THE LOUISIANA ECONOMIC OUTLOOK: 2017 AND 2018

Prepared by: Loren C. Scott Professor Emeritus in Economics

And Judy S. Collins, Managing Editor

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

September, 2016

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ACKNOWLEDGEMENTS

The document before you has one author, but in reality hundreds of you helped put it together. Monitoring the economy is a continuous process, evolving all year long, and many of you graciously help us along the way. Our four gold sponsors---Cleco, ExxonMobil, Home Bank and our donor/printer, Blue Cross Blue Shield of Louisiana---have been reliable financial donors for years now. Their donations not only help get the LEO out, but they also provide much needed support to the financially-stressed Economics Department at LSU. During the year we make 100-150 phone calls around the state to business leaders, economic developers and other decision-makers about what is happening in their sector. We are amazed and gratified by the time you give us each year. The LEO is so much better because of you. Few get to enjoy the kind of access and trust you give us. A special shout out goes to the economic developers and their teams across the state that review our data and make critical suggestions that keep us from error. Louisiana’s chief economic developer---Secretary Don Pierson at LDED---was especially helpful this year as we sorted through the projects in the state that were underway versus “potential”. Among these other fine servants in our communities are Michael Hecht, Adam Knapp, Larry Collins, Jon Grafton, Greg Gothreaux, George Swift, Rick Ranson, Eric England, Scott Martinez, Linda Prudhomme, Bob Fudickar, Stacey Neal, Lacey Toledano, Jason Elkoubi, Vic Lafont, Melissa Bordelon, and Michael Eades. When it comes to the financial status, the best information source is our good friend Greg Albrecht in the Legislative Fiscal Office. We primarily project employment, which means we are constantly inundating the efficient staff of the Research Division under the direction of Ramona Robichaux at the Louisiana Workforce Commission. Connie Fabre at the GBRIA in Baton Rouge and Larry DeRoussell at LAIA in Lake Charles liberally share their great data bases of industrial announcements and employment forecasts with us. In an ideal world one wants the LEO released with a flare and a flash. Hosts Rolfe McCollister and Julio Melara of Business Report Magazine have provided that ideal for many years via the Top 100 Luncheon. This virtually never happens in other states. You two are the greatest! It seems behind every endeavor, there is always one person who is keeping all together and providing the “oil” to make things flow well. For the LEO that is Managing Editor Judy Collins, who does this job supremely well. Even after being a victim of the Great Flood of 2016 she has remained a reliable team mate! Finally, our thanks go out to Dean Richard White of the E. J. Ourso College of Business. The right person was chosen to lead us in this challenging environment! Thanks for all your support, Dick.

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EXECUTIVE SUMMARY

For the sixth time in 3 ½ decades Louisiana’s oil patch is feeling the sting of a decline in energy prices, and this one is a dozy. Employment declines in Houma, Lafayette and Shreveport-Bossier have been deep enough to send the state’s numbers into skid that should last well into 2017. On the other hand, Baton Rouge, Lake Charles, and to some extent New Orleans are all benefitting from an historic industrial boom. Our forecasts for 2017-18 are based on the following assumptions: 

Slowed by rapid increases in regulations and higher tax rates, the U.S. economy will continue its plodding pace of expansion with RGDP averaging 2.1% growth annually.



We are projecting a rebound in oil prices to $5 in 2017 and $60 in 2018, though enormous uncertainty requires us to place a $30 to $90 a barrel range around those forecasts.

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While a significant increase in demand is expected from industry, utilities and Mexico the vast supply of natural gas is expected to keep prices near $2.50 per mmbtu in 2017, rising to $2.90 in 2018.

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Just under half of the $134.8 billion in announced projects are under construction and just over half are at the FEED and permitting stage. Viability of the FEED group is threaten by (1) denigration of price competitiveness due to lower oil prices, (2) increases in taxes levied on business during three fiscal sessions in the past year, and (3) changes to the 10-year industrial tax exemption rules..

Louisiana is now home to nine metropolitan statistical areas. Prospects for each will dramatically turn on where the MSA is located. Essentially, we see the state split into three regions: (1) the rapidly expanding Baton Rouge and Lake Charles regions; (2) the languid northern tier of the state; and (3) an oil patch region that will decline through 2017. From the largest to the smallest MSA, we forecast as follows: 

Layoffs in the exploration industry and companies servicing it brought employment in the New Orleans MSA to a standstill in 2016. Layoffs will continue to weigh on the region through 2017, but we are projecting 2,900 jobs in 2017 (+0.5%) and 5,700 in 2018 (+1%). Opening of the new VA Hospital at the end of the year (+1,100 net new jobs), expansion of the airport, and $3.5 billion in industrial construction will help offset oil-related layoffs and a significant cut the Army Corps spending in the MSA. New Orleans’ record could be much better in both years if some $19 billion in projects at the FEED and permitting level actually go “vertical”. Indeed, we believe about $2.85 billion in potential projects will start construction by yearend.

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

Lacking a significant oil-related base to hold it back, the 9-parish Baton Rouge region is poised to enjoy two good years of growth, adding 4,500 jobs a year over the next two years. This reflects a reduction in the region’s 2016 addition of 9,000 jobs because many of this MSA’s industrial construction projects will be completed as we enter 2017. Growth in the region’s high-Tech sector continues unabated (especially at the new IBM site), and the Port is expecting 100-150 more ship calls due to its wood pellet business. Impacts of the Great Flood of 2016 are still being evaluated, but enormous sums of insurance, FEMA and SAB monies will be injected into the region rebuild the 116,000+ structures impacted.



Weakness in the exploration and gaming markets drove employment even further down in the Shreveport-Bossier MSA in 2016. Exploration will continue to impact the area negatively through 2017, leading to a flat year of employment for the region. We are projecting 600 new jobs (+0.6%) for 2018, led by gains at Barksdale AFB (now run by a 4-star general), manufacturing, and high-tech.



A new round of layoffs in the energy sector pushed employment lower in the Lafayette MSA for a second straight year in 2016 (-8,900 jobs)---the poorest record in the state. We expect layoffs to continue to hound the Lafayette MSA into 2017, leading to the loss of another 5,000 jobs (-2.4%). Oil prices in the $60s, plus gains at the Port of Iberia and the high-tech sector should stabilize employment in 2018.



Like Lafayette, the Houma MSA is being pounded by the energy sector and energy-related firms. Edison Chouest has laid off 1,600 from its shipyards, and Gulf Island Fabricators has cut 1,100 jobs---all leading to a loss of 5,600 jobs in 2016 (-5.8%). Unfortunately, we expect the energy drag to continue into 2017 (4,000 jobs or -4.3%) before employment stabilization in 2018. as oil prices hopefully rebound and stabilize.



The Lake Charles MSA remains the hottest area of the state.. This region has a remarkable 45.4 billion in industrial projects under construction and an equally remarkable $51.0 billion at the FEED and permitting stage. The huge boom in industrial construction workers will drive this region’s employment up by 3,800 jobs (+3.6%) in 2017, before slowing to a still-respectable +2,200 jobs in 2018. In percentage terms, this will make Lake Charles the fastest growing region of the state by a wide margin. This MSA’s growth rate could become much larger if the projects at the FEED stage move to construction.



After 9 years of declines, the Monroe MSA has now enjoyed five straight years of modest growth. Expansions at IBM and Vantage Health Plan should generate enough growth (400 jobs a year over 2017-18) for this MSA to get back to its previous peak employment reached back in 2002.



After three years of modest growth, we expect the Alexandria MSA to experience a loss of 200 jobs (-0.3%) in 2017 due to layoffs at Union Tank Car

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and GE Oil & Gas. The decline would be worse had it not been for the building of Sundrop’s $40 million pilot plant at Cowboy Town. That should be followed by 200 new jobs in 2018 (+0.3%). This projection could turn out to be radically conservative if Revolution Aluminum (formerly, American Specialty Alloys) follows through with their proposed new $2.4 billion, 1,400-person plant. 

Louisiana’s smallest MSA is Hammond. Hammond’s employment has been essentially flat for nine years---driven by lower enrollments at SLU and stable employment at North Oaks Medical Center. Neither of these entities is expecting major changes in their activities over 2017-18, so our forecasts are for 100 new jobs a year over the next two years. The region’s construction sector will enjoy growth into 2017 due to the rebuild associated with the Great Flood of 2016.

Despite substantial good economic news in the state, the heavy anchor of the depressed extraction sector will keep the overall state economy basically flat in 2017 (700 jobs net), with a recovery starting in 2018 (+13,700 jobs or +0.7% growth). After coming tantalizingly close to the 2,000,000 employment mark in 2015, problems in the oil patch will leave the state about 15,000 jobs short of that record by 2018.

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Executive Summary Table Item 2016 BASIC ASSUMPTIONS: Real Gross Domestic Product: Growth 1.8% Inflation Rate 1.3% 30-Year Fixed Interest Rate 3.6% Oil Price: barrel $42 Natural Gas Price: mmbtu $2.40 STATE PROJECTIONS: Non-Farm Employment (000s): Absolute Growth Rate Percent Growth Rate: Employment

1,972.1 -17.3 -0.9%

2017

2018

2.1% 2.3% 3.6% $53* $2.50

2.1% 2.3% 4.1% $60* $2.90

1,971.4 -0.7 -0.1%

1,985.1 13.7 0.7%

MSA PROJECTIONS: EMPLOYMENT (000s) Alexandria 64.2 64.0 64.2 Absolute Change 0.2 -0.2 0.2 Percent Growth Rate 0.4% -0.3% 0.3% Baton Rouge 413.5 418.0 422.5 Absolute Change 9.0 4.5 4.5 Percent Growth Rate 2.2% 1.1% 1.1% Hammond 43.6 43.7 43.8 Absolute Change -0.2 0.1 0.1 Percent Growth Rate -0.4% 0.2% 0.2% Houma 91.5 87.5 87.5 Absolute Change -5.6 -4.0 0 Percent Growth Rate -5.8% -4.3% 0 Lafayette 205.9 200.9 200.9 Absolute Change -8.9 -5.0 0 Percent Growth Rate -4.1% -2.4% 0 Lake Charles 105.2 109.0 111.2 Absolute Change 2.8 3.8 2.2 Percent Growth Rate 2.7% 3.6% 2.0% Monroe 79.4 79.8 80.2 Absolute Change 0.6 0.4 0.4 Percent Growth Rate 0.8% 0.5% 0.5% New Orleans 573.4 576.3 582 Absolute Change 0 2.9 5.7 Percent Growth Rate 0% 0.5% 1.0% Shreveport-Bossier 181.8 181.8 182.4 Absolute Change -2.1 0 0.6 Percent Growth Rate -1.1% 0 0.3% RURAL EMPLOYMENT 213.6 210.4 210.4 Absolute Change -13.1 -3.2 0 Percent Growth Rate -5.8% -1.5% 0 Source: LSU forecasting team. *Around a wide range of $30 to $90 a barrel. **Around a range of $2.10 to $3.50 per mmbtu.

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TABLE OF CONTENTS Page ACKNOWLEDGEMENTS...................................................................................... 2 EXECUTIVE SUMMARY………………………………………………………. 3 OUTLOOK FOR 2017-18; UNDERLYING ASSUMPTIONS………………….. . 8 BRIEF HISTORY OF THE LOUISIANA ECONOMY………………….………..22 THE OUTLOOK FOR THE METROPOLITAN STATISTICAL AREAS.……… 31 The New Orleans MSA: Answering Two Big Questions..............................34 Baton Rouge: Historic Storm & A Construction Peak...................................46 Shreveport/Bossier: Can’t Shake the Oil & Gas Effects…........................... 59 Lafayette: Another Year of Losses Likely.............………………………….69 Houma: When Will the GOM Return?……………………………………...78 Lake Charles: The Whole Country Envies This Expansion.………………..86 Monroe: Slow Recovery Underway………….…………………………… 101 Alexandria: Popped by UTC & GE, but RA?............................................... 105 Hammond: Look to SLU & North Oaks…………..………………………..112 THE OUTLOOK FOR THE RURAL PARISHES: 2017-18…………………….. 118 THE OUTLOOK FOR THE STATE 2017-18…………………………………….. 122

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OUTLOOK FOR 2017-2018: UNDERLYING ASSUMPTIONS It is in the nature of a roller coaster ride that there will be periods of climbing up the hill and then going down the other side. Builders periodically add in straight stretches to throw the rider’s anticipation off and to build up momentum. But riders know there are both hills and valleys ahead---some of them very dramatic. It is also in the nature of an economy heavily based on oil and gas production that there will be hills and valleys---some of them dramatic. Two-thirds of the oil reserves in the world are under the lands of countries where the government runs oil and gas extraction. These are called NOCs----national oil companies. Think of Saudi’s ARAMCO, Mexico’s PEMEX, Russia’s Gazprom or Venezuela’s PDVSA. One never knows what political decision might be made by one of these governments that will send the industry either up or down the hill. The Saudi’s decision in late 2014 to increase production to lower oil prices and kill the U.S. shale oil plays is a case in point. Louisiana is once again in the midst of a downhill run created by difficulties in the energy sector. This one was created by the Saudi’s 2014 decision to significantly increase its production---a decision that country has yet to reverse. Just as your body and mind are screaming “How much longer?” as you plunge down the roller coaster hill, Louisianans are screaming those same words as we pen this year’s Louisiana Economic Outlook (LEO). Of course on a roller coaster, you can at least see the bottom. If only that was the case for the Louisiana economy. In 36 years of writing the LEO, rarely have we been presented with such a murky view of the future. It is an election year in the U.S. Will the next president be Hillary Clinton or Donald Trump? If Clinton wins, will she move closer to the political center or continue the much more leftward lean of President Obama? Candidly, it is very unclear what a Trump presidency would mean in terms of economic policies. Murky. On the energy side, will the Saudis change course soon, turn the taps back and allow oil prices to rise? If they do, by how much and when? Murky. In this calendar year, Governor Edwards led the charge for very significant increases in business taxes to fund higher education and healthcare programs. Through executive order he made significant changes to the 10-year industrial tax exemption program. How will these changes impact short- and long-term economic development in the state? Murky.

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The National Economy – No Help from this Side Sometimes in the past, impacts of a weakened energy sector in Louisiana were at least partially offset by a surging national economy. That has not been the case recently, nor do we believe help will be received from the national side going forward. Real Gross Domestic Product Trends Data in Figure 1 support our sense of pessimism about the national economy. As indicated in last year’s LEO, the Obama Administration has issued a tsunami of new regulations and taxes. An argument might be made that these new taxes and regulations were required to achieve the President’s goals of more fairness in the economy. Unfortunately, economic theory and evidence also confirm that these policies shift the cost curves upward in a company, causing the firm to produce less output and hire fewer people. As shown in Figure 1, the result has been the slowest growth in real gross domestic product (RGDP) of any expansion since WWII. Indeed, in the first two quarters of 2016 this growth rate has deteriorated even further to only 1.2%. Fig. 1: Average RGDP Growth During Expansions 1949 to 2016 9 8

7.6

Percent Change

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1 0

194953

195457

195860

1961- 1970- 1975- 1980- 1982- 199190 73 80 69 81 01 Source: Bureau of Economic Analysis

200107

200916

2016I & II

National Employment Effects Weak RGDP growth has also been reflected in the national employment numbers. Figure 2 illustrates the monthly change in employment in the U.S. from January 2008 through July 2016 (latest available at this writing).

