Chattanooga area's economic outlook brightens

photo A former Army warehouse is being updated for the Archer Daniels Midland company at Enterprise South. Shelton Construction is doing excavation work for the 17-acre site.

After winning Tennessee's top industrial recruitment prizes in 2008 and 2009 with billion dollar-plus investments from Volks-wagen and Wacker Chemical, Southeast Tennessee landed the state's biggest job generator in 2011 with a pair of Amazon distribution centers.

Combined with other expansions at Alstom Power, Whirlpool, Chattem and VW suppliers during the past three years, business additions already have pumped nearly $2 billion of investments and added more than 7,500 full-time and temporary jobs to the Chattanooga region.

But coming during the worst economic downturn since the Great Depression, those additions were swamped by job losses at existing companies. Despite job gains during in the past two years, the severe employment drop in 2008 and 2009 has left metropolitan Chattanooga with nearly 15,000 fewer employed people than in 2007, according to the U.S. Bureau of Labor Statistics.

Economists expect improved job prospects in 2012, but it may be at least a couple more years before Chattanooga gets back to its prerecession job levels.

"In many ways, if you liked what you saw in 2011, you'll probably like what you'll see in 2012," said Bill Fox, director of the University of Tennessee's Center for Business and Economic Research. "Unemployment should continue to slowly move down.

"But as more jobs become available, discouraged workers who dropped out of the job market are likely to re-enter the market," he said, so while there are more jobs, there also will be more jobseekers, which will "keep the jobless rate fairly high."

Signs of hope

The economy should be buoyed next year by historically low interest rates, rising consumer confidence and a pent-up demand for purchases of cars, houses and other major items, economists say. Chattanooga also should benefit as the wave of new investments ripple through the economy and more start-up businesses take root in the Scenic City.

"We are not seeing the massive residential growth we expected to see from Volkswagen, but we realize we might not see some of that growth until the plant has been in operation for a year or two," EPB President Harold DePriest said. "We're not seeing a lot of new single-family homes, but we are seeing apartments start to come back and that is usually the first sign of real growth."

In 2011, home sales by local Realtors fell to the lowest level in nearly a decade, according to the Greater Chattanooga Associates of Realtors. But Mark Hite, incoming president of the local Realtors group, said he believes the decline in sales and home prices in Chattanooga is over, even if foreclosures continue to rise.

"We have returned to somewhat of a more normal sales pace like what we saw in 2001, 2002 and 2003," he said. "There are still a lot of opportunities in this market and, as jobs come back, the market should improve."

Sales of new cars and trucks have already rebounded over the past two years. Vehicle registrations in Hamilton County are running 45 percent ahead of two years ago during the trough of the recession. Car sales are still well below the peak reached here in 2004, however.

The auto industry in Chattanooga was jolted upward when Volkswagen picked Chattanooga in July 2008 for its only U.S. assembly plant. The German automaker began production of the Chattanooga-made Passats at its $1 billion plant in April and the new car captured Motor Trend magazine's "Car of the Year" award this year. It also is among the finalists for the prize of North American Car of the Year to be awarded in January by a jury of automotive journalists.

Volkswagen has hired 2,500 employees and temporary workers to make the Passat, and nearly 500 other jobs have been created in Chattanooga by VW suppliers.

Another German manufacturer, Wacker Chemical, is building a $1.5 billion polysilicon production plant near Charleston, Tenn., for the solar industry. Nearby, Amazon is building a distribution center - one of two such facilities in Southeast Tennessee, which together added 4,500 full-time and temporary workers.


