0.6%). One of the state’s Fortune 500 firms---CenturyLink--will provide a much needed economic kick to Monroe with its new $30 Technology Center for Excellence and the promise of 800 more jobs by 2016.  After five straight years of employment losses, we are projecting that the Alexandria MSA will add 700 jobs (+1.1%) over the next two years. Two biofuels companies will be making major investments---Sundrop ($450 million) and Cool Planet Energy ($58 million), and Crest Industries and Sutherland Global will be increasing their workforces. Alexandria will also be getting a new 150-person Immigration and Customs Transfer facility at England Airpark.  In a real break from the past, the rural (non-MSA) area of Louisiana will be a great source of new jobs over 2014-15, growing by about 2% a year. The only rural parish on the Mississippi River between Baton Rouge and the mouth of the river is St. James Parish. A lot of available land with access to the river has created a huge, $8.3 billion industrial construction boom in this parish. A rebounding U.S. housing market has reopened wood product plants in the state, and a new wood product industry---the manufacture of wood pellets to be exported to Europe to burn in electricity generation---has created both significant capital expenditures on new plants but also many new jobs.

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Executive Summary Table Item BASIC ASSUMPTIONS: Real Gross Domestic Product Inflation Rate 30-Year Fixed Interest Rate Oil Price: barrel Natural Gas Price: mmbtu

2013

2014

2015

1.7% 1.4% 4.2% $108

2.4% 2.3% 5.0% $100 ($85$120) $3.70 ($3.40$4.50)

2.6% 2.2% 5.0% $95 ($85$120) $3.90 ($3.40$4.50)

$3.60

STATE PROJECTIONS: Non-Farm Employment (000s): Absolute Growth Rate Percent Growth Rate: Employment

1,949.5 23.9 1.2%

1,983.7 34.2 1.8%

2,017.3 33.6 1.7%

MSA PROJECTIONS: EMPLOYMENT (000s) Alexandria Absolute Change Percent Growth Rate Baton Rouge Absolute Change Percent Growth Rate Houma Absolute Change Percent Growth Rate Lafayette Absolute Change Percent Growth Rate Lake Charles Absolute Change Percent Growth Rate Monroe

62.7 -0.3 -0.5% 381.5 6.3 1.7% 97.1 2.3 2.4% 157.8 2.1 1.4% 93.7 2.7 3.0% 76.9

63.0 0.3 0.5% 394.0 12.5 3.3% 99.7 2.6 2.7% 159.9 2.1 1.3% 97.0 3.3 3.5% 77.1

63.4 0.4 0.6% 403.2 9.2 2.3% 102.3 2.6 2.6% 161.9 2.0 1.3% 101.5 4.5 4.6% 77.3

0 0 533.9 4.2 0.8% 175.5 -1.8 -1.0% 370.4 8.4 2.3%

0.2 0.3% 538.9 5.0 0.9% 176.4 0.9 0.5% 377.7 7.3 1.9%

0.2 0.3% 544.9 6.0 1.1% 177.3 0.9 0.5% 385.5 7.8 2.1%

Absolute Change Percent Growth Rate New Orleans Absolute Change Percent Growth Rate Shreveport-Bossier Absolute Change Percent Growth Rate RURAL EMPLOYMENT Absolute Change Percent Growth Rate Source: LSU forecasting team.

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TABLE OF CONTENTS Page ACKNOWLEDGEMENTS……............................................................................... ii EXECUTIVE SUMMARY………………………………………………………. iii OUTLOOK FOR 2014-15; UNDERLYING ASSUMPTIONS……………………. 1 BRIEF HISTORY OF THE LOUISIANA ECONOMY…………………….…… 15 THE OUTLOOK FOR THE METROPOLITAN STATISTICAL AREAS…….… 28 The New Orleans MSA: Solid Recovery But Avondale and Stewart Lurk .. 31 Baton Rouge: An Historical Industrial Expansion………………………… 41 Shreveport/Bossier: Bonanza at the Port; Elio Maybe?................................. 54 Lafayette: Strong Oil Patch = Strong Growth………………………………64 Houma: The GOM Is Back……………………………............................... 71 Lake Charles: Can It Possible Be This Grand?............................................. 80 Monroe: Welcome to CenturyLink City…………………………………… 94 Alexandria: Is the Slide Over?........................................................................ 99 THE OUTLOOK FOR THE RURAL PARISHES: 2014-15…………………….. 105 THE OUTLOOK FOR THE STATE 2014-15…………………………………….. 111

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OUTLOOK FOR 2014-2015: UNDERLYING ASSUMPTIONS No state---no matter how large or small---operates in a vacuum, isolated from what occurs outside its borders. This is especially true for Louisiana. Our economy is directly influenced by a myriad of factors including trends in the overall national economy, specific national policies (such as this year’s discussion of changes in the National Flood Insurance program), movements in energy prices, interest rates, etc. For this reason, we do not begin our report with the state, but instead survey some of these key national and global drivers that will be influencing the Louisiana economy over 2014-15. The National Economy: Plodding, with No Change in Sight Very little has changed in the prospects for the national economy since last year’s Louisiana Economic Outlook (LEO). Growth in the U.S economy is positive, but plodding. Pattern of Employment Growth Figure 1 provides one visual on the recovery. Here we plot the monthly change in employment in the nation from the beginning of the Great Recession in 2008 through July 2013. Fig. 1: Monthly Change in US Employment 600

July 2013: 162,000 Ur = 7.4%

1/08 to 12/09: -8,683,000 Jobs (-6.1% )

400

Thousands

200 0 -200 -400 Brookings: Recovery +180,000 a month: Average: 1. Mid-2014 to regain all 3/10 to present 2. 9 years to reach pre163,900 recession employment levels Adjusted for pop change

-600 -800 -1,000 I

II III IV 2008

I

II III IV 2009

I

II III IV 2010

I

II III IV 2011

I

II III IV 2012

I

II III 2013

Source: Bureau of Labor Statistics

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One is first struck by the absolute size of the employment losses during the recession---a drop of almost 8.7 million jobs or 6.1%. Notice the nature of the recovery. Instead of quickly rebounding in a pattern similar to the job loss, employment has increased at an average rate of 163,900 a month. This may seem like a large number, but it is not relative to the size of the economy. U.S. non-farm employment at the outset of the recession was almost 136,000,000. As the Brookings Institution pointed out in a recent study, if the economy created 180,000 jobs a month (not being achieved now), the 8.7 million jobs lost during the Great Recession would not be recovered until mid-2014. This would not fully solve the unemployment problem because each year a new cohort of people turn 18 and enter the workforce and jobs must be found for these new entrants as well. Brookings estimates that at 180,000 jobs a month it will take nine years to reach pre-recession levels of employment. Another indicator of the weakness of this recovery is to compare it to previous recoveries from recessions. Figure 2 traces the employment recovery cycle for this recovery as compared to the previous four since WWII. Figure 2

Employment Cycles Percent Change from Cycle Peak 20%

20% 1948-1949 Cycle 1981-1982 Cycle 1989-1991 Cycle 2001 Cycle 2007-To-Date Forecast

16%

12%

16%

12%

8%

8%

4%

4%

0%

0%

-4%

-4%

-8%

-8% 0

6

12

18

24

30

36

42

48

54

60

66

72

78

84

______________________________________________________________________________________ Economic Outlook Page 2


This recovery has been the weakest of all five. As mentioned in the last section, the Brooking Institute expects the present growth trend to mean the U.S. will cross the 0% line sometime in mid-2014. This growth pattern is acting as a drag on the economies of all the states. RGDP Forecasts In Figures 1 and 2, we have illustrated the past employment history of this weak recovery. Is it likely that this pattern will change for the better over 2014-15? Few forecasters seem to think so. Uncertainty is the bane of economic growth, and the uncertainty level for business decision makers has changed little from conditions reported in last year’s LEO. In particular, key components of the Affordable Care Act kick in this fall. Many individuals are uncertain about what their new insurance premium will be or how exactly the exchanges will work. Though certain mandates on businesses have been postponed for a year, they are close enough on the decision horizon to give business owners pause. The U.S. Congress is still deadlocked over budget issues. Environmental and energy decisions are ongoing. Financial reform is an ongoing process. And, the actions of the Federal Reserve are still to be determined. Individuals and businesses have to factor in these uncertainties as they make short and long-term decisions. Uncertainties always exist in any economy, but presently, the uncertainties are fundamental differences in federal policy that have not been fully resolved---and the uncertainties are more intense than usual. Our forecasts are based on Real Gross Domestic Product (RGDP) growing by 2.4% in 2014 and 2.6% in 2015. Table 1 contains the quarterly RGDP forecasts for the rest of 2013 and all of 2014 by Wells Fargo Economics and Consensus Forecasts USA. The latter is the average of 27 highly regarded forecasting firms in the country---one of which is Wells Fargo. The good news is that few forecasters are expecting a recession within our forecasting period. The not so good news is that these are very modest growth rates for this stage of the recovery. Table 1 Real Gross Domestic Product Projections by Quarter Quarter 2013-I* 2013-II* 2013-III 2013-IV 2014-I 2014-II 2014-III 2014-IV

Wells Fargo 1.1% 1.7 1.7 2.1 2.2 2.3 2.4 2.4

Consensus 1.1% 1.7 2.2 2.7 2.8 2.9 3.0 3.0

* Actual ______________________________________________________________________________________ Economic Outlook Page 3


Inflation & Interest Rates There is another area that is generating uncertainty for decision makers. In order to help prod the economy into a stronger growth rate, the Federal Reserve System (the FED) has been engaging in a very expansion monetary policy. One consequence is that interest rates have been very low by historical standards as shown in Figure 3.

Fig. 3: 30-Year Fixed Mortgage Rate 18 16 14

2013-I - 2014-IV: +153 basis points

Rate

12 10 8 6 4 2 75

80

85

90

95

00

05

10

Source: Wells Fargo Economics, 7/13 A second consequence has been that banks are holding very large excess reserves relative to required reserves. Under normal circumstances, banks would be lending these funds out. However, the level of uncertainty in the economy has caused firms to retrench and not borrow. Surveys of members by the National Association of Independent Businesses reveal that members can get credit, but they do not want to expand at this time. What if firms do start borrowing these funds and through that action (what economists call the money multiplier effect) cause the money supply to rise very quickly.

______________________________________________________________________________________ Economic Outlook Page 4


The result would typically be a marked increase in inflation. Higher rates and a spike in inflation is a bad mix for economic growth. The Outlook for Interest Rates What are the forecasters thinking about this possibility? A hint can be seen in the interest rate forecast in Figure 3. Wells Fargo is projecting the 30-year fixed mortgage rate to rise by only 153 basis points (1.5 percentage points) through 2014. This is in line with that group’s forecast of inflation over the same period---an increase from 1.4% in 2013 to 2.3% in 2014. Neither of these changes is large enough to have that deleterious effect on the economy. When Will the FED ―Tighten‖? Those especially concerned about an upward spike in interest rates are watching the FED closely to try to predict when that agency will switch from an ―easy‖ to a ―tight‖ money policy. FED watchers are focused on two key items. One is the expected change in the chairmanship position in 2014. FED Chairman Ben Bernacke has indicated he likely to step down when his term ends this coming January. Will the new chairperson have a different philosophy than Bernacke? Note the word ―chairperson‖ in that last sentence. One of the leading candidates for the slot is the current Vice Chair, Janet Yellen who, if selected, would be the first female head of the FED in its history. The other leading candidate is Larry Summers, former President of Harvard, Secretary of the Treasury for President Clinton, and head of President Obama’s National Economic Council. A second item on which FED watchers are focused is the unemployment rate. At present, the FED stated policy is it will not tighten money and raise rates until the unemployment rate gets to 6.5%. When might that be? Members of the Federal Open Market Committee have expressed their views, and these are reported by Cumberland Advisors in Figure 4. By far, these participants believe the 6.6% rate will not be reached until sometime in 2015.

______________________________________________________________________________________ Economic Outlook Page 5


Figure 4

The research team at Cumberland Advisors has generated their own estimate of when the economy will achieve a 6.5% rate. Their model assumes (1) the economy will continue to expand at a modest 2.5% rate, (2) the labor force will expand at 0.7% annually, and (3) the labor force participation rate will continue its downward slide at a 0.3% annual rate. As seen in Figure 5, the best case scenario is that a 6.5% unemployment rate will be achieved in July 2015 and in a worst case, well into 2018. Basically, the analysis by Cumberland Advisors suggests that any spike in interest rates is likely to occur only in the latter part of our forecast period. Figure 5

______________________________________________________________________________________ Economic Outlook Page 6


The Oil Market: Watch the GOM and Shale Plays Louisiana should continue receiving a solid shot in the arm from a strong oil exploration sector over 2014-15. The primary driver for this industry is the price of oil. Note in Figure 6 that oil prices have risen and stabilized at a new plateau compared to the last big dip in prices back in 2009. Our forecast are based on a slight decline in oil prices, going from about $106 a barrel this year to about $95 a barrel in 2015. Our confidence range around this point estimate is quite wide---$85 to $120. This wide range reflects the unusual nuances of this industry. A significant hurricane in the Gulf of Mexico (GOM), a marked increase in production by OPEC, an unforeseen spike in demand, or an outbreak of violence in the Mideast could cause the price to tap the upper part of the range. On the other hand, a serious worldwide recession or a technological breakthrough that dramatically increases production could pair to drive prices down to our lower bound. Our projection of a slight decline in oil prices is for the most part in keeping with the players in the oil futures market. As of August 7, 2013 the futures price for oil delivered in December 2014 is $92.42. What is behind our estimate of this slight decline? Well, it is the price of oil, so it must have something to do with supply and/or demand conditions in this market. From the demand side standpoint we are expecting very little effect. As noted earlier in this report, the expectation is that the U.S. economy will grow rather slowly, as will the rest of the world. The demand side should have little impact, unless there are major upturns or downturns in Europe and/or China.

Fig. 6: Oil Prices 140 120

Price per Barrel

100

Average Low High

80

2013 $108

2014 2015 $100 $95 $85 $85 $120 $120

60 40 20 0 90

92

94

96

98

00

02

04

06

08

10

12

14

______________________________________________________________________________________ Economic Outlook Page 7


The primary factor putting downward pressure on oil prices is more likely to come from the supply side. In addition to nice supply increases coming from offshore Brazil and West Africa, there is the sudden boom in the shale plays in the U.S. and the return of activity in the GOM after the BP spill. U.S. Shale Plays Once the science of fracking was developed for natural gas shale plays, it was inevitable that the next step would be taken---using the technique to squeeze oil out of oil shale plays. This move has been highly successful. As Map 1 shows there are active shale plays all over the country. Furthest along is the Bakken Play in North Dakota. In 2003, North Dakota was producing about 10,000 b/d of oil; in May 2013 that level was 810,000 b/d---an 81-fold increase. In March 2012, North Dakota surpassed Alaska as the third largest producer of oil in the U.S. Oil fracking activity has since moved all across the states. The Eagle Ford Play in South Texas is thought by some to be even larger than Bakken. In Ohio, the Utica Play is reported to possibly be as large as the Eagle Ford. Pennsylvania’s economy has earned a major boost from the development of the Marcellus Shale. The Granite Wash in Oklahoma and the Niobrara in Colorado are also turning out to be significant.

Map 1

These shale developments boosted U.S. oil production by 25% since 2008---the highest growth of any country in the world over that period. Shale oil production has reduced our balance of payments import bill by $75 billion over the past 5 years. Shale natural gas production has prevented our country from having to import $100 billion of natural gas. The increase in shale oil production has been approximately equivalent to 80% of our imports from Iran before sanctions were imposed, making much easier to make those sanctions work. ______________________________________________________________________________________ Economic Outlook Page 8


A reasonable question to ask is if our projected oil price decline will suppress production in these plays. Data on the breakeven price for production in the key oil shale plays is shown in Table 2. With the exception of the Tuscaloosa Marine Shale section that is in Louisiana, the breakeven price is well below even the lower end of our oil price range. Table 2 Breakeven Oil Prices by Play Shale Play Breakeven Price Eagle Ford (TX) $49 Bakken (ND) $50 Granite Wash (OK) $57 Niobrara (CO) $66 Tuscaloosa (MS) $69 Tuscaloosa (LA) $92 Source: Rodgers Oil & Gas Consulting Return of the GOM Adding to the resurgence in the oil patch has been the return of Gulf of Mexico exploration activity to pre-BP spill levels. Prior to the spill there were 33 rigs operating in the deep waters of the GOM. In October 2010 the moratorium had driven that number down to seven. In 2012, there were 36 rigs operating in deep waters and that number is expected to grow to 50 by mid-2014 and 60+ over 2015-17. Developmental drilling in the GOM is expected to reach a new peak in 2013. Sustained high prices, new lease sales, adaption to a new safety regime, and resumption of permitting to pre-spill levels has brought the GOM back. Why this enthusiastic return? There are several factors, some of which we mentioned in last year’s LEO. The GOM straddles the world’s largest consumer. There is a vast network of pipelines already in place, and the cost of taxes and royalties are among the lowest in the world. There is little chance of the U.S. nationalizing the industry (as Argentina recently did to a Spanish exploration company). But of special importance is the sheer quantity of oil that can be produced from a single well. As a comparison, a typical well in the Bakken Play will average 1,000 b/d; one Chevron well in the company’s St. Malo Field in the GOM produces 13,000 b/d. GOM wells tend to be real gushers. Natural Gas: Instigator of Louisiana‘s Biggest Boom Ever?

The excitement level in South Louisiana is like none the authors have seen in the 40 years of tracking the Louisiana economy. In past years, if there was $5 billion in capital expansions announced in the state, that was considered a really good year. The Greater Baton Rouge Industrial Managers Association (GBRIMA) recently tabulated a ______________________________________________________________________________________ Economic Outlook Page 9


remarkable $83.8 billion in capital projects either underway or announced in Louisiana. The catalyst for this huge construction boom has been the decline in natural gas prices illustrated in Figure 7. After reaching record high levels of $7-$10 per mmbtu in the 4-year period from 2005-08, natural gas prices have plummeted to the $3.50-$4.00 per mmbtu range. Equally important, while U.S. natural gas prices have fallen precipitously, natural gas prices in Europe hover near $10 and in Asia the price is closer to $18. The natural gas price in Europe is high because the gas consumed there is imported from Russia and Russia prices its natural gas off of oil prices---which have stayed high. Unless the Europeans begin to harvest their shale gas---an unlikely near-term prospect given the power of the Green Party in Europe---our manufacturers that consume huge amounts of natural gas will enjoy a significant competitive advantage over their European counterparts. It is the ability to cut into the European market share of the world chemical market in particular that is driving the huge capital expansion in Louisiana (and southeast Texas).

Figure 7: Price of Natural Gas 9 8

Per MMBTU

7

PGA PGL PGH

2013 $3.60

2014 2015 $3.70 $3.90 $3.40 $3.40 $4.50 $4.50

1995

2000

6 5 4 3 2 1 1990

2005

2010

2015

The even better news is that there is every reason to believe natural gas prices will stay low in the U.S. As seen in Figure 7, our forecasts are based on only a thirty cent rise in natural gas prices around a narrow range of $3.40-$4.50 per mmbtu.

______________________________________________________________________________________ Economic Outlook Page 10


Natural gas prices have come down and should stay down because of the tremendous supply increase generated for the shale plays. Right now there is an ocean of natural gas out there. There is so much natural gas that many of the ―dry plays‖---those containing only natural gas and no oil---are being almost abandoned by exploration companies for ―wet plays‖ where they can harvest both natural gas and high-priced oil. A classic example is the dry play in Northwest Louisiana known as the Haynesville Shale. Note in Figure 8 the rig count in the North Louisiana zone dropped by 83% from a peak of 138 rigs in July 2010 to the present level of 23 rigs. A similar sort of decline occurred in the Fayetteville Play in Arkansas, another dry play. When the demand for natural gas rises as these new plants come on line, there will be a natural pressure for natural gas prices to rise again. But as they do, producers will begin to open up shut-in wells in these dry plays or start to drill there again, thereby increasing supply and keeping an effective cap on natural gas prices. That is very good news for those manufacturers that are users of this important fuel.

Fig. 8: Rig Count - North Louisiana 140

7/2010: 138

120

Rig Count

100

80

60

40 7/12/13: 23 20 01

02

03

04

05

06

07

08

09

10

11

12

13

July of Year Source: Louisiana Department of Natural Resources

More Uncertainties: BP Claims, Flood Insurance & the DOD In preparing this year’s forecasts, hovering in the background are three major areas of concern: 

How much money will be pumped into the economy via BP claims payments?

______________________________________________________________________________________ Economic Outlook Page 11


 

What will be the impact of the proposed changes to the National Flood Insurance Program? What will be the impact on Louisiana’s military-related facilities from the sequester and possible Department of Defense budget cuts?

BP Payments Money continues to flow into the Louisiana economy from claims BP is paying for damages associated with the 2010 oil spill in the Gulf of Mexico. There are at least three sources of these claims monies. First, individuals and businesses have filed claims against BP. Presently, those claims are being administered by the Deepwater Horizon Class Action Claims Unit (DHCACU). From 2011 through May 2013 the total amount of BP claims paid to individuals and businesses is $3.64 billion. As a reference point, that figure represents 2% of Louisiana’s $181.4 billion in total personal income in 2012---obviously a nontrivial injection into the state’s economy. The DHCACU is still accepting claims, so this figure is certain to grow further during our forecast period. Secondly, under terms of a criminal plea agreement approved between BP and Transocean and the U.S. Department of Justice and accepted by the presiding judge, the National Fish and Wildlife Foundation (NFWF) will receive just over $2.5 billion to be placed in a Gulf Environmental Benefit Fund. Louisiana‘s share of this bounty will be $1.272 billion and will be used primarily to rebuild barrier islands and build sediment and saltwater diversions in the state. The schedule of these payments to Louisiana is detailed in Table 3. We expect that most of these monies will be spent in the New Orleans and Houma MSAs. Table 3 Gulf Environmental Benefit Fund Timetable: Louisiana Year/Month Payment (Millions) April 2013 $79.0 February 2014 $176.5 February 2015 $169.5 February 2016 $150.0 February 2017 $250.0 February 2018 $474.0 Total $1,272.0 Source: www.nfwf.org

A third source of BP funds will come via the RESTORE the Gulf Coast Act. This act dedicates 80% of Clean Water Act penalties to the Gulf Coast. How much money this will be remains to be determined, but it will be substantial. The Clean Water Act allows the collection of $1,100 per barrel of oil spilled or $4,300 if there is a finding of gross negligence from any party found responsible for the spill. ______________________________________________________________________________________ Economic Outlook Page 12


The total amount of money secured via the RESTORE Act remains up in the air until (1) there is a finding of how much oil was spilled and (2) whether or not there is a finding of gross negligence. We have seen estimates ranging from $4.5 billion to $21.1 billion. These monies will go into a Gulf Coast Restoration Fund (GCRF). Funds in the GCRF will be allocated as follows: 

Thirty-five percent will be allocated directly and equally to the five coastal states for ecological and economic recovery along the coast. Thirty percent of Louisiana’s portion will be allocated directly to its 20 coastal zone parishes based on a formula. Seventy percent will go to a Gulf Coast Ecosystem Restoration Council (GCERC) that will fund a plan for the ecological recovery and resiliency of the coast. These monies will be allocated as follows: o 30% of the GCRF will go to the GCERC to implement the plan; o 30% of the GCRF will be allocated to the states based on actual impact to implement state plans, which must be approved by the Council; o 2.5% will be allocated for establishing a Gulf Coast fisheries monitoring program; o 2.5% allocated equally to all five states for establishment of a Gulf Coast Center of Excellence in each state.

It is apparent that large sums of money will continue coming to Louisiana over our forecast period from BP. National Flood Insurance Program Issue While the BP spill monies will be a positive injection into the state’s economy, two other uncertainties could hammer certain sections of the state. One concerns attempts to make the National Flood Insurance Program (NFIP) actuarially sound. This federal program is about $28 billion in debt. In addition, the FEMA has redrawn flood maps across the country and more properties are in flood zones. This means even more property owners will be required to have flood insurance in order to maintain the mortgage loan on their property. Commissioner of Insurance Jim Donelon reports changes in the NFIP will impact thousands of properties in Louisiana (there are 484,098 policies in effect in Louisiana), especially in St. Charles, Terrebonne, and lower Jefferson Parishes. The impact on the premium in some cases is eye-popping. The Greater New Orleans Chamber has estimated that the premium for a $171,900 home in St. Charles Parish will rise from $388 annually to $23,946---over a 6000% increase. GNO Inc. also estimates the annual premium on the Microtel Inn Suites in Belle Chase will jump from $1,522 to $103,197. For some properties this will be devastating. It makes no sense to pay a $23,946 annual flood insurance premium on a home valued at $171,900. The property cannot be ______________________________________________________________________________________ Economic Outlook Page 13


sold since no buyer would want to assume those rates. The owner cannot afford the premium and will walk away from the property, leaving the mortgage lender with basically a worthless asset. This is not just a Louisiana problem. Many other states, in particular along the Gulf and Atlantic coasts are in a similar pickle. Will the federal government allow these new rates to be instated or will the Biggert-Waters Act be amended to grandfather in all present properties (not owners, but properties)? For its part FEMA is adopting a new ―levee analysis and mapping procedures‖ (LAMP) to give areas credit for recent flood protection structures beyond the agency’s previous all-or-nothing approach of counting 100-year flood protection systems. The economic effect of not amending the act is so severe and so geographically widespread that it seems more likely that the act will be amended, but at this juncture that remains uncertain. Uncertainty about something this big is not good. Sequester & Possible Cuts in Defense Another area of keen uncertainty that could have major impacts on certain areas of Louisiana are the impacts of the sequester and potential further cuts in the U.S. defense budget. At this writing, civilian employees at Barksdale Air Force Base in Bossier City are being furloughed for one day a week---effectively a 20% cut in their pay---and there has been a cutback in flying hours and training and all building maintenance has been postponed unless there is an emergency. One of Louisiana’s largest employers is Fort Polk in Vernon Parish, where any cutbacks in Army troop size or training will be felt. The Navy is expecting $7.75 billion in cuts in its shipbuilding programs. That may jeopardize the jobs of the few workers remaining at Huntington Avondale Shipyard in New Orleans. It is unclear at this stage how the President and Congress will resolve the next round of discussions on the debt ceiling. Will there be another sequester? Will President Obama move to cut the Defense budget even more in order to support other federal programs? The answer to those questions will impact Bossier City, Vernon Parish, and New Orleans in more than a trivial way. And, as with many other issues, there are several angles to the discussion. If defense cuts are restored and other cuts are made, these other cuts may affect other regions of the state such as agricultural communities or possibly other urban areas. Louisiana is a state that gets more money from the federal government than it pays in terms of federal taxes.