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Both the length and depth of the Great Recession are vividly displayed in the first two years of data in Figure 2. The nation shed nearly 8.7 million jobs over 2008-09, a decline of 6.1%. What is also evident in this figure is that the recovery was not symmetrical. The deep recession was not followed by a robust recovery. From 2010 through the present, monthly employment gains have averaged about 186,000 jobs a month, but that number improved to 253,100 a month in 2014 and 228,700 in 2015. Note that, commensurate with the drop in RGDP growth, employment gains in the first half of 2016 have averaged only 174,500 a month. Fig. 2: Monthly Change in US Employment 600 400

July 2016: 255,000 Ur = 4.9%

1/08 to 12/09: -8,639,000 Jobs (-6.1% )

Thousands

200 0 Recovery Average: 2010-15: 186,000 2014 = 253,100 2015 = 228,700 2016-H1= 174,500

-200 -400 -600 -800 -1,000 2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Bureau of Labor Statistics

Achieving 255,000 jobs in July may appear strong, but in reality it is not. It is instructive to make some comparisons between the recovery in the first six years of the “lower-tax-rates-reduce-regulation” Reagan administration and the “higher-tax-ratesmore-regulation” of the Obama administration. Some handy comparative statistics are provided in Table 1. Table 1 Months of High Employment Growth: First 6 Years of Recovery Administration Reagan (1983-88) Obama (2010-15) Source: www.bls.gov

Months of: 399,000>Months400,000 6 2

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Note that with a labor force that was 41% smaller than in Obama’s administration, the Reagan period had six months with employment growth exceeding 400,000 and 17 months where employment grew between 300,000 and 399,000. By comparison, the six recovery years of the Obama administration enjoyed only two months of employment growth of over 400,000 (and one of those was the hiring of census workers in 2010), and only five months of growth between 300,000 and 399,000. RGDP Forecasts for 2017-18 Where will the national economy go from here? Projections are especially difficult in the neighborhood of a presidential election. That said, we are not optimistic about a major reversal in the economy’s current trend. While we are not seeing prospects of a recession on the near-term horizon, our expectations are that RGDP growth rate will remain plodding at best. If Clinton is elected in November, her stated economic policies are pretty much in line with President Obama’s, which would lead one to expect continued slow growth. While Trump’s policies may lean more to the right--- towards lower taxes and less regulation---his stance on international trade is an anathema to growth. The Law of comparative advantage in economics suggests that repealing NAFTA---and failing to promote similar tariff reduction agreements with other countries---would reduce the standard of living in the U.S. and harm growth. Neither party’s proposals are encouraging if one’s focus is on RGDP growth. Table 2 Actual (2011-15) and Projected (2016-18) Real Gross Domestic Product Growth Rates Year Growth rate 2011 1.6% 2012 2.2% 2013 1.5% 2014 2.4% 2015 2.4% 2016 1.8% 2017 2.1% 2018 2.1% Table 2 provides historical data on RGDP growth from 2011 through 2015, along with forecast for 2016-18. RGDP averaged only 2.0% growth a year over 2011-15. We are projecting the economy will grow at a 1.8% rate in 2016. In the first two quarters of the 2016, RGDP grew at only 1.1% and 1.2%, respectively. Our forecasts for the Louisiana economy for 2016-17 are based on the U.S. economy expanding at a 2.1% rate annually over the next two years. No great stimulus is expected from the national economy over 2017-18.

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The Oil Market: Turning Point Ahead? As seen in Figure 3, oil price behavior since 1980 almost defines a roller coaster ride. This item is one of the most difficult ones in the economy because (1) it is highly variable overtime and (2) as mentioned above, two-thirds of world oil reserves are held by NOCs.

Figure 3: Oil Prices 120

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Note that oil prices have experienced a precipitous drop in the last two years. In last year’s LEO we spent a considerable amount of space explaining why this drop occurred. The cause may be summarized in a series of bullet points: 

Between 2008 and 2015 U.S. oil production grew by 85%, a growth rate not experienced anywhere else in the world. This growth can be traced directly back to the fracking of oil from shale plays across the country.

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The growth in U.S. production allowed the country to reduce its imports of oil from 66% of total consumption to 44%. As a result, the Saudis lost 500,000 barrels a day (b/d) of sales in the U.S.

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There was not enough capacity in U.S. refineries to handle the light sweet crude from the shale plays, so producers began to look for ways to export it.

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

The Saudis saw they had lost a significant share of its U.S. market, and now shales producers were planning to cut into the Saudis’ international markets with exports. The Saudis opened their taps and put enough new oil on the market to drive the price from $106 per barrel in August 2014 to $28 a barrel in January 2016.



The Saudi’s aim was to kill the shale plays in the U.S., lower U.S. oil production, and remove the shale threat to their U.S. and international markets.

Did the Saudi Plan Work? How has the gambit by the Saudis worked out? So far, it is working well. Note in Figure 4 that the U.S. rig count has dropped precipitously---from 1,931 rigs in August 2014 to 440 in July 2016.

Fig. 4: U.S. Rig Count Weekly 2,000

9/26/14: 1,931 X

Active Rigs

1,600

1,200

800

7/8/16: 440 -1,491 (-77% ) X

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Consequences on U.S. oil production were predictable. After peaking at 9.6 million barrels per day (mmb/d) in April 2015, oil production has begun to fall. The Energy Information Administration (EIA) expects production to drop to 8.1 mmb/d by the end of 2016 and to drop another 3% in 2017.4

4

www.eia.gov

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An Initial Boost from the GOM Production would have fallen even further had it not been for activity in the Gulf of Mexico (GOM). Over 2015-2017, fourteen new deepwater production platforms will be put in place in the GOM (see Table 3). These 14 new units will boost GOM production 24%---from 1.54 mmb/d in 2015 to 1.91 mmb/d in 2017. Table 3 New& Anticipated Deepwater Production Platform Starts in the Gulf of Mexico: 2015-17 Field Name Majority Operator Water Depth Discovery Year (Feet) 2015 Starts: Silvertips Shell 9,280 2004 West Boreas Shell 3,094 2009 Hadrian South ExxonMobil 7,983 2009 Lucius Anadarko 7,168 2009 Deimos South Shell 3,122 2010 Big Bend Noble Energy 7,273 2012 Marmalard LLOG 6,148 2012 Dantzier Noble Energy 6,580 2013 2016-17Anticipated Starts: Stones Shell 9,556 2005 Gunflint Noble Energy 6,138 2008 Heidelberg Anadarko 5,271 2009 Holstein Deep Freeport McMoran 4,326 2014 Son of Bluto 2 LLOG 6,461 2012 Horn Mountain Deep Freeport McMoran 5,400 2015 Source: U.S. Energy Information Administration, Short-Term Energy Outlook, February 2016. Prospects for the GOM We do not believe the new production platforms listed in Table 3 are evidence that the GOM will be a hot spot over the next two years of our forecast. These 14 platforms are the end result of planning done three to 10 years ago when prices were much higher. Companies are now looking much more critically at the GOM. There is some discouraging news about prospects for the GOM. The first piece of evidence is the drop in the offshore rig count from 56 in August 2014 to 16 two years later. One company---ConocoPhillips---has indicted it is abandoning deepwater activity in the GOM and focusing instead on the inland shale plays. Second, two other companies have paid on the order of one-half billion dollars each to cancel drillship contracts to explore in the GOM. Chevron is closing its Lafayette office that focused on shelf activity in the GOM. Third, the Bureau of Safety and Environmental Enforcement (BSEE) has issued amendments to well control regulations ______________________________________________________________________________________ Economic Outlook Page 14

that could potentially drive exploration costs high enough to discourage drilling activity in the GOM significantly. Indeed, the consulting firm Wood McKenzie projects that— left unmodified---these rules could cause industry investments to fall by $11 billion a year and cause exploration drilling to drop to only 10 rigs a year. Fourth, there are the cost differences between drilling in the GOM versus in the inland shale plays. Until very recently, exploration costs in the GOM had been rising while inland shale play well costs were falling. Finally, though there are the 14 new production platforms going on line in the GOM over 2015-17, production platforms require about one-fourth the number of supply boats a year as compared to exploration drillships---a discouraging figure for supply boat builders and operators in the region like Edison Chouest, Tidewater, and Hornbeck. Taken together, these factors have to be very disconcerting to businesses in the Houma and Lafayette MSA whose very life blood depends heavily on GOM oil and gas activity. That is the bad news. The good news is that our conversations with officials in the majors are more promising for the GOM long terms. Exploration firms in the GOM are working closely with supply and service firms to seriously reduce operating costs, especially in the deepwaters. Whereas the breakeven point was in the $70-$80 a barrel range, some discoveries are now working in the $55-$60 a barrel range due to cost reductions. Second, the item responsible for an estimated 70% of the new costs from BSEE’s proposed well control amendments regards something called the “drilling margin”. It is beyond our skill set to describe this issue in detail, but the good news is that exploration companies are nearing a working agreement with BSEE on procedures that would still insure the safety of the well but avoid the horrendous cost increases that led to the pessimistic impacts suggested by Woods McKenzie. Third, while well costs in the inland shale plays may be only $8 million a well versus $130 million (but coming down) for a well in the deepwaters of the GOM, production from any given well is much higher in the Gulf. For example, a really productive discovery in the Bakken Play in North Dakota may produce about 800 barrels a day for the first year, but production then enters a very steep decline curve. Compare that to daily production from LLOG’s Delta House platform which has nine wells producing 9,000 barrels a day and has a much shallower decline curve. What do we conclude about prospects for the GOM? Over our forecast period of 2017-18 we are projecting prospects to be pretty moribund in a relatively low price environment. However, just a modest improvement in the price environment combined with improving costs should restart this region on the other side of our forecast horizon.

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Overall Exploration Company Response to Price Decline The rig count data in Figure 4 are one indication of the response by oil companies to an environment of much lower prices. Another indication came from a survey conducted by the Oil and Gas Journal. The results are shown in Table 4. Companies have reduced their budgets by 62% between 2014 and 2016. Table 4 Oil Company Expenditure Response to Lower Oil Prices (Millions of Dollars) Activity 2014 2016 Change $194,000 $73,332 -62% Drilling 36,860 13,933 -62% Production 960 500 -48% OCS Lease Bonus Total $231,820 $87,765 -62% Source: Oil & Gas Journal, March 7, 2016 Outlook for Oil Prices As mentioned in last year’s LEO this is the most difficult section of the report to write. Because of it rather extreme variability and its connection to governmentally run oil companies, oil price patterns can humble the very best of forecasters. Figure 5 provides a visual of our team’s estimate for oil prices over 2017-18. Our projections are based on the price of oil averaging $24 in 2016, $53 in 2017 and rising further to $60 in 2018. Our confidence range around these point forecasts is from a low of $30 a barrel to a high of $90. This wide confidence range is a reflection of the difficulty and uncertainty of forecasting this variable.

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Figure 5: Oil Price Forecasts 120

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2017 2018 $53 $60 $30 $30 $90 $90

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What would be the basis for an expectation of slight improvement in oil prices? It is the price of something, so our thinking comes down to demand and supply factors. On the demand side, trends, and general agreement, suggest that worldwide demand for oil will continue to rise as illustrated in the EIA’s Short Term Energy Outlook in Figure 6. Note that the brown line in this figure traces historical world demand since 2011 through 2016-II, along with the EIA’s forecasts into 2017. The EIA expects demand for oil to continue trending upwards, a forecast that is also in agreement with the OPEC Secretariat.5 Increasing worldwide demand supports upward tendencies in oil prices.

5

OPEC Monthly Oil Report, July 2016, p.43.

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Figure 6

The supply side is much more mixed and difficult to assess. As pointed out earlier, U.S. production peaked in 2015 and is trending downward at least through 2017. Production in major producers like Nigeria, Venezuela, and Russia has also trended downward since prices began to fall in 2014. These movements also support a position of rising oil prices. On the other hand, Iraqi production has risen smartly since 2014 (from 3.3 mmb/d in 2014 to 4.3 mmb/d in May 2016). An important wildcard is the Iranians, whose output has risen from 2.8 mmb/d before sanctions were lifted to 3.6 mmb/d in May 2016. Leaders in Iran have voiced a desire to bump their output to 5.7 mmb/d but infrastructure problems and skill set limitations will likely prevent achieving that goal soon.6 The real wildcard is Saudi Arabia. How much longer will this country keep the taps open? Their gambit is costing their country a lot of money. Their sovereign wealth fund balance has dropped from $732 billion in 2014 to $582 billion in 2016. The country has levied 29% in internal spending cuts over 2015-16, an action that has to take a toll on its citizens. In 2012, the Saudi budget was running a surplus of 12% of its GDP; by 2015, that had reversed to a deficit of 21.6% of GDP. How much longer are the Saudi’s willing to sacrifice to achieve their goal? This unanswered question is one reason for the wide range around our point forecasts for 2017-18.

6

Production data can be found in the Oil and Gas Journal, August 8, 2016, p.28 and in the January 11, 2016 edition, p.25. ______________________________________________________________________________________ Economic Outlook Page 18

Natural Gas: Supporting an Historic Boom Fracking not only created a sudden abundance of oil in the U.S., but it also generated an abundance of natural gas. In fact, the new fracking thrust started first in natural gas fields---such as the Barnett, Haynesville, Fayetteville and Marcellus plays--and then gravitated to the oil shale plays. Those initial gas shale plays added large amounts of new natural gas to the country’s inventory, and then when fracking was used in the oil shales, there was another huge supply of “associated” natural gas that came up with the shale oil. Natural Gas Price Forecasts: Demand Moves the Curve a Little Not surprisingly, this abundant new supply had a major impact on natural gas prices as shown in Figure 7. After six years of very high prices, natural gas prices initially fell to the $4 range, and then when the new associated gas hit the market the extra supply moved the price down into the $2.50 neighborhood.