* 19,600 - Net job losses during the 2008-2009 recession in metro Chattanooga.* 7,500 - Projected full- and part-time job gains from new business investments in Southeast Tennessee by Volkswagen, Amazon, Wacker Chemical and VW suppliers announced from 2008-10.* 778 - Number of jobs projected from $143.2 million of new and expanded businesses announced in Hamilton County in 2011.* 4,034 - Potential job additions from 27 recruitment projects being worked by the Chattanooga Chamber of Commerce, representing as much as $847 million of new investment.* 15,600 - Net employment drop from the peak in 2007 through last month despite the jobs added from new business investments.Sources: U.S. Bureau of Labor Statistics, Chattanooga Area Chamber of Commerce


CHALLENGES* Slow job growth. Unemployment fell to a three-year low last month, but employment is still 7 percent below the peak reached in 2007.* European debt crisis. The prospect of another recession in Europe will cut some exports of Chattanooga made goods.* Fewer government jobs. With the end of the federal stimulus program and sluggish growth in property and sales tax revenues, Tennessee and Georgiaare looking at ways to cut programs and staff.OPPORTUNITIES* Rising car and retail sales. With a pent-up demand for vehicles, appliances and other goods not purchased during the recession, consumers are buyingagain.* "Gig City" attraction for Web-based startup companies. The smart grid is luring hightech entrepreneurs to Chattanooga.* Industrial growth. Wacker Chemical continues to build its polysilicon facility while Chattanooga is poised for more VW suppliers.

Recruiting small and large

The Chattanooga Area Chamber of Commerce is eager for more. J.Ed. Marston, vice president of marketing for the Chattanooga Chamber, said the organization is working on 27 potential recruitment projects with the potential of more than $847 million in new investment and the prospect of up to 4,034 new jobs.

"We won't get all those projects, but we have a very strong pipeline of activity right now," Marston said. "Particularly considering the uncertain global economic environment, our local economy continues to produce jobs at a good clip."

One project not yet on the Chamber's active list is the prospect of another car assembly plant in Chattanooga. Volkswagen's Audi division is looking at building a North American car plant within the next four years, and VW could begin its site search in the next year.

Chattanooga has set aside another 1,200 acres next to the VW plant in the Enterprise South industrial park for another VW-related plant. Although VW and Audi are separate brands, they could share common suppliers.

Local boosters are not just going after industrial recruits. A consortium of venture capitalists, foundations and private businesses have teamed up to try to capitalize on EPB's first-in-the-nation, gigabit-per-second Internet links available throughout Chattanooga. Heralding the "Gig City," the group is offering more than $300,000 in prizes to lure the best entrepreneurs to Chattanooga this summer to develop world-changing killer gigabit apps or businesses.

Chattanooga's high-speed Internet service already is showing some promise. The Knoxville-based Claris Networks, a cloud-based IT provider, recently acquired two Chattanooga IT companies - SRC Technology and Allied IT - and has expanded the staff in its Freight Depot office downtown to eight employees.

"Connectivity for us is about eight to 10 times cheaper in Chattanooga than it is in Knoxville and other cities," said Dan Thompson, manager of advanced infrastructure service and product development for Claris. "We see a great potential for growth in Chattanooga."

In 2011, the Chamber estimates that new and expanded projects by 19 businesses will add 778 new jobs from $143.2 million of new investment.

Such investments helped push unemployment in Hamilton County down to 7.4 percent in November, the lowest level in nearly three years, according to figures released by the Tennessee Department of Labor and Workforce Development.

"I look at 2011 as a rebuilding year for our local economy," said Keith Sanford, market president for First Tennessee Bank in Chattanooga, the biggest bank in the city. "Our loan pipelines are as full as they have been in a long time."

But Sanford said loan demand is still weaker than it was before the recession and foreclosures continue to dog the real estate market.

"But I know I'd rather be in Chattanooga than in most other markets," he said.

Signs of Caution

Still, the end of the federal stimulus program and lagging property values could combine to trim money available for many cities and counties.

"It takes awhile for the decline in property values to show up in property taxes," University of Tennessee economist Matt Murray said. "But we're beginning to see that now, and I'm afraid local governments are going to be under some pretty severe fiscal pressure for another couple of years dealing with the weak performance of the local property tax."

Such cutbacks are restricting investments in roads, bridges and other infrastructure.

Roger Tudor, president of the Associated General Contractors of East Tennessee, said unemployment remains high in the construction industry.

"There's been a lot of strain on many contractors," Tudor said. "I think the economy is moving forward slowly, but it is moving forward."

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