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A BRIEF HISTORY OF THE LOUISIANA ECONOMY We insert at this point in the LEO a brief history of the Louisiana economy so that readers can understand what forces have driven the economy over the past three and a half decades. It also provides us with the opportunity to illustrate the profound impact that Hurricanes Katrina and Rita had on the state and the way the state has coped with the Great Recession. For a good visual reference, Figure 9 tracks non-farm employment in Louisiana over 1975-2013. The four downturns Louisiana has experienced are illustrated by the gray bars in the figure. From Heady Boom to the First Big Recession The years from 1975-81 were heady ones for the Louisiana economy. The price of crude oil had risen from only $7.09 a barrel in 1975 to a whopping $37.48 at one point in early 1981 (about $93.15 in 2011 dollars). The southern part of the state especially became like a gold mining town in the gold rush days. Employment in the oil and gas extraction sector rocketed up from about 50,000 in 1975 to just over 102,000 at one point in 1981. As seen in Figure 9, overall non-farm employment boomed as well, rising at an average rate of 4.1 percent a year over 1975-81. In 1978, employment jumped a remarkable 7.2 percent in one year. Then from 1982-87, Louisiana went through a terrible recessionary period---at that time the worst in its recorded history. Nearly 148,000 jobs vanished within the state, about 9 percent of the workforce. To get a feel for how bad it was compare that number to the 6.1% drop in U.S. employment during the Great Recession. Plunging energy prices cut the extraction workforce in half, and a huge run up in the value of the dollar virtually destroyed the export markets for our chemicals, prompting that industry to layoff a third of its workers. The negative multiplier effects of these firings added to the misery. Climbing Out of the Abyss: 13 Years of Growth As seen in Figure 9, the state in 1988 began the long climb out of the abyss into which it had fallen in the previous six years. The primary driver behind this recovery was the chemical industry. In 1985, a complete reversal in the trend of the exchange value of the dollar occurred. Now foreigners were observing U.S. chemical prices declining dramatically in terms of their own currencies. The result was a very strong resurgence in the demand for Louisiana chemicals. Chemical firms began large-scale capital expansion projects, augmenting employment not only in chemicals but also in the industrial construction sector. Fortunately, growth was occurring in other sectors as well, helping to diversify the economy and making it less vulnerable to negative trends in any one industry. The transportation equipment industry, once heavily tied to oil and gas related activities, diversified into defense contracting and more general shipbuilding. The textile industry ______________________________________________________________________________________ Economic Outlook Page 15


began a major expansion, led by Fruit-of-the-Loom, a firm which expanded so much that it became the largest manufacturing firm in the state, as measured by employment. Healthcare also enjoyed a major expansion during this period due to a huge injection of federal Medicaid monies into the state. Medicaid dollars rose from under one billion dollars in 1989 to over three billion by 1993. By 1993, the state had finally recovered all the jobs lost during the terrible recession of 1982-87 and began to set new employment records.

Fig. 9: Louisiana Non-Farm Employment: 1975-2013 2,000

2001-02: -22,100 Jobs (-1.2% )

1,900

X

Thousands

1,800 2005-06: Katrina-Rita -64,300 jobs (-3.4% )

1,700 1,600 1,500

2009-10: -52,800 jobs (-2.8% )

Jan. 2013 New Record (1 of only 14 States) 1982-87: 2013: -147,900 jobs +23,900 jobs (-9.0% ) (1.2% )

1,400 1,300 1,200 75

80

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00

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Note in Figure 9 that the 5 years from 1994 to 1998 were especially good ones for the state. Employment grew at rates of 3.8, 2.9, 2.1, 2.2, and 2.1 percent, respectively. These were rates in excess of the nation’s performance. Several industries contributed to this nice spurt of very strong growth. After 12 years of employment declines, the oil and gas extraction sector began a solid recovery, which pulled along all those industries that sell products and services to it. In 1993, there was no casino industry in Louisiana. Pre-Katrina and Rita, about 19,713 jobs had been created in Louisiana’s 15 riverboat casinos, its four racinos, and its sole land-based casino. And this employment number does not include the people working at the three Indian casinos in the state. Changes in federal policies governing the

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harvest of timber on publicly owned lands in the Pacific Northwest drove several new lumber companies to Louisiana during this period. These sectors provided an extraordinary boost to an economy which was, in general, doing well across several sectors. The result was unusually expansive employment in those five years. The ‘99-‗00 Slowdown It is apparent from Figure 9 that 1999 was anything but a banner year for the state. In the early part of 1998 the price of oil began a slide that did not end until it moved below $10 a barrel---a level not seen since the horrendous recessionary year of 1986. For a while the extraction industry held on, but then the bloodletting began. Blue-collar jobs were eliminated as the rig count dropped from 218 to 125. Then mergers and consolidations among both exploration and services firms meant white-collar layoffs or relocations to Houston. Between 98-III and 99-III, 13,100 jobs were lost in Louisiana’s extraction industry. Ancillary firms, such as fabricators, machine shops, and ship builders, were pulled down along with the industry. As we will discover later in our report on the metropolitan areas, the Lafayette and Houma MSAs were especially impacted by these layoffs. Despite these blows, Louisiana’s employment actually grew marginally in 1999, though by only 0.4 percent. In the latter part of 1999 and early 2000, both oil and natural gas prices began an unexpected and remarkable move upward. By 2000-IV, oil prices had jumped to $32.57 a barrel and natural gas averaged $5.71 per mcf. At one point in the winter of 2001, natural gas was priced at over $10.50 per mmbtu at the Henry Hub. The extraction industry began its move back into the oil patch, slowly at first, then picking up momentum. The rig count rose back through its previous peak of 218 and attained 232 at one point. This nice stimulus from the extraction industry boosted the state’s employment back up by 1.2% (see Figure 9). This was still not very stellar growth, especially when compared to the 1994-98 period. 2001-02: The Second Recession in Three Decades It is clear from the picture in Figure 9 that, like the immediate post-911 national economy, the years 2001 and 2002 were not great ones for Louisiana. Employment fell by 2,300 jobs in 2001 and by 19,800 jobs in 2002. That is a total of 22,100 jobs over the 2-year period or a decline of 1.2%. However, there was some good news in the numbers. Louisiana did lose 1.2 percent of its jobs, but apparently most states endured even worse job losses. U.S. payroll employment fell by 2,598,000 jobs between March 2001 and June 2003. That represents a 2.0% decline---higher than the Louisiana loss.

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Why did the national recession hit Louisiana a bit more lightly than other states? Two factors were at work. First, when the nation enters a recession the first industry to get hit is the durable goods industry. After all, people have to buy food and utilities, but they can postpone buying appliances, cars, homes, boats, etc. In the U.S., 6.4 percent of employment is in durable goods industries. In Louisiana that figure is only 4.6 percent, and much of that employment is in national defense shipbuilding or manufacturing platforms and rigs for the extraction industry---areas pretty immune from national recessions. Louisiana did not have a major durable goods manufacturing sector that was laying people off. As an aside, durable goods employment is 9.2, 9.0, and 7.6 percent of jobs in Mississippi, Alabama, and Arkansas, respectively. Employment cuts are typically much deeper and longer in these states as compared to Louisiana. A second aid to Louisiana was the fact that up until the very end of 2001, the extraction sector was doing quite well. That sector also enjoyed a mild recovery of sorts in 2003. This is a safety net that was enjoyed by only a couple of other states, like Texas and Alaska. 2002: The Toughest Year of the Recession As mentioned earlier, 2002 was the toughest year of the post-911 recession in Louisiana. Several events combined to make 2002 a pretty ugly one for the state. They are as follows: 

When oil prices fell to the $18 a barrel range in late 2001 and early 2002, the extraction industry pulled back some, shedding about 1,000 workers between June 2001 and June 2002.

High natural gas prices, weak demand, and weak chemical prices hammered the chemical sector.

Avaya Communications, Pennzoil Refinery, and Boeing Aircraft all shut down in Shreveport, laying off over 1,300 workers. Beaird Industries and Frymasters in the same city also engaged in significant layoffs.

Fruit-of-the-Loom shuttered its St. Martinville plant at a cost of 1,300 jobs.

The absence of expansion activity in the state’s huge chemical sector hurt industrial construction work. Construction employment fell by 6,200 jobs in 2002.

2003 to Mid-2005: Slow, Plodding Recovery Note back in Figure 9 that the Louisiana economy began to grow again, though at a very modest rate. Non-farm employment rose only 0.5 percent in 2003. That was ______________________________________________________________________________________ Economic Outlook Page 18


much better than some neighboring states as seen in Table 4. Mississippi, Alabama, and Arkansas all experienced employment declines one year longer than Louisiana, and their overall decline was greater, except for Arkansas, whose decline matched that of Louisiana. Again, this fits the pattern of states that have a larger durable goods dependency than Louisiana.

Table 4 Employment Declines in Louisiana, Mississippi, Alabama & Arkansas During the Post-911 Recession State Louisiana Mississippi Alabama Arkansas

Years of Decline 2001, 2002 2001, 2002, 2003 2001, 2002, 2003 2001, 2002, 2003

% Decline in Employment 1.2% 3.2% 2.9% 1.2%

Still, Louisiana’s recovery from the recessionary period was plodding at best. Not only did employment rise only 0.5 percent in 2003, the state grew only 0.7 percent in 2004 and by August 2005 Louisiana’s non-farm employment was rising at only a 1.9 percent rate. What was the problem? By far the biggest culprit was the chemical industry. This sector had lost 5,900 jobs since peaking in 1998, and much of that decline (4,500 jobs) had occurred since 2001. The chemical industry was hammered by high natural gas prices. Retrenching in this sector created problems in industrial construction and fabricated metal manufacturing as well. A second culprit was the extraction sector. In an almost remarkable reversal of historical precedence, Louisiana’s extraction sector experienced almost no bump from higher oil and natural gas prices---mainly due to a drag on the industry created by some high-profile legacy lawsuits. Weakness in extraction also had a negative impact on the fabricated metals sector and shipbuilding. With a pummeled chemical industry and a moribund extraction sector it was hard for the feeder sectors---such as trade, services, and finance---to muster much growth. The result was weak employment growth rates over 2003-05. Into the Abyss: Katrina and Rita Unquestionably the most dramatic economic events in Louisiana’s economic history occurred in August and September of 2005. Two highly destructive hurricanes hit Louisiana. Hurricane Katrina tracked right over Plaquemines and St. Bernard Parishes and on up the Louisiana-Mississippi border on August 29, 2005. Katrina was a category 4 hurricane when it made landfall, with maximum sustained winds of 143 mph and gusts up to 165 mph. Hurricane Rita made landfall about a month later on September 24, ______________________________________________________________________________________ Economic Outlook Page 19


2005, coming in right on the Louisiana-Texas border. Rita was a category 3 hurricane when it made landfall, with maximum sustained winds of 120 mph. While the Lake Charles MSA sustained significant damage from Rita, the greatest destructive force by far was leveled on the New Orleans MSA. When Katrina hit, the levee system in New Orleans failed in several areas. The entire ninth ward on the east side of New Orleans was flooded. The 17th Street Canal was breeched sending flood waters into sections of old Metairie and the Lakefront. Before these waters were pumped out, most of the impacted homes had sat in four to ten feet of water for nine days to two weeks. Just as the Ninth Ward was pumped dry, Hurricane Rita came along and caused a water surge that re-flooded that area. In addition, the very low-lying parishes of Plaquemines and St. Bernard were swamped by water surges, especially by Katrina. (For an interesting visual track of the collapse of the levees and subsequent flooding see http://www.nola.com/katrina/graphics/flashflood.swf). A combination of high winds and water surges made these two storms the most destructive natural disasters in the modern history of the United States. Consider the comparative data in Table 5 below which does not even include Rita: Table 5 Top Six Natural Disasters in the U.S. Since 1980 Natural Disaster Costs Katrina $200 billion + 1988 Drought/Heat $61.6 billion 1980 Drought/Heat $48.4 billion Hurricane Andrew $27 billion 1993 Midwest Flood $26.7 billion Hurricane Charley $14 billion Source: National Oceanographic and Atmospheric Administration Impacts on Housing Katrina and Rita’s impact on housing was particularly severe as seen in Table 6. Numbers in the first two rows (destroyed/major damage) are homes rendered uninhabitable. The National Association of Home Builders has estimated that seven times more homes were rendered uninhabitable by Katrina alone than any other natural disaster in U.S. history. Note in this table that housing damage was highly concentrated in the New Orleans MSA. Almost 60 percent of the houses damaged in the New Orleans MSA incurred major or severe damage.

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Table 6 Impacts of Katrina and Rita on Housing in Louisiana Impact Statewide New Orleans MSA Lake Charles MSA Minor Damage 210,512 122,446 38,427 Major Damage 98,086 79,068 6,673 Severe Damage 106,651 102,898 2,284 Total 515,249 304,440 47,384 Percent with Major or Severe 39.7% 59.8% 18.9% Damage Source: FEMA, February 12, 2006.

Impact on the Offshore Oil and Gas Industry When a hurricane like Katrina is poised to enter this region of the GOM, energy companies begin the process of shutting down the offshore platforms and evacuating personnel. How many platforms are evacuated depends on the path of the storm. Figures 10 and 11 track the shut-in statistics for crude oil and natural gas produced in the GOM. Shut-in oil and natural gas refers to output that was being produced but is not now because of damaged platforms, pipelines or onshore receiving units. In the case of Katrina, 95.2 percent of the crude oil and 88 percent of the natural gas production was shut-in by August 30th. By September 9th, the shut-in rates had dropped to about 56-58 percent for oil and about 33-37 percent for natural gas. Then the improvement stabilized. When Rita appeared, because it made landfall further to the west and more into the center of the GOM production region, 100 percent of crude and 80 percent of natural gas was shut-in. The last shut-in statistics released by the Minerals Management Service showed that 12.1 percent of oil and 9.3 percent of natural gas production was still shut-in as of June 6, 2006. In the case of both of these storms, return to total production was steady but not very swift. In fact, the shut-in rate for Katrina stabilized almost twice as high as was the case for Hurricane Ivan the previous year. For example, crude oil production after Ivan initially stabilized at about 480,000 bd while the comparable figure for Katrina was closer to 850,000 bd. Why wasn’t crude and natural gas production immediately restored to their prehurricane levels? Think of this production occurring in three primary zones---(1) offshore platforms, (2) underwater pipelines, and (2) onshore receiving units. Each of these suffered damages that needed repair before production could be restarted. Zone 1: Offshore platforms. One reason that production was not immediately restored was because of damage to offshore platforms. As seen in Table 7, Hurricanes Katrina and Rita---because they were stronger storms that hit more in the heart of the ______________________________________________________________________________________ Economic Outlook Page 21


GOM production region---caused far more damage to these platforms than did Ivan which hit farther east. Figure 10 Shut-in Oil Production in the Gulf of Mexico Shut-in Oil (bbl/d)

12/06/05

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1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0

Source: Minerals Management Service

Figure 11 Shut-In Natural Gas Production in the Gulf of Mexico Shut-in Gas (mmcf/d)*

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10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

Source: Minerals Management Service

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Table 7 Impact on Offshore Platforms of Hurricanes Ivan, Katrina, and Rita Impact Ivan Katrina Rita Destroyed 7 46 69 Damaged 20 20 32 Source: Office of Electricity Delivery and Energy Reliability, U.S. Department of Energy, www.doe.gov, October 7, 2005, p.2. Of the platforms destroyed by Katrina and Rita, most were older platforms that were built under pre-1988 upgraded design standards, and were located on the ―shelf‖ (shallow waters), where the wells were fairly depleted and producing little product. Still, there were a number of the larger, deepwater platforms that suffered major damages. For example, as a result of Katrina there were four deepwater platforms that accounted for about 10 percent of offshore crude oil production that were severely damaged. Among these were Mars, Ursa, Mansa, and West 143---all owned by Shell Oil Company. Mars was restored to service in May 2006. Among the casualties of Rita was Chevron’s Typhoon TLP (tension leg platform) which was turned upside down by the storm. Zone 2: Underwater pipelines. Damage to underwater pipelines was one of the greatest concerns to the energy sector because checking and repairing these pipelines requires some of the scarcest resources in the oil patch---divers, boats, and power. Underwater mudslides caused by Ivan wiped out 102 pipeline systems. Katrina and Rita knocked out 655 more, a total of 20,000 miles of pipelines. Zone 3: The onshore receiving units. Once the crude oil and natural gas reaches shore, these fuels are received by refineries, gas processing plants and onshore pipelines. The first two sets were the most problematic. Katrina caused the closure of eight refineries. Within two weeks after the storm passed, four of these had power restored and were refining crude oil. Four others not only lost power but were also damaged and were flooded. Three were in Louisiana: (1) the 350,000 bd ConocoPhillips Refinery; (2) the 183,000 bd ExxonMobil Refinery, and the 122,000 bd Murphy Oil Refinery. These three units were located in the heavily flooded areas of St. Bernard and Plaquemines Parishes. All of the refineries were re-opened by summer 2006. Rita closed three other refineries in the Lake Charles MSA: (1) Citgo (324,000 bd); ConocoPhillips (239,400 bd), and (3) Calcasieu (30,000 bd). These three units had mostly minor wind damage and power loss but fortunately, no flooding. They were all three back up by November 2005. What received little attention from the press was the damage to gas processing plants in the region. Natural gas produced offshore tends to be high in hydrogen sulfide and water. The processing plants refine these impurities out. Three were located near the mouth of the Mississippi River and were severely damaged by both wind and flood. Dynergy’s plant in Venice was so badly damaged that pipelines were rerouted from it to ______________________________________________________________________________________ Economic Outlook Page 23


other processing plants. Together these three plants processed about 2.8 bcfd of natural gas. Rita added another six plants to these three, though these six were not as badly damaged as the Katrina victims. All of these plants are back in operation. Impact on Non-Farm Employment One is also struck by the impact of these two storms on non-farm employment in the state. Back in Figure 9 we graphed the annual average employment levels in the state. Because these storms hit in the latter part of 2005, their influence does not fully show up until the 2006 numbers are shown. Employment experienced a total drop of 3.4 percent. Using these annual average figures, Louisiana lost 64,300 jobs as a result of these storms, almost half of the 147,900 jobs lost during the entire 1982-87 period. The great difference is that in the later case, the job loss occurred over a 6-year period. The two hurricanes caused a loss half that size to occur virtually overnight. Even that last paragraph does not do justice to the employment blow Louisiana endured as a result of Katrina and Rita. That is because the employment change mentioned above was in terms of annual averages. The great Nobel Laureate in Economics---Milton Friedman---once commented that some people do not understand how a man six feet tall could drown crossing a river that was on the average only five feet deep! Examining the monthly change in Louisiana’s employment reveals that the state‘s employment fell from 1,941,100 in August 2005 to 1,776,000 in October 2005---a huge decline of 165,100 jobs or 8.5 percent! A sharp recovery of jobs in the next 14 months helped bring the annual averages up smartly and hid just how deeply the job cut was. Out of the Abyss: Recovery Post-Katrina and Rita Given the devastation meted out by Katrina and Rita the recovery of the state as a whole from those two storms was in a sense quite remarkable. A quick glance back at Figure 9 shows that on an annual average basis the state had recovered all but 2,000 of the jobs lost due to Katrina and Rita by 2007. Largely this recovery was led by a huge construction boom. Massive amounts of recovery monies were pumped into the Louisiana economy by both the federal government and private insurance companies. Gulf Opportunity Zone (Go-Zone) legislation was passed by Congress to further incentivize companies to make capital expenditures in the affected regions. Go-Zone legislation provided either (1) an upfront 50 percent depreciation provision or (2) very low interest bonds for construction. A rough count showed over $20 billion in construction projects in the New Orleans area and $6.5 billion in the Baton Rouge MSA---construction figures that were 8-10 times larger than in normal years. A second boost came to Louisiana’s oil and gas extraction sector. Very high oil and natural gas prices pumped up the energy-dependent Lafayette and Houma MSAs. A couple of high-profile economic development wins---Union Tank Car in Alexandria and

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Steelcase (now Ternium) in Shreveport---gave a nice positive jolt to central and northwestern areas of the state. Impact of the Great Recession Back in our "Assumptions" section we spent a good bit of time describing at the national level the impact of what has become known as the Great Recession. Recall that this recession started in December 2007 and ended June 2009. During the recession the US economy began to lose jobs in January 2008 and by the end of 2009 had lost 8,363,000 jobs for a decline of 6.1 percent. RGDP fell by 5.1%, the worst recessionary decline experienced in the U.S. since the Great Depression. The impact of this recession---much like previous ones---was much more muted on the Louisiana economy. The data in Table 8 illustrate the impact of the recession on both the state and its eight Metropolitan Statistical Areas (MSAs). Note that: 

While the nation began losing jobs in January 2008, Louisiana did not lose its first job until a year later. Louisiana employment actually rose 1.1 percent in 2008.

The U.S lost 6.1 percent of its jobs, while Louisiana's job loss was only 2.8 percent.

The U.S. began adding jobs (but inconsistently) in January 2010; Louisiana did not begin to add jobs until June 2010.

Job losses across Louisiana's MSAs ranged from a low of only 1.2 percent in New Orleans to a high of 6.2 percent in Lake Charles. Table 8 Impact of Great Recession on Louisiana & Its Eight MSAs: Non-Farm Employment

Area (Total Change) State (-2.8%) Alexandria (-5.6%) Baton Rouge (-3.1%) Houma (-5.0%) Lafayette (-3.0%) Lake Charles (-6.3%) Monroe (-3.0%) New Orleans (-1.2%) Shreveport (-2.1%)

Month 1st Loss 1/09 1/09 9/08 8/08 9/08 2/09 6/08 1/09 10/08

2009 % Change -1.9% -3.2% -1.1% -3.7% -2.2% -3.9% -2.0% -1.0% -2.3%

2010 % Change -0.9% -2.4% -2.0% -1.3% -0.8% -2.4% -1.0% -0.2% +0.2%

2009 Change -36,500 -2,100 -4,100 -3,600 -3,300 -3,700 -1,600 -5,400 -4,200

2010 Change -16,300 -1,500 -7,200 -1,200 -1,100 -2,200 -700 -1,300 +400

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` As in the past, Louisiana's lesser dependency on durable goods production protected the state from a serious decline, and the state was protected even more by the still lingering benefits of extra construction activity due to the Go Zone legislation. Regarding the Go Zone construction effect, Figure 12 illustrates construction employment in Louisiana over 1990-2010. Note that in the post 9-11 recession. Louisiana's construction employment fell sharply for four straight years, and that was a very minor national recession---lasting only 8 months. Contrast that experience with the employment trends during the Great Recession. Louisiana's construction sector actually grew in 2008, did not record its first job loss until April 2009, and fell 9.5 percent---less than the previous short, shallow national recession.

Fig. 12: Louisiana Construction Employment: 1990-2012 140

Thousands

130

120 2008: Grew 2009-10: -12,800 (-9.5% )

110 2001-04: -12,500 (-9.7% )

100

90 1990

1995

2000

MS: -20% AL: -30.0% AR: -15.8% US: -28.5%

2005

2010

Contrast that performance with what happened in the much more durable-goodsdependent Alabama. As shown in the inset in Figure 12, that state's construction employment was hammered, dropping 30 percent (and it is still declining in 2013). Mississippi's construction decline was 20%, Arkansas's was 15.8% (and still declining), and the overall U.S. construction employment fell 28.5% (three times more than in Louisiana). In no small respect, the Go Zone legislation spared Louisiana from a much sharper decline due to the Great Recession.

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Coming Out of the Great Recession: 2011-13 Finally, we come to Louisiana's recovery year from the Great Recession. The state's employment actually started to show positive numbers in 2010-IV and has continued on a positive track. Louisiana has now enjoyed three straight years of growth and actually began to set new employment records in January 2013. At this writing, Louisiana is one of only 14 states in the nation with more people employed than in January 2008. Several factors are behind this fine performance. The state's huge chemical industry is doing very well due to gaining market share from the Europeans. Not only are existing chemical firms doing well, but also new chemical firms have announced expansions in the state. As mentioned in the assumptions section, surveys by the Greater Baton Rouge Industrial Managers Association indicate a remarkable $83.8 billion in construction projects underway or announced. When the Louisiana Workforce Commission released its latest state employment estimate for June 2013 it showed nonfarm employment was up 25,800 in the past year. Almost half of that growth---11,800 jobs---was in Louisiana’s construction sector. Exploration activity in the Gulf of Mexico is now back to pre-spill levels and is expanding beyond, generating jobs in the exploration companies and all those firms that provide goods and services to that sector. The Louisiana Department of Economic Development has garnered a number of wins, bringing new industry to the state that is not exploration or chemical-industry related. Among these are the completion of the $750 million phase I of Nucor Steel’s plant in St. James Parish, Ameritas, CB&I, and IBM in Baton Rouge, Ron Pak and Benteler Steel in Shreveport-Bossier, and Sundrop Fuels in Alexandria, to name a few. As we will see in the forecast section, Louisiana is poised for a period of exceptional growth.

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THE OUTLOOK FOR THE METROPOLITAN STATISTICAL AREAS There are 64 parishes in Louisiana, and the U.S. Bureau of Economic Analysis (BEA) has taken 29 and separated them into eight metropolitan statistical areas (MSAs). These parishes are all grouped around one or more major cities in the state. Map 2 shows the location of each and the parishes that are in each MSA.