Fig. 7: Price of Natural Gas 9 8

Per MMBTU

7

2016 Average $2.40 Low Range High Range

2017 2018 $2.50 $2.90 $2.10 $2.10 $3.50 $3.50

6 5 4 3 2 1 80

85

90

95

00

05

10

15

Our 2017-18 forecasts for the Louisiana economy are based on natural gas prices remaining low, but rising slightly. We are projecting a price of $2.50 in 2017 and $2.90 in 2018. It should be noted that these forecasts are much less aggressive than the EIA’s which have the price at $3.09 in 2017 and $3.62 in 2018. ______________________________________________________________________________________ Economic Outlook Page 19

A major reason for the upward bump in both forecasts is an expected significant increase in the demand for natural gas in the near term. Table 5 gives readers a notion of the sources of this new demand. First, many coal-fired power plants are being shut down by the Obama Administration for environmental reasons, and they are being replaced by natural gas-fired plants. Secondly, industrial demand for gas is increasing as many firms switch from oil and coal to this cheaper and more environmentally-friendly fuel. Table 5 Estimated Natural Gas Demand: 2016-20 Description Amount of Natural Gas Production: 2016 79.6 bcf/d Additional Demand by 2020: Additional Gas-Fired Power Plants 3.2 bcf/d Industrial Demand 3.3 bcf/d Mexico Exports 2.5 bcf/d LNG Exports 6.9 bcf/d Total: 15.9 bcf/d (+20%) Thirdly, the firm PointLogic Energy shows in Figure 8, new pipelines running south are markedly increasing natural gas exports to Mexico. Finally, the U.S has several LNG export terminals under construction. As they begin to export (one already is) that will increase the demand for natural gas. As seen in Table 5, Ponderosa Advisors is estimating these factors will combine to increase the demand for natural gas by 20% between now and 2020.

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Figure 8

Given this strong demand environment, why not have a more aggressive natural gas price forecast? It is our belief that there remains a very abundant supply of this fuel available on fairly short notice. In particular, Louisiana’s own Haynesville Play in the northwestern part of the state is basically lying fallow. Once the home to 140+ rigs, this dry gas play now has only 16 active rigs. Just to the north is the Fayetteville Play in Arkansas. There were 34 rigs working this play in 2011; in August 2016 there are none. Just a slight uptick in natural gas prices would have these plays humming again. This abundant supply should keep a lid on natural gas prices. A Mega Industrial Boom One manifestation of these low natural gas prices has been to fuel an industrial boom in Louisiana like none other in the state’s history. In cooperation with the Greater Baton Rouge Industrial Alliance (GBRIA) we have documented the new industrial expansions/additions in Louisiana since 2012. As of August 2016 these announcements total a remarkable $134.8 billion. We have been monitoring the Louisiana economy for three and a half decades. In a really great year in the past, $5 billion in announcements would have been considered very good. The latest total is nearly 27 times larger than our best year in the past. One of the authors monitors nine other states in the southeast. These states run from Louisiana up to Arkansas, across to the Carolinas and down to Florida. Only one of those states has announcements barely exceeding $5 billion.

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Highly Concentrated by Industry and Geography These announcements are highly concentrated in two industries. The largest segment is the LNG export terminals with $67.1 billion in projects. In second place are chemical firms, with $50.4 billion in announcements. They are also highly concentrated geographically. The Lake Charles MSA is the huge winner in this race with $96.4 billion in announcements, followed by the Baton Rouge/New Orleans combined MSAs with $38 billion. Chemical firms and LNG exporters need access to ocean-going ships to efficiently move their products. The Mississippi River and the Calcasieu Ship Channel provide just such access. These expansions are highly concentrated in two industries: (1) chemicals ($50.7 billion), and (2) LNG export terminals ($59.2 billion). They are also highly concentrated geographically. An estimated $85.6 billion is in the Lake Charles MSA and $44.5 billion is along the Mississippi from Baton Rouge to New Orleans. Are All the Announcements “Real”? An obvious question is: Are all the projects a definite “go”? Just to announce that Louisiana has been chosen for a new plant does not mean the firm will actually build the facility. Markets change, permitting issues arise, taxes are altered, and financing barriers are encountered. Of the $134.8 billion in projects announced since 2012, how many are already built or are underway? Table 6 provides the answer for the state as a whole and for the three key MSAs where the most announcements have occurred. Table 6 Industrial Announcements: Built/Underway Vs Potentials Amount (Billions of Dollars)

Region State: Built/Underway Potential Lake Charles MSA: Built/Underway Potential Baton Rouge MSA: Built/Underway Potential New Orleans MSA: Built/Underway Potential Source: Loren C. Scott & Associates, Inc. & GBRIA

$59.2 $75.6 $45.4 $51.0 $10.1 $5.2 $3.5 $19.0

Statewide, about 44% of the projects announced are either completely built or are underway. Even if none of the other projects go vertical, the state is still enjoying the fruits of $59.2 billion in new industrial projects---a figure almost 12 times larger than

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some of Louisiana’s best years in the past. There are $75.6 billion in projects at the FEED (front end engineering and design) stage. It is important to note that these numbers are “fluid”. For example, projects are regularly moving from the potential category to the construction category. Indeed, two huge contracts---Yuhang Chemicals ($1.85 billion) and Monsanto Chemicals ($1 billion)--are virtually certain to begin construction before the end of 2016. Also, sometimes the FEED process is completed and firms decide not to make the final investment decision (FID) to proceed with the project. In July 2016, Shell made the decision to table its Lake Charles LNG export terminal, an $11 billion project (this project is not in the numbers in Table 5). It is interesting to see how this potential versus built/underway ratio varies across the state. In the Baton Rouge MSA, two-thirds of the projects are already completed or are underway. By contrast, the great majority of the projects in the New Orleans MSA are at the FEED stage, though both the Yuhang and Monsanto projects are in this MSA. In the Lake Charles MSA the breakdown is more evenly split, with $45.4 million built or underway and $51 billion at the FEED stage.

Threats to Chemical FEED Projects: Europe/Asia Gas Prices Table 7 documents all the chemical industry announcements in the state since 2012. Of the $50.4 billion in announced projects, $26.7 billion are underway or completed and $23.7 billion are at the FEED stage. Table 7 Announcements of New Chemical Plants & Expansions of Existing Plants In Louisiana Since 2012 Chemicals Only Capex Status* Parish Ascension Air Products $ 1,000,000,000 C St. Charles AM Agrigen Industries $ 1,200,000,000 P Calcasieu Axiall-Lottie Corp $ 3,000,000,000 U Ascension BASF $ 500,000,000 C Ascension BASF $ 42,600,000 C Ascension BASF $ 20,000,000 C Plaquemines Castleton Commodities $ 1,200,000,000 P Ascension CF Industries $ 2,100,000,000 C Jefferson Dyno Nobel/Cornerstone $ 1,025,000,000 U Iberville Dow Chemical $ 1,060,000,000 U St. John Eurochem $ 1,500,000,000 P St. John First Bauxite $200,000,000 P St. James Formosa $9,400,000,000 P Ascension/Caddo Honeywell $ 89,000,000 C ______________________________________________________________________________________ Economic Outlook Page 23

Ascension Huntsman $ 78,000,000 C Calcasieu Indorama Ventures $175,000,000 P Grant Investimus Foris $265,000,000 P Calcasieu Matheson $130,000,000 C Ascension Methanex $ 600,000,000 C Ascension Methanex $ 800,000,000 U Ouachita Mid South Extrusion $ 4,000,000 U Ascension Momentive $ 66,000,000 P St. Charles Monsanto $1,000,000,000 P** Vermilion Myriant Corporation $ 100,000,000 C Iberville American BioCarbon $ 312,000,000 U Iberville Nachurs Alpine Solutions $ 14,000,000 C St. John Nalco $ 18,700,000 C Ascension Occidental Chemical $145,000,000 C Ascension Praxair $100,000,000 U Ascension PSC Nitrogen $40,000,000 P Calcasieu Sasol Ethylene $ 11,000,000,000 U Iberville SE Tylose at Shintech $ 120,000,000 U Ascension Shell Chemical $717,000,000 U Iberville Shintech $ 1,500,000,000 U Iberville Shintech $ 500,000,000 U Iberville SNF Flopam $ 362,000,000 C Ascension Stepan Companies $ 70,000,000 P St. James South LA Methanol/ZEEP $ 1,300,000,000 P St. James Syngas Energy $360,000,000 P Ascension Taminco/Balchem $ 37,588,000 U Lafourche Virdia $60,000,000 U Calcasieu Westlake $ 330,000,000 U Calcasieu Westlake $ 425,000,000 C Calcasieu Westlake $128,000,000 C Calcasieu Williams Olefins $ 375,000,000 C Ascension Williams Olefins $ 5,000,000,000 P St. James Yuhang Chemicals $ 1,850,000,000 P*** Total all Projects $ 50,318,888,000 Total Potentials $ 23,626,000,000 Total Completed/Underway $ 26,692,888,000 Source: Tabulations as of August 2016 by author & staff of Greater Baton Rouge Industrial Alliance. *C=completed; U=underway; P=potential. **FID given 4/16. ***Late 2016 ground-breaking. ______________________________________________________________________________________ Economic Outlook Page 24

It is important to note that it was not just low domestic gas prices that fueled all these announcements. It was also the fact that natural gas prices had not fallen in Europe and Asia---two significant competitors to the U.S. in the world chemical market. Note in Figure 7 that from about 2010 through well into 2014 the price of gas in Europe and Asia was much higher than in the U.S. U.S. chemical firms began to capture more and more of the international chemical market, because the natural gas-guzzling firms in Europe and Asia simply could not stay competitive. This was true even though chemical firms in Asia had a competitive advantage over U.S. producers in labor costs, taxation, and logistics. Why were natural gas prices so much higher in Europe and Asia? Because these regions had to import their natural gas, and their supply sources priced the natural gas off the price of oil. Suppliers such as Russia or Qatar would basically price their natural gas at about 15% of the price of oil. If oil was selling for $100 a barrel, these countries would charge $15 per mmbtu for their LNG. There was no way a chemical firm in Europe and Asia---paying $15 for its natural gas---could compete with U.S. firms paying only $3. Thus, the high oil prices of 2010-mid-2014 generated very high natural gas prices in those regions. Figure 7

Careful observers will notice in Figure 7 what has happened to our country’s competitive advantage in natural gas prices in recent months. The gap between U.S. prices and those in Europe and Asia has narrowed substantially as their oil-price-based natural gas prices have plummeted. With oil prices at $40 European and Asian chemical ______________________________________________________________________________________ Economic Outlook Page 25

firms are now paying $6 per mmbtu. The U.S still has a price advantage with natural gas prices here at $2.50. However, our competitive advantage has dropped form $15/$3 to $6/$2.50. It is important to understand that regarding Asia, full equality in natural gas prices is not necessary to shift the advantage to Asia’s side, because their competitive advantage in labor costs, taxes and logistics remains. It is the “tails” on the foreign gas price lines in Figure 7 that has caused some of the companies at the FEED stage ($28.8 billion at this writing) to move their foot from the accelerator to at least tapping on the brake. Threats to LNG Export FEED Projects There is another significant group of plants at the FEED stage that are being threaten by lower oil prices---proposed LNG export facilities. Table 8 lists the ten LNG export terminals announced. All but two are in the Lake Charles area. There are over $65 billion in projects announced, a figure that does not include the two projects in Plaquemines Parish for which no capital expenditures have been released. Only two of these projects are underway---Cheniere and Sempra. Cheniere recently completed one of its six “trains” and has begun exporting LNG. Table 8 Announcements of New LNG Export Terminals In Louisiana Since 2012 LNG Export Terminals Capex Status* Parish Cameron Cheniere Energy $20,000,000,000 U Cameron Sempra $10,000,000,000 U Cameron So. Ca. Telephone & Energy $9,300,000,000 P Cameron Venture Global $4,250,000,000 P Plaquemines Venture Global NA P Cameron G2 LNG $11,000,000,000 P Calcasieu Magnolia LNG $3,500,000,000 P Cameron Delfin LNG $7,000,000,000 P Plaquemines LA LNG Energy NA P Calcasieu Driftwood LNG $2,00,000,000 P Total Announced $65,050,000,000 Total Underway $30,000,000,000 Total Potential $35,050,000,000 Source: Tabulations as of March 2016 by author & staff of Greater Baton Rouge Industrial Alliance. *U=underway; P=potential The other eight LNG export projects, representing over $35 billion in potential investments, are at the FEED and permitting stage or seeking additional financing. The data in Table 9 illustrate the dilemma facing these remaining eight firms.

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Unlike Qatar and Russia---who price their LNG at about 15% of the price of oil--our exporters price their LNG off the Henry Hub price of natural gas, plus additions for the cost of liquefaction, capital recovery, and transportation to Asia. Note that this sums to a total charge of $9.53 per mmbtu by the Louisiana supplier when the Henry Hub price was $3.50. The Louisiana LNG firm enjoyed a very nice competitive advantage over Qatar and Russia---$9.53 per mmbtu versus $15. However, when the price of oil fell to $40, Qatar will now charge 15$ X $40 = $6 per mmbtu. The Henry Hub price for natural gas has fallen to $2.50. The Louisiana’s firm’s competitive advantage has vanished ($6 versus $8.53). Louisiana LNG exporters are now at a significant competitive disadvantage. Some of these firms are toying with the $3.50 capital recovery figure to see if there is some way to bring that down enough to remain competitive. Table 9 Relative Cost of LNG

Foreign Supplier Charge (15% of Oil Price) Louisiana Supplier Charge Henry Hub Price 15% for liquefaction Capital Recovery cost Transportation to Asia Total Louisiana Supplier Charge

Oil Price = $100 $15 mmbtu

Oil Price = $40 $6 mmbtu

$3.50 $0.53 $3.50 $200 $9.53

$2.50 $0.53 $3.50 $200 $8.53

Clearly, the price of oil matters a lot to these remaining eight firms, which is why some of them may be moving the foot from the accelerator to the brake until it becomes clear where oil prices will finally settle. Our oil price forecast of $60 for 2018 would make the Qatar/Russia price $9 per mmbtu and at least restore our competitive advantage.

Threat to the FEED Projects: State Government A new threat has arisen to these FEED projects, and future projects considering Louisiana, since our last LEO was published. When newly elected Governor John Bel Edwards took office, he inherited a state budget with a substantial deficit for FY16 and an even bigger deficit projected for FY17. Governor Edwards has attacked this issue primarily by raising more revenues rather than cutting expenditures. In fact, the FY17 budget will be approximately $2.9 billion larger than FY16 because the Governor immediately authorized Medicaid expansion which increased the federal funding part of the state budget. The state portion of the budget actually increased slightly from about $15.2 billion to $15.9 billion.8 8

http://revenue.louisiana.gov/Miscellaneous/FY17%20State%20Budget%20at%20Appropriated.pdf

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Business Tax Impacts Three fiscal sessions were called in the last 12 months to address the budget deficit. The business sector carried a substantial part of the burden of closing the revenue gap. Based on figures for each bill generated by the Legislative Fiscal Office, the Louisiana Association of Business & Industry (LABI) has estimated the total amount of new taxes imposed on business by fiscal year. LABIs estimates are as follows:  FY16: $575 million  FY17: 1.33 billion  FY18: 1.35 billion Some of the new taxes are temporary (until tax reform measures can be passed) and some are permanent. Among the larger taxes are:  Changed the inventory tax credit from a refund to a carry forward (can only be used against income tax liability) for credits more than $1 million and reduced the refundable portion by 25% for many other taxpayers;  Prohibited the amount of net operating loss deduction from exceeding 72% of Louisiana net income;  Removed more than 150 exemptions and exclusions from the 4% sales tax from April 14, 2016 to June 30, 2016; Removed exemptions and exclusions from 2% of the sales tax from July 1, 2016 to June 30, 2018 (but 3% on business utilities and 1% on manufacturing machinery and equipment); and removes 1% of business utilities exemption from July 1, 2018 to March 31, 2019.  Imposed a new 1% sales tax from April 1, 2016 until June 30, 2018 and limited more than 125 exclusions and exemptions to the existing 4% tax including business utilities (which are subject to the new tax;  Expansion of the franchise tax to some LLCs (Act 12 James, 1ES)  Expansion of sales tax to manufacturing inputs/byproducts (Act 2 Broadwater, 2ES) The chemical firms listed back in Table 7 are huge consumers of electricity and natural gas utilities. They also carry significant inventories. In the bowels of every one of the firms listed as “potentials” in Table 7 is an accountant estimating the rate of return on equity of the firm’s proposed project. Actions taken by the two governors and the Legislature in the last 12 months have moved that equation against pulling the “build” trigger. Changes in the TYITE One key factor in helping that rate of return on equity equation move in Louisiana’s favor has been the presence of the ten year industrial tax exemption (TYITE). Until June 24, 2016 firms were able to approach the Board of Commerce and Industry with their proposed capital expenditures on a new plant, replacement of key machinery, environmental upgrades, and the Board would grant the firms an exemption ______________________________________________________________________________________ Economic Outlook Page 28

from paying local property taxes on those expenditures for five years with an opportunity for a renewal for another five years. On June 24, 2016 the Governor issued executive order JBE 2016-26. In this order he made the following changes in the TYITE:  All contracts shall now require an “Exhibit A” consisting of a Cooperative Endeavor Agreement (CEA) between the State, the Department of Economic Development and the applicant providing for the creation or retention of jobs. Effectively this means TYITEs will no longer be awarded for replacement equipment, environmental upgrades, maintenance capital, or other investments that do not create new jobs or do not provide compelling evidence of the retention of existing jobs. The TYITE can be reduced or eliminated if the applicant does not meet the job goals in the CEA.  All new contracts now must include “Exhibit B” consisting of local approvals consisting of a resolution from the parish council or police jury, and the school board, and the sheriff’s office. These changes do not apply to any CEAs issued before June 24, 2016, so agreements with the firms listed back in Tables 7 and 8. However, if these firms in the future want to apply for a TYITE for replacement equipment, environmental upgrades, maintenance capital, or other investments that do not create new jobs or do not provide compelling evidence of the retention of existing jobs, those applications will be turned down. Again, when that accountant in the bowels of the firm was calculating the rate of return on equity (ROE) for a Louisiana location, no allowance was made for this change. It is a change that moves against the ROE equation of a new firm or expansion of an existing one. Importantly, the Governor also signed into law a bill that requires manufacturers to choose between the inventory tax credit and TYITE. If a site utilizes TYITE, the company is no longer eligible for the refundable inventory tax credit. The Exhibit B addition---gaining local government approval---will add to the cost and time to achieve a TYITE in the future. There is some disagreement over whether or not local government entities have been awarded veto power over a firm’s application. The Governor’s executive order clearly says all applications “must include Exhibit B consisting of approvals…” This wording suggests strongly that local entities have gained veto power over the TYITE. Testimony by the Governor’s executive counsel suggests this is ambiguous. To the extent that the TYITE program factored significantly into a firm’s decision to locate or expand in Louisiana, these changes have added costs and uncertainty to the equation---moves that on the net harm economic development in the state. This makes it curious as to why the Governor chose these changes when they have zero impact on the state’s budget.

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To be fair, Louisiana’s greatest competitor for the chemical and LNG projects listed in Tables 7 and 8 is Texas. From a TYITE standpoint only (ignoring tax and labor force differences), these changes do not throw us wildly out of line with Texas as seen in Table 10. Unfortunately for Louisiana, firms will consider all tax differences between the two states. Louisiana is now at a significant disadvantage compared to Texas which has unified sales tax collection, does not tax manufacturing utilities, does not tax manufacturing equipment, and does not tax manufacturing inputs, and has significantly lower local sales tax rates.

Table 10 Comparison of Property Tax Exemptions in Texas & Louisiana (Before Executive Order JBE-26) Louisiana Texas Authority State Local/County Discretion Exercised No Yes Percent of Exemption 100% Up to 100% Term of Exemption 10 Years Up to 10 Years Job Creation Requirement None Retention of Baseline to 200 New Jobs CapEx Requirement None $0.3 - $3 million Maintenance Capital eligible Yes No Source: Louisiana Department of Economic Development

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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 35 and separated them into nine metropolitan statistical areas (MSAs). These parishes are all grouped around one or more major cities in the state. Map 1 shows the location of each and the parishes that are in each MSA. Important changes took place in 2015 when the definitions of three MSAs expanded: (1) Lafayette added Acadia, Vermillion and Iberia Parishes, (2) Shreveport-Bossier added Webster Parish, and (3) New Orleans added St. James Parish. For the first time in decades Louisiana added an entirely new MSA---Hammond---which is composed of Tangipahoa Parish.

Map 1: Louisiana Metropolitan Statistical Areas

Like a Box of Chocolates In the great movie “Forest Gump”, Gump says to a stranger, “My Momma say life is like a box of chocolates.” The point was that you never knew what life was going to serve up to you. While the chocolates in the box are all “chocolates” each one is really different from the others. Louisiana's nine 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 felt the collapse of oil prices in a different way, and each has different ______________________________________________________________________________________ Economic Outlook Page 31

obstacles to overcome going forward, and the future prospects for each are quite different. New Orleans MSA, with an estimated 573,400 non-farm workers, is the largest MSA in the state. Though there have been some great advances in this region since the mid-2000s, this MSA’s employment still remains 51,300 jobs (or 8.2%) below its PreKatrine/Rita peak. Situated in the “toe of the boot” near the mouth of the Mississippi, the MSA’s system of ports ranks among the largest in the world in terms of tonnage moved. It houses a huge medical complex for veterans and non-veterans, and it is the home to several universities---the largest being the University of New Orleans and Tulane University. New Orleans proper is a tourism magnet, in some cases attracting tourists to its substantial gaming industry anchored by the state’s only land-based casino, two other riverboat casinos and the Churchill Downs Racetrack. A number of large refineries (including the third largest in the country) and chemical firms reside within this MSA’s boundaries, along with some key energy companies such as Chevron and Shell. Recently the region has attracted a burgeoning tech sector. Second in size, Baton Rouge provides jobs for about 413,500 non-farm workers. The petro-chemical industry looms large in this MSA with the largest concentration of chemical employment in the state, the country’s fourth largest refinery, and an unusually high concentration of industrial construction workers to support that base. Both LSU and Southern University are located in this MSA along with 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. Its growing high tech sector is anchored by the new IBM complex in downtown Baton Rouge. It is the home of three riverboat casinos and has a healthy film and digital gaming sector. The fourth largest MSA is Shreveport-Bossier (181,800 jobs in 2016). This MSA contains the State’s largest gaming sector with six riverboat casinos and one racetrack. A very active port exists on the Red River in the Shreveport-Bossier area. It hosts a number of large employers including a 500-person steel mill that is under construction. With just over 9,155 military and civilian personnel, Barksdale Air Force Base gives this community a significant military presence. High tech is a growing presence in this region with the addition of Computer Science Corporation as the 800-job anchor of the MSA’s National Cyber Research Park. Shreveport-Bossier is in the heart of a huge deposit of natural gas called the Haynesville Shale Louisiana’s third largest MSA is Lafayette (205,900 jobs) and its sixth largest is Houma (91,500 jobs). We put these two together because 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. They are, however, not identical. Lafayette is more diverse, hosting the nation’s largest jewelry settings manufacturer, a large, successful ambulance firm, and a firm that provides ER personnel to hospitals in several states. Because of its location closer to the Gulf, Houma supports major shipbuilding and fabrication firms and is home to Port Fourchon, a port that services over 90% of the structures in the Gulf. ______________________________________________________________________________________ Economic Outlook Page 32

The most closely watched MSA in the state over the next few years is likely to be Lake Charles, (105,200 non-farm jobs). Like Baton Rouge, Lake Charles has an unusually heavy chemical and refining base---the second largest concentration in Louisiana after Baton Rouge. Over 70% of the $134.8 billion in announced industrial expansions since 2012 are scheduled to occur within this MSA. The industrial construction sector was already a major player in this region; now it is likely to expand very dramatically. Two LNG export terminals are under construction in this MSA and six more are at the FEED stage. With three casinos (two very large), a racetrack, and a large Indian casino nearby, Lake Charles is the state’s second largest gaming market. Another unusual characteristic of this MSA’s economy is the large aircraft maintenance and repair sector at Chennault Airpark. Located in the northeastern area of the state, Monroe (79,400 non-farm workers) is the third smallest of the nine MSAs. This MSA can brag of housing one of only two Fortune 500 firms in Louisiana----CenturyLink. Chase has a large mortgage facility Monroe. The large Graphics Packaging facility gives Monroe an out-sized presence in the paper and lumber sector. Vantage Health is a growing, new presence in the area with over 1,200 employees. The second smallest piece of cholate in the box would be Alexandria. Located in the central part of the state, this MSA had 64,200 non-farm jobs in 2016. There is a diverse mixture of major players in this MSA including Cleco (a large utility company), Proctor & Gamble, Union Tank Car, Crest Industries, and Roy O. Martin Lumber. One of the MSA’s jewels is England Airpark, which houses Union Tank Car and recently became home of a 150-person Immigration and Customs Transfer Facility. Alexandria has a strong military influence due to nearby Fort Polk---the largest single employer in the state. The smallest of Louisiana’s nine MSAs is its newest member---Hammond. With employment at 43,600 in 2016, Hammond’s economic base is Southeastern Louisiana University and a significant healthcare sector anchored by the very large North Oaks Medical Center. Tangipahoa Parish is also a bedroom region for people who work in New Orleans, Baton Rouge, and in plants along the Mississippi River. Some 14% of income earned by Parish residents is earned outside of the Parish. In the sections below we will give a brief employment history of each of the state’s nine MSAs, along with the Louisiana Econometric Model (LEM) forecast for 2017-18. In each MSA, we will explain the key factors and companies driving the region’s future.

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The New Orleans MSA: Answering Two Big Questions The New Orleans MSA is the largest in the state and is composed of eight parishes---Orleans, Plaquemine, Jefferson, St. Charles, St. John the Baptist, St. Tammany, St. James, and St. Bernard. Employment in this MSA is now at about 573,400---still about 39 percent larger than the Baton Rouge MSA. These nine parishes are located in “the toe of the boot” (see Map 3). It has been a wild ride for this MSA over the last 35 years. The good news is the MSA enjoyed a solid recovery from the Great Recession despite the drag of a 4,500-job loss at Huntington Avondale Shipyard. New hires in a hospital sector whose construction is finally completed, major industrial construction projects, and new high tech firms are a plus for the future of the New Orleans MSA, but the oil and gas exploration sector is--and will be---a dragon the region. History Pre-Katrina & Rita Figure 8 tracks the non-farm employment history in New Orleans from 1980 through 2016. 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. 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.

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640

Fig. 8: New Orleans MSA Non-Farm Employment 1990-2016 2016: Flat But Irratic

620

Thousands

600 580

-40,400 Jobs (-8.3% )

2009-10: 2002: -6,700 jobs -10,300 jobs (-1.3% ) (-1.7% )

560

X

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

540

2016 Compared to 2001 Peak: -55,200 jobs (-8.8% )

520 500 480 80

85

90

95

00

05

10

15

The big jump in 1994 and 1995 shown in Figure 8 will look familiar to readers who carefully examine these same two years in the graphs of the other two 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 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. 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 8 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 8 is that for six straight years before Katrina and Rita hit, employment in this MSA was virtually flat.

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The Impact of Katrina & Rita Of course, the most profound message from Figure 8 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 Figure 8, the New Orleans economy had recovered 81,800 of those jobs by 2016, but the MSA employment is still lower than it was in 1980 and is still 55,200 jobs (-8.8%) below its 2001 peak employment year. Actually, the use of annual average data in Figure 8 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 8 that in the six years before the storms hit the economy in New Orleans was basically flat. Families that had ______________________________________________________________________________________ Economic Outlook Page 36

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 crime situation in New Orleans, and this no doubt retarded the return rate. 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 9 MSAs. 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 8 that the region enjoyed four straight years of solid growth. Indeed, the MSA had recovered all the jobs lost during the recession by 2011. This performance is particularly impressive given that it occurred against the backdrop of the 4,500+ 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. 2016: The Drag of Oil & Gas It is unfortunate that the region could not stay on the steady growth path of 201115. The New Orleans is the home of many firms in the oil and gas industry or in industries closely aligned with exploration and production activities. The recent large decline in oil prices has dinged the region enough that employment began declining in August 2015. As examples, Shell moved 95 people to Houston, Freeport McMoran dropped 32 jobs, Hexion closed at facility at Norco (-97 jobs), and Chevron has had a reduction in force at its Covington office. Too, the Army Corps of Engineers reduced its spending by $162 million on its Hurricane and Storm Damage Risk Reduction System. Offsetting these declines was the opening of the huge new University Medical Center Hospital to replace the old Charity Hospital, some $3.5 billion in industrial construction (primarily on the Dyno Noble facility), and the final construction work on ______________________________________________________________________________________ Economic Outlook Page 37

the new VA Hospital. The result of all this is that the track of employment in this MSA has been erratic in 2016. In some months it is down over a 1,000 jobs (February, April, and May of 2016) and in others it is up over 1,000 jobs (January and June, 2016). On the net, employment in the region is flat for 2016-H1, a trend we expect to continue through the remainder of the year. Forecast for 2017-18: Boost from Construction, Drag from Oil Where the New Orleans MSA goes over the next two years leans heavily on the answer to two big questions:  

How bad will the oil drag be? Will announced industrial expansions actually start construction?