Map 2: Louisiana Metropolitan Statistical Areas

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Like Dishes at the Potluck Each MSA Is Different It’s called a family potluck. Everyone brings a different dish. Someone is in charge of making sure there is no duplication of dishes. Each dish is uniquely different from the other, but all contribute to the overall quality of the feast. Louisiana's eight MSAs are much like that. They are all part of the Louisiana economy, but each one is very unique and different from the others. Each has a different economic base. Each recovered from the Great Recession at a different pace. Each has different obstacles to overcome going forward, and the future prospects for each are quite different. Even though it was clobbered by Katrina and Rita, New Orleans remains the state’s largest MSA with an estimated 533,900 non-farm jobs in 2013. The "city that care forgot" is big in shipbuilding, tourism, petrochemicals and is headquarters for a number of oil and gas extraction and extraction-related companies. Its complex of ports is among the largest in the U.S. in tonnage moved. It has significant medical complexes and is home to several universities---the largest being the University of New Orleans and Tulane University. The state’s only land-based casino is located in New Orleans along with two other riverboat casinos and the Churchill Downs Racetrack, four gaming establishments that together employ about 4,100 people. Baton Rouge, with an estimated 381,500 non-farm jobs in 2013, is the home of two major universities---LSU and Southern University---plus Baton Rouge Community College, which is now larger than Southern. This is also the location of the State Capitol, which means government employment plays a major role in this MSA. This MSA also has the largest concentration of chemical industry employment in the state and is home of the country’s second largest refinery. The predominance of these two capital-intensive industries means industrial construction supports proportionately more jobs in the Baton Rouge area than in the other regions of the state. It is now the home of three riverboat casinos, and has a burgeoning film and digital gaming sector. The third largest MSA in Louisiana, Shreveport-Bossier (175,500 jobs in 2013), is an MSA that is unique in a couple of ways. First, Shreveport-Bossier is host to the state’s largest gaming market with six riverboat casinos---including the brand new Margaritaville--and one racetrack that altogether employ over 5,300 people. The huge 9,745-person Barksdale Air Force Base gives this community a significant military presence. Shreveport-Bossier has also enjoyed being the host of a huge deposit of natural gas called the Haynesville Shale, and the MSA also has the very active Caddo-Bossier Port on the Red River. In Louisiana the closest thing to two dishes alike at the family potluck would be the Lafayette (157,800 jobs) and Houma (97,100 jobs) MSAs. Both have an unusually high concentration of firms associated with the oil and gas extraction industry, so fluctuations in energy prices powerfully impact these two regions. Though located near each other, these two MSAs still differ beyond their connections to oil and gas extraction. ______________________________________________________________________________________ Economic Outlook Page 29


Houma has a significant shipbuilding (Edison Chouest and Bollinger Shipyards) and fabrication sector---much of it closely tied to the extraction industry. Lafayette, on the other hand, is somewhat more diverse. It is home to the nation’s largest jewelry settings manufacturer (Stuller Settings) and has as a major employer, Acadian Ambulance, a company whose helicopter ambulance, alarm monitoring, and pipeline/rig safety services are used in several states. The headquarters of the Schumacher Group---a provider of ER and other medical physicians to hospitals in 23 states---is also located in Lafayette. Lake Charles, (93,700 non-farm jobs in 2013) like Baton Rouge, has an unusually heavy chemical and refining base---the second largest concentration in Louisiana after Baton Rouge. That means industrial construction is also important to this area. However, in two ways Lake Charles is very different from the state capital city. Lake Charles is home to the state’s second largest casino market. There are two casinos operating in the MSA (and another large one is under construction), a racetrack, and a very large Indian casino is located only a parish away. Secondly, aircraft maintenance and repair work at Chennault Airpark is also significant in this MSA. The second smallest MSA in the state with 76,900 non-farm jobs is Monroe. Finance plays a larger role in this MSA than in most because of the large Chase mortgage facility there, and CenturyLink’s (a Fortune 500 company) large operation makes telecommunications an unusually large component of its base. Paper and lumber industries are also an important component of Monroe’s economy. Its geographic position in the northeastern part of the state has given it stronger ties to the agricultural sector than perhaps any other Louisiana MSA. Finally, there is Louisiana’s smallest MSA---Alexandria. Located in the central part of the state, this MSA had 62,700 non-farm jobs in 2013. It has historically been the retail trade/service center for that region of the state with only a small manufacturing sector. That has changed with the opening of the Union Tank Car and Roy O. Martin Lumber facilities in the region. Too, Procter and Gamble has significant facilities in this MSA, as does an important group called Crest Industries. Cleco Power is also located in this MSA. Alexandria has a strong military influence due to nearby Fort Polk---the largest single employer in the state. In the sections below we will give a brief employment history of each of the state’s eight MSAs, along with the Louisiana Econometric Model (LEM) forecast for 2014-15. In each MSA, we will explain the key factors and companies driving the region’s future.

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The New Orleans MSA: Solid Recovery But Avondale and Stewart Lurk Despite the pounding from Katrina and Rita, New Orleans remains the largest MSA in the state. Pre-Katrina, its non-farm employment had peaked at 613,400 workers, 80 percent larger than the second largest MSA---Baton Rouge. Its 2013 employment level is now at about 533,900---still about 40 percent larger than the Baton Rouge MSA. Located in ―the toe of the boot‖ (see Map 1), this MSA is comprised of seven parishes--Orleans, Plaquemine, Jefferson, St. Charles, St. John the Baptist, St. Tammany, and St. Bernard. It has been a wild ride for this MSA over the last 33 years. The good news is the MSA has enjoyed a solid recovery from the Great Recession despite the drag of a 3,500job lost at Huntington Avondale Shipyard. This MSA’s future looks good if the bleeding is truly over at that company and if the purchase of Stewart Enterprises results in only minor job losses. History Pre-Katrina & Rita Figure 13 tracks the non-farm employment history in New Orleans from 1980 through 2013. New Orleans suffered mightily during the 1981-87 recession, losing 40,400 jobs or 8.3 percent of its workforce. This MSA had more extraction sector employees than any other area in the state in 1981---20,600. By 1987, problems in the oil patch had driven that figure down by nearly 30 percent to 14,600, as many firms relocated their headquarters operations to Houston and employment in the industry in general declined. New Orleans’ manufacturing sector also took a beating, falling from 61,300 workers in 1981 to 41,700 by 1987. Much of this decline occurred in the shipbuilding segment of manufacturing which alone lost 6,900 jobs. Shipbuilding at the time was very energy-focused with little diversity in its orders. Multiplier effects from these shipbuilding layoffs dealt the MSA’s real estate, retail, services, and financial markets punches that would have them floored until well into the 1990s. Like the other MSAs with strong energy ties---Houma and Lafayette---New Orleans began a slow recovery in the late 1980s. Then another round of layoffs at Avondale Shipyards and the soft natural gas prices of 1991-92 flattened growth in 1992. (This picture is distorted somewhat by the deletion in 1990 of St. James Parish employment from the New Orleans MSA numbers.) A further blow occurred when the Challenger accident caused a slowdown in flights of that spacecraft. This meant fewer flights and fewer external fuel tanks to be built by what was then Martin Marrietta. The big jump in 1994 and 1995 shown in Figure 13 will look familiar to readers who carefully examine these same two years in the graphs of the other major casino markets---Lake Charles and Shreveport/Bossier. Four riverboat casinos with about 3,300 workers opened during this time period. Secondly, the land-based casino opened at a temporary site, and construction began on the massive permanent location at the foot ______________________________________________________________________________________ Economic Outlook Page 31


of Canal Street. This injection of new jobs was enough to generate healthy annualized growth rates of 2.6 percent per year during 1994-95.

620

Fig. 13: New Orleans MSA Non-Farm Employment 1980-2013

600

Thousands

580

2002: -10,300 jobs (-1.7% )

560

2005-06: -133,700 jobs (-21.8% )

540 520 500

2009-10: -6,700 jobs (-1.3% )

-40,400 Jobs -8.3%

Compared to 2001 Peak: -84,700 jobs (-13.7% )

480 460 1980

1985

1990

1995

2000

2011: +1.2% 2012: +0.9% 2013: +0.8%

2005

2010

New Orleans’ employment trend from 1999 to 2001 was virtually flat. Then, in 2001, employment in the region responded to the national recession and other events with a one-year loss of 10,300 jobs, ranking it number five among the hardest hit MSAs in the state by the post-911 national recession. Note in Figure 13 that the two years after the recession---2003-04---were not particularly great recovery years. High natural gas prices led to the closing of some ammonia fertilizer plants in the area and to general sluggishness in the region’s large chemical industry. Employment rose at a moribund 0.5 percent rate a year. An important fact from examining Figure 13 is that for six straight years before Katrina and Rita hit, employment in this MSA was virtually flat. The Impact of Katrina & Rita Of course, the most profound message from Figure 13 is the impact of hurricanes Katrina and Rita on the MSA. On an annual average basis, Katrina and Rita caused employment to fall by a remarkable 133,700 jobs or 21.8 percent. These two storms effectively drove New Orleans MSA’s employment back to levels it had not seen since 1977. Three decades of employment growth were wiped out overnight. According to ______________________________________________________________________________________ Economic Outlook Page 32


Figure 13, the New Orleans economy had recovered 49,000 of those jobs by 2013, but the MSA employment is still lower than it was in 1980 and is still 84,700 below its 2001 peak employment year. Actually, the use of annual average data in Figure 13 does a poor job of illustrating how badly these storms impacted the New Orleans economy. On a monthly basis the job-destruction was much greater than suggested by the annual average data. By the time Rita had re-flooded New Orleans, the region had lost 177,900 jobs, an astounding 29.5 percent decline. Recovery rate very slow. A disheartening factor has been the slow recovery since the storms. More frequently one would see a ―V‖ pattern in employment right after a disaster as massive federal recovery and private insurance monies flow into the area for the re-build effort. We saw this ―V‖ pattern, for example when observing the recovery in Lake Charles and Pascagoula, Mississippi. In New Orleans, the recovery looks like a ―kindergarten L‖. Why has the recovery rate been so slow? Few would dispute that housing has been a key factor. First, there is just the sheer size of the destruction. There were almost 182,000 homes in the New Orleans MSA that incurred either severe or major damage, i.e. damage bad enough to render the home uninhabitable. Some have estimated this is seven times more homes destroyed than in any other natural disaster in our country’s history. Secondly, these homes were rendered uninhabitable by flood waters. When flood waters enter a home, regular home owner’s insurance no longer applies. The owner must have purchased national flood insurance. As it turns out, 74 percent of these homeowners had no flood insurance. Those who did have flood insurance discovered that it covered only 80 percent of the pre-flood value of the home up to a maximum of $250,000. Virtually every home owner, even if they had flood insurance, was left with a gap in their coverage. To cover this gap in coverage, the generous taxpayers in the other 48 states agreed to send a pot of money to Louisiana and Mississippi to help homeowners bridge this gap--what was referred to in Louisiana as the ―Road Home‖ monies. These monies were critical in rebuilding many of the homes. Still, there remain large swaths of New Orleans East and St. Bernard Parish where people have simply chosen not to return. Finally, consider four other issues. Recall from Figure 13 that in the six years before the storms hit the economy in New Orleans was basically flat. Families that had been dispersed by the storms to Dallas, Houston, San Antonio or even other parts of Louisiana, typically found themselves in much more robust economies with more, and higher-paying, jobs. Secondly, it is a fact that public schools in the New Orleans area were among the worst in the state (if not the nation). Dispersed families found themselves in cities with much better public school systems. The good news is that the advent of charter schools into the Orleans Parish system has apparently improved these schools significantly. Thirdly, dispersed families watched with alarm the deteriorating ______________________________________________________________________________________ Economic Outlook Page 33


crime situation in New Orleans, and this no doubt retarded the return rate. Here, too, the outlook is more hopeful as the new mayor---Mitch Landrieu---has hired a new police chief with an excellent track record for turning crime statistics around. The Drag of the Great Recession Finally, the Great Recession hindered this MSA's recovery. Bolstered by massive amounts of construction spending to rebuild houses, levees, locks, etc., and the boost from the availability of Go Zone funding, the New Orleans MSA actually enjoyed employment growth in 2008. However, the drag of the national economy finally had an impact in 2009 and 2010, when the MSA lost 6,700 jobs---a 1.3 percent decline. That was actually not a bad performance considering that the national economy fell by 6.1 percent. The performance of the New Orleans MSA economy during the Great Recession was actually the best performance relative to the state's other 7 MSAs (see Table 8). Solid Recovery from the Great Recession Recovery from the negative impacts of the Great Recession has been impressive for the New Orleans MSA. Note back in Figure 13 that the region has enjoyed three years of solid growth. Indeed, the MSA recovered all the jobs lost during the recession by 2012. This performance is particularly impressive given that it occurred against the backdrop of the 3,500+ layoffs at Huntington Avondale Shipyards, about two-thirds that loss again at the Michoud Assembly Facility, and at least a $1 billion decline in Army Corps of Engineers spending on rebuilding the area’s levee system. Our forecasts last year of the region losing 1,400 jobs on the net in 2013 because of these three factors turned out to be (thankfully) far too pessimistic. It appears the MSA actually added 4,200 jobs this year. Employment was up 1.2% in 2011, 0.9% in 2012, and is on track to grow 0.8% in 2013. That latter rate puts this MSA 5th among Louisiana‘s eight MSAs. The four faster growing MSAs have a larger chemical industry base and/or a bigger energy exploration base than New Orleans, and those two sectors are driving unusually strong expansions in these faster-growing MSAs. Forecast for 2014-15 Our projections for this MSA are shown down in Figure 14. We are projecting that the New Orleans MSA employment will add 5,000 jobs (+0.9%) in 2014 and 6,000 jobs in 2014 (+1.1%). This would rank the MSA’s performance fifth among the state’s eight MSAs over the two-year forecast period.

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Fig. 14: New Orleans MSA Non-Farm Employment Forecast: 2014-15

620 600 580 Thousands

560 540 520

2014: +5,000 (+0.9% ) 2015: +6,000 (+1.1% )

500 480 460 80

85

90

95

00

05

10

15

Continuing Construction Boom + Opening the New Charity Hospital Two key considerations are behind the persistent growth performance in the New Orleans area. One is the continuing above average level of construction activity in the region and the other is the opening of the new Big Charity Hospital in 2015. As has been the case since Katrina and Rita, there are an unusually high number of major construction projects either underway or announced in this MSA. Pre-2005 if there were $2 billion in announced projects that would have been considered a good list. By our tabulation, over our forecast range the total comes to just under $12.6 billion. Of this amount, about $3.7 billion are private sector projects and $8.9 billion are public sector projects. The $8.9 billion in public spending include the following: 

Ground was broken April 2011 on the new $1.06 billion Big Charity Hospital in New Orleans. This is actually a complex that has a 424-bed hospital, an ambulatory care center, an inpatient tower, a diagnostic/treatment facility, a 1,355-car parking garage, and a utility building. This project is on schedule for opening in spring 2015. We have built 1,000 new jobs into the New Orleans forecast in 2015 for this event.

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―Project Legacy‖---the new $995 million, 200-bed VA Hospital---is under construction (ground was broken in June 2010) and is on schedule to open in February 2016. This is one of the largest projects undertaken by the VA, and when it opens it will generate 2,200 new high-paying ($96,000 annually) jobs for this MSA.

The Army Corps of Engineers is continuing its extraordinary spending in this region on its Hurricane and Storm Damage Risk Reduction System. Table 9 shows that the Corps’ planned spending on the HSDRRS will actually bump up a bit in FY2014 and FY2015 as compared to FY2013 before beginning to wind down noticeably in FY2016 and FY2017.

Table 9 Army Corps of Engineers Actual & Planned Spending: Hurricane and Storm Damage Risk Reduction System Fiscal Year Spend (Billions of Dollars) 2013 $1.080 2014 $1.588 2015 $1.185 2016 $0.417 2017 $0.098 

Over 2014-15 an estimated $685.5 million will be spent by the Orleans Parish government on various projects, including $360 million on Department of public works projects, $34.8 million Pathway to Progress items, and $290.7 million on Orleans Parish capital projects. In addition to these projects, the parish’s new $224 million prison complex is due to be completed by 2014.

The Jefferson Parish Department of Public Works has some major spending planned for the near term. One of the larger projects is an $826 million overhaul of the Louis Armstrong Airport. This involves a $650 million, 30-gate terminal with three concourses and a parking garage, a $17 million privately-financed hotel, a $72 million state-financed power station, and a new $87 million ramp on I-10 for eastbound traffic to the terminal. The parish has also begun a $100 million road improvement program and the Southeast Louisiana Flood Control Plan is projected to spend $1 billion in projects over time.

Large sums continue to be spent by the Recovery School District and the Orleans Parish School Board to rebuild the parish school system after the havoc wreaked by the hurricanes. This spending reached $441 million in 2013, will rise to $449 million in 2014, and then tail off to a still significant $204 million in 2015.

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Work continues on the massive rebuild of public housing in the area. This $1.16 billion effort to rebuild Calliope, C.J. Peete, Lafitte, and St. Bernard projects started in January 2008 and will run through 2015-17.

The state has let $334.6 million in road projects for this MSA over 2014-15. Among the larger elements of this program is $31 million to repave I-10 from French Branch to W. Pearl River, $20 million to widen I-12 from Airport Road to US 11, and $20 million for deck overlay on the I-310 Lulling Bridge. Among the almost $3.7 billion in private construction projects are the following:

Dyno Nobel International has broken ground on a new $850 million ammonia production facility on the Cornerstone Chemical Company site in Waggaman. Cornerstone is simultaneously investing $175 million on maintenance and upgrades on its units. Construction of the Dyno Nobel plant should be completed by mid-2016 and will generate 65 new jobs.

Work continues on Entergy’s $721 million power plant in Westwego. Called the Nine Mile Power Plant, it should be completed in early 2015 and add 17 new jobs to Entergy’s workforce.

Marathon Refinery in Garyville will spend $117 million in 2013 and another $108 million in 2014 on its existing units to optimize diesel and gasoline yields.

A decision should be reached in late 2013 by Valero Refinery to build a $700 million methanol unit at its refinery in Norco. If the decision is a ―go‖, construction would start in 2015 or 2016.

Boomtown Casino has broken ground on a $20 million, 5-story hotel with 150 rooms. It should be finished in mid-2014 and add 50 new jobs.

Work continues on the $325 million expansion of the WWII Museum in New Orleans. This project is scheduled for completion in 2016.

There is a significant amount of activity at the Port of Plaquemines as companies prepare, among other things, for the widening of the Panama Canal. Key projects at the port include: o IMT Coal will complete a $12 million expansion this year which will add 40 jobs; o Ram Terminals will construct a $150 million coal export terminal that should open in late 2014 or early 2015 (permit granted August 30th). This new terminal is expected to support 125 new jobs;

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o Omega Refining purchased an old ethanol refinery at the port and is spending $60 million to refurbish it to refine used motor oil. It is scheduled to open in 2014-III and employ 60 people; o Nola Tanking is constructing a $60 million tank farm at Myrtle Grove Plantation. It should open in late 2014; o Louis Dreyfus has purchased 380 acres on the East bank to build a bulk handling facility. It is to be opened in 2015, but no capital dollar amount was released. 

There are at least two significant retail projects underway in the area. Stirling Properties/CBL & Associates took over the Shoppes at Fremaux project in Slidell. Phase I ($45 million) started in Match 2013 and will open in 2014-II, and near the end of 2014 it is expected that Phase II ($15 million) will be initiated. Phase I with 290,000 square feet of retail space was 70% pre-leased by this summer. Also this summer Phase I ($48.4 million) of the South Market District called the Paramount was begun, which will contain 209 apartments and 22,000 square feet of retail space. Plans are for the total $200 million, 4-phase mixed use development in downtown to be completed by the end of 2014.

New Orleans Manufacturing: Keeping an Eye on Huntington Generally speaking, the manufacturing sector of the New Orleans MSA is looking quite good. The list of private construction projects mentioned above will produce almost 400 permanent jobs once they become fully operational. In addition to those prospects, consider the following: 

A real stalwart in the New Orleans region is Textron Marine & Land Systems. This company’s sizeable workforce of 894 is expected to remain solid through 2015. The Navy has awarded Textron a $212 million contract to design and build amphibious landing vessels, the first 8 of 72 of this next generation of hover crafts. The second option could be worth $570 million. A $113.5 million contract has been secured with the Afghanistan National Army for 135 mobile strike force vehicles, with deliveries running through 2014. Textron recently garnered a $603 million contract beginning January 2014 to produce 500 vehicles for the Canadian Forces Tactical Armored Patrol Vehicle. This summer the firm was awarded a $100 million contract with the U.S. Army for maintenance of the force’s armored security vehicles (ASVs). Finally, the Columbian Army placed a $13.6 million contract with the company to build 28 ASVs for delivery in early to late 2014.

The next two years should see a revival in activity at the Michoud Assembly Facility (MAF), especially in regard to the Space Launch System (SLS) which will be manufactured at MAF. Boeing should be ramping up its employment at MAF from 100 to 250 to begin manufacturing the core stage of the Orion space vehicle. The first stage or ―pathfinder‖ of the Orion capsule has been built and is going into the testing stage---a move that will cause employment in this section to

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decline from 150 to 50. However, once testing is completed near the end of 2014, employment on this part of the vehicle should head back up to 150. An exciting new project at MAF is the development by Lockheed Martin of a manufacturing facility to produce LNG tanks to be used principally in water-borne vessels. These vessels are going to be subject to more stringent diesel emissions standards in 2016 and a significant number are considering a switch to LNG as a fuel rather than diesel. Lockheed expects to add 175-200 jobs over the next two years on this project. The USDA Finance Center remains a major employer on the MAF campus with 1,275 employees. MAF economic development officials are working at least 10 significant projects as we went to press; two of those are ranked as high probability of success and are high job-count prospects. 

Trinity Yachts is spending $5 million on an expansion that will add 200 jobs to its present workforce of 120.



MECO in Mandeville will be wrapping up an $11 million fabrication plant/office capital project towards the end of this year that will add 127 jobs.

Against this backdrop of good news remains the worrisome issue of the Huntington Ingles Inc. (HII) Shipyard. Three years ago there were 4,000+ workers at this yard. Huntington made the decision to move activity at this yard to its sister yard in Pascagoula, Mississippi. As of mid-2013, employment at the shipyard has dropped to 1,800---a non-trivial 2,200 job-loss to the New Orleans MSA economy. Plans are for employment to decline further to 1,000 by the end of 2013. The hope now is that employment will stabilize at 1,000, and that this work crew would provide steel components for Navy ships being constructed at the Pascagoula yard. However, the sustainability of this crew depends on continuation of the construction schedule in Mississippi, and that depends in no small way on how Congress and the President deal with the sequester and other Defense Department cuts. Under one scenario we have seen, the Navy expects to cut some $7.75 billion from its shipbuilding program due to sequestration---an event Huntington may be hard-pressed to avoid. HII is also engaged in another tact to try to save these jobs at Avondale and even add to them. The company is making a major thrust to attract to the yard fabrication work associated with (a) building topsides for the offshore exploration sector and (b) building the steel-oriented portion on the expansion projects in the chemical and refining industries. The Navy has given $10 million to the Delgado Foundation for repurposing the first two floors of the administration building at Avondale for an Advanced Manufacturing Center of Excellence to train workers in related occupations. This will fund operations at the new center for 4 years without state support. A real challenge for Huntington will be pricing its services. The rub is that the workforce at Avondale is unionized and will be competing against non-unionized companies like Gulf Island and CB&I.

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Some Non-Manufacturing Wins & Potentials Our focus to this point has been on the construction/manufacturing side of the New Orleans MSA economy. One of the great non-manufacturing wins for the region was the attraction of GE Capital‘s Technology Center. This firm dedicated its new corporate office in New Orleans in April 2013 and will have 150 high-wage ($60,000$100,000 a year) information technology and software development jobs by the end of 2013. This number is projected to grow to 300 jobs by 2015. Smoothie King also announced the firm will be keeping its headquarters in the New Orleans area and will be adding 50 jobs. GNO Inc.---the region’s economic development arm---is now working about 90 prospects for the MSA. We are aware of two that are very close to announcements as we go to press: (1) a large coal export or oil tank farm on the river and (2) a very large oil recycling firm. Three Firms: Keep Fingers Crossed Going into 2014-15 there are three firms (in addition to Avondale) forecasters are watching carefully. In early 2014 the deal will close for the $1.4 billion purchase of Stewart Enterprises by Service Corporation International (SCI). Anytime there is a purchase like this, one has to wonder about prospects for the 400 administrative jobs at the Stewart Enterprises headquarters in Jefferson Parish. Will they all be eliminated, be totally saved, or SCI will actually add to the workforce at the site? We continue to watch with interest the progress of Globalstar, the satellite and voice data firm in Covington. It appears the firm is turning around after about six years of struggling with satellite performance issue and financial solvency questions. The positive news is that one of the company’s major financial backers---Thermo---is making a fresh injection of $85 million into the company and Globalstar should have 24 healthy second-generation satellites in orbit by this year. Blade Dynamics, a firm that came to the Michoud Assembly Facility with the prospects of a large labor force to make components for wind mill farms, presently has only about 25 workers at the MAF site. While there is little likelihood of achieving the original employment estimates of the firm, there appears to be a technological niche the firm has found that will enable it to add about 25 high-wage jobs to its payroll. Two Disappointments All regions experience jobs loses or disappointments, even in the best of times. Perhaps the biggest disappointment for New Orleans was the new that the U.S. Marine Corps Information Technology Center would not be relocating to Federal City. As we indicated in last year’s LEO, up to 900 jobs could have come to the region with this unit. In addition, Entergy Corporation announced it was eliminating 160 jobs in the New Orleans region as part of a multi-state cost-reduction program. ______________________________________________________________________________________ Economic Outlook Page 40


Baton Rouge: An Historical Industrial Expansion There are an estimated 381,500 jobs in this MSA, the second largest behind New Orleans. It is the largest MSA in the state in terms of numbers of parishes---nine, including East Baton Rouge, West Baton Rouge, Livingston, Ascension, Iberville, St. Helena, Pointe Coupee, East Feliciana, and West Feliciana (see Map 1). In terms of population, East Baton Rouge Parish is the most populous in the state according to the 2010 census. The authors have been monitoring the Baton Rouge economy for 40 years. We have never seen an industrial expansion like the one underway in this MSA. What is equally exciting are some of the significant non-industrial expansions announced for the region. It is difficult to temper one’s optimism about the future for the Baton Rouge MSA. Petrochemicals, Construction, Universities & Government The petrochemical industry is a huge factor in this MSA’s economy. This MSA has the largest concentration of chemical industry activity in Louisiana. Between the three of them, East Baton Rouge, Ascension, and Iberville Parishes had 9,540 chemical workers in 2012. Baton Rouge is home of the nation’s second (and the world’s eleventh) largest refinery---ExxonMobil---located just north of the state capitol building. Placid Refinery is also located in this MSA. Because the petrochemical industry is very capital-intensive, when it expands, so does the industrial construction. Industrial construction jobs are also closely tied to ―turnarounds‖ at these plants, i.e., when the plants are shut down completely for scheduled maintenance. The Baton Rouge MSA has an unusually high 9.9 percent of its workforce in the construction sector, now the highest percentage in the state. (The comparable percentage for the whole state is 6.4 %.) Turner Industries, Performance Contractors, CB&I, the Newtron Group, and Cajun Contractors are among the larger industrial construction companies in the area. The Baton Rouge MSA also is the location of the State Capitol and the vast office complex associated with it. Two major state universities---LSU and Southern University---are located in Baton Rouge, along with one of Louisiana’s largest community colleges. Baton Rouge Community College is actually larger than Southern University in terms of enrollment. Recent History of Baton Rouge Figure 15 shows employment trends in the Baton Rouge MSA over 1980-13. This MSA was only mildly touched by the terrible recessionary years of 1982-87. Baton Rouge dropped 4,800 jobs or 2.2 percent of its workforce as compared to the 9 percent decline in the state as a whole over that same period. Note the distinct jump in the ______________________________________________________________________________________ Economic Outlook Page 41


employment trend line in Figure 15 in 1990. This was due to the addition of five more parishes to this MSA by the Department of Labor. The really good years. The years from 1988 to 2000 were heady ones in the Baton Rouge MSA. This region had the most enviable growth record in the state in terms of both size and consistency. The MSA immediately recovered the 1982-87 losses with a banner year in 1988 when it gained 10,300 new jobs. Then the region’s employment went straight up for 13 straight years over 1988-00, adding a robust average of 7,500 jobs each time the calendar turned. The really weak years. The tables decidedly turned against Baton Rouge over the next four years. This 9-parish MSA lost 3,900 jobs or 1.1 percent of its workforce in 2001 due to the national recession---an unusually short and mild dip compared to what happened nationally. Its recovery from that dip was nothing like that of 1988. It took three years to recover the jobs lost in 2001, and those three years were ones of very modest growth as seen in Figure 15.

Fig. 15: Baton Rouge MSA Non-Farm Employment 1980-2013 400

Thousands

360

2001: -3,900 Jobs (-1.1% )

Statewide Recession: -9.0% BTR: -2.2% -4,800 Jobs

2005-06: The "Katrina Effect" +18,500 jobs (+5.4% )

320

280 Five Parishes Added X

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New Record: 10/12 2013: +6,300 (1.7% )

1985

1990

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2009-10: -11,300 jobs (-3.1% ) 2nd Best in State

2005

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The culprit behind this slow growth pattern was the chemical industry. We have already pointed out the dominant role played by this industry in the MSA’s economy. The chemical sector was hurt by two factors. Initially, the national recession hit sales in this sector very hard and weakened considerably the price of chemical products. However, the second factor was in many ways the most problematic. High natural gas prices (see Figure 7) radically raised operating costs for these firms. Several chemical firms in the MSA announced layoffs or closed either temporarily, partially, or completely. The region’s ammonia fertilizer plants especially suffered. The Katrina Effect Evacuees in. Baton Rouge is the closest large MSA to New Orleans, so it initially absorbed a huge number of evacuees. From FEMA assistance applications, we estimate that the Baton Rouge MSA initially absorbed about 248,386 evacuees. Overnight, the MSA‘s population thus exploded by over 34 percent. Traffic came to a standstill across the area, supplies vanished from grocery stores and gasoline stations, and every rental unit in the area was absorbed. There was a wild real estate period of about one month when realtors were selling more houses in a week than in the previous year. The median price for a single family home leapt 27 percent, the largest jump among the 151 MSAs surveyed by the National Association of Realtors. Sales tax collections in East Baton Rouge Parish rose by 34 percent in September 2005. Evacuees out. There was, of course, no way for the MSA to permanently absorb a quarter of a million people over such a short time span, if for no other reason than there were not enough jobs available to support that many people. For example, in November 2005, the traffic count on I-12 east of the I-12/I-10 split was up 22 percent over August 2005. By 2007 that count was up only 3.1 percent. On the I-10 bridge over the Mississippi, the count initially jumped by 26 percent, November over August. By 2007 that count was up only 2.9 percent. More importantly, the Census Department made an estimate of the area’s population as of July 2007. That estimate showed the MSA‘s 2007 population of 770,037 was up 39,921 over July 2005---a 5.5 percent increase. As seen in Table 10, the bulk of that population increase occurred in East Baton Rouge (18,121), Ascension (10,000) and Livingston (9,100) Parishes. The area clearly experienced an ―evacuees in – evacuees out‖ phenomenon. A similar phenomenon was experienced in Hattiesburg, Mississippi and Mobile, Alabama.

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Table 10 Population Change by Parish July 2005 – July 2007 Parish Absolute Change East Baton Rouge 18,121 Ascension 10,000 Livingston 9,100 West Baton Rouge 1,091 Pointe Coupee 564 St. Helena 437 East Feliciana 276 Iberville 272 West Feliciana 60 Source: U.S. Census Bureau

Percent Change 4.4% 11.2% 8.5% 5.1% 2.6% 4.3% 1.3% 0.8% 0.4%

Katrina boosted employment. Not only do the population numbers show that this MSA benefited from the storms, the employment numbers shown in Figure 15 confirm that as well. The employment line in Figure 15 took a distinct upward turn in 2005 and 2006. The MSA’s employment rose by 18,500 jobs or 5.4 percent over this period. Obviously such a rapid growth pattern could not be sustained long run. 2007: Construction Leads to a Strong Year As seen back in Figure 15, the Baton Rouge MSA managed to continue the postKatrina, torrid pace of adding 9,000-10,000 jobs a year. Incentivized by the Go Zone legislation a massive amount of new construction work began in 2007. 2009-10: Impacts of the Great Recession It is clear from Figure 15 that the Great Recession had an impact on the Baton Rouge MSA, though the region performed better than most in the country and the state. To repeat, the national economy began losing jobs in January 2008 and U.S. employment fell by 6.1 percent. By contrast, the Baton Rouge MSA did not lose the first job until September 2008 and lost only 3.1 percent of its jobs---the second lowest loss of any MSA in the state (see Table 8). The MSA was not without some serious job losses during the recession. For example: 

Dow Chemical in Iberville Parish closed one facility (-160 jobs) and laid off 400 contract workers.

Trinity Marine closed its barge manufacturing facility in Port Allen (-190 jobs).

Capital One Bank closed its call center at a cost of 180 jobs.

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Chase Bank closed its operations center, laying off 247 people.

Wells Fargo closed a call center, terminating 70.

IEM moved its headquarters to North Carolina, taking with it 50 very highpaying jobs.

Excide Batteries temporarily closed its shop, laying off 132 people.

In addition to these announcements, budgetary shortfalls in state government led to layoffs in that sector of about 1,300 workers.

Steady, But Unspectacular, Recovery from Great Recession Recovery from the Great Recession in the Baton Rouge MSA has been steady, as seen back in Figure 15. Over 2011-13 the MSA retrieved all of the 10,800 jobs lost during the Great Recession and began setting new employment records in October 2012. The MSA began setting new records despite a couple of significant setbacks. First, the region lost 925 call center and distribution center jobs, including the 400-person Home Depot call center. Secondly, state government faced some serious financial challenges as a result of the recession and other factors. Governor Jindal has steadfastly refused to solve these budgetary issues by raising taxes, which means cuts in government spending have been the order of the day. As the state capital, Baton Rouge has tended to bear the brunt of those cutbacks. Since July of 2009, state government employment has dropped by 16,300 workers (-14%) and 3,500 of those cuts have come in the last year. Forecast for 2014-15 Figure 16 contains our forecast of employment for this MSA for the next two years. We estimate that in 2014, the Baton Rouge region will add 12,500 jobs (+3.3%) and will follow that with an additional 9,200 jobs in 2015 (+2.3%). In percentage terms, this would place the Baton Rouge MSA #2 compared to growth rates in the other 8 MSAs in the state. In absolute terms, its growth of 21,700 new jobs is projected to be the fastest in the state by almost a factor of two. A Chemical Boom Like No Other The very strong projected performance for the Baton Rouge MSA can be heavily traced to the boom in the area’s chemical industry. As we pointed out back in the assumptions section, natural gas prices have fallen sharply in the U.S. but have actually risen in Europe. Chemical firms are prodigious users of natural gas. The price advantage in the U.S. has been translated into a price advantage for our chemicals over those produced in Europe. Consequently, U.S. firms are cutting into Europe’s share of the world chemical market.

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Fig. 16: Baton Rouge MSA Non-Farm Employment Forecast: 2014-15 440 400 2014: +12,500 jobs (3.3% ) 2015: +9,200 jobs (2.3% )

Thousands

360 320 280 240 200 80

85

90

95

00

05

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15

This has led to both expansions of existing firms and announcements of brand new firms in the MSA. The Greater Baton Rouge Industrial Alliance (GBRIA) has tabulated a remarkable $23.7 billion in announced or underway projects. In last year’s LEO that number stood at what we thought then was an amazing $4.1 billion in projects. This year’s number is almost seven times last year’s number. These projects include the following: 

Westlake Chemicals is nearing completion of a $466 million chlor-alkali facility in Geismer that will generate 100 new permanent jobs.

In Ascension Parish, BASF---which now has 900 company employees and 1,500 contract employees---is spending $300 million to build a formic acid plant (to be completed in 2014-IV) and a surfactant plant (to be completed in 2014-II).

In another win for Ascension Parish, Methanex Corporation has announced it will spend $1.1 billion in Louisiana for moving two idle methanol plants from Chile to the parish, creating 165 new jobs at an average of $56,000 annually. The plants are expected to open in late 2014.

A $300 million upgrade will be completed this year at Georgia Pacific.

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Honeywell recently announced it will invest $78 million at its two Baton Rouge sites and another $4 million at its facility in Geismar. The firm will also invest another $39 million for operational upgrades across these three plants and its plant in Shreveport.

Shintech Corporation will spend $500 million on upgrades at its plants in Addis and Plaquemines. These projects will be completed in 2015 and result in 10 new jobs.

Williams Corporation is in the middle of a $375 million project to increase ethylene production at its plant in Geismar. Unfortunately, there was a major explosion at this site this summer which require another $100 million in spending for post-explosion repairs.

Geismar was another big winner with an announcement by Huntsman Corporation of a $78 million expansion at its facility there.

Dow Chemical has a major new investment at its Plaquemines site---$1.1 billion to build two polyethylene plants and improvements to its crackers to produce more ethane. Construction should be completed in late 2016 (+42-71 jobs).

Ammonia fertilizer is actually made from natural gas, so lower prices in the U.S. are attracting new fertilizer firms to the region. CF Industries will spend $2.1 billion to build what is expected to be the largest nitrogen plant in the nation near Donaldsonville. This plant will produce 93 new jobs. A Russian firm--Eurochem---is planning a $1.5 billion ammonia/urea plant to be located either near Carville (where the firm has placed a $12 million deposit on a piece of property) or in St. Charles Parish, which is in the New Orleans MSA. This project will probably not start until 2015 and would use 200 permanent workers once operational. A closely associated type of firm is BioNitrogen Corporation, which has secured $1.25 billion in tax exempt bonds approved by the Louisiana Community Development Authority to construct five plants near the Pointe Coupee Port to convert agricultural waste into fertilizer. A letter of intent has been signed to buy 250 acres of land next to the port. A construction start is planned for early 2014 with an opening date of 2015 (and 260 new jobs). Nachurs Alpine Solutions is spending $13.9 million to renovate the old CibaGeigy site in St. Gabriel to produce and distribute liquid fertilizers (16 new jobs).

In 2015 water-borne vessels have to start using cleaner-burning, low-sulfur diesel fuels. These more stringent EPA requirements plus the wide BTU spread between diesel and LNG have combined to produce a new industry in the state--the construction of small natural gas liquefaction plants to turn natural gas into a liquefied form to be used for fuel in these vessels. Waller Marine will construct a small $200 million liquefaction plant at the Port of Baton Rouge which should be operational by mid-to-late 2014. The firm will add a second, similar size unit

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if demand materializes as expected. Shell is planning a similar ($200-$250 million) liquefaction plant in Geismar. 

Several new firms have cropped up to support the expanding chemical industry in the region. Kinder Morgan is constructing a $54 million liquid bulk handling and storage facility in Ascension Parish to handle products from the new Methanex plants. Katoen Natie is building a $150 million, two million square foot plastics storage and distribution facility in Baton Rouge. Two large firms providing valves to the chemical industry are expanding in the MSA. Emerson Process Management---a firm that makes and refurbishes valves for the chemical industry---has a $17 million expansion underway in Gonzales and will create a new regional headquarters there (+90 jobs). DMC Carter Chambers is making a $10 million capital investment in Baton Rouge that will produce 80 new jobs. Union Pacific Railroad will spend $500 million over the next few years on new infrastructure that will enable the company to move new chemical output in the Baton Rouge corridor.

In addition to these chemical-related projects there are sizeable investments being made in other manufacturing sectors in the MSA. ExxonMobil is in the middle of construction of a new $215 million facility in Port Allen that will be a state-of-the-art synthetic aviation oil blending center. This addition will make Port Allen the largest producer of finished lubricants in the world. By the end of this year, Genesis Energy will have completed a $125 million project that involves (1) an 18-mile pipeline from Port Hudson to the ExxonMobil Refinery and (2) 200,000 barrels of oil storage capacity (+50 jobs). Trifigura is in the design phase for a $270 million coal export terminal near Geismar, which would make it the only facility on the Mississippi River offering bargeto-vessel and rail-to-vessel services. Avalon Rare Metals has completed a feasibility study to construct a $300 million rare earth metals separation plant in Geismar that would employ 175 people. The firm is in the process of raising money for the venture at press time. This largess of construction projects has created a problem, though a happy one. That is, where to get enough contract workers to build these projects. GBRIA recently conducted a survey to determine contract labor demand needs just over the next 18 months. Figure 17 shows the results of that survey. Between July 2013 and September 2014 the demand for contract workers will jump from 17,500 to 31,000, a whopping 77% increase in just over a year. This means business will be especially strong for major industrial contractors in the area such as Turner Industries, Performance Contractors, CB&I, Cajun Contractors and the Newtron Group. Finding these people and housing them will be a great challenge over the next couple of years.

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Figure 17

Baton Rouge received great news in mid-2013 about CB&I. We mentioned in last year’s LEO our concern that CB&I’s purchase of Shaw would result in a loss of a large number of administrative jobs at the Shaw headquarters. Happily, CB&I announced in July that the company was moving its governmental solutions sector to Baton Rouge and would be adding 400 new jobs. Half of those jobs will materialize in 2013 and the remainder in 2014. Boom at the Port & Solid Public Construction In addition to these manufacturing-related expansions, excellent construction activity is occurring in other parts of this MSA’s economy. The Port of Baton Rouge is enjoying an unusually productive period of attracting new clients. Between new clients and the State of Louisiana, $230 million in capital expansions have taken place at the Port. In order to meet a European demand for wood pellets to burn to generate electricity, a company called Drax Biomass will begin manufacturing these pellets at new facilities in Bastrop, Louisiana and Gloster, Mississippi. The pellets will then be shipped to a new $30 million wood pellets transportation operation at the Port of Baton Rouge. Louis Dreyfus Company has made a major investment at the Port to upgrade the old Cargill grain storage facilities, elevators, and loading operations. This will enable the firm to go from moving 750 short tons per year to 5-6 million short tons per year. The result will be between 3,000 and 4,000 barges a year bringing grain to the Port per year and about 100 ships a year taking the grain out.

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Significant construction activity is also coming out of the public sector in this MSA. The state has let $331.9 million in road and bridge projects over 2014-15 in this region. This does not include a $100 million facelift for the Old Mississippi River Bridge. Sewer upgrades required by the EPA will result in $166 million in spending by East Baton Rouge Parish. There are three major projects underway at LSU: (1) a $100 million renovation of Patrick F. Taylor Hall (construction to start in fall 2014); (2) the $75 million expansion of Tiger Stadium (to be ready for the 2014 season); and (3) a $58 million expansion/renovation of the Student Recreation Center. Added to these projects is a $24 million, 2-floor addition to Baton Rouge General’s patient tower on Bluebonnet. This new unit is scheduled to open in 2014-IV or 2015-I. Too, a planned unit development was approved for a 175,374-square-foot office and warehouse facility for Fedex north of Siegen Lane and I-10. Big Wins in High Tech This region is enjoying economic development victories in areas other than those associated with low natural gas prices. One of those vibrant new niches for Baton Rouge is the high tech area. A major win for the city was in May when IBM announced it would bring a new 800-person Technology Center to downtown. IBM has already hired 300 people who are working at a temporary site on Essen Lane while construction begins downtown on a new $55 million office tower, residential complex and garage. To ensure a supply of workers to IBM, the state is investing $14 million over 10 years in LSU’s computer science program. Ameritas---an information technology and software development company---has opened in Chase Tower South. By 2016, Ameritas will employ 300 people at an average salary of $63, 000 plus benefits. At the end of 2012, LocalMed announced it was opening a 52-person firm that operates an online mobile technology platform for doctors, dentists, and patients to schedule and manage appointments online. The firm’s wage schedule runs an average of $52,000 annually. Baton Rouge Potentials: Even More Chemicals & the TMS The heady list above---the longest by far in our 3-decade history of writing about the Baton Rouge MSA---will very likely see even more additions before the end of the year. Louisiana Department of Economic Development Secretary Stephen Moret has indicated the agency has at least six major projects that have a very high probability of announcing a Louisiana location by yearend. These include ethane crackers (at $2 billion each), fertilizer plants (at $1 billion each) and methanol plants. The Baton Rouge MSA has the unique characteristics to pick up one or more of these large projects. Another real boost potential for this MSA is the Tuscaloosa Marine Shale (TMS)---a portion of which runs through the northern section of this MSA (see Map 2). We were losing our confidence in this play up through the middle of this year. The reason is that every oil shale play has its own unique characteristics, and for fracking to ______________________________________________________________________________________ Economic Outlook Page 50


yield profitable amounts of oil, exploration companies must ―break the code‖ on how to harvest the oil from each play.

Map 2 The Tuscaloosa Marine Shale

The TMS has some real advantages over shale plays in some other states. There are abundant water supplies for fracking compared to most other areas. There is an existing infrastructure of pipelines already in place. The TMS is close to a huge refinery market, whereas the Bakken Play in North Dakota is a great distance away from users of its oil. The TMS is in a relatively oil-friendly environment, and long lateral lengths of up to 8,900 feet have been drilled in the play. What has held the development of this play back has been one glaring disadvantage. Many of the most successful oil shale plays to date have been in fairly solid shale. When the combination of water, sand and chemicals are injected into the shale it creates fissures in the rock which enables the oil to be released and pumped to the surface. Unfortunately, the TMS is more ―mushy‖; it acts more like clay than brittle

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shale. Instead of cracking and staying open to release the oil, it tends to act like a sponge and just absorb the fracking fluid. Fortunately, exploration companies have figured out a way around this problem. Specifically, Goodrich Petroleum‘s Crosby Well in Mississippi produced 1,137 barrel per day (b/d) in this first 30 days. A typical well in North Dakota’s Bakken Play produces 1,000 b/d. Goodrich has a newer well in Mississippi that is producing 1,540 b/d. The company is so enthusiastic about prospects in the TMS that it purchased all of Devon Petroleum’s acreage in the play. Goodrich has announced it will spend $50 million in the TMS in 2013 and $150 million in 2014. If financing can be secured, the company wants to push that figure to $300 million. This breakthrough is terrific news for the northern part of the Baton Rouge MSA and for much of central Louisiana. As seen in Table 11, several other companies have purchased significant acreage in the TMS, a total reaching 1,295,000 acres in mid-2013. If these other companies get as ―charged‖ as Goodrich, Louisiana—and especially the Baton Rouge MSA---will have a nice little oil boom in its midst. Table 11 Tuscaloosa Marine Shale Acreage Holdings: 2013 Company Acres Held Goodrich 320,000 Encana 302,000 Indigo 296,000 EOG 200,000 Halcon Resources 75,000+ Graves Oil & Gas 52,000 Cortez Resources 50,000 Total 1,295,000

Concerns: ACA, State Government & Dynamic Fuels Even with the gusher of good news for this region there are some areas of keen concern. In the fall of 2013 the ―exchanges‖ component of the Affordable Care Act is supposed to become operative. The employer mandate has been postponed until 2014. The federal government has been unable to successfully link the subsidy component of the ACA to IRS records, so the amount of subsidy a family or person will receive will initially be based on a sort of honor system. Exactly how disruptive---or even if it will be disruptive---the full implementation of the ACA will be remains an open question. Though there are strong disagreements with the conclusion, there are reasonable arguments being made that ultimately the ACA will result in a single-payer system, as exists in Canada and Britain. A single-payer system would bring into jeopardy the existence of Blue Cross Blue Shield of Louisiana. BCBS is headquartered in Baton Rouge and has a 1,800+ workforce. We will have a ______________________________________________________________________________________ Economic Outlook Page 52


much better view of how the ACA will impact the economy toward the end of our forecast period. A second issue that could affect jobs in this MSA is the trend in state government employment. Baton Rouge is the home of the state capitol and the associated huge complex of agencies that support it. For the past few years the state has faced a number of significant budgetary shortfalls. Governor Jindal has been sticking by his pledge not to raise taxes during his term, which means these shortfalls have been largely handled via cuts in government spending. State government is heavily labor-intensive, so cuts in spending more often than not mean layoffs. Between 2009 and 2012, state government employment statewide has declined by 12,400; half way through 2013, it is on a track to decline by another 2,400. Two points about this decline are critical to understanding the impact on the Baton Rouge MSA. First, despite the fact that Baton Rouge is the home of the state capitol complex, only 2,300 (19%) of the state government jobs lost between 2009 and 2012 occurred in this MSA. Secondly, many of these job losses were a result of privatizing state government services---especially those related to healthcare. Thus, some of the jobs lost in state government were simply transferred to the private sector, so the net job loss was not as bad as indicated by the gross decline in state government employment. Still, we suspect (1) there was a net job loss from the decline in state government employment and (2) budgetary issues will cause these declines to continue during our forecast period. This will act as a bit of a drag on the Baton Rouge area. Finally, we await word on whether or not the $160 million Dynamic Fuels plant in Geismar will reopen. Production problems caused a closure in October 2012, it missed a re-start date in July, and it is reported that it will take about $20 million to restart the facility. While these three concerns are certainly non-trivial, we see little chance they could derail the locomotive of growth on the horizon for the Baton Rouge MSA.

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Shreveport/Bossier: Bonanza at the Port; Elio Maybe? This MSA is the third largest MSA in Louisiana with an estimated 175,500 nonfarm jobs in 2013. Located in the northwestern corner of the state, this MSA is now comprised of three parishes---Caddo, Bossier, and DeSoto. Shreveport-Bossier has the highest concentration of durable goods manufacturing employment in the state, and that tends to make the area much more susceptible to national recessions than Louisiana’s other seven MSAs. Among the large durable goods manufacturers in the area are CellXion (a manufacturer of cellular towers), Frymaster (manufacturer of deep fryers and similar products for McDonalds and KFC), and Ternium, a steel components manufacturer. This group will soon be joined by a large new steel mill, which we will discuss in the forecast section for this MSA. It is also home of the state’s largest and most successful casino market. This MSA now has six large river boat casinos plus the Harrah‘s Racetrack, which together employed 6,523 people in 2013-II. Bossier City is home for Barksdale Air Force Base, an employer of 12,022 military/civilian workers and an important economic driver for the area. Another big employer in the MSA is the LSU Health Sciences Center with 5,260 employees. The Caddo-Bossier Port is home to several firms including the Ternium steel firm, the Pratt recycling company, and Ronpak. This region has been the beneficiary of a huge economic jolt since 2008 in the form of the Haynesville Shale---a very large deposit of natural gas. New technology has made possible the harvesting of this field. In 2008, exploration companies pumped $4.5 billion in new dollars, about $3.2 billion of that in the form of mineral lease payments, into the northwest section of the state. In 2009, that figure rose to $7 billion, of which about $1 billion was in the form of mineral lease payments. As we will see below, this largess radically impacted the influence of the Great Recession on this MSA's economy. We will also note a considerable tailing off of activity in the shale recently. Shreveport/Bossier Recent Employment History Figure 18 tracks the employment history of this MSA over 1980-2013. The Shreveport/Bossier area suffered through a prolonged, and deep, recessionary period from 1985-89. While this decline was partially a result of a badly declining exploration industry, that was not the main culprit. (The decline in 1990 was due to the substitution of DeSoto Parish for Webster Parish in the MSA.) 1985-89: The AT&T effect. Both the depth and length (this MSA was the last in the state to begin the recovery process) of the recession was due to one firm. AT&T had a large phone equipment manufacturing facility in Shreveport that employed 7,450 people at its peak in 1984. The firm then began a major downsizing effort that ultimately dropped its employment to near 1,100. Those layoffs, combined with their negative multiplier effects, caused the MSA’s employment to decline by 8.2 percent.

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Casinos to the rescue. In 1990, the Shreveport/Bossier area began a slow assent from the depths of its recession. Initially, job growth was positive, but anemic. Then in 1994, its employment began to rise rapidly---by an average of 4,600 jobs a year. The source was riverboat casinos. These casinos have been among the most successful in the state, because they have drawn heavily from the huge Dallas-Ft. Worth metroplex for their customers. Casinos added jobs to the region in another important way as well---the construction of large hotels. Horseshoe Casino had a 25-story, 606-suite hotel; Casino Magic operated a 94-room, 94-suite hotel; and Isle of Capri operated a 300-suite hotel. These, of course, are pretty labor-intensive operations, so the MSA picked up a significant employment boost here as well. Durable goods dependence & national recessions. The years 2001-03 were particularly difficult ones for this MSA. The MSA lost 3,900 jobs over this three-year period or 2.3% of its workforce. In percentage terms and in length, it was the worst decline in the state, not unexpected in a very durable goods-dependent region.

Fig. 18: Shreveport-Bossier MSA Non-Farm Employment 1980-2013 190

2010: +400 2011: +2,300 2012-13: -3,500 (-2.0% )

180

GM Barksdale Haynesville Libby Glass

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2009 -4,200 Jobs (-2.3% )

160

2001-03: 3,900 Jobs (-2.3% ) US Down 2 Years (-1.4% )

150 140 130 1980

-8.2% (AT&T)

1985

1990

1995

2000

2005

2010

Several factors played a role in this rather poor record. First, there was the closure of some large manufacturing facilities in the area. In mid-2001, the Avaya Communications (formerly, Lucent Technologies) closed its Shreveport plant, costing ______________________________________________________________________________________ Economic Outlook Page 55


the area 900 jobs. The Pennzoil Refinery was sold and dramatically cut back from 230 workers to only 85. Boeing closed its facility at the airport, laying off 162. Precision Response closed its 250-person call center in early 2001. General Electric began the process of transferring 400 positions at its industrial systems plant to another site in Monterrey, Mexico. These were permanent layoffs. Too, the state’s most successful casino market took a hit as business declined with the recession. The area’s newest casino, Hollywood, reduced its workforce from 2,200 to 1,800. Three of the area’s five casinos reduced employment due to the recession. Finally, a mixture of other firms, including Frymasters, Beaird, and Exide Technologies imposed significant layoffs in 2002. Beaird, in particular, went from a 700- to a 30-person workforce. GM, Beaird, and Frymaster stop the fall. The Shreveport/Bossier MSA turned the corner in 2004 and grew for four years in a row, expanding at an average rate of 2 percent a year over 2004-07. Initially, General Motors was a key player in this recovery. GM opened its new facility and hired 600 additional workers to begin testbuilding of the Hummer 3 at its old site. Its employment in the region jumped from about 2,400 to 3,600. However, a round of employee buyouts in 2007 dropped employment at this plant back down to 2,153. After taking over Beaird Manufacturing, the Eakin Company initially put that firm back on an expansion path. Employment at the location jumped from 30 to about 570. Frymaster came back at an all-time high employment level of over 600 employees. The new firm Steelscape (now Ternium)---a steel components manufacturer---opened at the Caddo-Bossier Port, creating 240 new jobs in 2007. Haynesville & Barksdale Mitigate the Great Recession As we mentioned earlier, normally this MSA is the hardest hit when a national recession hits because of its high dependency on durable goods employment. For example, note in Figure 18 that during the post 9-11 recession the U.S. economy lost jobs for two years by a total of 1.4 percent. In contrast, the Shreveport-Bossier MSA's employment fell for three straight years by a total of 2.3 percent. When the Great Recession hit the result in Shreveport was almost turned on its head compared to past history. The U.S. economy began losing jobs in January 2008. Shreveport-Bossier did not lose its first job until 10 months later. The U.S. economy lost 6.1 % of its jobs; this MSA lost only 2.3 % and it only lost jobs in one year---the only MSA to pull that off. Instead of ranking dead last in the state, Shreveport-Bossier ranked 2nd in least jobs lost during the Great Recession. Haynesville flips recession effects. There were two key factors behind this unusual performance. First and foremost was the tremendous amount of money pumped into the economy by Haynesville Shale exploration over 2008-09. As we indicated

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earlier, these funds amounted to $3.5 billion in 2008 and $7 billion in 2009, a whopping injection of economic activity into the region's economy. One indicator of how important the Haynesville Shale activity was during the Great Recession is shown in local government sales tax collections, which are illustrated for four northwest Haynesville parishes in Table 11. First note that during the last post 9-11 recession three of the parishes experienced declines in collections (we were unable to get the earlier data for Bossier Parish), just as normally happens in the face of a national downturn. However, despite the length and depth of the Great Recession, local sales tax collections rose in all four parishes over 2008-09, with unusually large increases in 2009 in Red River Parish (+205.1%) and DeSoto Parish (+82.2%).