Our projections for this MSA are shown down in Figure 9. We are projecting that the New Orleans MSA employment will add 2,900 jobs (+0.5%) in 2017, and 5,700 jobs in 2018 (+0.9%). This would rank the MSA’s performance third (in percentage growth) among the state’s nine MSAs over the two-year forecast period. The MSA will still be 46,600 jobs (-7.4%) below its previous 2001 peak. The Oil Drag & Others A non-trivial part of the New Orleans economy is its attachment to the oil and gas industry. In 2014 (latest data available), the oil and gas exploration industry comprised about 7.7% of the MSA’s real gross domestic product.9 This figure does not include ancillary industries like fabricators, shipping, and ship building companies for whom oil and gas extraction is the life blood. Shell has 1,900+ employees and contractors at One Shell Square and is moving 95 to Houston. Chevron has a 700+ person facility in Covington and is reducing its force. Freeport McMoran has terminated 32 from two New Orleans facilities. Back on pages 14 and 15 we described our concerns about the immediate future of exploration activity in the Gulf. Not much help is expected for the oil and gas sector over the next two years. Weakness in oil prices has negatively influenced other areas of the New Orleans economy. Marathon, a company engaged in both exploration and refining, has cancelled its proposed $2.5 billion residual oil upgrade expansion at its refinery in Garyville. Valero has shelved indefinitely of its proposed $700 million refinery methanol unit at Norco. Also at Norco, Hexion has closed its facility at the cost of 97 jobs. Significant losses in the New Orleans area have not been confined to just the exploration and oil related areas. Research by City Business Magazine indicted that enrollment declines at Loyola and Tulane has led to employment reductions of 408 and

9

www.bea.gov

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1,372, respectively at these universities.10 We are skeptical of the size of the reported layoffs at Tulane but the university has indicated it would cut some staff positions. On the north shore, Trinity Marine has closed its 336-person barge manufacturing facility effective this past spring. A soft yacht market has dropped employment at Trinity Yachts to only 60. It is our understanding that if no buyer is found for the yard soon, it will totally shut down. Noranda Alumina in Gramercy has been hammered by a weak alumina market and is expected to close the doors at its 444person plant in 2016. Chiquita is leaving the Port of New Orleans to return to Gulfport, which should cost the Port about 100 longshoreman jobs and reduce container traffic by 60,000 to 78,000 a year (-15%). Brown’s Dairy is closing its 186-person milk processing plant and moving to the Hammond area. Louis Dreyfus is closing a 49-person packing facility for Imperial Sugar in Gramercy.

Fig. 9: New Orleans MSA Non-Farm Employment Forecast: 2017-18

640 620

Thousands

600 580 560 540

2017: +2,900 (+0.5% ) 2018: +5,700 (+1.0% )

520

3rd in Growth rate Absolute:2nd

500 480 80

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If these negative events were the only ones to report in New Orleans the prospects for the MSA’s immediate future would be dire. Fortunately for the region there are a number of positive things happening that we believe will be sufficient to move the MSA into a modest growth in 2017 and 2018.

10

New Orleans CityBusiness, March 18-31, 2016.

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Major Boost from the Healthcare Sector Healthcare will be a source of significant new, high-wage jobs in New Orleans over 2016-17. After almost six years of construction work, the new “Big Charity”---now dubbed the University Medical Center---medical complex in downtown New Orleans began operations in August 2015. This new 424-bed hospital added an estimated 1,110 net new healthcare jobs to the region. “Project Legacy”, the new Veteran’s Administration Hospital is scheduled to be fully completed by the end of 2016. A ribbon-cutting is schedule for November 18th, 2016. The hospital will open in phases throughout 2017. This $995 million, 240-bed VA Hospital is expected to add a net 1,100 new healthcare jobs in New Orleans. Ochsner Medical Center has embarked on a $250 million expansion program. OMC has started construction on a p $104 million project to add six floors to its 8-story West Tower, a project that will continue through 2018. Included in the expansion are (1) an $84.5 million Center of Excellence (including a new transplant and new neurological facility) on the north side of Jefferson Highway, (2) A $34.9 million expansion of the Gayle and Tom Benson Cancer Center, (3)a $12.4 million out-patient imaging center, and (4) $24.4 million in upgrades on the existing facility. Construction impacts alone are expected to generate 1,087 jobs in Jefferson Parish in 2017 and 845 in 2018. TriWest Healthcare Alliance announced it is opening a new operations center in Jefferson Parish to provide high-quality healthcare to veterans and their families. The firm announced 285 jobs paying an average of $35,700 for this new facility. Industrial Announcements: Will They “Go Vertical”? As noted back in Table 6, at this writing we are aware of $22.5 billion in industrial announcements of new plants or expansions of existing plants within the New Orleans MSA since 2012. This is an unusually high figure for this MSA. What especially draws attention is that a significant majority---$19 million---of this number have yet to “go vertical”. They are still at the front end engineering and design (FEED) stage or are still arranging for final financing. Growth in this MSA over the next two years hangs significantly on how much of this $91 million is real and begins construction. Perhaps it would be helpful to the readers to break this $22.5 million in announcements into three categories: (1) under construction now, (2) potential, but with a high probability of moving forward, and (3) iffy announcements with a lower probability of moving forward. Industrial Announcements: Under Construction Fortunately, this region has several projects underway. The MSA is benefitting now from the construction jobs and will benefit again when the plant becomes operational and takes on new, full time employees. ______________________________________________________________________________________ Economic Outlook Page 40



The biggest project under construction in the region is the new $850 million Dyno Nobel International ammonia production plant at the Cornerstone Chemical (CC) site in Waggaman is virtually complete. CC is also spending $175 million on maintenance and upgrades at the site. Once operational in 2016-III, Dyno will employ 65 people with an average annual wage of $55,700.



Pin Oaks Terminals is constructing a $600 million petroleum liquids storage terminal in St. John the Baptist Parish. Construction began in June on the first dock to be operational in May 2017. An engineering-procurement-construction (epc) was issued to Smith Tank and Steel to build two million barrels of tank capacity at the site to be ready for mid-2017. The site is permitted for another 10 million barrels.



Zen-Noh Grain is spending $150 million on a new dock extension and continuous barge unloading system at the company’s site in Convent. The project is expected be completed by June 2017, hiring 48 new workers.



Bunge has begun work on $200 million in dock facilities and grain elevator. This project should be completed in early 2017.



At its site in Killona, Entergy is spending $37.1 million for refueling outage and maintenance work. Requiring 1,100 contract workers, this project should be completed by the time the LEO is released.

Industrial Announcements: High Potential Among the projects that have not gone vertical at this writing, some are near the top of the probability lists according to economic developers familiar with the projects. 

A virtual certainty at this point is the $1.85 billion, world-scale methanol plant planned by Yuhuang Chemicals for St. James Parish. Construction on the $850 million Phase I is expected to start in late October or early November. Construction on the $1 billion Phase II is to start right after Phase I is completed. The company plans to start operations in 2018-I and hire 400 workers at $85,000 a year. Yuhuang: (1) has signed a long term natural gas transportation capacity agreement with Transcontinental Gas Pipeline, (2) has finalized its land purchase at the site, and (3) has let a contract with Air Liquide build a $170 million unit to supple oxygen to the plant. As one of the state’s first wholly-owned Chinese companies, the methanol produced by this plant is primarily for export to China. Very high probability.



At the Port of New Orleans, TCI Plastics will be constructing a $36 million logistics facility to package and ship PVC resins and polyethylene and to manufacture plastic film. The firm plans to open in 2018 to coincide with the opening of the new Sasol ethylene plant in Lake Charles. TCI will hire 160

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employees at an annual wage of $33,400. Port officials estimate that the TCI facility will result in 9,000 new containers flowing through the Port, a 16% increase in container traffic. Very high probability. 

The board of Monsanto gave a final investment decision in April 2016 on a proposed $1 billion expansion of a herbicide producing plant. The project would add 95 jobs at $76,500 annually to the facility’s 645-person workforce. Very high probability.



Entergy Corporation is will seek a final okay from the Louisiana Public Service Commission before year end on an $850 million expansion of its power plant located in Montz, Louisiana. Very high probability.



A final investment decision in expected before year end from the board of Formosa Petrochemical on construction of a $9.4 billion facility in St. James Parish. It is our understanding that a landowner issue still remains to be resolved. The new world-class facility will house ethane crackers and downstream chemical manufacturing plants. Formosa would create 1,200 jobs at the site paying $84,500 a year. It would be built in two phases and would be one of the largest single-site ethylene production complexes in the world. High probability.



Also in St. James Parish, South Louisiana Methanol is near a final decision to build a $1.7 billion ethanol plant---the largest in North America---across from the Nucor plant. The company received its air permits in January 2014 and signed a 10-year agreement in July 2014 with Transcontinental Gas to transport gas to the site. It would employ 63 people at $66,500 a year. This project is still moving forward. Good probability.



Venture Global is examining the possibility of constructing an LNG export facility on 632 acres of land south of Myrtle Grove in Plaquemines Parish. Venture Global did not provide an estimated capital expenditure for this facility. The company envisions 20 liquefaction trains, which would put it well over the $2 billion mark. Plan A is to start construction in 2017-II. Reasonable probability.



In 2013, a Russian firm---Eurochem---announced plans to construct a $1.5 billion ammonia-urea production plant in either St. John Parish. Land has been purchased for the site, air permits have been submitted, and engineering is underway. The company’s board must still give the FID for the project. If constructed the plant would hire 200 workers at $58,000 a year. Reasonable probability.

Industrial Announcements: Much Lower Probability Our conversations with economic developers lead us to rank several announced projects as iffy at this point in time.

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 In July 2014, Nucor opened the first phase of its iron production plant in St. James Parish. Phase II is a $400 million reduced iron plant (+100 jobs), and Phase III is a $500 million pellet plant (+200 jobs). Because of weakness in the steel market we place a very low probability on Phase II being started over 201718. At the end of 2015 the firm missed a deadline to keep $340 million in state support. It will have to reapply.  Gavilon Commodities has offered plans to build a $250 million greenfield grain elevator in St. James Parish that would employ 150. The company’s assets were purchased in July 2013 by Marubeni, a Japanese corporation. Land was purchased for $10.4 million for the site in January 2013. We place a low probability on this project moving forward.  Syngas Energy announced a $250 million methanol and ammonia facility in St. James Parish,10 miles south of the Sunshine Bridge. We are told this project is on hold or possibly canceled.  Ram Terminals wants to construct a $150 million coal export terminal at the Plaquemines Port that would create 125 jobs. The company has reapplied to the Department of Natural Resources for permits, but environmentalists have asked to have the permits re-examined, a request that DNR has granted. This project is presently on hold.  Also at the Plaquemines Port, NOLA Tanking has indicated a desire to construct an $80-$100 million tank farm at the Myrtle Grove Plantation. We understand this project is now inactive.  In October 2014, Castleton Commodities announced plans for a $1.2 billion methanol plant at the former AMAX Nickle site near Braithwaite. The firm has encountered permitting issues, and we understand it will be two years before much movement.  Louisiana LNG Energy has secured funding from ArchLight Capital Partners to build a mid-scale LNG export terminal just below the Port of New Orleans. The company was recently acquired by Parallux Energy, a company that wants to double the previously announced capacity. Applications for permits have been made to the Federal Energy Regulatory Commission. No capital expenditure value was provided on this project. Probability of proceeding: 50%  AM Agrigen Industries has FEED work underway for a $1.2 billion granulated urea plant in St. Charles Parish. Air permits have been secured, and water permits are pending. The firm would hire 150 permanent workers at $55,000 annually. We understand the land option on this project is about to expire and probabilities are low that it will go forward.

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 First Bauxite Corporation recently announced plans to build a $200 million bauxite processing plant to manufacture proppants used in fracking wells. Once constructed the plant at the Port’s Globalplex site in St. John the Baptist Parish would employ 100 employees at an average annual wage of $70,000. Given the state of the exploration industry, and the fact that the firm does not yet have a Cooperative Endeavor Agreement (CEA) with the Department of Economic Development, we place a low probability on this project moving forward.

Note that in the last two sections we have listed multi-billions of dollars in projects that could announce, over our forecast period, ribbon cuttings to start construction of their facilities. It clearly would not take many positive decisions within this group to seriously boost this MSA’s employment. Public Construction: Can the Corps Cutbacks Be Overcome? Described above were the industrial construction projects for this MSA. There are also a sizeable number of public projects underway over our forecast period. The question is, will they be large enough to offset serious downsizing in spending by the U.S. Army Corps of Engineers (the Corps) in the region. The Army Corps of Engineers has continued its extraordinary spending in this region on its Hurricane and Storm Damage Risk Reduction System. However, as seen in Table 11 the volumes---while still very large---have been in decline and will be noticeably smaller in 2017-18. Corps spending on HSDRRS will fall by $180 million in 2017 and by another $278 million in 2018. Table 11 Army Corps of Engineers Actual & Planned Spending: Hurricane and Storm Damage Risk Reduction System Fiscal Year Spend (Millions of Dollars) 2014 $942 2015 $970 2016 $808 2017 $628 2018 $350 Source: U.S. Army Corps of Engineers

Offsetting the declines at the Corps will be the startup in April 2016 of the $826 million upgrade of the Louis Armstrong Airport (whose call name is MSY). This figure includes $546 million for a 30-gate terminal with three concourses and a parking garage on the north side of the airport. Visitors to the airport can see the work underway across

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the runway to the north. The project is to be completed in 2018 in time for the 300th anniversary of New Orleans. Further offsetting the Corps spending decline will be a scheduled $478.6 million in state road projects in the MSA, a whopping 58% bump from the $302.5 million reported in last year’s LEO. Among the bigger projects will be $90 million to 4-lane LA3241 from LA36 to LA435 and from I-12/LA434 interchange to LA36. In addition, the $748 million redevelopment of the Iberville Project remains underway. Of the five phases, three are completed, and Phases 4 and 5 should be finished by the end of 2017. Over the next two years, $164.2 million in projects will be underway by the Recovery School District. The RTA has budgeted $90.7 million for projects underway or planned, including $41.1 million for the Ramparts/St. Claude expansion. Finally, there are press reports that the region will receive $1.2 billion from the federal government to repair underground sewer, water and drainage structures damaged due to Katrina. Good News from the Manufacturing, Cruise & Tech Sides This region received several pieces of good news this year from its manufacturing sector. We are told that at the Michoud Assembly Center, Blade Dynamics is about to finally blossom and add 500 new jobs over the next two years, while a similar number of new jobs are expected to be generated at the USDA Finance Center at Michoud. Textron Marine in New Orleans East is presently at 232 employees. The firm just garnered a new $84 million contract with the Navy its Ship-to-Shore Connector amphibious craft. An additional $175 million contract was secured this year. Essentially the program is fully funded through with options out to 2030. The site’s workforce will ramp up to 600 to handle this work. The Textron site in Slidell is stable at 427 employees to assemble the COMMANDO Select and COMMANDO Elite armored vehicle lines. Contracts with Canada, Iraq and Columbia should keep employment stable through 2017. New contracts will be required to avoid some downturn in 2018. Florida Marine added 40 jobs at its headquarters in Mandeville and broke ground on a $7.2 million expansion in late 2015. The firm will be adding 400 at its shipyard in Harvey. Next Generation Marine recently christened two new vessels and will add 60 employees over the next 12 months. The firm also opened its global headquarters in Metairie in May. Cajo---a Finnish company---is establishing its first U.S. facility making laser-based machinery in New Orleans. Hiring of 40 new employees at an annual salary of $55,000 has already started. New Orleans has landed two new cruise lines in this past year. In 2015, Viking Cruise Lines made New Orleans the homeport for its first North American cruise itineraries and is adding 416 jobs in operations and crews. In addition, French American Line established its headquarters and Louisiane vessel in New Orleans. The launch date for operations is September, 2016 and will create 94 new jobs in the region.