Table 11 Sales Tax Collections in Selected North Louisiana Parishes Parish Red River 2001 2008 2009 DeSoto 2001 2008 2009 Caddo 2001 2008 2009 Bossier 2002 2008 2009 Source: Author survey of parish finance offices

Percent Change In Sales Taxes -3.1% 71.1% 205.1% -0.8% 3.6% 82.2% -0.8% 7.0% 1.4% NA 4.1% 5.5%

Similar findings occurred in property taxes collected in five Haynesvilleimpacted parishes as seen in Table 12. Not only did property taxes increase dramatically in all five parishes during the country's worst recession since the Great Depression, but also it is clear from the last two columns that almost all of that growth was energyrelated. The Haynesville Shale was a huge factor in the treasuries of these local governments.

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Table 12 Property Tax Collections in 5 Haynesville Shale-Impacted Parishes: 2005 Versus 2009 Parish

Property Property Taxes 2005 Taxes 2009 Desoto $22,395,351 $41,666,365 Red River $3,549,617 $8,004,692 Webster $15,728,690 $22,340,838 Bossier $52,449,881 $79,211,164 Caddo $158,347,601 $198,286,938 Source: Louisiana Tax Commission

% Energy Related 2005 18.9% 3.6% 17.1% 8.5% 2.8%

% Energy Related 2009 40.7% 34.3% 25.0% 17.4% 5.4%

Barksdale deserves some credit. Of course, the awarding of the Global Strike Command to Barksdale Air Force Base also helped mitigate the impact of the Great Recession. By September 2009, 275 of the 900 jobs attached to the GSF had relocated to Barksdale. In addition to the Global Strike Force, Barksdale gained part of 700 positions it would ultimately secure via flight training jobs and the reopening of a weapons storage area that are coming to the MSA. Several closures still hit the area. The gains from the Haynesville Shale activity and the additions at Barksdale did not mean the region escaped the recession unscathed. Consider the following: 

Problems at General Motors dropped its workforce from over 2,000 to about 800.

Capitol One Bank closed a 150-person call center.

Verizon closed a 300-person call center.

Market conditions turned against Beaird Industries in 2008, and it was closed at a cost of about 400 jobs.

A weak U.S. housing market led to the closure of the Georgia Pacific plywood plant in DeSoto Parish (-280 jobs), and the firm laid off 400 at its plant in Springhill.

Recovering From the Great Recession: Not the Normal Pattern Note back in Figure 18 that the Shreveport-Bossier MSA actually started enjoying job gains in 2010. The increase was only 400 jobs or about 0.2%, but this was the only MSA in the state to grow that year. The region also had a good year in 2011, adding 2,100 jobs, a very respectable 1.2% growth rate.

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This is the pattern one would normally expect to continue in a durable-goodsdependent economy---good solid growth on the recovery side of a recession. That however, was not the pattern that has continued. The Shreveport-Bossier MSA has lost 3,500 jobs over 2012-13, a decline of 2%. Several factors have contributed to this poor performance. First, the GM plant closed August 2012, costing the region 800 high-paying jobs. Area and state economic developers are hustling to find a replacement at the GM site, something we will discuss in the forecasting section. The Haynesville Shale has played a significant role in this 2-year employment decline. After being responsible for shielding the MSA from much of the effects of the Great Recession, activity in this shale has dropped precipitously. After reaching a peak of 142 rigs in April 2010, the rig count in North Louisiana has plummeted to only 23 in July 2013---an 84% decline. Fortunately, rig activity has at least stabilized in this lowtwenties range over the past calendar year. What caused this rig movement out of the Haynesville play? The answer lies in the rate of return on equity (ROI) data in Figure 19. Note that the ROI in the Haynesville Shale is far lower than in the other plays shown. There are two reasons for this differential. First, the wells in the Haynesville are deeper than in these other plays, so it simply costs more to drill a typical well---about $9.5 million per well in the Haynesville versus $6 million in the Eagle Ford or Marcellus Plays. Secondly, the Haynesville Shale is a "dry" play, i.e., when you drill you get only natural gas. In parts of the Eagle Ford, Marcellus, Woodford, and Granite Wash you hit both natural gas and the more highly priced oil. The latter are "wet" plays. The Haynesville is simply at a serious disadvantage vis-à-vis many other natural gas plays in the U.S. A third factor holding back this region’s economy has been a reduction in forces at Barksdale AFB. The troop count which was 8,655 in last year’s LEO is now at 7,577. The civilian workforce at the base is at 4,445 is presently being required to take one day a week as furlough to meet Defense Department budget cuts due to the sequester. The sequester has led to a cutback in flying/training hours and there is no maintenance of buildings unless it is an absolute emergency. A 24-plane A-10C Wing was removed from the base last year. There were 500 jobs directly tied to that wing, but luckily about 400 of those were absorbed into the 307th Bomber Wing. Associated with all these reductions is obviously a reduction in spending in the MSA that has contributed to the region’s poor job performance over 2012-13. A final contributor to the recent decline is Libbey Glass. This firm reduced its workforce by 200 in February, moving these jobs to Toledo and Monterrey, Mexico.

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Fig. 19: Rate of Return on Equity: Various Shale Plays 50 45

48.3% Liquids-Rich basins

Dry Gas Plays

Percent

40 34.0%

35

34.5%

30 25

24.0%

22.9%

20 15.9% 15

Cana SW PA Woodford Marcellus

Eagle Ford

Granite Wash

NE PA HaynesMarcellus ville

Source: Credit Suisse

Shreveport/Bossier Forecast for 2014-15 Figure 20 shows our employment forecast for this MSA over the next two years. We are projecting that the Shreveport/Bossier MSA will add 900 jobs each year over 2014-15 or an average annual growth rate of 0.9%. While this will be a respectable growth rate, it will not get the MSA back to its peak employment in 2008, nor will it enable the MSA to retrieve the jobs that it has lost in the past two years. The major issue for this MSA is that, unlike its sister MSAs in the southern part of the state, there is not an abundance of expansions/additions looming in the immediate future. There is one potential on the horizon---Elio Motors---that could really change this forecast for the better in 2015, a potential we will cover below. The movement back to positive growth in this MSA will be driven by a number of factors, but at the top will be construction activity and the opening of the new Margaritaville Casino.

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Fig. 20: Shreveport-Bossier MSA Non-Farm Employment Forecast: 2014-15 190 180

Thousands

170 160 150

2014: +900 (+0.5% ) 2015: +900 (+0.5% )

140 130 80

85

90

95

00

05

10

15

Construction: Benteler, Honeywell & State Roads Lead the Way Just as the LEO was released last year officials at the Port of Caddo Bossier received some great news. Benteler Steel will be making a $900 million investment at the Port over the next 10 years. Work is already underway on Phase I which is a $665 million tube mill. Projections are that the tube mill will be complete in 2015-II and open with 271 jobs, a figure that is expected to grow to 540 by 2020. A $227 million mini steel mill is planned to be operational by June 2024, pushing the total job count at Benteler to 640. This will be Benteler’s first plant in the U.S. and the largest investment in the company’s history. Over 2013-14, an additional $39 million investment in infrastructure will be made at the Port to support the new Benteler mill. Another excellent win for the Port was the announcement that Ronpak---which completed construction in mid-2013 of a $16.8 million, 275-job customized paper bag plant at the Port---is moving its headquarters to the Port, creating 132 jobs by the end of 2013 and 275 jobs total by the end of 2018. Two other significant Port clients--Ternium and Pratt Industries---appear to have solid prospects over the next two years. The Shreveport-Bossier MSA has been able to attract a weighty amount of spending by the state on road projects in the region, and the next two years will be no exception to that recent trend. The Louisiana Department of Transportation and Development has reported $303.3 million in road projects have been let in the MSA over 20141-5. Among the larger projects are: ______________________________________________________________________________________ Economic Outlook Page 61


$100 million for new pavement on I-49 north from I-220 to MLK Drive;

$36.6 million rehab work on the bridge on I-20 at Westerfield and Industrial, and;

$21.4 million to replace the Caddo Lake Bridge.

Another nice announcement for this MSA was made in July 2013 by Honeywell. This firm will make an $89 million investment at its Shreveport plant and this site will participate in $309 million in operational upgrades that will be shared over all four of Honeywell’s sites in Louisiana (the other three are in the Baton Rouge MSA). The company is examining the possibility of additional investments soon that would raise its total new capital expenditures to $1.2 billion and 291 new jobs. Hopefully, this MSA will secure a goodly share of that spending. Finally, we should mention that construction activity at Barksdale AFB continues to contribute meaningfully to the region. A $20 million remodeling of the 8th Air Force Headquarters building will be finished in 2014. Construction has just begun on an $18 million weapons load training facility, and work is 30% done on a $25 million Missions Support Group Building---which is due to be completed in the summer of 2014. Impact of Margaritaville? Last year the Isle of Capri moved a casino license from Lake Charles to Shreveport. The company spent $197 million on a new one story river boat casino and a 396-room hotel. Named Margaritaville, this 6th new casino for the region opened in mid-June 2013 with 1,300 employees. An important question for the region is whether the gaming market will expand in the region to fully absorb Margaritaville or whether the market will expand only marginally and the new casino will cannibalize business away from the other five casinos and the Louisiana Downs Racino. If the latter, how much will the market growth and what will be the extent of the cannibalization? While it is still too early for a definitive answer, data on the first full month of operation indicate the market has only grown marginally and the cannibalization has been rather significant. Data on gross revenue for each of the establishments for the month of July 2013 are shown in Table 13. Note that Margaritaville’s revenues in that month reached just over $12.3 million. Compared to July of 2012, total revenues in the market were only up a little less than $4 million. Thus, considerable cannibalization occurred among the other casinos and the racino. Particularly hard hit were Horseshoe (-21%), Louisiana Downs (-15.3%) and Sam’s Town (-15.2%). Again, these figures are very early in the game, but it appears very unlikely net gaming employment in the market will expand by Margaritaville’s initial level of 1,300.

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Table 13 Gross Gaming Revenues in the Shreveport-Bossier Market July 2013 v. July 2012 2013 2012 % Change Diamond Jacks $5,791,428 $6,119,739 -5.4% Boomtown 6,200,868 6,865,571 -9.7% Sam’s Town 8,088,169 9,542,382 -15.2% El Dorado 12,401,064 13,218,197 -6.2% Horseshoe 15,780,694 19,963,224 -21.0% Margaritaville 12,339,638 NA NA Louisiana Downs 5,429,051 6,412,281 -15.3% Total $66,030,912 $62,121,394 6.3% Source: Louisiana Gaming Control Commission Tele Performance + the ―Great Hope‖—Elio Motors This region landed another fine client when Tele Performance announced it would open a call center in the area. The company will open in 2013-IV with 440 new jobs and another 300 expected in 2014. The ―Great Hope‖ for the region is Elio Motors. This company proposes taking about half the space at the old GM plant and spending $100 million to remodel it to build a 3-wheeled vehicle that would get about 84 miles to the gallon. The vehicle would have air conditioning and weigh only about 1,600 pounds. It would cost only $6,800, be slightly longer than the BMW 330, and have a top speed of 106 miles per hour. Because this new-concept vehicle is essentially a 3-wheeled motor cycle with an auto body, special legislation had to be introduced in the Louisiana Legislature to waive the requirement that drivers of the Elio wear a helmet. Promoters are now trying to raise the financial capital to initiate the project. If they are successful, those same promoters expect a workforce of 1,500 at the old GM site once it becomes operational. A workforce that large would certainly more than compensate for the loss of the 800-person GM plant in August 2012. The question is--can financing be successfully raised for the project? Elio would make a huge difference in the Shreveport-Bossier MSA’s economic future.

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Lafayette: Strong Oil Patch = Strong Growth This MSA, located in south-central Louisiana (see Map 1), is now composed of only two parishes---Lafayette, and St. Martin Parishes. St. Landry and Acadia Parishes were dropped from this MSA in 1990. The state's fourth largest MSA had about 157,800 people employed in 2013. A key to understanding this region’s economy is its geographic location. Located in an oil-rich area and not far from the coast, Lafayette became a prime spot to locate service firms, fabricators, and other companies that do business with extraction firms exploring South Louisiana and in the Gulf of Mexico. Consequently, like Houma, the Lafayette MSA is closely tied to all aspects of the oil and gas exploration industry. The MSA derives 11% percent of its jobs directly from the exploration industry, the highest concentration among the state’s eight MSAs (the comparable number for Houma is 6.3%). Countless other jobs in the MSA are tied to the extraction industry through the multiplier effect. There are four deviations from this pattern. Stuller Settings is a 1,200-person facility that is the nation’s largest jewelry settings manufacturer. Acadian Ambulance is another large employer in the area whose ties are not all directly related to the extraction industry, although the firm provides air-med helicopter services to the industry. This company also monitors over 200,000 alarms in 40 states and monitors businesses and houses via videos, eliminating the need for guards. It has also recently developed a major safety program for offshore rigs and pipelines. A third, growing firm is the Schumacher Group, which provides ER and hospital medicine doctors to hospitals in 23 states. Finally, Lafayette is the home of one of the state's larger public universities---the University of Louisiana at Lafayette. Until the mid-90s this area also hosted the largest manufacturing employer in the state---Fruit-of-the-Loom---which had a huge facility near St. Martinville. That facility has been shuttered. Recent History of Lafayette Figure 21 displays the recent employment history in Lafayette and demonstrates vividly the close ties this MSA has to the extraction industry. When oil prices plummeted in the early 80s, so did the Lafayette economy. Remarkably, a fifth of the MSA’s jobs disappeared over 1982-87. It was the worst downturn in Lafayette’s recorded history. However, unlike similarly extraction-dependent Houma---which took 10 years to recover its losses from that recession---Lafayette came out of its ―V‖ much quicker. The key was diversification. In the late 1980s, the previously mentioned Fruitof-the-Loom constructed very large facilities in the area and in a short period of time became the state’s largest manufacturing employer. By 1994, Lafayette had recovered all its lost jobs and began setting new employment records. (This does not show up clearly in Figure 21 because of the adjustment in the makeup of the MSA in 1990.) ______________________________________________________________________________________ Economic Outlook Page 64


Fig. 17: Lafayette MSA Non-Farm Employment 1980-2013 160

New Record: 9/11 Earliest in the State

150 Late 2001: Closure of F-O-L

Thousands

140 130

2009-10 -4,400 Jobs (-3.0% )

120 110

-19.4% Decline

100 X Acadia & St. Landry Dropped

90 1980

1985

1990

1995

2000

2005

2010

Soft gas prices in 1992 set Lafayette back a bit, but like Houma, the hit was nothing like the 1982-87 period. Surging employment at Fruit-of-the-Loom pushed employment up briskly for the next couple of years. Then Lafayette entered a ―bad news-good news‖ period. The bad news? As a result of the North American Free Trade Agreement, Fruit-of-the-Loom began a round of massive layoffs. The good news? Layoffs at Fruit-of-the-Loom coincided almost exactly with two important events. One was a jump in oil and gas prices that sent the exploration industry on a hiring binge. The other was a new entrant that both diversified the economy even more and was labor-intensive to boot---Stuller Settings. Stuller hired enough employees that it became the largest jewelry settings manufacturer in the U.S. Lafayette employment expanded right through the Fruit-of-the-Loom layoffs. The year 1999 was a bad one for Lafayette. Oil prices fell to under $10 a barrel, and that sent the extraction industry into the layoff mode again. Forty-three hundred jobs disappeared from the MSA (see the decline for 1999 shown in Figure 21).

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For the next two years, Lafayette was back in the growth mode, setting new employment records in 2001 when most other MSAs in the state were being depressed by the national recession. Help in this recovery came from two sectors. Several significant distribution centers, including the large Wal-Mart distribution center near Opelousas and Magnolia Distribution Center in Lafayette, opened during this period. Then in 2001, the MSA attracted the Cingular Wireless call center, which hired 1,200 employees. Unfortunately, Lafayette experienced a big blow in November 2001 when Fruitof-the-Loom’s Martin Mills plant was shuttered, laying off 1,300. By this time, the post 9-11 national recession was also impacting Stuller Settings, which laid off about 175 employees. In 2003, Devon Energy transferred 60 employees out of Lafayette, and Fleming Company---a wholesaler supplying the troubled K-Mart---closed its distribution center there as well. The combination of these events, coupled with a lackluster response of the extraction industry to high energy prices, kept this MSA in a funk (-2,500 jobs) for three straight years. The Impact of Katrina & Rita It is obvious from examining the 2005 and 2006 data points in Figure 21 that something special happened in this MSA in those two years. Non-farm employment spiked upward by 10,800 jobs or 8.2 percent over those two years. What caused this nice rebound in employment in Lafayette? One factor was resurgence in the oil patch. The rig count rose from about 165 to over 201, which meant (1) new exploration jobs, (2) new exploration servicing jobs, and (3) new oilfield-fabrication-associated jobs for the Lafayette area. Indirect energy effects. But a larger factor by far was the impacts of Katrina and Rita. These two storms impacted the Lafayette area in two broad ways. First, there were the spillover effects of the destruction of the offshore energy infrastructure. Both Katrina and Rita were very destructive to the energy infrastructure in the Gulf of Mexico. A total of 115 offshore platforms were destroyed and another 52 were damaged by the two storms. Underwater pipeline systems were also damaged. Lafayette is the home to several fabricators and oilfield service firms that garnered some of the repair work on these facilities. Evacuee effects. Secondly, Lafayette became a home to many evacuees after the storms---about 34,336 by one estimate. Evidence from the Census Bureau suggests that Lafayette has experienced the same population adjustment as Baton Rouge except on a smaller scale. Census data indicate that between July 2005 and July 2007, the Lafayette MSA population increased by 9,033---a heady 3.7 percent increase in only two years. 2007 to Early 08: $140 Barrel Oil Pumps Up the Region Data indicate that the employment growth rate slowed from about 5,400 jobs a year in the previous two years to a slower 4,000 jobs a year over 2007-08. Still, this ______________________________________________________________________________________ Economic Outlook Page 66


represented a very healthy growth rate of 2.8 percent a year---second only to Houma among the state’s eight MSAs. This slowdown was partially due to the completion of much of the Gulf of Mexico rebuild effort, but also, Morton Salt closed its 197-person facility at Weeks Island in 2007, one of the few bits of negative news coming out of this region. That was somewhat offset by the Nucomm call center coming to Lafayette in 2007 adding 500 new jobs. Growth in 2008 was initially spurred by a very robust oil patch as oil prices reached record levels in the fall of 2008, and natural gas prices were unusually high as well. Also, Acadian Ambulance built a $15 million expansion that led to 300 more jobs. High Energy Prices and Job Declines in Lafayette? However, a problem arose near the end of 2008. After peaking at $132.61 a barrel in September 2008, the price of oil began a rapid, but temporary, slide down to a bottom of $39.06 in March 2009. Employment in the Lafayette MSA responded as it always does to declining oil prices. The state rig count fell from the 190 level to near 170. The MSA began recording job losses in the latter half of 2008. But there was another factor in the MSA’s employment decline. Beginning in April 2009 oil prices began to rise again and were at a very profitable $46.72 by May 2009. By August 2009 oil prices were over $70 a barrel, where they stayed well above that level through the present. Despite these unusually high and very profitable energy prices, the rig count in south Louisiana continued to fall. For example in August 2008, when oil prices nudged $140 a barrel, the rig count in south Louisiana (land and water) was 56 rigs. It fell to only 30 rigs in August 2009 despite very high oil and natural gas prices. As seen in Figure 21, the Lafayette MSA lost jobs in 2009 and 2010---a total 2year decline of 4,400 jobs (-3%). We are unaware of any other time in the history of the Lafayette economy when energy prices have been high and this economy has actually lost jobs. We believe there are two factors behind this poor behavior. First, our conversations with decision makers in this field and region indicate that President Obama‘s proposed $36 billion tax on the extraction industry sent a chill through this sector and pushed down the rig count despite the presence of higher and very profitable oil prices. We gave a detailed analysis of this tax proposal in the 2010 LEO. This tax was proposed in President Obama's FY10 budget, but Congress was so absorbed in the healthcare debate that this legislation did not come up for debate. However, the administration has continued to promote it, so the threat to the industry still lingers. Of course, a second factor was the difficulties associated with the oil spill, which we described in detail back in the assumptions section of this report.

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Recovery from the Great Recession: From Unbelievable to Believable Numbers The Lafayette MSA has had a very healthy recovery from the recession, adding 10,200 jobs (+6.9%) over the three years from 2011-13. Job growth by year was: 2011 – 2.2%; 2012 – 3.2%; and 2013 – an estimated 1.4%. All of these are above average growth rates and expected for a region tied to a surging exploration sector. We repeat that these growth rates are ―expected‖, because when last year’s LEO was being penned, the U.S. Bureau of Labor Statistics (BLS) was issuing what we argued were unbelievable statistics for the region. Initial data from the BLS suggested the Lafayette MSA’s employment in 2012 was up by an annual 14,000 jobs, a whopping 9.6% growth rate. Our review of (1) historical employment data for the region, (2) residential real estate sales, and (3) sales tax collections suggested such a remarkable growth was highly improbable. Sure enough, when the BLS issued its revisions of the 2012 data, the growth rate for 2012 fell to a more reasonable, but still robust, 3.2% rate---about one-third the rate of the initial estimate. It is important to not let this discussion detract from the fact that this MSA (1) was the first to set new employment records (in September 2011) after the losses incurred during the Great Recession and (2) has had the best recovery record of all eight MSAs over the 2010-13 period (+6.9%). Forecast for 2014 and 2015: Exploration Providing the Drive Figure 22 provides the reader with our projections for employment for this region over the next two years. We are forecasting 2,100 jobs in 2014 (1.3%) and an additional 2,000 jobs in 2015 (1.3%). These growth rates are very respectable and will place the Lafayette MSA in 4th place among the state’s eight MSAs. Foundation: Resurging GOM It should come as no surprise that the exploration industry is the catalyst behind Lafayette’s projected quality job growth over the next two years. Very profitable, and high, oil prices are a key driver here, but perhaps the most important specific contributor has been the resurgence in the nearby Gulf of Mexico post-BP Spill. Pre-spill there were 33 rigs operating in the deep waters of the GOM. Immediately post-spill this number dropped to only 11 as many drill ships left the GOM for Brazil, West Africa and the Mediterranean where no moratorium existed. By 2013, the pre-spill record had been met and surpassed---36 drill ships were operating in the deep waters of the Gulf. By mid-2014, that number is expected to rise further to 50. ISI has projected this number will reach 60 in the 2015-17 time frame.

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All of this is good news for such Lafayette-based service firms as Frank‘s Casing Crew, Weatherford, Schlumberger, Halliburton, and Knight Tools. Further, generally high oil prices have been good for Stone Energy and Petroquest---both exploration companies with headquarters in Lafayette. Plains Exploration & Production has started construction on a new 120,000 square foot warehouse and administrative office facility in Broussard. The facility will supports Palin’s growing deep water GOM operations and will result in 600 new jobs being added to its present workforce of 220. Advanced Integrated Systems is also undergoing a $450,000 expansion that will generate 69 new jobs in Youngsville. Forum Energy Technologies will complete a $19 million expansion in its plant that manufactures onshore and offshore drilling equipment in St. Martin Parish. The project will be completed in late 2013 and will retain 203 existing jobs while creating 125 new ones over the next five years.

Fig. 22: Lafayette MSA Non-Farm Employment Forecast: 2014-15 170 160

Thousands

150 140 130 120

2014: 2,100 jobs (1.3% ) 2015: 2,000 jobs (1.3% )

110 100 X Acadia & St. Landry Dropped

90 80

85

90

95

00

05

10

15

Diversity Via Acadian, Stuller & Schumacher Three stalwarts in the Lafayette economy that are not directly related to the energy sector provide both a lot of jobs and dependable jobs in this economy that can be characterized by some wild swings. Acadian Companies employs 1,250 employees in Lafayette, 2,265 in the state as a whole, and 3,557 nationwide. While the company’s core ______________________________________________________________________________________ Economic Outlook Page 69


business is ambulance service, it has recently made a successful move into rig and pipeline safety. Acadian expects to add 100 employees in its Lafayette market over 2014-15. Our nation’s largest jewelry setting manufacturer, Stuller Settings now employs about 1,260 people at its facility in Lafayette. The firm anticipates spending $4.5 million in 2013 and $3.5 million in 2014 on capital expenditures and adding about 30 employees a year over 2014-15. In a move that solidified the firm’s position in this MSA, Stuller recently moved its Chattanooga facility to Lafayette. Good news continues to originate from the Schumacher Group, a firm that supplies ER doctors and hospital medicine physicians to hospitals on 305 contracts in some 28 states. Schumacher has expanded its headquarters in Lafayette by $7.8 million in 2012 and $16.7 million in 2013. The firm is already ahead of schedule on its jobcreation obligations to the state and is projected to grow by another 150 jobs in 2014. Healthcare Leads Construction Activity While construction spending in the Lafayette MSA pales when compared to the enormous boom in Baton Rouge and Lake Charles, it remains an important component of this region’s economic growth. Leading the way is building by the healthcare sector. Lafayette General Medical Center is in phase II of its renovation and expansion program that was started back in 2011. LGMC is investing $51.5 million to expand its emergency department and adding a new surgical platform. Park Place Surgical Hospital is constructing a $25.7 million replacement facility on the Our Lady of Lourdes campus. The project will be completed in spring 2014. The Louisiana Department of Transportation and Development has let $70.9 million in road/bridge projects in this MSA for 2014-15, including $26.6 million to reconstruct and add lanes to Verot School Road. A $35 million renovation of the Student Union at ULL was begun in August 2012 and will be completed in August 2014. Within Lafayette Parish a $24 million Public Safety Building is under construction, and a $10 million reconstruction of the Lafayette Public Library is underway. The City of Broussard will be spending $16 million on its park system, and there is $6.6 million in renovations underway at the Mall of Acadiana. These major construction projects sum to just over a quarter of a billion dollars--a sum not easy to dismiss. However, this sum is about equal to just one of the smaller chemical expansions in the Baton Rouge or Lake Charles MSAs. That is why the projected growth rates in these two MSAs are noticeably greater than Lafayette’s. Making our forecasts perhaps too low is the fact that LEDA is working five ―Priority 1 Projects‖ that could add 1,200 more jobs and $29.5 million more in capital expenditures to the region. Decisions are expected by early 2014. We keep our fingers crossed for the hard working economic developers in this region.

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Houma: The GOM Is Back The Houma MSA is composed of two parishes---Lafourche and Terrebonne---and this is one of the MSAs whose composition did not change when the Census Bureau generated new MSA designations. Located in the southern coastal area of the state (see Map 1), Houma is highly dependent on the oil and gas extraction industry and the spillover sectors---machinery, fabrication, shipbuilding, water-borne transportation---that feed off of extraction activities. In July 2013, 6.3% of the MSA’s employment was directly in oil and gas extraction, more than double the statewide average of less than 2.8%. The key word in that last sentence was "directly". There are many fabricators and shipbuilders in the MSA that cater almost exclusively to the extraction industry. Plus, Terrebonne Parish is the home of Port Fourchon, basically a small city on the Gulf, that services about 90 percent of the offshore platforms and drill ships in the Gulf of Mexico. Houma‘s Recent History Figure 23 tracks the non-farm employment history of this MSA over 1980-2013. What strikes an observer most in this graph is the unusually wild fluctuations in the region’s employment over time. Because of its heavy dependency on the extraction industry (the second heaviest of any MSA, behind Lafayette), wild fluctuations in energy prices over the past 40 years have dramatically impacted Houma. The influence of energy prices can be seen in the big ―V‖ and the little ―Vs‖ shown in this graph. The BOOM years. The first, and biggest, ―V‖ occurred after one of the greatest bull runs for any MSA in Louisiana history. From 1975-81, this MSA enjoyed a remarkable period of growth in response to oil prices that peaked at $37.50 a barrel for Louisiana crude in 1981. That would be about $96 a barrel in today’s prices. The BUST years. A big ―V‖---covering the period from 1981-91---followed this boom period. The marked decline in oil and gas prices between 1982 and 87 sent this region into a free-fall. Some 17,200 jobs or nearly a quarter of the workforce vanished. Car dealerships, restaurants, banks, and any retail establishment suffered through a terrible period as the MSA shed a quarter of its jobs. Houma was the worst hit MSA in the state by this recession. It took a decade for Houma to recover all the jobs lost during this dramatic downturn. The long road back. When oil and gas prices recovered somewhat from 198791, this metro area rose up the other side of the ―V‖. Exploration activity in Louisiana has been moving southward across the state since the 1950s, indeed, heading further and further offshore in the Gulf. Houma’s geographic location on the coast made it the ideal site from which to launch offshore exploration.

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Fig. 23: Houma MSA Non-Farm Employment 1980-2013 100

Thousands

90 2009-11: -4,900 Jobs (-5.0% ) 6th of 8 MSAs

80 1997: New Record (10 Years) X

70

-24.6% Decline 2013: +2,300 (2.4% ) 2nd Best in State -300 jobs below peak

60

50 1980

1985

1990

1995

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The little ―Vs‖. Still, every time energy prices got soft, Houma’s employment declined. The MSA lost 1,500 jobs in 1992 when natural gas prices declined as a result of two straight unusually warm winters, and it lost 3,100 jobs in 1999 due to low oil prices. Interestingly, Houma went through the post-911 U.S. recession unscathed. In fact, the MSA picked up 5,000 new jobs over 2001-02 when most of the other regions of the state were in absolute decline. Note in Figure 23 that the ―Vs‖ have been getting shallower and shallower. This is primarily because the extraction industry is running much leaner now and has learned not to respond too strongly to rising energy prices. The firms that lend money to extraction firms have learned the same lesson. Still it is important to note in Figure 23 that there has always been a left side to the ―V‖. That is, after energy prices have remained high for an extended period, the extraction industry has always responded by returning to the oil patch to take advantage of the higher prices. At least that was true until 2004. Response to the run up in oil and natural gas prices at that time was more tepid than expected in 2004, with little change in the rig count. In fact, Houma was the worst performing MSA in Louisiana in that year.

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Legacy lawsuit effects. We believe this poor response resulted from industry fears generated by ―legacy‖ cases, in particular the Corbello case. In the time since the Corbello case, the industry has been lobbying hard for tort reforms to correct their perception of abuses arising out of the Corbello case. A degree of success has been achieved. One of the factors that made the Corbello case so onerous to the industry was that much of the settlement was based on allegations that drilling had impaired the ground water supplies. The great majority of the Corbello award was for this damage, and the plaintiff could simply pocket the award and was not required to use the award to correct the problem. Act 1166 required that if damage was alleged to have occurred to a water aquifer, the award must be used to correct the problem. That eliminated a lot of the incentive for suing extraction companies. Secondly, in the Terrebonne Parish School Board v Castex case the School Board was suing to require the oil company to backfill canals that were dredged years ago. This was especially troubling to the extraction companies because there are thousands of miles of these canals across the southern part of the state and the cost of filling them would be astronomical. The Louisiana Supreme Court over-ruled this judgment and said firms cannot be required to backfill a canal unless it was specified in the initial contract to drill. It was also determined that when permission is given to drill, there will always be a ―footprint‖ that will be left that is reasonable to that activity. If the footprint is excessive and not reasonable to that activity, the landowner has a right to sue. Despite the reforms and legislation passed in the regular session of the State Legislature during 2006, several legacy lawsuits are still active in the state. The Katrina & Rita Effects Like Lafayette, Houma received a nice injection of activity as a result of the two hurricanes. Over the three years of 2005-07, Houma gained a whopping 12,400 jobs, a remarkable increase of 14.9 percent or 5 percent per year. It was the fastest growing area of the state. In fact, growth in Houma was so strong that in 2007, Houma moved past Lake Charles to the fifth largest MSA in the state. The source of this employment reversal is much the same as occurred in Lafayette. First, there was finally a response in the oil patch to higher oil and natural gas prices. As an MSA heavily laden with exploration companies, oil service firms, and shipbuilders for the offshore sector, Houma benefited from this resurgence. Too, this MSA is home to many fabricating and repair/maintenance firms that benefited from the rebuild effort of offshore energy infrastructure that was damaged by Katrina and Rita. Finally, Houma also benefited somewhat from an influx of evacuees. Houma, at 58 miles, is the closest MSA to New Orleans (Baton Rouge is 79 miles from New Orleans). Based on FEMA assistance applications, we estimated that this MSA’s population ballooned upward by 62,810 people in the first two weeks after Katrina--second only to Baton Rouge in attracting evacuees.

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However, like Baton Rouge, Houma experienced the same population adjustment as did Baton Rouge and Lafayette. Census Bureau data show that between July 2005 and July 2007, the Houma MSA population increased by 3,449 people or about 1.7 percent. This is slightly more than the MSA tends to grow anyway. Thus, there has been an exodus of evacuees from the MSA, but a number have remained there as new residents, giving a bit of an extra boost to the retailers, real estate firms, and service providers in the area. 2008-09: High Energy Prices & Job Losses?? The experience in the Houma MSA over these two years pretty much mimics that of the Lafayette MSA. 2008 started out strongly as oil prices climbed to a high of $132.61 a barrel in September 2008. Then the price of oil began a rapid slide down to a bottom of $39.06 in March 2009. Beginning in April 2009 oil prices began to rise again and were at a very profitable $46.72 by May 2009. Oil prices have continued to rise as seen back in Figure 6. However, despite these very profitable energy prices, the Houma MSA was the first MSA in the state to begin losing jobs during the Great Recession---recording its first job loss in August 2008. Over 2009-10 the MSA lost 4,800 jobs---a 4.9 percent decline--ranking its performance 6th among the eight MSAs in the state. It is historically unprecedented for this MSA to be losing jobs in the face of relatively high energy prices. We believe the reason for this poor performance mirrors a similar weak performance in nearby Lafayette: the chilling effect of President Obama's proposed new taxes on the extraction industry. In addition to the extraction firms cutting back, Gulf Island Fabricators and nearby J. Ray McDermott laid off workers in 2009, and Offshore Specialty Fabricators laid off 90 workers that year. 2011: Oops - Forgot about BP In our 30 years of producing the Louisiana Economic Outlook, few things have surprised us more than the performance of the Houma economy in 2011. In the LEO released in the fall of 2010---six months after the oil spill and in the middle of the moratorium on drilling---we projected significant job losses for the area. Eleven deepwater drill ships left the Gulf, and activity at Port Fourchon dropped 35-40% below pre-spill levels. Normally, that would translate into a major decline in employment in the MSA. What we failed to take into account was the massive amount of money that BP would pump into the area's economy for the cleanup effort and to pay out on claims for losses due to the spill. While we do not have a good handle on the cleanup spending (which we know was quite large), we do have relatively good information on the amount BP paid to businesses and individuals who claimed losses due to the spill.

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As of August 2011, BP had paid out $132.1 million in claims in Terrebonne Parish and $81 million in claims in Lafourche Parish. As a reference point, that is about 3.1% of Terrebonne Parish personal income and about 2.1% of personal income in Lafourche Parish. The combination of BP's cleanup expenditures and its payouts to claimants was sufficient enough to overcome slowdowns in exploration and cause a very modest 100-job loss in 2011 instead of the 1,500-job loss we predicted in the 2011-12 LEO. 2012-13: Strong Bounce Back As seen back in Figure 23, the past two years have been very good for the Houma MSA. The MSA has added 4,700 jobs over those two years. That is an average growth rate of 2.5% a year, an enviable achievement compared to most MSA’s in the country. Its growth rate in 2013 was 2.4%---the second highest among Louisiana’s eight MSAs. Only the exceptionally booming Lake Charles performed better. This performance for the past two years has been strong enough to get the MSA within 300 jobs of its previous 2008 peak. The comeback in the Gulf is largely responsible for this surge. Not only did exploration activity return to near normal, but also Gulf Island added several hundred workers and Chouest's new shipyard, LaShip opened and is up to 700 employees. The major port servicing the offshore industry, Port Fourchon, has turned from retrenching to bustling. It has been a very good two years indeed. Forecast for 2014-15: Booming Gulf & Strong Fabricators We are projecting that the Houma MSA will be the third fastest growing region in the state in percentage terms and the fourth fastest in absolute job increases. Normally, the fine growth rates we are projecting for Houma would put this MSA at the top of the list, but the historically huge construction boom in Baton Rouge and Lake Charles have moved these two MSAs to the top of the heap. Houma’s forecasts are shown in Figure 24. We are estimating that the Houma MSA employment will increase by 2,600 jobs in 2013 (2.7%) and by another 2,600 jobs in 2014 (2.6%). In essence, this economy will have once again "gone up the other side of another V" and restored all the jobs lost during the Great Recession and the BP spill. On a monthly basis, this MSA to set a new employment record in July 2013. This record will be improved upon over the next two years. Indeed, we expect that in 2015, the Houma MSA will break through the 100,000 employment mark for the first time in its history. Booming GOM As we mentioned in an earlier section, activity in the Gulf post-spill went into a steep slide with deepwater drilling dropping from 33 drill ships down to seven and 11 drill ships actually vacating the Gulf and going to Brazil, West Africa and the ______________________________________________________________________________________ Economic Outlook Page 75


Mediterranean. Activity at Port Fourchon declined so abruptly that the Board of Commissioners granted lease concessions to tenants of the port.

Fig. 24: Houma MSA Non-Farm Employment Forecast: 2014-15 110

New Record: July 2013 Past 100,000 in 2014

100

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90 80 70

2014: 2,600 jobs (2.7% ) 2015: 2,600 jobs (2.6% ) 3rd fastest in state!

60 50 80

85

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00

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Fortunately, the Gulf is very much back on track. Sustained high oil prices, new lease sales, a new safety regime, and fiscal stability have brought permitting back to prespill levels. At 36, the deepwater drillship count is now higher than pre-spill. That count is expected to jump to 50 in 2014 and 60+ by 2015-17. Resurgence in Gulf exploration has set in motion a whirlwind of associated activity. Instead of setting moribund as it did during the moratorium/permitatorium, Port Fourchon is a bee hive of action. Slips A and B are fully leased out. No bulkheads or roads have been built for it yet, but the 7,000 foot long Slip C is already 65% leased out. In 2014, $140 million will be spent on this slip, and in 2015 another $100 million will be spent to complete it. Harvey Gulf International has announced plans to build a $400 million LNG fueling facility at Port Fourchon in two phases, the first to be completed in February 2014 and the second shortly afterwards. This firm has a $540 million, naturalgas-powered fleet expansion underway.

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Danos announced a significant expansion in this region and potentially a second one. The firm will build a new $10 million headquarters in Gray and add 326 jobs at an average salary of $75,000. Danos is also examining sites in Terrebonne and Iberia Parishes for a new $20 million manufacturing facility that would have 100 new jobs at an annual salary of $65,000. Gray, Louisiana was also the winner of another new facility when Standard Crane indicated it was building a new $1.1 million manufacturing plant there that would employ 19 people. A long-time player in this region’s economy---Chett Morrison Contractors--- is projected to add 400 jobs to its workforce over our forecast period. While not related to Gulf of Mexico activity, there is another energy firm making a major investment in Lafourche Parish. Genesis Energy plans to spend $75 million to build a crude oil unloading facility in Raceland. This will involve at least 400,000 barrels of oil storage capacity which will enable the firm to unload two ―unit‖ trains a day. Unit trains are typically 100 railcars long and carry only one product---crude oil. These trains will likely come from shale oil plays in places like the Bakken in North Dakota, the Utica in Ohio and/or the Marcellus in Pennsylvania. The oil will then be sent to refineries in Baton Rouge and St. James Parish for refining. Shipyards: Still a Dependable Job Source More rigs in the Gulf means more ships are needed to deliver food, water and drilling supplies to the drillships and platforms, and that is sweet music to Edison Chouest. Chouest builds and crews supply boats that service activity in the Gulf and also other exploration hotspots around the world. The company has completed a new shipyard---LaShip---where employment is already up to 700, and Chouest is holding regular job fairs to attract another 600 workers to the site. Its North American Shipyard’s employment is stable at 700-800. Chouest has 30 ships under construction for operations in the Gulf. Each ship requires a crew of about 28, which means the company will need 840 new mariners as those boats become active. Chouest is spending $80 million on phase 1 of Seaport 3 at Port Fourchon and will add 200 employees there when that construction is completed in March 2014. Construction on the $50 million phase 2 will start immediately afterwards. Seaport 4 is already in the design phase. At Bollinger Shipyards new construction work is fully booked. Bollinger is in the midst of a $1.5 billion, 32-vessel contract with the Coast Guard to build the Fast Response Cutter. Twelve of the ships have been awarded ($597 million) and six more will be awarded in 2013. Bollinger completes about four of these vessels a year. The firm also has a $50 million contract with Hornbeck Offshore for upgrades on six offshore supply vessels. At 3,000 employees now, Bollinger expects to add 400-500 new employees over the next two years.

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Large Fabricators: Good News/Bad News With the renewed activity in the Gulf, one would have expected only good news coming from the larger fabricators in the area. Unfortunately the message is decidedly more mixed. On the good news side, the 1,200-person Gulf Island Fabricators has a good backlog of work and should keep its workforce stable through 2015. Typically specializing in constructing topsides for offshore platforms, GI has made a significant move to diversify its product mix. The first move was into the marine market. The firm is fabricating a 335 foot lift boat for Montco and a 275 foot lift boat for C&S, and the firm has two 220 foot offshore supply boats under construction. The second move is more ―prospective‖. GI wants a piece of the fabrication business associated with the huge chemical industry expansions in the Lake Charles and Baton Rouge areas. This is not to say that the firm is totally abandoning its traditional market. GI is bidding on 12 shallow water projects and is preparing for significant deepwater bids that will go out in 2013-III/IV. On a slightly negative note, the company is moving its CEO, CFO and marketing to Houston, which while bad news will only involve the loss of about four jobs for the Houma region. A real blow to this region came when McDermott announced closure of its 1,400-person fabrication yard. Technically, McDermott is not geographically located in this MSA, but its site does abut it. When we wrote last year’s LEO the hopes were much higher for this site. McDermott was hoping to land the ―Big Dog‖ project---actually the Mad Dog 2 project for BP. BP had started with the notion of building a spar, but the reserves turned out to be so large at this offshore site that a spar would have been underdesigned to service the oil field. When BP decided a tension leg platform would be required and two more years would be needed to design it, McDermott closed its yard in Assumption Parish. Non-Port Fourchon Construction: GEBF & RESTORE Effects? In the paragraphs above we have spotlighted some large construction projects at Port Fourchon and the $75 million rail unloading facility at Raceland. Beyond those, announced construction activity is fairly muted. The state has let $60.2 million in road projects for the MSA. Two of the larger projects are (1) $13.6 million of rehab work on the West Larose vertical lift bridge and (2) $9.5 million to widen Hollywood Road. The only MSA with a lower road lettings number is the Alexandria MSA. The Terrebonne Levee District has let the first of several projects---a $22 million floodgate on Bayou Little Caillou---tied to $95.8 million in new bond revenues. What remains unclear is how much construction work will be allocated to this MSA as a result of the almost $350 million flowing to the state over the next two years via the Gulf Environmental Benefit Fund. This is the fund (discussed back on page 12) resulting from the criminal plea agreement between BP, Transocean and the Justice Department as a result of the spill. A second potentially huge injection of construction ______________________________________________________________________________________ Economic Outlook Page 78


funds could come via monies allocated to the region from the RESTORE Act resulting from Clean Water Act penalties associated with the spill. Monies from these two programs could potentially pump very large sums of money into the Houma MSA economy. +/- Uncertainties: BP Payments & NFIP There are two other key issues out there that could significantly impact this region’s economy. One of them is potentially very good and the other is potentially very, very bad. The potentially good news is the continuing BP payments to businesses and individuals due to claims of losses from the BP oil spill. The Deepwater Horizon Class Actions Claims Unit is still active and processing payments to be made in this MSA. As we have seen in the past, these claims have been of such a magnitude to materially impact the region’s economy. BP has recently started to push back on the claims, questioning their veracity. It remains to be seen just how much longer (and how much of) this money will continue to flow. The other uncertainty is both negative and possibly very large. That is the changes in the National Flood Insurance Program, which we discussed in detail back on pages 13 and 14. Because of its geographic location, this MSA has a lot of property that would be impacted if the Biggert-Waters Act is not amended in some way. Not only would the real estate market be devastated, but also all the firms that we listed above that plan significant hires over the next two years---Bollinger, Chouest, Danos, etc.---would find it far more challenging than normal to attract workers to their sites. The greater impacts of this legislation will likely occur in late 2014 and into 2015. Hopefully, changes will take place to avoid a real catastrophe in the Houma region.

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Lake Charles: Can It Possibly Be This Grand? Located in the far southwestern corner of Louisiana (see Map 1), the Lake Charles MSA is composed of two parishes---Calcasieu and Cameron. This MSA is dominated by three industries. One is what is broadly referred to as the petrochemical industry. This phrase handily combines two closely related industries---chemicals and refining. The Lake Area Industrial Alliance reports that Calcasieu Parish was the home to 20 different chemical plants and two refineries. Total employment in these facilities was 6,764 direct employees and 4,273 contractors in 2012 according to the LAIA. Like the Baton Rouge area, this huge capital-intensive petrochemical complex supports a very large industrial construction industry. A second major industry in Lake Charles is gambling. Pre-Rita, Lake Charles was home to five riverboat casinos. Now there are two in operation and one large one under construction, plus the Delta Downs Racetrack. The largest operational casino is L‘Auberge du Lac, which opened in the summer of 2005. Hurricane Rita badly damaged both of the casinos owned by Harrahs. Harrahs sold its two licenses to Pinnacle Entertainment, owner of L’Auberge du Lac. Pinnacle moved a license to Baton Rouge. This year, Isle of Capri closed one of its smaller riverboats and moved that license to Shreveport. Total employment at the two operating casinos and the racetrack is at about 4,070 as of 2013-I. We will discuss the status of the new Golden Nugget Casino that is under construction in the forecast section below. With the closest gambling establishments to the Houston metroplex, Lake Charles’ riverboat casinos were an instant success when they opened in the mid-1990s. When Delta Downs added slot machines and became a ―racino‖, it added another 1,057 workers to the area’s gambling industry, a number that has drifted down to 773. A third key sector is aircraft repair. There are now two significant employers located at Chennault Industrial Airpark---Northrop Grumman and AAR (formerly Aeroframe Services). Changes in tenants at Chennault have had a major impact on the MSA’s employment pattern over time. Closely allied with the aircraft industry, two significant employers at Lake Charles Regional Airport are Era Helicopters with 750 employees and PHI---another helicopter service firm. A relatively new firm---CB&I Modular Solutions (formerly Shaw)---has about 1,000 workers whose main focus to date has been manufacturing modular equipment for the nuclear power industry. A History of Ups and Downs A history of the Lake Charles economy is depicted in Figure 25. This MSA suffered mightily between 1981 and 1986 as the chemical industry reeled from a huge loss of sales in its foreign markets. The region lost a whopping 17.9 percent of its nonfarm jobs. This loss was caused by a large run up in the exchange value of the dollar. Not only did the industry itself reduce employment by one-third, but capital expansion plans were also halted, hammering the industrial construction sector at the same time.

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Fig. 25: Lake Charles MSA Non-Farm Employment: 1980-2013 95 90

Thousands

85 80 75

2009-10: -5,900 Jobs (-6.3% ) Worst in State

-17.9% Decline

70

2013: +3% Best In State Still 800 jobs Below Peak

65 60 55 1980

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Coincidentally, the Reagan Administration fully deregulated the price of crude oil in the early 1980s. One side effect of this action was that several marginal refineries found it increasingly difficult to remain competitive and shut down. The loss of jobs in the two highest-wage industries in Louisiana’s manufacturing sector, combined with a shuddering halt to industrial construction and other negative multiplier effects, sent the Lake Charles economy into a serious, 5-year dive. Lake Charles was actually the first MSA in Louisiana to begin recovering from the terrible statewide recession of 1982-87. The key was the attraction of Boeing Aircraft to Chennault Field. Boeing created over 2,000 jobs to refurbish K-135 transport airplanes for the Air Force. That helped set Lake Charles off on a recovery mode. The recovery was further aided by a sudden drop in the exchange value of the dollar, which rejuvenated foreign markets for the chemical firms and set them off on a new round of hiring and capital expansions. (Note the magnitude of this recovery is distorted in Figure 25 by the addition of Cameron Parish employment data to this MSA’s job statistics.) In 1992, Boeing announced the closure of its facility, and the job loss there caused Lake Charles’ employment to slide sideways for two years. The next three years were excellent growth years for Lake Charles. Three factors powered this expansion. First, ______________________________________________________________________________________ Economic Outlook Page 81


there were some unusually large capital projects under construction in the petrochemical sector. Citgo and Conoco/Pennzoil combined for $1.6 billion in expansions during this period. Secondly, it was during this period that the riverboat casinos came to Lake Charles. Thirdly, Boeing was replaced at Chennault Airpark by Northrop Grumman--a facility that took 707s, stripped them down, and installed the Joint System Target Attack Radar System (JSTARS) in them. This was an addition of 1,900 good-paying jobs for the Lake Charles economy. It is obvious from Figure 25 that the good times ended for Lake Charles in 1999. The MSA lost 2,800 jobs in that year and was essentially flat for the next six years. There were several contributors to this poor performance. The first involved hits at the aircraft repair facilities at Chennault Airpark. As Northrop Grumman came near the end of its JSTARS contract, the firm began handling fewer aircraft and consequently began terminating workers. NG reverted to doing maintenance, repair and overhaul (MRO) work on the JSTARS aircraft, and its workforce dropped all the way down to 350. The attraction of EADS to Chennault helped offset NG layoffs somewhat, but even that firm reduced its workforce from about 350 down to 160 before selling to Aeroframe Services. Secondly, a combination of 9/11 and the national recession reduced trips to the area gambling establishments, prompting layoffs there. Thirdly, Xspedius moved its headquarters office in Lake Charles to St. Louis. But by far the most important contributor to the downturn was the funk in the chemical industry. High natural gas prices forced this vitally important industry in Lake Charles to hunker down and look for ways to reduce costs. One way was to reduce the number of employees. Too, the industry placed capital expansion projects on hold and delayed maintenance/repair work as much as was safely feasible. The result was a significant reduction in industrial construction employment. The Surprising ―Rita Effect‖ What may surprise readers the most about the data in Figure 25 is the growth in 2005 and 2006. Despite being hit by a vicious storm, this MSA’s employment actually grew---adding 2,700 jobs over those two years. The larger portion of that growth occurred in 2005, the year of the hurricane. Rita's impact on housing. There were 47,384 homes damaged by Rita in this MSA---but only 2,284 incurred severe damage and 6,673 major damage. Residents could and did return to the Lake Charles area fairly quickly. Normally one would be aghast at these figures, but against the backdrop of the housing destruction in New Orleans, they pale. It is very important to note that with the exception of lower Cameron Parish (the most sparsely populated parish in the state) there was virtually no flood water damage in Lake Charles. That means regular homeowner’s insurance was applicable to the ______________________________________________________________________________________ Economic Outlook Page 82


damage. As a result, all the impediments to rebuilding that existed in New Orleans due to standing flood waters did not exist in Lake Charles. Rita‘s impact on Lake Charles manufacturing. It is the nature of the manufacturing industries in Lake Charles that they would seemingly be very vulnerable to a powerful storm like Rita. Chemical plants and refineries are very capital-intensive, and all their capital is outside and exposed to the elements. In fact, three refineries in the area were damaged and shut down: (1) Citgo (324,000 bd); ConocoPhillips (239,400 bd), and (3) Calcasieu (30,000 bd). All three were back up by December 2005. Also, the aircraft industry, which operates in large hangers, seemed likely victims of high winds. Despite these vulnerabilities, these industries made it through the storm without losing much downtime. There was $40 million in damage to hangers at Chennault, but the two firms operating there continued to do so despite the inconvenience. Importantly, staffing was not as difficult a problem as in New Orleans because most housing remained intact in Lake Charles. Rita‘s impact on the Lake Charles gaming sector. As a result of Rita the two Isle of Capri-owned casinos and the L’Auberge du Lac encountered minor damage and were reopened by November 2005. However, the two Harrah’s riverboats were badly damaged by the hurricane. Again, Pinnacle Entertainment, which owns L’Auberge du Lac, purchased both of Harrah’s licenses in Lake Charles. Pinnacle returned one license to the Gaming Control Commission and moved the other license to Baton Rouge. Rita‘s impact on other sectors. A look at other sectors in Lake Charles indicates a solid recovery in the aftermath of the storm. By January 2005, all hospitals in the MSA except one in Cameron Parish were fully operational. The Lake Charles Regional Airport began operating at an even higher level than pre-Rita. By contrast, the New Orleans airport was still operating below pre-Katrina levels in 2011. Within a month of Rita’s landfall, all of the public schools in the MSA had reopened and virtually all hotel room space was back to normal by the end of 2006. The Port of Lake Charles escaped any flooding by Rita. However, it did experience about $40 million in wind damage and initially had no power. Within a few days power was restored and the port was open to receive shallow water vessels. Careful reviewers may have noticed another important fact back in Figure 25. In 2007 Lake Charles MSA set a new record in employment---exceeding the previous peak by 2,100 jobs. Construction associated with the storm recovery was still robust in 2007, about 2,200 jobs higher than just after Rita. However, construction’s growth peaked in 2007 and was slightly lower in 2008, constituting something of a temporary drag on the area economy.