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New Orleans continues its nice track record of attracting tech firms. InXile has opened a new video game development office, adding 50 jobs at $75,000 annually. Smashing Boxes---which makes products and services spanning web, mobile and connected devices---is opening an office in New Orleans and hiring 85 new people at an average salary of $75,000. Boost from Private Non-Manufacturing Construction Finally, we should note that this MSA will get an economic shot in the arm from some sizeable private construction projects that are hotel-focused. The $130 million renovation of the Jung Hotel should be completed this year, with 145 hotel suites, 175 apartments, and 50,000 square feet of retail space. Four Seasons has won the bid for a $364 million renovation of the World Trade Center. The renovation will create a 350room hotel on floors 7-19 and condominiums on floors 21-30. A challenge by a losing bidder to Four Seasons has a court date of October 24th, but Four Seasons is proceeding with renderings to go to construction. On a smaller scale, Building & Land Technology Company is spending $30.3 million on a renovation of the NOPSI Building and the Dryades Building into a 217-room hotel, and Homewood Suites has a $44 million project under construction. Tulane has started construction of a new $35 million addition to the Freeman School of Business that should be completed in January 2018.

Baton Rouge: Historic Storm & A Construction Peak Last year, for the first time in its history, this MSA’s employment broke through the 400,000 level. There are now an estimated 413,500 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 was the most populous in the state in 2014 at 446,042 according to the Bureau of Economic Analysis.12 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. We have tabulated $15.3 billion in announced industrial expansions in this MSA (see Table 6). What differentiates this MSA from New Orleans and Lake Charles---sites of other major industrial announcements---is that in the Baton Rouge MSA almost all the announced projects are under construction. An estimated $10.1 billion are underway or completed. Of the remaining $5.2 billion, $5 billion is for projects at one site that will likely be starting well past 2020. That means only about $155 million of this MSA’s announced project have still to break ground. What this means is industrial construction 12

www.bea.gov

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employment in this region will likely peak in 2016 and then drop off in 2017 as these projects near their completion. The other key factor in the Baton Rouge MSA’s immediate future is the impact on the economy of the historic flooding that occurred in August 2016. At this writing, thousands of residents have been forced into shelters by flood waters up to their roof tops. Great swaths of the region will be under water for several days. Below, we will attempt to estimate the impact of this unusual event on the economy. 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 9,943 chemical workers in 2014. Baton Rouge is home of the nation’s fourth (and the world’s twelfth) 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. In July 2016 the Baton Rouge MSA had an unusually high 13% of its workforce (53,600 jobs) in the construction sector, the second highest percentage in the state. Only Lake Charles was higher at 15% (15,800 jobs). The comparable percentage for the whole state was 7.2%. 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. This MSA is also home to an emerging high tech sector, led by Electronic Arts game company and the large IBM facility. Recent History of Baton Rouge Figure 10 shows employment trends in the Baton Rouge MSA over 1980-16. 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 employment trend line in Figure 10 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 ______________________________________________________________________________________ Economic Outlook Page 47

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 10.

Fig. 10:Baton Rouge MSA Non-Farm Employment 1980-2016 440 400 360 Thousands

2016: +9,000 Jobs (+2.2% ) X

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

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15

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 ______________________________________________________________________________________ Economic Outlook Page 48

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. This MSA’s population exploded by over 34 percent overnight. 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 12, 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. Table 12 Population Change by Parish July 2005 – July 2007 Parish Absolute Change Percent Change East Baton Rouge 18,121 4.4% Ascension 10,000 11.2% Livingston 9,100 8.5% West Baton Rouge 1,091 5.1% Pointe Coupee 564 2.6% St. Helena 437 4.3% East Feliciana 276 1.3% Iberville 272 0.8% West Feliciana 60 0.4% Source: U.S. Census Bureau

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Katrina boosted employment. Not only do the population numbers show that this MSA benefited from the storms, the employment numbers shown in Figure 10 confirm that as well. The employment line in Figure 10 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 10, 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 10 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 it lost only 3.1% of its jobs. This was the second lowest loss of any MSA in the state. 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.



Chase Bank closed its operations center, dismissing 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, terminating off 132 people.

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

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Recovery from Great Recession Getting Stronger Each Year Recovery from the Great Recession in the Baton Rouge MSA has been getting stronger each year as seen back in Figure 10. Employment growth in 2011, 2012, 2013, 2014, 2015 and 2016 were 1.4%, 1.5%, 2.7%, 2.6%, 2.2% and 2.2%, respectively. By October 2012, the MSA had recovered all the jobs lost during the Great Recession and began setting new employment records. This boom was largely led by the massive industrial construction activity in the region. Indeed, construction employment in the region jumped from 37,900 in July, 2011 to 53,600 in July, 2016---a remarkable 41% increase in only five years. The MSA accomplished this growth despite a couple of significant setbacks. First, the region lost 925 call center and distribution center jobs, including the 400person Home Depot call center. Secondly, state government faced some serious financial challenges as a result of the recession and other factors. Governor Jindal steadfastly refused to solve these budgetary issues by raising taxes, which meant cuts in government spending were the order of the day. As the state capital, Baton Rouge tended to bear the brunt of those cutbacks. Since July of 2009, state government has shed 5,000 workers (-12.5%) in the Baton Rouge MSA. Forecast for 2017-18: Construction Drop off in 2017? Figure 11 contains our forecast of employment for this MSA for the next two years. We estimate that in 2017, the Baton Rouge region will add 4,500 jobs (+1.1%) and will follow that with an additional 4,500 jobs in 2018 (+1.1%). 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 9,000 new jobs is projected to be the fastest in the state. The primary reason for the drop off in the MSA’s growth rate starting in 2017 is that several industrial construction projects will peak in 2016 and begin using fewer workers starting in 2017. Record $10.1 Billion in Industrial Expansions Underway As mentioned above, Baton Rouge’s six very strong years of growth in a row is largely due to the record industrial expansions in the area. Again, unlike the case in New Orleans and Lake Charles, the great majority of the announcements in this MSA are under construction, whereas in those other two MSAs many announcements are at the FEED stage and are only “potentials”. As we pointed out back in the assumptions section, natural gas prices have fallen sharply in the U.S. but are significantly higher 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 (see pages 19-25).

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Fig. 11: Baton Rouge MSA Non-Farm Employment Forecast: 2017-18 440 Cracked 400,000 barrier in 2015 X

400

Thousands

360 320 2017: +4,500 jobs (1.1% ) 2018: +4,500 jobs (1.1% ) 2nd Fastest in State! (in % terms)

280 240 200 80

85

90

95

00

05

10

15

Among the projects underway or completed in the Baton Rouge MSA are the following: 

Dow Chemical is spending $1.06 billion on two polyolefin plants and other capital upgrades. One project was finished in 2015 and another should be completed by the end of 2016. The projects will add 71 new jobs at an average annual wage of $49,000.



In Ascension Parish the 1,600-person BASF plant has finished four new facilities at a total cost of $500 million. About 100 new jobs have been created.



$2.1 billion is being spent by CF Industries in Donaldsonville to build the nation’s largest nitrogen fertilizer plant. This project is in the final stages of construction and will be completed in 2016. It will employ 93 people.



Shintech has a $1.4 billion expansion underway that includes an ethane cracker and connections to PVC and VCM production lines in Iberville Parish. Completion is expected in 2018-II, and 100 new jobs at $68,500 annually will result.

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

Also at the Shintech site, SE Tylose is nearing completion of a $120 million chemical plant. The company is hiring 30 workers for the new plant.



Methanex Corporation has spent $1.1 billion to move two idle methanol plants from Chile to Ascension Parish. The first plant opened in 2014, and equipment for the second plant was completed in 2016-I. The 2-plant complex employs 165 people at $56,000 annually. The firm is still examining the possibility of moving a third plant from Chile to the Ascension site which would involve another $600 million investment. Siting issues have delayed this third unit.



Honeywell has spent $80 million on expansions at two of its sites in Baton Rouge and one in Geismar. The firm has retained 200 jobs and added another 10 to its workforce.



Genesis Energy has completed a $150 million, 1.1 million barrel storage terminal for oil, intermediates, and refined products at the Port of Baton Rouge. The firm is expected to receive its first cargo in October 2016.



At the USA Rail & Terminal Industrial Park in Port Allen, Thermaldyne is building a new $19 million waste remediation plant and adding 45 jobs at $70,000 annually.



American BioCarbon (formerly NFR BioEnergy) has moved its headquarters from New York to White Castle and has begun spending $312 million to build 10 sugar-refining hubs that would take bagasse and produce hardened energy pellets for use as fuel in global power plants. The firm will hire 127 by the end of 2016 and expected to be at 450 by 2019. The full $312 million would be spent by the end of 2018.



Former officials with Shaw started up a new company---Epic Piping---and have just completed a $45.3 million, 200,000 square foot pipe fabrication facility in Livingston Parish. When completely hired up, the firm will employ 560 people at an average annual wage of $56,500.



In summer 2016, Katoen Natie began construction of the first phase of a $150 million, two million square foot plastics storage and distribution center. The first phase will involve a $36 million investment and employ 50 people. When fully built out, the complete project will employ 210 people.



Shell Chemical broke ground in February 2016 on a $717 million alpha olefins plant that should be open in 2018. The firm will add 20 new jobs at $104,000 annually.

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

Praxair is constructing a $100 million carbon monoxide expansion at its site in Geismar. This project should be complete in 2018-H2.

Construction of these plants is the principle reason why construction employment is up 41% in the MSA since 2011. However, as indicated in the listing, several of these plants are nearing completion. The Greater Baton Rouge Industrial Alliance (GBRIA) has conducted a survey of its members regarding construction employment through 2017. Figure 12 provides the results from that survey. The GBRIA survey suggests that construction employment will peak in October 2016 at 28,348 and fall to 18,587 by the end of 2017, a decline of almost 9,800 jobs. This decline is a primary reason why we have projected a marked decline in the Baton Rouge MSA employment growth rate in 2017-18 (1.1% a year) as compared to 2016 (2.2%). Figure 12 Greater Baton Rouge Industrial Alliance Construction Employment Survey

This construction employment decline could be at least partially offset if some of the area’s “potential” projects actually broke ground. There are at least three potentials that have chosen the Baton Rouge MSA as their preferred site but are still working on permitting, financing or other issues. They include: 

Momentive Specialty Chemicals is planning to spend $66 million at its Geismar facility and add 5 new jobs.

______________________________________________________________________________________ Economic Outlook Page 54



PSC Nitrogen announced in July 2015 that it planned to build a new $40 million urea plant in Geismar to be completed in mid-2018. No new jobs are projected with this expansion.



Stepan Company is exploring the possibility of constructing a $60 million to $70 million plant in Geismar that would employ 33 people at an average annual wage of $70,000. The firm would need to buy property from and use raw materials from Shell’s Chemical plant.

Baton Rouge’s construction fortunes could really be enhanced if the region went from a “short list” status to the “named site” on three key projects. In August 2016 it became public that a joint venture between ExxonMobil and Saudi Basic Industries Corporation (SABIC) is planning a huge multi-billion dollar petrochemical complex on the Gulf coast, and apparently a site near Plaquemine, Louisiana is under consideration. Secondly, economic developers are working hard to land a project known by the nickname “Project Flex”. This is a $3 billion project that would create 130 high-wage jobs and is a possibility for Ascension Parish. It also should be noted that LyondellBasell plans to choose a site on the Gulf coast for a multi-billion dollar plastics plant. It is our understanding that Ascension Parish, St. James Parish, and Lake Charles are in the mix under consideration. Landing even one of these mega projects could reverse the tide of construction job losses facing this MSA, As mentioned in last year’s LEO, all this new industrial activity in the Baton Rouge region has spurred a non-trivial boom in the rail sector---especially on the west side of the River. For example: 

In Port Allen, USA Rail Terminals is spending $11.3 million on a railroad facility and a 200-acre industrial park just south of the old Mississippi River Bridge. The site will have the capacity to store up to 1,200 railcars. Announced in February 2015, the project will be completed this year. Forty-three new jobs--at a relatively high annual wage of $80,000---come with this project.



At the Port of Baton Rouge, Union Pacific Railroad plans to construct an 18month, $19.6 million rail expansion project. The company will spend $7 million on longer receiving tracks and power switches to accommodate unit trains (trains with 100 railcars), and another $12.6 million on a chambering yard for railcars waiting to be loaded or unloaded. At this writing, this project has not started.

Grain & Pellets Create a Boom at the Port The Union Pacific project at the Port of Baton Rouge was requested by Drax Biomass and Louis Dreyfus Commodities. Louis Dreyfus made a major investment in a grain elevator at the Port. Drax Biomass built the two white round-shaped storage units one sees on the left side of the Mississippi River Bridge when driving west. Drax ______________________________________________________________________________________ Economic Outlook Page 55

Biomass has a facility in North Louisiana, and is building another in Pine Bluff, Arkansas, that make wood pellets to be shipped to the Port for storage before being shipped abroad to burn in electrical power plants. Drax ultimately plans to ship 600,000 tons of pellets through the Port, a volume that will require 40 new vessels a year calling at the Port. The impact of these two firms on tonnage handled at the Port has, and will be, nothing short of dramatic, as seen in Figure 13. Note the 125% increase in 2014 as the Louis Dreyfus facility came online. The reason for this huge jump is seen in the grain tonnage numbers which rose from zero tons in 2012 to 5,180,724 in 2014. When Drax Biomass finally begins full-scale shipping of pellets through the Port there will be another spike in tonnage. The Port is expecting an impressive 100-150 more cargo ship calling at the Port over the next two years as compared to 2015. Fig. 13: Tonnage Handled at Port Of Baton Rouge: 2005-15 10,000,000 2012 2015 Grain 0 5,180,163 Petroleum 1,101,552 2,517,724 Cargo Docks 171,839 313,214

9,000,000 8,000,000

Tons

7,000,000

Expecting 100-150 More Cargo Ships 2017 v 2015

6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 05

06

07

08

09

10

11

12

13

14

15

Fiscal Year

Other Significant Boosts for the Baton Rouge MSA While gains from industrial construction will dominate this region’s economy, very important boosts will also be coming from a variety of corners:  The IBM Technology Center has now been constructed and the company has begun hiring. At 333 employees in the summer of 2016, IBM is ahead of its planned hiring schedule. That schedule includes reaching a goal of 800 by the end of 2017.