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The Great Recession Felt Hardest Here Among Louisiana's eight MSAs, none suffered more than the Lake Charles MSA from the Great Recession. Although this MSA's employment began to slide later than the national economy---in February 2009 as compared to January 2008---2009 was particularly harsh on the region. In that year the MSA shed 3,700 jobs and then it lost another 2,200 in 2010---an employment drop over two years of 6.3%. This is a worse decline than that experienced at the national level (6.1%). What was behind this poor performance over 2009-10? factors, including:

There were several

In 2008 Citgo announced it was closing its 192-peron lube plant which added to the drag of reduced construction spending.

Aeroframe, which does maintenance work for FedEx and US Airways aircraft had to reduce its workforce from 475 to 250 as both firms idled many of their jets due to the sagging global economy.

The weak national economy hurt business at the area's important casino industry.

During this period the region's petrochemical firms really tightened their belts especially with regard to capital projects. This is illustrated below in Table 14 which contains data supplied by the Lake Industrial Alliance Association which shows an almost 3,000-job decline in contractor jobs at area plants over 200710. Fortunately, the data for 2011-12 show this downward trend has been reversed, and in the case of contract workers has almost doubled from the 2010 trough.

Table 14 Employment in Lake Charles Area Petrochemical Plants Year 2005 2006 2007 2008 2009 2010 2011 2012 

Full Time Employees 6,401 6,158 6,221 6,070 6,042 5,961 6,683 6,754

Contract Employees 3,003 2,830 5,412 3,572 3,070 2,456 3,265 4,273

The region was delivered a blow in the Summer of 2010 when Pinnacle announced it was stopping construction on the Sugarcane Bay Casino and was turning in that license to the Gaming Control Board. It should be noted that the

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combination of the Great Recession and the unusually weak recovery negatively impacted the casino market. As seen in Figure 26, casino revenues statewide dropped 8.7% between FY08 and FY11, and rose only 0.3% in FY12. Fig. 26: Louisiana Casino Revenues by Fiscal Year 1,900,000,000 1,800,000,000 FY12: +0.3%

1,700,000,000 1,600,000,000 1,500,000,000

2008-11:-8.7% 1,400,000,000 1,300,000,000 1,200,000,000 97

98

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Finally: A Growth Year in 2012 Referring back to Figure 25, readers will notice the beginnings of a recovery in 2011 (+600 jobs) and very good growth over 2012-13. In fact, the latest data indicate Lake Charles is the fastest growing MSA in the state. What is particularly impressive about this performance is it was accomplished despite the fact that a major employer--Dynamic Industries---basically shut down its 500-person operation in Lake Charles. The firm won phase I work on manufacturing components for the Marine Well Container project. However, the company was unsuccessful in landing phase II, so terminated its operations in this region. On a far more positive note, during this period Shaw Modular Solutions opened its new facility and now has about 1,000 employees now. Aeroframe added employees as one of its key customers---FedEx---began to fly more planes. Importantly, turnover work at area petrochemical firms rose from $350 million in 2010 to over $800 million in 2012, and area chemical firms in general were enjoying an increase in business due to increased exports. Note back in Table 12 that LIAA surveys indicate direct employment in petrochemical firms jumped by 793 employees over 2011-12 and contract employment rose a whopping 1,817 jobs over that same time period.

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Ground-breaking took place on the $500 million Golden Nugget Casino in July of 2012. Work began on a $176 million expansion at Sasol and at the Lake Charles Port, IFG started construction on phase I of a new $59.5 million grain elevator. Even more importantly, $5.6 billion worth of work began on the first two ―trains‖ at Cheniere‘s new LNG export terminal. We will have more to say about this project below.

Forecast for 2014-15: An Historical Boom Has Started Figure 27 shows our forecasts for the Lake Charles MSA over the next two years. We are expecting Lake Charles to add 3,300 jobs in 2014 and another 4,500 jobs in 2014---a stellar increase of 8.1% over this period. No other MSA in the state is expected to come close to this growth rate. The closest should be Baton Rouge at 5.6%. Sometime in 2014, Lake Charles should surpass its previous peak reached back in 2008 and begin to set new employment records. In fact, we project that in 2015 this MSA will break through a barrier which has been seemingly illusive since the mid-90s---over 100,000 employed.

Fig. 27: Lake Charles MSA Non-Farm Employment Forecast: 2014-15 110 2014: 3,300 jobs (3.5% ) 2015: 4,500 jobs (4.6% ) Best in State!

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Massive Industrial Construction: Where to Get---and House---Workers There are two primary sources of this very optimistic outlook for Lake Charles. By far the most significant is the looming boom in industrial construction. A recent Greater Baton Rouge Industrial Managers Association (GBRIMA) survey documents $46.6 billion in planned (or underway) spending on industrial projects in this region. Clearly that is an enormous figure, but two reference points may put it in perspective. First, we have been monitoring this MSA for nearly four decades. In the past, a good year would be when $2 billion in capital spending was announced. Twentythree times that amount is expected over the next few years. Secondly, the closest MSA to Lake Charles using this metric is Baton Rouge---also a major petrochemical center--where the capital spending number is $23.7 billion, considered remarkable there but about half of what is expected in Lake Charles. LNG Export Facilities Leading the Way Presently leading the way in industrial expansions are the LNG export terminals. Referring back to Figure 7, there was a 6-year period from 2003-08 when the price of natural gas rose dramatically and the signal was that there was a shortage of this important fuel. Entrepreneurs responded the way they always do---they began to look for more of the fuel (or a close substitute for it). The result was the construction of three onshore, and one offshore, LNG import terminals. The wide use of fracking to produce natural gas from shale rock was so wildly successful that the country is now awash in natural gas and its price has fallen commensurately. This ocean of natural gas has incentivized entrepreneurs to turn our existing LNG import terminals into LNG export terminals. Three vital permits. To make this switch, owners of these terminals are not only required to secure the normal environmental permits, but they must also secure two others. They must secure from the Federal Energy Regulatory Commission (FERC) permission to export the fuel, and they must obtain from the Department of Energy (DOE) permission to export this fuel to non-free trade countries. This latter permit is especially crucial since the owners want to be able to export to the rich markets in Japan, Korea, India, Britain, France and other countries which are not free trade partners of the U.S. Investment funds. There is one other vital item that must be secured in order to proceed with construction---money. Converting natural gas from a gas form to a liquid form for transporting on an LNG vessel involves constructing what the industry refers to as a ―train‖. A train is a series of very complex pieces of machinery lined up in a row. Natural gas goes in as a gas one end and comes out as a liquid (at one 600th of its original volume) at the other end. An LNG export facility typically starts with two trains. Each train will cost about $4.6 - $6 billion.

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How does an owner raise such a huge amount of money in the capital market? The key is to go to lenders with a market for your product already secured. In this case, owners go to the market with several 20-year contracts from buyers of the LNG in their hip pockets. When lenders in the capital markets see these contracts, and also see that the gas can be purchased in the U.S. for about $4 per mmbtu and sold in these contracts at $18 per mmbtu, their check books open. Four export terminals in Lake Charles? There are three LNG export terminals that are well along in the permitting/capital raising process and a fourth that was just recently announced. 

Cheniere Energy‘s Sabine Pass LNG is the most advanced in this process. It has landed both the necessary permits and contracts. Cheniere has 20-year contracts from BG Gulf Coast, Gas Natural Fenosa, GAIL, KOGAS, Natural Gas Aprovisionamerientos SDG, Centrica PLC, TEPCO, and Total Gas North America to purchase its product when it becomes available in 2015. Cheniere actually started construction of its first train in September 2012, and as of May 2013 it was 30% complete. This $5.6 billion project should be ready for exports in late 2015. A contract to build the second train (at $4.6 billion) was let to Bechtel in December 2012. Construction of the third and fourth trains was determined to be a ―go‖ in May 2013 and Bechtel was issued a notice to proceed. A newly secured contract with Total Gas & Power will allow for a fifth train to be built. Cheniere is expected to apply to FERC for permission to build trains 5 and 6 in September 2013. All other permits have been secured for these additional trains. The company will hire another 178 people to supplement its existing workforce of 77.

Sempra Energy‘s Cameron LNG facility is close to starting construction. The firm has inked contracts with Mitsubishi Corporation, Mitsui & Company and GFD Suez of France to purchase the gas. Securing all the necessary permits stands between Sempra and construction startup. Sempra has been successful in securing a permit from the DOE to export to free-trade partners of the U.S. but its permit to export to non-free trade partners is still pending. An application to begin construction of the facility has been filed with FERC and final approval is expected in early 2014. Plans are for this site to ultimately be a 3-train facility and add 130 jobs. Expectations are that construction will start in 2014 and the plant should become operational in 2017, exporting 1.7 bcf/d of its product.

The third proposed LNG export terminal in this region is Lake Charles Exports, a company that is jointly owned by the BG Group and Southern Union. This is also expected to be a 3-train unit. The firm has applied to FERC to begin construction in 2014 and has received ―conditional approval‖ (not full approval yet) from DOE to export to non-free trade countries. Lake Charles Exports hopes to be in operation by 2018, exporting about 2 bcf/d of natural gas.

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Finally, Magnolia LNG---a subsidiary of Australian LNG---has announced it is examining the construction of a mid-scale, $2.2 billion LNG export facility at the Port of Lake Charles. Magnolia says it will make a final decision in late 2014 after it secures financing and the necessary permits. If these efforts are successful, construction would begin in 2015. The firm plans to sell its product domestically and to free-trade partners of the U.S. Once operational it would have a workforce of 45, earning about $75,000 per year.

General Chemicals: Largest Project in Louisiana‘s History This petrochemical-intensive region is getting a terrific boost from lower natural gas prices. The planned expansions are more often than not measured in the billions of dollars. 

Of the announcements made by far the ones that have generated the most excitement in this region are the two proposed new Sasol facilities. Sasol has completed the feasibility studies and made the decision to move forward on both a world-scale ethylene cracker and a new gas-to-liquids (GTL) plant at its site in Westlake. The ethylene cracker---a huge $5-$7 billion facility---would be constructed first. Final permitting would be secured over 2013-14, along with the front-end-engineering-design (FEED) work. Construction would commence in 2014, with completion in 2017. Sasol‘s $11-$14 billion GTL plant will be the largest single capital investment in Louisiana‘s history. This huge plant will convert natural gas into 96,000 barrels per day of diesel, naphtha and other chemical products. Final permitting would be secured over 2013-14, and the FEED work would be ongoing over 2013-16. Construction would commence in 2016, with completion of phase I in 2019 and phase II in 2020. Combined, the two projects will create 1,228 Sasol jobs and 358 contract construction jobs.

For several years now we have been writing about the development of Leucadia’s proposed synthetic natural gas plant. Now that there is an abundance of natural gas in the country, there is no demand for a plant to make a synthetic version. Leucadia has responded by forming a new unit---Lake Charles Clean Energy--to build a $2.5 billion plant at the Port of Lake Charles to produce methanol from petcoke imported or purchased from nearby refineries. The firm has contracts for its final products in hand to sell methanol (BP), hydrogen (Air Products) and carbon dioxide (Denbury Resources). An agreement has been signed with the Port for handling and storage of the methanol, and the firm has spent $50 million on preparing the 70-acre site and on electricity infrastructure. It looks like this project is finally in the ―go‖ stage.

The Port of Lake Charles has potentially landed another big fish with the recent announcement that G2X Energy is conducting a feasibility study to build a $1.3 billion plant on 200 acres at the Port. A GTL plant, this plant will convert natural gas into methanol and then into gasoline (90% of output) and propane (10% of output). Assuming a positive late 2013 decision on the project, G2X would start

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the almost 4-year construction in 2014 and open in 2017. Hiring of 243 employees to operate the plant (at $66,500 per year) will actually be completed in 2015. 

Juniper GTL will invest $100 million to renovate a dormant steam methane reformer in Westlake and convert it to a gas-to-liquids facility that will produce clean waxes, drilling fluids, diesel and naphtha. Construction stats in late 2013 and ends in early 2013 and will generate 29 new jobs at $85,000 annually.

Westlake Chemicals will be finishing up a $128 million expansion in 2014.

Phillips 66 is examining the possibility of spending $800 million at its refinery. The expenditure would be necessary to produce an ultra-low sulfur diesel at the plant. It is not clear when this decision will be made. The company may continue to make its less-than-low-sulfur diesel and sell it internationally.

Where to Get/House Workers The construction of all these unusually large LNG and petrochemical facilities has created some issues for the region that is leading to even more construction. One issue of concern involves where to get the industrial construction workers to build these new facilities. The projected needs are rather startling. As seen in Figure 28, the Lake Area Industrial Alliance has estimated the construction manpower needs will rise from around 7,000 now to about 14,000 in 2014. Fortunately for the construction firms, much of the rest of the country is operating in what could best be described as languid conditions with little construction activity. Construction workers tend to be highly mobile, so attracting them to the Lake Charles area with the bones of a job plus high wages should get these prospects to Lake Charles. The problem then becomes, where will the region house this large influx of humanity? A company called Greenfield Logistics Solutions has---appropriate to its name---come up with a solution. Mimicking what has happened in the Bakken Oil Shale Play in North Dakota, this company is planning to build a $70 million ―man camp‖ on 200 acres leased from the Port of Lake Charles. This will provide temporary dorm-type housing for 4,000 workers. It will also provide parking, transportation, eating facilities, recreational activities, laundering services, carded entry and security services.

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Figure 28

More Tenants Means More Improvements at the Port of Lake Charles Careful readers will note we have frequently referred to the Port of Lake Charles as the home for many of the projects listed above. The Port has responded with $290 million in upgrades. The Port is constructing Bulk Terminal 1 to service Lake Charles Clean Energy and is making improvements to the City Dock. The entrance gate to the Port is being upgraded along with the construction of a new administrative building. In addition to aiding general operations at the Port, upgrades to the City Dock are being made to support anther new Port tenant---IFG. IFG is in the midst of building the first greenfield grain elevators in the U.S. in the last 25 years. The $59.5 million phase I of IFG investment is 40% done and should be completed in late 2014, generating 36 permanent jobs. A $50 million phase II should begin as soon as phase I is operational. Union Pacific Railroad has made a $7 million investment to support IFG, and the Port has invested $12 million for loop trains, dredging and road work to support IFG.

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Public Projects & Mardi Gras Boardwalk There are a number of public construction projects scheduled for The Lake Charles region over the next two years, which---though not all that large---will provide jobs for local citizens. The largest by far will be the $145.1 million in state road/bridge projects the Louisiana Department of Transportation and Development has let for 201415. The largest of these is $65 million to 6-lane I-10 from East Coone Gulley to the Texas line. The state will also spend $20 million on a new training center at SOWELA Technical Community College, primarily to meet the training needs for Sasol’s expansion. That same facility will receive $3.7 million to establish an Aircraft MRO Center of Excellence to train workers for companies at Chennault Field (discussed below). Finally, ground-breaking took place about a year ago on the $10 million, 45,000 square foot West Calcasieu Event Center which should open in spring 2014. In July of this year, the City of Lake Charles notified Mardi Gras Boardwalk that it can proceed with development of the old Harrah’s property along the lakefront. The company still must have its final plan approved, but expectations are that dirt will be turned on the project by early 2014. Initial description shows a $45 million entertainment project with a festival park, an amphitheater, a 5-story 100-room condo/hotel a 35,000 square foot sports bar, and a 25,000 square foot family entertainment center, plus other commercial facilities. Golden Nugget Opening = Lots of Jobs Last July 2012, ground was broken for a new, very large casino in Lake Charles. This license has been through many hands before landing with Golden Nugget. Initially, the license was owned by Creative Casinos which was then sold to Ameristar in March 2012. It was then purchased by Pinnacle in December 2012. Pinnacle already owned the La Berge du Lac Casino, and when Pinnacle bought Ameristar’s casino, the Justice Department determined that Pinnacle had to divest itself of one of the casinos in Lake Charles. Pinnacle decided to sell to Golden Nugget in the summer of 2013. Throughout the change in ownership, construction on the $500 million casino complex with a 700-room hotel continued. It is on schedule to open in late 2014 with 1,500 new jobs for the area. Consensus opinion seems to be that---unlike the case of the new Margaritaville Casino in Shreveport---the Golden Nugget will not be cannibalizing business away from the other gaming institutions in the area. Thus, the gross increase of 1,500 new jobs at the Golden Nugget could likely be the net increase in gaming jobs in the area as well. That is very good news for Lake Charles. Other Manufacturing: Some Good News & One Major Worry Most of our focus as we discussed manufacturing in Lake Charles has centered on the petrochemical/LNG industries. However, this MSA has major players in other areas. ______________________________________________________________________________________ Economic Outlook Page 92


Two of those players are at Chennault Industrial Park. Here there is really good news and a worry. The really good news is that in August 2013, Aeroframe was purchased by AAR--the largest aircraft maintenance-repair-overhaul (MRO) organization in the U.S. and the third largest in the world. Just before this purchase, Aeroframe had landed a contract with ILFC, the largest aircraft leasing firm in the U.S. After every lease ends, ILFC’s planes have to be brought in for updating and repainting. The marriage of Aeroframe and AAR means this site can perform MRO work on all wide-bodied aircraft up to the Airbus A380. A new facility will be added at the site and AAR plans to boost its present 250person workforce by 500 between now and 2017. Our worrisome issue has to do with the other large tenant at Chennault— Northrop Grumman. NG does MRO work on the JSTARS and KC10 military aircraft. Its workforce of 650 should remain stable through 2015. After that, employment should ramp up some because a more intense maintenance cycle on the KC10 will come up in 2016-17. What is worrisome is the question of the effects of the sequester on aircraft MRO work for the military. Further, the Defense Department has been the target of the present administration when it comes to cuts in the federal budget. Will MRO work escape this hatchet? A final large manufacturer in the area is CB&I (formerly, Shaw) Modular Systems. CB&I uses Westinghouse technology to manufacture equipment for the nuclear power industry using AP1000 technology---considered the safest and most economical technology in the industry. The company is also planning to use its modular building technology to manufacture parts for all the petrochemical expansions occurring in Louisiana and Texas. Its large 1,000-person workforce is expected to rise by 100-200 persons a year over 2014-15 as CB&I expands into this new market. Unless there is some unforeseen large spike in natural gas prices, the Lake Charles MSA should be the shining light in the Louisiana economy over the next two years.

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Monroe: Welcome to CenturyLink City Located in the northeast corner of the state (see Map 1), the Monroe MSA is comprised of two parishes---Ouachita and Union. Monroe is the second smallest MSA in the state (ahead of Alexandria), with an estimated 76,900 non-farm jobs in 2013. Until recently, this MSA had the highest concentration of employment in the broad category called ―finance/insurance/real estate‖ (FIRE) of any MSA in the state. Partly that was because of the now 2,400-person Chase Mortgage facility. Another big contributor to this ranking was the 1,200-person State Farm claims center. The latter closed its doors in 2005, and Chase absorbed the Bank One documents depository, so FIRE’s influence in this MSA’s economy has been reduced somewhat. Other large employers in the region include Graphic Packaging, a paper/carton plant that employs about 1,217 people at its three sites, and CenturyLink also plays a key role in this MSA’s economy with its 1,970-person workforce. Delphi Lighting was a major player until it closed its 800-person headlight manufacturing facility in June 2007. Monroe Employment History Figure 29 traces Monroe’s employment history from 1980 to 2013. Like Baton Rouge this MSA was only lightly tapped by the deep recession of 1982-87. Monroe only lost jobs for two years---1986 and 1987---and even then the decline was only 2 percent as compared to the 9 percent statewide job loss. The reason for the light hit is that Monroe has almost no jobs in extraction or chemicals, which were the two industries that suffered the most during that recession. By 1989, Monroe had retrieved all those lost jobs and was setting new employment records. Between 1987 and 2002, this region enjoyed a 14-year stretch of growth, with five of those years registering 2.5 percent plus annual growth rates. (The increase in 1990 is distorted by the addition of Union Parish to the MSA’s numbers.) The years since 2002 have not been good ones for the Monroe MSA as evident in Figure 29. Remarkably, Monroe did not have a growth year from 2002 through 2011. The decline was not horrendous, but it was been steady. After going flat in 2003, the MSA has lost 4,300 jobs over 2003-11, a 5.4 percent decline. (The three years from 2005-07 were flat.) During the "Great Recession" the region lost 2,300 jobs, a decline of 3.0 percent---tied with Lafayette as the third best performance in the state.

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Fig. 29: Monroe MSA Wage & Salary Employment: 1980 - 2013 85 80

Thousands

75 70

Losses: State Farm IP-Bastrop Shaw Fabrication Pilgrim's Pride Accent marketing Guide Corp Coca Cola

2003-11: -4,300 jobs (-5.4% ) 2009-11: -2,300 (-3.0% )

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Consider the body blows this region took during those eight years: 

The biggest hits came with the initial layoffs at, and then total closure of, the State Farm Insurance claim office, costing the area 1,100+ jobs.

Guide Corporation reduced the workforce at its headlight plant, and then totally shuttered the facility in 2007, at a cost of 650 jobs with an annual payroll of $53 million.

Graphic Packaging also engaged in workforce reductions.

Holsum Bakery closed its facility in Monroe, terminating 50 employees in the process.

In 2008, International Paper closed its 550-person paper mill in nearby Bastrop.

In 2009, Shaw closed a pipe fabrication plant that had 202 employees and an $11 million annual payroll.

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In 2008, Pilgrim‘s Pride closed a chicken processing plant in Union Parish that cost the region an estimated 1,500 jobs.

In early 2010, Accent Marketing lost a major client and dismissed 340 at its call center.

Coca Cola closed its bottling plant, laying off 85 people

That is a remarkable list of 9 significant closures during those 8 years. It is a wonder that the job loss was not much greater. 2012: An End to the Blood-Letting As seen back in Figure 29, Monroe actually experienced net job growth in 2012 for the first time in nine years, and it was a healthy boost of 1,000 jobs. There were no more major layoff announcements in that year and the region s received a shot in the arm from a number of sources. 

Foster Farms reopened the shuttered Pilgrim's Pride plant and is now back up to 1,200 employees in Union Parish. High corn prices are preventing the facility from expanding even more.

CenturyLink continues to move like a freight train in its acquisition efforts. Last year the company made a commitment to keep its headquarters in Monroe through 2020 and continues to add to its Monroe workforce.

Gardner Denver Thomas relocated operations in Wisconsin to the Monroe area in 2010, generating 67 jobs initially with an eye towards a total workforce of 225. Instead, the company has been so successful that it has blown past that target employment level and now employs 300.

As a sign of a longer run commitment to the region, Graphic Packaging brought in new equipment from a mill in Colorado to increase productivity of its workforce, which it plans to keep stable for now.

Angus Chemical invested about $100 million in its plant in Sterlington over the past few years, including a $10.8 million investment in 2011 in a new electrical substation and general electrical system, which helped the firm remain productive enough to retain its 174 jobs.

Unfortunately, as we look at the first 7 months of data it appears that employment in this MSA has reverted to its per-2012 pattern and will be flat in 2013. There have been no new significant announcements of expansions in the MSA and concerns abound that a major employer may already be reducing its workforce. We will have more to say on that below. ______________________________________________________________________________________ Economic Outlook Page 96


Forecast for 2014-2015: CenturyLink-The One Bright Light Our projections for this MSA are shown in Figure 30. We forecast that employment in the Monroe MSA will be the slowest growing MSA in the state, in percentage terms, adding 200 jobs each year over 2014-15--a 0.3% annual growth rate. While it is good that we see no more blood-letting for the region, this is clearly not an enviable track and at the end of 2015 the MSA will still be 2,900 jobs below its peak reached back in 2002.

Fig. 30: Monroe MSA Wage & Salary Employment Forecast: 2014-15 85 80

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2014: +200 jobs 2015: +200 jobs

(0.3% ) (0.3% )

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What is the problem here? The answer is in how short this section of the LEO will be. In the other MSAs that we have covered, there was usually a healthy list of expansions of existing firms or new ones being opened. That is not the case in Monroe. CenturyLink Saves the Day The one bright light in this region remains CenturyLink. Wonderful news came to the region when this Fortune 500 company announced it would keep its headquarters in Monroe through at least 2020. CenturyLink broke ground in March on a new $30 million, 250,000-square foot Technology Center for Excellence which will be finished ______________________________________________________________________________________ Economic Outlook Page 97


near the end of 2014. The firm also announced it is adding 800 jobs to its present workforce of 1,970 by 2016. The great hope is that as this firm continues to grow it will attract many of its vendors---such as KMPG, Ericson and Huawei---to the city. Graphics, Roads & FedEx Good stability for the region should come from three sources. Graphics Packaging will reliably spend about $35 a year on capital projects at its three plants in the area, but the company has no plans to expand its workforce. FedEx is building a new $30 million, 50,000-square foot warehouse/distribution center in Monroe and will add 30 new jobs. The amount of money the Louisiana Department of Transportation and Development has let for road projects in the area---$117.1 million for 2014-15---is little changed from last year. Chief among these projects is $25 million to widen Arkansas Road and $9 million to widen Finks Hideaway to five lanes. Chase Mortgage – Nervous Jitters The careful reader might reasonably ask, ―Why are you projecting only 200 new jobs a year for the region when CenturyLink is adding 400 a year?‖ The answer is that we are concerned about Chase Mortgage. Presently at 2,400 employees, Chase had added a significant number of employees to its workforce to handle the mass of foreclosures that resulted from the housing bust. That work is now winding down, and Chase has announced it is eliminating 13,000-15,000 jobs nationwide. The good news is that Wingspan Portfolio Advisors will be taking over the Chase service center in Monroe. Wingspan’s commitment is to retain all existing jobs and add 500 jobs over the next few years, including 50 each in years 2014 and 2015.

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Alexandria: Is the Slide Over? Alexandria is the smallest of Louisiana’s eight MSAs with about 62,700 non-farm employees in 2013. Historically, the Alexandria MSA was comprised of only one parish--Rapides. However, in 1990 Grant Parish was added to this MSA. Alexandria derives the lowest percentage of its employment from the ―basic‖ sectors---mining and manufacturing---of all the MSAs in the state. Located in the central part of Louisiana (see Map 1), it has typically served as the retail/services center for the north/central part of the state. Alexandria also has the highest percentage of employment in the government sector (22.4%) of all the MSAs as well---even larger than Baton Rouge (20%), which is the state capital and home to two large state universities. Among the significant state agencies in the area are Huey P. Long Medical Center, the 400-person charity hospital for this region (soon to be taken over by two of the private hospitals in the region), and Pinecrest Support and Services Center---which provides care for the mentally disabled and employs about 1,300 people. Central State Hospital for the mentally ill has about 300 workers at the present time. Nearby Fort Polk is the largest military installation in the state. While not actually located in the Alexandria MSA, this huge base has a noticeable impact on this MSA’s economy. Procter & Gamble has a significant 1,200-person operation in this MSA, as does a relatively new firm---Union Tank Car with 670 employees. The utility company Cleco, with 1,244 employees, is also a major force in this MSA's economy, and Roy O. Martin employs about 1,250 at various wood processing sites in the region. Crest Industries---which is the umbrella firm for DisTran, CNR, Beta Engineering and Mid State Supply---makes steel poles and substations for electric power generation and employs almost 600. Alexandria‘s Recent Employment History Alexandria’s employment history is illustrated in Figure 31. Five key points will be noticed by the careful reader when viewing this figure. First, note that there was a slight bump upwards in 1990. The Department of Labor revised the employment statistics only back to that year to take into account the addition of Grant Parish to this MSA. Secondly, note that this MSA enjoyed an almost recession-free history until 2001. Except for a mild decline in 1982, its employment track had basically been a line moving constantly upward for the last two decades of the 20th century. Even the post-9/11 national recession in 2001 only mildly impacted the Alexandria MSA, causing a meager loss of only 200 jobs (-0.3 percent). This means the Alexandria MSA was the least impacted of all the state’s eight MSAs---not a surprising finding given the low manufacturing base and the government-orientation of the region.

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Note thirdly that there is a distinct kink in the graph starting in 1992. Two factors contributed to this nice boost in Alexandria’s growth rate. The first was a seemingly negative event---the closure of England Air Force Base. Civic and governmental leaders turned this economic lemon into lemonade by gaining control of the base assets and turning it into an industrial park/retirement village. England Industrial Airpark is now almost totally reoccupied. Several businesses have moved to the site, and the regional airport has been relocated there. Too, during this period I-49 was being constructed through the heart of the city, adding an unusual injection of construction jobs to the economy. There was a slight slowdown in 1996-97 when one of England’s newest and largest tenants---J.B. Hunt Trucking---shut down their operation there.

Fig. 31: Alexandria MSA Non-Farm Employment 1980-2013 70 65

Thousands

60 55

2009-13: -4,400 (-6.6% ) 2013: -300 jobs IP closed UT Layoffs Dresser Layoffs LA Hardwood halted Star-Tec closed 2001: Recession -200 jobs (-0.3% )

50 45 40 1980

1985

1990

1995

2000

2005

2010

2005-08: Great Growth Years Fourthly, note that the recovery from the 2001 recession was initially lackluster at best. Employment was basically flat from 2002 through 2004. However, as seen in Figure 31 the next four years were very good ones for this MSA. Employment jumped by 6,100 or a strong 2.5 percent annually. This was perhaps the best performance in the state over that 4-year time frame.

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During this rapid expansion phase there was (1) a doubling of the size of the federal prison at Pollock, (2) significant capital expenditures at England Airpark, (3) $132 million on the construction phase of Union Tank Car (UTC), (4) UTC began a hiring process that resulted in 670 workers at its new plant, (5) the huge $1 billion+ Cleco Rodemacher plant was under construction at the time, creating about 1,700 construction jobs, and (6) a new $60 million MARTCO plant was constructed in the southern part of the MSA. On the outer edges of the MSA, there was a $100 million addition to the Paragon Casino in nearby Avoyelles Parish, and a large amount of construction spending took place at Fort Polk. While these two projects are outside of the MSA’s borders, they created extra earnings which were often spent in Alexandria’s retail and service establishments. Offsetting all this good news was the closure of Parta Systems, a 110person pharmaceutical parts manufacturing plant. 2009-13: A Pounding from the Great Recession & State Government The fifth lesson from Figure 31 is the continuous drop in employment over the past five years. Since 2008, this MSA has lost 4,400 jobs---a 6.6% decline. Great Recession Effects. The Great Recession was partly the culprit. Alexandria's employment took quite a hit over 2009-10, losing 3,500 jobs or a 5.6 percent decline (see Table 8). Only Lake Charles at 6.3% had a worse record during the Great Recession. There were several factors behind this drop. The attraction of a large, highpaying, durable goods manufacturer like Union Tank Car is great for an area. However, when the national economy goes south, durable goods manufacturers get hit the hardest. After reaching a peak employment of 670 in early 2008, orders for UTC tank cars dropped so much that the firm reduced its employment to 270. Eight to nine companies that lease cars from UTC went bankrupt and returned their cars. Plus, demand for new cars was down as always happens when you have a recession as bad as the Great Recession. For example, in 2006 about 60,000 rail cars were sitting idle; by spring 2009 this number was up to 540,000. Secondly, the region’s lumber industry came under attack due to the weak national housing market. Specifically, Louisiana Hardwood in Lemoyen halted its second shift in 2009, and International Paper closed its container board plant in late 2009, laying off 230 people. Thirdly, the huge $1 billion+ Cleco Rodemacher plant construction project was finished in 2009, resulting in the loss of those 1,700 construction jobs. Also, on a lesser scale, Dresser Industries began moving from a manufacturing orientation towards assembly, and reduced its workforce by 75 in early 2010. Finally, Star-Tech lost a major customer and laid off 300 people. State/Local government layoffs. What is odd about this region’s employment since the end of the Great Recession is that its employment has continued to trend ______________________________________________________________________________________ Economic Outlook Page 101


downwards, though at a much slower rate. In the last three years, this MSA has lost another 1,000 jobs despite the fact that most of its key manufacturers have been in an expansion mode and the Jena Indian Tribe opened a 46,000 square foot, class II casino in February that employs 300 people. A different culprit was responsible for this decline. We mentioned earlier that this region has a higher percentage of employment in the government sector than any other MSA in the state. More often than not that lends an extra measure of stability to a region, but not when state and local governments are having budgetary problems. Since 2010, state government employment in the MSA is down 800 jobs and local government has declined by 400 jobs. Forecast for 2014-15: Bio-Fuels Crest, Sutherland, & Customs/Immigration Figure 32 contains our forecasts for the Alexandria MSA for the next two years. We are projecting that this MSA will add 300 new jobs in 201 (0.5%) and 400 in 2015 (0.6%). This growth rate will place Alexandria in 7th place among the eight MSAs in the state.

Fig. 32: Alexandria MSA Non-Farm Employment Forecast: 2014-15 70

2014: +300 jobs (0.5% ) 2015: +400 jobs (0.6% )

65

Thousands

60 55 50

X Grant Parish added

45 40 80

85

90

95

00

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The bio-fuels industry will be an important player in the Alexandria economy over the next two years. Sundrop Fuels has secured the land and began civil construction on its $450 million plant this September. The company will combine forest waste with hydrogen to produce 50 million gallons of fuel annually. Once operational, the plant will employ 150 people at $58,000 a year. The newest announcement in this industry came in late August from Denverbased Cool Planet Energy Systems. A much smaller-scale operation than Sundrop, Cool Planet is planning to spend about $56 million a piece on three plants that will also take wood waste and make gasoline from it. Each plant will employ about 24 people. One plant will be on a 27-acre plot at the Port of Alexandria, another will be in Natchitoches (outside this MSA), and the third location is yet to be determined. Construction on the Alexandria plant is set to start in January 2014 and be completed at the end of 2014. The other two plants would open in 2016. One of the real success stories in this MSA is Crest Industries, the umbrella company four very successful companies---DisTran, CNR, Beta Engineering, and Mid State Supply. Crest is primarily focused on the manufacture of steel poles and substations for electricity transmission. In 2008, employment at Crest was 350; now it is 596 and expected to grow by 100 jobs a year over 2014-15. Another more recent success story has been Sutherland Global. Last year this company remodeled the former 40,000 square foot StarTek building to house an operation to handle business process out-sourcing of accounting and other services to technology, telecommunications, and finance firms. Already up to 500 employees, expectations are that the firm will add 200 more jobs over 2014-15. Finally, word has been received at England Industrial Airpark that a new $20 million Immigration and Customs Transfer facility will be built on site. This will be a domestic transportation hub for moving detainees. Construction is to begin in early fall 2013 and be completed 14 months later, providing 150 new permanent jobs for the area. Mainstays Remain Mainstays This MSA is lucky to be populated by a number of key firms that should provide dependable, high-paying jobs over the next two years. One of the larger is Procter and Gamble. P&G provides employment for 500 P&G employees and 700 contractors. In late 2012, powder detergent operations were shifted from Georgia to the Alexandria plant (+50 jobs) ---a very positive signal about the company’s commitment to this region. Another big player locally is Roy O. Martin Company which has three lumber and wood facilities operating in this region. There are 1,250 people spread across these three facilities, and ROM is in the midst of a $20 million investment to modernize and expand its plywood plant (to be completed in spring 2014) in Chopin. The firm will add 50-60 people to its payroll over 2014-15.

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Energy producer Cleco, with about 1,300 employees and a headquarters in Pineville, remains solidly entrenched in the region. The company may be making some significant investments in some of its coal-fired power plants (one of which is Rodemacher #2 in Rapides Parish) to bring them into compliance with the stiffer EPA regulations. Dresser Industries, another major employer with 344 people on the payroll is expected to be stable through 2015. After seeing its employment fall from 670 to 270 during the Great Recession, it has been gratifying to see Union Tank Car rebound back to its pre-recession employment peak of 670. UTC is currently running two shifts and is keening watching the chemical industry expansions we listed back in the Lake Charles and Baton Rouge sections. A common way to move bulk chemicals is by rail, and more rail traffic means more railcars will be needed. Another large employer in the area is Pinecrest Hospital. With 1,300 employees now it is the only state center providing care for the developmentally disabled in Louisiana. Total hospital employment in the region will be interesting to watch because of proposed changes in the Huey P. Long Charity Hospital. At this writing the current plan is for Christus St. Frances Cabrini hospital to handle psychiatric and urgent care and inpatient care would be shared with Rapides Regional Hospital. Outpatient care will be provided by clinics throughout the community. Whether all of the 400+ employees at the charity hospital will be absorbed into the private care facilities remains to be seen. An important influence on this region’s economy that we have failed to mention in past LEOs is Camp Beauregard. Camp Beauregard is 12,500 acres of land in the Pineville area devoted to training for the Louisiana Army National Guard. There are 814 active Guard, civilians, and state military personnel located at this site with an annual payroll of $64.7 million. Employment at CB should remain stable over 2014-15. Construction Spending Rather Small Beyond Sundrop Little boost will come to this economy from the construction sector beyond the $450 million Sundrop bio-fuels plants. Lettings for road and bridge projects by the Department of Transportation and Development over 2014-15 only sum to $56.7 million--which while nice, is about the smallest number for any of the MSAs. Local governments are set to spend about $20.6 million in local public construction projects such as roads, overlays and sewerage. In addition to its spending on the new immigration and Customs Transfer Facility, England Industrial Airpark will spend about $10 million on upgrades at that site. Any Bump from the TMS? Finally, we remain unsure about how the Tuscaloosa Marine Shale might affect this area. We refer the interested reader back to our discussion of this play on pages 5052. This play runs right across the region of Louisiana where the Alexandria MSA is located. Activity has picked up and Goodrich is especially high on the possibilities of ______________________________________________________________________________________ Economic Outlook Page 104


mining this oil-rich zone. Now that the puzzle appears to be solved on how to frack this shale profitably, perhaps Alexandria will reap some economic rewards as well.

THE OUTLOOK FOR THE RURAL PARISHES: 2014-15 Back in Map 1 we illustrated where the eight MSAs are located in Louisiana. Twenty nine of the state’s 64 parishes are located in these eight MSAs. The remaining 35 parishes are designated as ―rural‖. With few exceptions, most of these rural parishes have a distinctly agricultural economic base. Among the exceptions are Tangipahoa, Lincoln, and Natchitoches Parishes---which are homes to relatively large universities--the coastal parishes of St. Mary, Iberia, and Vermillion---which have a significant attachment to the oil and gas extraction industry---and Vernon Parish on the central Texas border which is the home parish for Fort Polk, a very large military base. Almost one-fifth of the state’s employment (370,400 jobs) exists in these 35 parishes. Figure 33 tracks employment trends since 1990 in these 35 parishes and provides forecasts for 2014-15.

Fig. 33: Non-Farm Employment - Rural Parishes 1980-2013: Actual; 2014-15: Forecast 400 2014: 7,300 Jobs (1.9% ) 2015: 7,800 Jobs (2.1% )

380

Thousands

360 340 320

2009-10: -10,000 Jobs (-2.7% )

300 280 260 80

85

90

95

00

05

10

15

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Recession Impact on Rural Parishes Hard---Until Great Recession Note in Figure 33 is how sensitive employment in this rural area has been to national recessions. In the early 1990s’ recession rural employment fell for three straight years. Rural parishes lost 10,600 jobs, a drop of 3.3 percent. Then in the post9/11 recession, rural region employment fell hard for two years---a loss of 15,300 jobs or 4.3 percent. In both cases the percentage job loss in the rural areas was worse than in the nation. However, during the Great Recession Louisiana’s rural parishes lost only 2.7% of its jobs compared to 6.1% compared to the nation as a whole. One sector in the rural areas did get hammered during 2009-10. Bursting of the housing bubble led to layoffs and closing in several of Louisiana’s large wood products firms. These firms tend to be concentrated in rural parishes. For example: 

Weyerhaeuser Corporation laid off 185 at its facilities in Lincoln and Winn Parishes.

Weyerhaeuser Corporation laid off 39 at its Bienville Parish site.

Hunt Forest Products temporarily idled its Natalbany facility in Tangipahoa Parish.

Boise Cascade indefinitely curtailed 130 workers at its plywood veneer plant in Allen Parish.

Bad news in the wood products area was partially offset by good news in those parishes with ties to the extraction industry. Red River Parish had an especially good 2009-10 due to flourishing drilling activity in the Haynesville Shale in the northwestern part of the state. In the coastal parishes, offshore drilling in the Gulf was strong until the BP spill, then large sums of money came flowing into these parishes for cleanup work or in claims payments made to businesses and individuals. This was enough to rescue rural areas from their typical routine of experiencing losses greater than the nation. Impressive Rebound from the Great Recession Rural Louisiana has had an impressive rebound from the Great Recession. As seen in Figure 33, the recovery started out modestly---employment rising by 1,000 jobs or 0.2% in 2011. Then rural parishes really took off in 2012 and 2013, adding another 12,000 jobs. This was enough to not only recover all the jobs lost during the Great Recession, but it was also sufficient to begin setting new employment records in 2013. A resurgence in drilling in the Gulf of Mexico post-spill further buttressed parishes along the southern coast and in 2013 a number of wood products firms began to reopen and/or rehire. Too, major construction projects were begun in some rural parishes--especially St. James Parish. In fact, last year we tabulated almost $4 billion in ______________________________________________________________________________________ Economic Outlook Page 106


construction projects either underway or planned in rural areas, an unprecedented figure for this region of the state. Rural Forecast for 2014-15: Watch St. James Parish & Rallying Wood Products Note in Figure 33 that we are projecting rural employment will rise by 7,300 jobs in 2014 (+1.9%) and another 7,800 (+2.1%) in 2015. Over this two year period, we expect the rural parishes as a whole to perform better than five of the state’s eight MSAs. St. James Parish Lights up the Map An interesting aspect of the rural economic boom is how much of it is concentrated in one parish---St. James Parish. St. James Parish is the only rural parish on the Mississippi River between Baton Rouge and the mouth of the river. St. James Parish’s chief asset is that it still has several large undeveloped land tracts with sufficient Mississippi River frontage that could support the docking of deep-draft ships. Deep-draft ships cannot transverse the river above the Old Mississippi River Bridge in Baton Rouge. Deep-draft access (for ocean-going vessels with drafts up to 40+ feet) to the river is a precious economic commodity especially if a firm is producing bulk chemicals or steel. For the longest time, some parties in this parish fought economic development along the river. Indeed, Shintech Corporation had planned a large chemical plant in the parish but faced such strong local opposition that the plant was built in Iberville Parish instead. One consequence of this opposition was that St. James Parish ended up as one of the few locales on the river with available, and valuable, large land tracks with potential dock access. Opposition to development of these areas has cooled recently, and as a result, a tidal wave of projects has been announced in the parish. We have tabulated a remarkable $8.3 billion in projects that are either underway, announced or near announcing in St. James. They include the following: 

Nucor has just completed the $750 million Phase I of its iron production plant in the parish. Phase I opened in September 2013 and employs about 150 permanent workers. Work is expected to begin on Phase II in early 2014---another $400 million reduced iron plant (+100 jobs). Other planned phases include a $500 million pellet plant (+200 jobs), a $1 billion blast furnace and coke ovens (+300 jobs), and a $750 million steel mill (+500 jobs). In order for Nucor to receive its full incentive package from the state, all five phases must be completed by 2019.

South Louisiana Methanol, which is jointly owned by Zero Emissions Energy and Todd Corporation, has announced plans to build a $1.5 billion ethanol plant across from Nucor. Construction is scheduled to start in 2014 and should end in mid-2016. Once opened, the plant will employ 63 people at an average annual wage of $66,500, and it will be the largest ethanol plant in North America.

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The Mosaic Corporation is conducting frontend engineering and design work on a $700 million ammonia plant to be constructed in the parish. A final ―go‖ decision on this plant is expected about the time the LEO goes to press. Plans are for construction to start in 2014 and end in 2016. The plant will employ 53 people at an average annual wage of $83,000.

Gavillon Commodities has purchased property in St. James Parish with an eye toward building a $250 million greenfield grain export elevator. This firm is in the process of being acquired by the Japanese firm Marubeni. Once the purchase is finalized, this project will be taken to the Marubeni Board for approval. Developers place a very high probability on this project going forward. Construction would start in late 2014 and the facility would open in early 2017 with 150 employees.

Due diligence is being conducted by a Russian firm on a site in St. James Parish to build a new $1.5 billion, 125-worker urea plant. The company will submit a crucial air permit in November 2013. If everything passes muster, construction would begin on this plant in early 2015.

Still in the planning stages is the proposed D2 Renewables facility, designed to make biodiesel out of animal fat. The firm has input and off-take agreements in place and is still working on financing and other final plans.

Wolverine Terminals is finalizing their plans for a $30 million crude oil terminal and blending operation on the east bank of the river in the parish---including five tanks to store 450,000 barrels of crude received by rail from the U.S. and Canada. This project is projected to be completed in 2014-II and will employ 20 people.

The St. James Hub is located on the west bank of the river in St. James Parish. This hub is the ending point for oil coming onshore from the Louisiana Offshore Oil Port (LOOP). A huge oil tank complex exists at this site. This is the delivery point, for pricing purposes, for Louisiana Light Sweet crude oil as set by the commodities market. Nustar Terminals is in the middle of a $350 million petroleum storage expansion project at the hub. Union Pacific Railroad will spend an estimated $75 million plus on railway and rail yard expansions in the parish to service this area and to move the expected large jump in chemical and crude oil movements in and through the area. About 10 miles away, Petroplex International has proposed spending $500 million on a new multi-bulk liquid terminal complex. The company indicated in May 2012 that it had raised the capital to proceed with the project but to date no construction has taken place.

This list of projects clearly shows how valuable Mississippi River access is to economic development in Louisiana. Readers will also note that a number of these projects are in the planning stage, and a firm construction date has not been set. If all of

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these projects proceed, our forecast for the rural areas shown back in Figure 33 will be far too pessimistic. Either way, St. James Parish is on an enviable growth track. A Rally in Wood Products Most of the state’s forest, and hence most of its wood products manufacturers, reside in Louisiana’s rural parishes. The wood products industry is beginning to rebound for a number of reasons. First, the housing sector in the U.S. has begun to recover. After dropping to a low of only about 500,000 housing starts in 2009, that figure should reach just over a million starts this year. In response several firms in the state have either reopened or are expanding. Roy O. Martin is in the midst of a $20 million modernization and expansion of its plywood plant on Chopin. This effort should be completed in spring 2014 and result in 24 new jobs. Idaho Timber is spending $3.5 million to reopen the Hood Industries sawmill near Coushatta that produces radius-edge decking, dimension lumber and other timber products. This reopening will support 90 new jobs at the mill. Weyerhaeuser is making a $6 million investment at a plant near Natchitoches that produces I-joists, laminated veneer lumber, and structural headers and beams. Thirty new jobs will result. Two substantial investments are being made in the state at paper mills. The largest is a $111 million upgrade to paper machines at Boise‘s facility in Deridder. The investment will enable Boise to retain 440 jobs and add 54 to its workforce. In Bogalusa, International Paper has purchased the Temple Inland paper mill and will spend $44 million on upgrades to that facility. One of the more interesting, and new phenomenon, in the wood sector today is the construction of plants that will manufacture wood pellets and send them overseas where they will be burned to generate electricity. The largest of these is by a German company GmbH, which has a $300 million facility under construction in LaSalle Parish. This will be the largest such facility in the world and will produce 1.1 million tons of pellets a year. Somewhere between 125 and 150 direct jobs will be created at the plant. Over in Beekman near Bastrop, Drax Biomass is spending $120 million to build a smaller wood pellets plant that would employ 143 people. Product from Drax Biomass will be shipped to the Port of Baton Rouge for further processing and storage before shipping to Europe. For those who are concerned that these mills will tend to wipe out the state’s forests overtime, officials with the Louisiana Forestry Association have estimated that these plants will only use about 6% of the new growth in trees in the state. Over the next two years we will be watching progress on a potential new biomass facility at the Vidalia Industrial Park. Vidalia has signed a lease agreement with Hinterland LLC to construct a $100 million biomass plant that will manufacture a wood-based biomass fuel to be used by utility companies in Europe. The plant is expected to employ 80 people but is not scheduled for construction start until 2016.

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Other Positive Announcements for Rural Louisiana It should come as no surprise when looking across 35 rural parishes to find an unusual assortment of new job sources besides the ones mentioned to this point. Among the new activities are the following: 

Great excitement was created in Bogalusa this summer when General Dynamics announced it was opening a 600-person call center in the city. Employees will be trained to inform people about the Affordable Care Act and how to enroll.

AT&T is adding 450 jobs in Louisiana as a result of Project Velocity IP. This is a multibillion dollar investment to expand and enhance the company’s national wireless and wired IP broadband networks. A company representative indicated that most of the new jobs will be scattered across the rural areas of the state.

UPS Midstream is building a $3.9 million full-service machining facility for reciprocating compressor equipment for the pipeline industry. Located in LaSalle Parish, the new plant will employ 95 people at an annual average wage of $73,000.

In Jeanerette, Metal Shark Boats garnered a contract with the Coast Guard for 500 fast response water craft ranging from 16 to 60 feet long. The company also has a number of other commercial and law enforcement agency contracts for similar vessels. Metal Sharks is spending $1.5 million to double the size of its plant and will hire 88 more employees.

A company called Agratech has announced plans to spend $10 million to renovate a former bottling facility in Opelousas to convert seafood shell waste into products for automotive, defense and medical purposes. The firm will employ 50 people.

Governor Jindal announced a major road program last year for Louisiana’s rural parishes. The Department of Transportation and Development will let $526.3 million in road and bridge projects over 2014-15 in these parishes.

Loss of McDermott Not all the news for rural areas is as positive as the long list above. There is one real stinker on the horizon---the McDermott fabrication yard in Assumption Parish. This firm employed 1,400 people as little as a year ago, but dropped down to only 350 this summer. Finally, McDermott announced it was shuttering the facility. It is noteworthy that the rural region of the state managed a very healthy 2.3% growth rate in 2013 despite the loss of this very large employer.

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THE OUTLOOK FOR THE STATE: 2014-15 In the pages above we have reviewed the prospects for each of Louisiana’s eight MSAs and its rural parishes for 2014-15. Figure 34 illustrates the results of summing up these individual are forecasts to get the outlook for the state as a whole. We are forecasting very robust progress for the state over the next two years, adding 34,200 jobs in 2014 and 33,600 jobs in 2015. As seen in the chart, Louisiana began setting employment records in January 2013 and has been steadily growing ever since. Equally exciting is a new record on the horizon. If our forecasts are near the mark, sometime in 2015 Louisiana will have more than 2,000,000 people employed for the first time in its history.

Fig. 34: Louisiana Non-Farm Employment Forecast: 2014-15 2,100

2014: +34,200 jobs (1.8% ) 2015: +33,600 jobs (1.7% )

2,000

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January 2013: New Record Set

1,600 1,500 1,400 80

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It would be nice if this vigorous growth was expected to be spread evenly across the state. However, the careful reader will note that if a line was drawn along I-10 straight across the state, the really dynamic growth will be experienced on and beneath that line. Barring some special announcements soon, expansion in the central and northern regions of Louisiana will be modest at best.

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sponsors

The E. J. Ourso College of Business would like to thank the corporate sponsors of this issue. Gold Sponsors

prepared by

Loren C. Scott Professor Emeritus of Economics James A. Richardson John Rhea Alumni Professor of Economics Judy S. Collins Managing Editor, Department of Economics

contact information

Department of Economics

E. J. Ourso College of Business 路 Louisiana State University Business Education Complex 路 Room 2300 Baton Rouge, LA 70803 Judy S. Collins, Managing Editor Phone: 225-578-5211 Fax: 225-578-3807 E-mail: judycol@lsu.edu Web: business.lsu.edu/economics


Louisiana Business Symposium