______________________________________________________________________________________ Economic Outlook Page 56

 Construction has started on “Project X” a 140,000 square foot beverage distribution facility north of Epic Piping in Livingston Parish. This company will create 150 new jobs for the region.  Martin-Brower Company---also in Livingston Parish---broke ground in October 2015 on a $16 million food distribution center that will retain 160 jobs and add 30.  Paychex, a company that provides payroll, retirement and human relations services to 600,000 small and medium sized businesses will add 100 jobs in Baton Rouge.  Insurance giant Aetna has announced it will open a new 100-person administrative office in Perkins Rowe in Baton Rouge.  We mentioned last year that Stixis was opening its first U.S. development office at the Louisiana Technology Park. Plans were to hire 230 new people for the office. Presently only 4-5 persons are employed there, so the firm is not moving as fast as was hoped.  Our Lady of the Lake has begun construction of a $230 million, 350,000 square foot, 130-bed Children’s Hospital in the Healthcare Corridor. The complex will also include a medical office building and is scheduled to open in the Fall of 2018.  The $110 million renovation of Patrick Taylor Hall at LSU is in progress with an estimated completion date of June 2017.  The $45 million, 3-building Water Campus is well underway just south of downtown Baton Rouge. Two building are completed and will see tenants moving in by year end. Construction of the third $25 million building has just started and should be completed in 18-24 months.  The region will get an extra boost over the next two years from increased spending on road projects. The state plans to let $419.2 million in projects over 2017-18, a 38% increase over the $303.6 million let earlier. The two biggest projects listed were (1) $52.2 million for 3-laning I-10 from Highland Road to LA73 and (2) $36.2 million to widen LA42 from US61 to LA44. In addition to these state monies, the federal government has awarded the region $60 million to close the Washington Street exit off of I-10 to eliminate the bottleneck coming off the Mississippi River Bridge.

______________________________________________________________________________________ Economic Outlook Page 57

Guessing the Impact of the Great Flood of 2016

While this document was being penned the Baton Rouge MSA is in the aftermath of an historic flood created when two feet of rain was dropped on the area over three days. A similar “100 year flood” hit the area in 1983, but the Great Flood of 2016 broke even those records and has been named a “1000-year flood”. It has been estimated that over 116,000 homes were flooded in the MSA. President Obama declared 20 parishes in southeast Louisiana a federal disaster zone. This designation made many flood victims eligible for FEMA grants of up to $33,000 to help pay for repairs and replace property. Some property owners learned to their horror that their homeowners insurance does not cover flood damage. Flood damage is only covered if specific flood insurance policies were purchased. In East Baton Rouge Parish, only 13.3% of property owners carried flood insurance, though that figure was a higher 36% in high flood risk areas. In heavily flooded Livingston Parish, only 22.2% of homeowners carried flood insurance, a figure that grew to 34.5% in high flood risk areas. More aid will be available to some homeowners through the Small Business Administration, where homeowners may apply for up to a $200,000, low interest (1.563%) loan to repair or replace damaged property. Businesses and no-profits can borrow up to $2 million at a 4% rate for businesses and 2.265% for non-profits. “Guessing” is the operative word in the heading to this section. Tracking the impact of this event is like trying to tell where a rocket is going when it is only five feet off the ground. The natural tendency is to recall what happened in New Orleans after Katrina and Rita (see Figure 8) and assume that this MSA may lose a decade of economic growth. But there are major differences between the New Orleans event and what has happened in this MSA. New Orleans was under water for four weeks and possibly longer in certain areas, while the Baton Rouge area was under water for about 4 days. In addition, in New Orleans major institutions were closed for varying----and significant--amounts of time. Universities had to forego the fall 2005 semester and help their students join under universities or to lay out a semester. And even when universities were able to open in the spring 2016 enrollment was considerably down. Many public and private elementary and secondary schools could not open for the fall 2005 semester. The health care system was severely damaged and hospitals were unable to open up quickly. In the case of the Baton Rouge MSA the businesses are still in place---though several will have a major clean up ahead. The universities and most schools will reopen after two to three weeks. Great numbers of people have not left and their jobs are still here. Finding lodging until homes are repaired and finding replacement vehicles will likely be the most daunting challenges our citizens will face. It is a major personal tragedy for thousands of people, and that cannot be minimized. That being said, we have not altered our original employment forecast based on the Great Flood of 2016. If anything, we are expecting an uptick in construction employment as all the insurance, FEMA, and SBA monies begin flowing into the region ______________________________________________________________________________________ Economic Outlook Page 58

for the rebuild effort. Most assuredly, local governments in the affected parishes will see a spike in sales tax collections as people replaced clothing and appliances and as they purchase building materials. Hopefully by the release of next year’s LEO, the Great Flood of 2016 will be a horrific event in the region’s rear view mirror.

Shreveport/Bossier: Can’t Shake the Oil & Gas Effects This MSA is now the fourth largest MSA in Louisiana with an estimated 181,800 non-farm jobs in 2016. Located in the northwestern corner of the state, this MSA is now comprised of four parishes---Caddo, Bossier, Webster, and DeSoto. Webster Parish is a recent addition to this MSA. All our employment numbers reflect the addition of this parish. 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 eight 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 has now been joined by Benteler Steel, 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 about 5,507 people in 2016-IV. Bossier City is home for Barksdale Air Force Base, an employer of 9,155 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, Ronpak, and Benteler Steel. Altogether, tenants at the Port employ over 1,100 people. This region was a huge beneficiary of an economic jolt from 2007 to about 2009 in the form of the Haynesville Shale---a very large deposit of natural gas. New fracking technology 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. This largess radically reduced the influence of the Great Recession on this MSA's economy, as we will show below. We will also note a considerable tailing off of activity in the shale since 2010. Shreveport/Bossier Recent Employment History Figure 14 tracks the employment history of this MSA over 1980-2016. The Shreveport/Bossier area suffered through a prolonged, and deep, recessionary period ______________________________________________________________________________________ Economic Outlook Page 59

from 1985-89. While this decline was partially a result of a badly declining exploration industry, that was not the main culprit. 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. 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.

Fig. 14: Shreveport-Bossier MSA Non-Farm Employment 1980-2016 200

2016: -2,100 jobs (-1.2% ) 11,000 Jobs Below 2008 peak

190 2009 -4,200 Jobs (-2.3% )

Thousands

180 2001-03: 3,900 Jobs (-2.3% ) US Down 2 Years (-1.4% )

170 160

X

2012-13: GM Barksdale Haynesville Libby Glass

-8.2% (AT&T)

150 140 80

85

90

95

00

05

10

15

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. ______________________________________________________________________________________ Economic Outlook Page 60

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. 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 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, terminating 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 at the time, 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 five years in a row, expanding at an average rate of almost 2% a year over 2004-08. 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 Port of Caddo-Bossier, 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 14 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. ______________________________________________________________________________________ Economic Outlook Page 61

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 earlier, these funds amounted to $3.5 billion in 2008 and $7 billion in 2009, an immense 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 13. 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 13 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 14. Not only did property taxes increase dramatically ______________________________________________________________________________________ Economic Outlook Page 62

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. In Desoto Parish, property taxes increased by 3 ½ times. In Red River Parish the increase was almost by a factor of seven. The Haynesville Shale was a huge factor in the treasuries of these local governments. Table 14 Property Tax Collections in 5 Haynesville Shale-Impacted Parishes: 2005 Versus 2013 Parish

Property Taxes

Property Taxes

% Energy-

% Energy-

2005

2013

Related 2005

Related 2013

Desoto

$22,395,351

$78,432,531

18.9%

62.4%

Red River

$3,549,617

$21,927,425

3.6%

47.8%

Webster

$15,728,690

$25,342,948

17.1%

26.0%

Bossier

$52,449,881

$97,054,727

8.5%

16.1%

Caddo

$158,347,601

$230,350,740

2.8%

10.5%

Source: Louisiana Tax Commission 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 came 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.

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

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 14 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 growth rate of 1.2%. 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 been in a decline since 2012, losing 6,600 jobs (-3.5%). 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 have been 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 the first 2 years of this employment decline. After being responsible for shielding the MSA from much of the effects of the Great Recession, activity in this shale dropped precipitously. After reaching a peak of 142 rigs in April 2010, the rig count in North Louisiana plummeted to only 23 in July 2013---an 84% decline. Rig activity has fallen further to 16 and has shown few signs of robustness. What caused this rig movement out of the Haynesville play? The answer lies in the rate of return on equity (ROI) data in Figure 15. 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 was costing 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, Permian, and Granite Wash, exploration companies 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 other natural gas plays in the U.S.

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Fig. 15: 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

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 2012 dropped to 7,577. A 24plane A-10C Wing was removed from the base in 2013. 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 contributed to the region’s poor job performance over 2012-15. Another contributor to the recent decline is Libbey Glass. This firm reduced its workforce by 200 in early 2013, moving these jobs to Toledo and Monterrey, Mexico. Readers may have noted back in Figure 14 that the Shreveport-Bossier MSA is on track to lose another 2,100 jobs (-1.2%) this year. The principle driver behind this loss is the oil and gas exploration industry. The U.S. Bureau of Economic Analysis estimated that in 2013 (latest data available) $3.4 billion of this MSA’s earnings came from oil and gas extraction and production. That is over 16.4% of the MSA’s gross domestic product. The funk the oil and gas industry is in, which is heavily documented in the background assumptions section, is having its negative impacts on this northwestern region of the

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state. Unfortunately, we expect that funk to linger into 2017. specific losses below.

We will document some

Finally, it should be noted that the Shreveport-Bossier gaming sector has been somewhat lethargic over the past couple of years. This sector has shed 713 jobs since 2014 according to data from the Louisiana Gaming Control Board. Shreveport/Bossier Forecast for 2016-17: Dinged by Energy Sector Figure 16 shows our employment forecast for this MSA over the next two years. We are projecting that the Shreveport/Bossier MSA will be flat in 2017 (0%) and add 600 jobs back in 2018 (+0.3%). The weak performance in 2017 will be driven by an exploration industry that will remain under attack. The MSA would rank 6th in employment growth rate among the nine MSAs in Louisiana.

Fig. 16: Shreveport-Bossier MSA Non-Farm Employment Forecast: 2017-18 200 190

Thousands

180 170 160

2016: 0 (0% ) 2018: +600 (+0.3% ) 6th Best in State

150 140 80

85

90

95

00

05

10

15

Continuing Shrinkage from Oil and Gas A ding to this area will continue to come from the oil and gas extraction sector well into 2017. Figure 17 reveals the dramatic shrinkage in the rig count in north Louisiana as the natural gas decline has hammered the rig count in the “dry” Haynesville Play.

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Fig. 17: North Louisiana Rig Count: Mid-July 160

Average Annual Rig Count

140

138.0

120 100

93.0

81.0

80

72.0

60

57.0

59.0

50.0

40

36.0

33.0

36.0 25.0

21.0

20

27.0 23.0

23.0 16.0

0 01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

Source: Louisiana Department of Natural Resources

There is a considerable lag in data on real gross domestic product for this MSA, but what the available data do show in Table 15 is a decline of a billion dollars in the contribution of the mining sector13 to RGDP in this MSA between 2011 and 2013. Given the rig count pattern shown in Figure 17, we suspect when the 2015-16 data are released contributions from the mining sector will have declined even more. Table 15 Contribution of the Mining Sector to Shreveport- Bossier MSA: 2009-2014 (Millions of Dollars) 2009 2010 2011 2012 2013 $21,793 $21,430 $20,231 MSA RGDP $20,023 $21,296 $3,608 $3,878 $4,189 $3,756 $3,186 Mining 18.0% 18.2% 19.2% 17.5% 15.7% Mining Share Source: www.bea.gov.

2914 $20,848 $3,428 16.4%

At least three specific negative actions in the region can be associated with the weak extraction sector. Two were at the Port of Caddo-Bossier. The new Benteler Steel facility was being constructed specifically to produce pipe for the extraction industry. The completion of the $665 million tube mill was supposed to correlate with 500 new jobs at the site, but the company has only been able to support 300. The second phase---a $227 million mini steel mill---was to be moved up in the construction schedule, but has 13

www.bea.gov. The mining sector is almost exclusively oil and gas related activities in this MSA. The Dolet Hills lignite mine is located in this region but it is a minor player compared to oil and gas. ______________________________________________________________________________________ Economic Outlook Page 67

now been delayed to post 2018. Benteler is examining the line-pipe sector as a possible new market for its products. Hexion, also at the Port, is engaged in the manufacture of coats for sand used in fracking. Weakness in that market has lowered the firm’s employment down to just 16. In the latter part of 2015, Enable Midstream laid off 190 oilfield workers. No Growth from Gaming Unfortunately, the region has gotten no growth help from the largest gaming market in the state. As seen in Table 16, between 2014-I and 2016-I employment in the gaming sector has dropped from 6,220 to 5,507---a decline of 713 jobs or -11.5%. These losses were spread across all casinos and the racetrack. Table 16 Gaming Employment by Unit in Shreveport-Bossier MSA 2014Q1-2016Q1 Unit 2016-I 2015-I 2014-I Change: 2014-I to 2016-I 559 583 626 -67 Boomtown 1,115 1,149 1,187 -72 Eldorado 1,156 1,161 1,212 -56 Horseshoe 884 1,079 1,086 -202 Sam’s 999 1,060 1,070 -71 Margarittaville 529 519 653 -124 Diamond Jacks 265 319 389 -121 Harrah’s Total 5,507 5,870 6,220 -713 Source: http://lgcb.dps.Louisiana.gov. Good News: Benefits of a 4-Star and High Tech Despite problems associated with a shrinking oil and gas sector, there are several pieces of good news for this MSA. Attraction of the Global Strike Force to Barksdale AFB brought with it 4-star General Robin Rand. Attracting a person of this high rank brings additional business to the base. Indeed, 400 new positions (not more troops) were brought in and another 200 jobs will be added over our forecast period. A new $20 million communications facility will be started in FY17 at the base. A planned $350 million in total capital expenditures should occur over the next three years. The high tech sector should also be enjoying a job spurt over our forecast period. At the Integrated Technology Center, CSRA---the anchor tenant---has 350 employees now and is to expand to 800 employees by 2017 according to the Cooperative Endeavor Agreement the firm has with the state. CSRA is opening a second customer service center and will add 300 jobs over the next two years at an annual salary of $22,000. Ribbon-cutting for this firm is scheduled for October 2016.

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Smaller gains in Manufacturing & Road Construction Additional jobs are coming within this MSA’s manufacturing sector, though with the exception of one, most are rather modest in size. ModuleX Solutions is in its new 750,000 square foot manufacturing facility. The company constructs modular buildings for the telecommunications industry. These are blast-resistant, highly integrated buildings. Presently at 98 employees, the company expects to grow to 357 by 2019. Fiberbond in Minden is presently at 225 employees and is scheduled to add 100 over the next two years. Express Jet at the Shreveport Airport is expanding its maintenance facility and will add 40 jobs. TSE International in Shreveport is spending $1.18 million to enlarge its manufacturing facility which makes tension stringing for the electric utility industry. The company will add 30 jobs to its 62-person workforce. Cellixon in Bossier is adding 40 jobs at its site. At the Port of Caddo-Bossier, large operators Ternium and Pratt are stable, and Ronpak---which moved its headquarters to the Port---will be adding about 60 to its current 115-person workforce. A 125,000 square foot warehouse is under construction and scheduled for a mid-2017 completion date. Tenants at the Port did well in adapting to the Red River high-water temporary closure in 2015. Finally, the state has let $152.8 million in road projects for 2017-18. This is a hefty 65% increase over what was reported in last year’s LEO for this region. The biggest project will be the widening of Swan Lake Road from I-220 to Flat River. Lafayette: Another Year of Losses Likely This MSA, located in south-central Louisiana (see Map 1), is composed of five parishes---Lafayette, St. Martin, Vermillion, Acadia, and Iberia. With the addition of the latter three parishes, Lafayette is now the third largest MSA in the state with an estimated 205,900 people employed in 2016. 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 7.6% percent of its jobs directly from the exploration industry, the highest concentration among the state’s nine MSAs (the comparable number for Houma is 7.4%). (The statewide average is 1.9 %.) Countless other jobs in the MSA are tied to the extraction industry through the multiplier effect. There are five deviations from this pattern. Stuller Inc. is a 1,150-person facility that is the nation’s largest jewelry settings manufacturer. Acadian Ambulance is another large employer in the area (1,350 employees) whose ties are not all directly ______________________________________________________________________________________ Economic Outlook Page 69

related to the extraction industry, although the firm provides air-med helicopter services and offshore rig/pipeline safety training 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. A third, growing firm is the Schumacher Clinical Partners, which provides ER and hospital medicine doctors to hospitals in 23 states. Fourth, Lafayette has a new and growing high-tech sector which we describe in detail in the forecast sector below. 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 18 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 18 because of the adjustment in the makeup of the MSA in 1990.) 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 Inc. 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.

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Fig. 18: Lafayette MSA Non-Farm Employment 1980-2016 240

2015-16: -7.4% (-16,500 jobs) 2016: -4.1% (-8,900 jobs)

220

New Record: 9/11 Earliest in the State

Thousands

200 180

X

Late 2001: Closure of F-O-L

160

-19.4% X MSA Changes 2015: +Iberia, Acadia, & Vermillion Decline

140

2009-10 -9,200 Jobs (-4.3% )

120 100 80

85

90

95

00

05

10

15

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 18). 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, terminating 1,300. By this time, the post 9-11 national recession was also impacting Stuller Inc., 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. ______________________________________________________________________________________ Economic Outlook Page 71

The Impact of Katrina & Rita It is obvious from examining the 2005 and 2006 data points in Figure 18 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 Hurricanes 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 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 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.

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High Energy Prices and Job Declines in Lafayette 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 mid-2014. 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 18, 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 were this high and the economy 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 BP oil spill. Recovery from the Great Recession: From Unbelievable to Believable Numbers The Lafayette MSA has had a very healthy recovery from the recession, adding 14,200 jobs (+6.9%) over the four years from 2011-14. It is important to note 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) had the best recovery record of all nine MSAs over 2010-14. 2015-16: Ogre of Low Oil Prices Raises Its Ugly Head Unfortunately, it was Lafayette’s lot to face another down cycle in oil prices. The decline from $105.71 a barrel in August 2014 to a low of $27.76 in January, 2016 had its usual effect on the very oil-dependent Lafayette MSA. Job losses began to be recorded in April 2015. As seen back in Figure 18, we are estimating the region will be down 16,500 jobs (-7.4%) over 2015-16 as compared to 2014. Most of that loss (-8,900 jobs) will occur this year. Candidly, in last year’s LEO, we under-estimated just how harmful these low prices would be on Lafayette. ______________________________________________________________________________________ Economic Outlook Page 73

While this is certainly unhappy news, it is suggested that readers take another hard look Figure 18 and what happened in this MSA in the early 80s. Barring a really unforeseen catastrophe, no one is expecting a repeat of the level of job-hemorrhaging that occurred over 1982-87. Forecast for 2017 and 2018: Another Year of Angst Figure 19 provides the reader with our projections for employment for this region over the next two years. We are forecasting further job losses in 2017 totaling 5,000 (-2.4%). By 2018 we expect the blood-letting to be over and the economy to stabilize. Layoffs Continue in the Oil Patch In the past two years the Lafayette economy has been hammered by layoffs in the exploration and closely related industries. For example: 

Frank’s International indicated in April 2015 that it would be laying off 400500 employees worldwide. Approximately 150 of those terminations have occurred in the Lafayette area.



In February 2015, Parker Drilling divulged it was furloughing 50-297. Thirtyfive were reported terminated at the company’s New Iberia location.



Exterran closed its plant in Broussard in December 2015, resulting in 75 workers losing their jobs.



In late 2014 Hercules Offshore indicated the firm would lay off 450 employees, although the exact number terminated in the Lafayette area is uncertain. Hercules sold its lift boat division, and the office personnel associated with the company’s drilling division were all moved to Houston.



Chevron is moving its focus from the GOM shelf to GOM deepwaters. Unfortunately, the Chevron Office in Lafayette was the company’s shelf office. That 300-person office is now down to under 15 employees.



GE Drilling has released 77 employees.



In New Iberia, CARBO Ceramics is closing temporarily at a cost of 61 jobs.



Blue Sky Innovations, which provides helicopter support servicing offshore work, has cut 58 positions.



Acadian Ambulance reduced its offshore rig and pipeline safety division by 320. One hundred of those job losses were in Lafayette.

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

In February 2014, Danos reported it planned to start constructing a $23.2 million, 172,000 square foot offshore equipment and piping plant at the Port of Iberia. The company expected 100 new jobs at the site. That project was moved out of the MSA to Amelia and the company recently announced a layoff of 80 employees.

These are just the reductions we are aware of from public announcements or WARN notices filed with the Workforce Commission. There have most certainly been more. Two key energy firms headquartered in Lafayette have struggled in this low-price environment. The stock price of Stone Energy has plummeted from a high of about $500 a share to $13.94 in mid-august 2016. PetroQuest has faced a similar problem, with its stock price falling from the $30 range to under $2 a share in mid-August 2016. These and other energy firms desperately need an oil-price revival. Prospects for the GOM Are Critical In that regard, the Lafayette energy sector depends heavily on the prospects for activity in the Gulf of Mexico (GOM). Thus, our forecast for Lafayette’s immediate future turns heavily on the trustworthiness of our analysis of the oil market as detailed back on pages 10 to 18. In that section we argued that oil prices would gradually rise from $42 a barrel this year to $53 in 2017 and then $60 in 2018. In the past, oil prices in this range would leave the GOM exploration market on its last legs. That in turn would mean the Lafayette economy would be in for a longer run decline. Though at least one firm (ConocoPhillips) has indicated it is exiting deepwater exploration, our conversations with other oil executives indicate their companies are working strenuously with suppliers to produce a new, lower-cost exploration environment. They are expecting the breakeven point in the deepwaters to be reduced from the $70-$80 range to the $55-$60 a barrel range. If our oil price forecasts are near the mark, then sometime in 2018 these companies will start to sanction deepwater projects again and hopefully that momentum will reverse the dive in the Lafayette economy. Lafayette’s long run track depends greatly on that description of the GOM market coming true.

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Fig. 19: Lafayette MSA Non-Farm Employment Forecast: 2017-2018 240 220

Thousands

200 180 160

Acadia, Vermillion & Iberia Added X

140

2017: -5,000 jobs (-2.4% ) 2018: Flat

120 100 80

85

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95

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15

Unsettling New From Bell Unexpected news was received from Bell Helicopters in summer 2016. With state help, the firm has constructed a $26.3 million facility at the Lafayette Airport to assemble the new line of 505 Jet Ranger helicopters. Full production was to commence in late 2017 with 115 new jobs at $55,000 a year. Bell has now announced it is moving production of the 505 Jet Ranger to Canada and is relocating the 525 Relentless cabin sub-assembly from Amarillo, Texas and its Grumman MQ-8C aerial vehicle from Alabama to Lafayette. It is unclear what this modification will mean to the 115 target, but the general consensus is that it will not be met. Really Good News at the Port Countervailing all this negative news is what is happening at the Port of New Iberia. Four companies have made significant announcements at the Port. Dynamic Industries has landed two 24-month contracts to fabricate modules for deepwater platforms and will be hiring an additional 400 workers. Primoris is building a new facility to manufacture pipe and will hire 400. ______________________________________________________________________________________ Economic Outlook Page 76

Logan Industries is building a new facility to store deepwater drill rigs and is adding 300 employees. Finally, long-term Port resident, Bayou Companies, is constructing a new $14 million pipe coating facility to service the Shell Appomattox project and will add 40 people to its 320-person workforce. The addition of these 1,100+ jobs will be a significant factor in mitigating the losses in the oil sector. Stability within the “Big Three” Also of good fortune for Lafayette is the general stability within its “big three” companies. Now that layoffs from its rig and pipeline safety division are in its rearview mirror, Acadian Ambulance is maintaining its large 1,350-person presence in Lafayette. This very successful ambulance and alarm monitoring firm continues to expand with mergers in other states. Stuller Inc. moved a 15-person unit from Iowa to Lafayette and expects to add about 20 employees a year over 2017-18 to its 1,150-person workforce. Another large firm headquartered in Lafayette is Schumacher Clinical Partners, which employs 568 people in Lafayette and will add 40-50 people over our forecast period. Growing through mergers and growth, this company is now recording $1.4 billion in annual revenues by providing ER and hospitalists doctors to hospitals in several states. More High Tech Jobs Coming Over 2017-18, Lafayette will benefits from steady growth in its existing high tech firms and the entrance of some new ones. For example: 

A 38-year old Canadian information technology company---CGI---has leased a 50,000 square foot $13.1 million building in ULL’s Research Park. CGI will hire 400 employees over four years for jobs that will pay, on the average, $55,000 a annually. CGI employment is presently at 200 employees, and the firm will add 200 more jobs through 2018.



Enquero is a new software technology center. Enquero pays it employees an average of $64,300 annually. Already at 110 employees, Enquero plans to add another 110 jobs over 2017-18.



Perficient---a St Louis based software development center---has 70 persons employed and will add another 70 over the next two years. The firm plans to have 245 employees at the Lafayette site within six years.



A new firm---Waitr—has opened a technology operations center in Lafayette to provide online and mobile software solutions that partner with local restaurants to provide home delivery. Waitr plans to hire 100 software engineers and 100 drivers.



Global Systems Data is expanding its headquarters in Northpark and adding 44 jobs to its computer and satellite communications business.

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

An environmental engineering testing company---the ATC Group---has moved its headquarters back to Lafayette from Colorado, bringing with it 50 new jobs.

The Lafayette area will also be bolstered by $278.9 million in state road projects to be let for the region over 2017-18. The great bulk of this spending will be $175.5 million to widen I-10 from I-49 to LA33. It is our understanding that a company has chosen the old Evangeline Downs site for the largest Fedex facility on I-10 between Houston and Jacksonville. Plans are to open this $11 million facility in March 2017 with 100 employees.

Houma: When Will the GOM Return? 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 south-central 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 2016, 7.4% of the MSA’s employment was directly in oil and gas extraction, nearly four times the statewide average of 1.9%. 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, which services about 90 percent of the offshore platforms and drill ships in the Gulf of Mexico. Houma’s Recent History Figure 20 tracks the non-farm employment history of this MSA over 1980-2016. 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 36 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 $109.52 a barrel in today’s prices.

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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.

Fig. 20: Houma MSA Non-Farm Employment 1980-2016 110 2015-16: -10.2% (-10,400 Jobs) 2016: -5.8% (-5,600 Jobs) X

100 X

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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 ______________________________________________________________________________________ Economic Outlook Page 79

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 20 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 20 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. 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. Effects of the recent oil ______________________________________________________________________________________ Economic Outlook Page 80

price drop, coupled with an industrial boom in Lake Charles, has moved the latter MSA back above Houma again. 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. 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 was an exodus of evacuees from the MSA, but a number 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 continued to rise through 2013 and the first half of 2014 as seen back in Figure 5. 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.

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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. 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. 2012-14: Strong Bounce Back As seen back in Figure 22, the years 2012-2014 were very good years for the Houma MSA. The MSA added 8,700 jobs over those three years. That is an average growth rate of 3.1% a year, an enviable achievement compared to most MSA’s in the country. Its growth rate in 2014 was 2.1%---tying Lafayette as the third highest among Louisiana’s nine MSAs. Only the exceptionally booming Lake Charles and Baton Rouge MSAs performed better. Note in Figure 20 that (1) in 2013, the Houma MSA blew past its previous employment peak of 2008 and (2) in 2014 the MSA crossed the 100,000 employment mark for the first time in its history. The comeback in the Gulf is largely responsible for this surge. Not only did exploration activity return and surpass its previous peak, but also Gulf Island added several hundred workers and Chouest's new shipyard, LaShip opened and grew to 1,200 employees. The major port servicing the offshore industry, Port Fourchon, turned from retrenching to bustling. It was a very good three years indeed. 2015-16: Sliding Down another “V” Oil prices have entered another steep decline, and the Houma economy does what it always does---it is sliding down the left side of the “V”. There is no sugar-coating the impacts when declining oil prices are visited on this region. The MSA has lost an ______________________________________________________________________________________ Economic Outlook Page 82

estimated 10,400 jobs over the past two years, a 10.2% decline. About half of that decline (-5,600 jobs) will be occurring in 2016. Unfortunately, as will be documented below, 2016 is unlikely to be the bottom of the “V”. Forecast for 2017-18: GOM Will Determine the Extent of the Slide Houma’s forecasts are shown in Figure 21. We are projecting that the impacts of declining oil prices will impact the Houma economy well into 2017 and then bottoming out in 2018. We expect the MSA to shed another 4,000 jobs in 2017 (-4.3%) before the slide ends and the economy flattens out in 2018. This will rank the MSA 9th among the MSAs in the state in economic growth. Importantly, we are not expecting a decline as large as the early 80s recession that devastated this region---a decline so deep it took 10 years to recover. The 80s decline cost the MSA 24.6% of its jobs. If our forecasts are correct, this downturn will cost the region 14.1% of its jobs.

Fig. 21: Houma MSA Non-Farm Employment Forecast: 2017-18 110

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To appreciate the reaction to plummeting oil prices by of some of the firms in the Houma MSA a few examples are offered: Edison Chouest, a company that both builds and operates supply boats working the offshore oil and gas market is in a serious retrenching mode. The company ______________________________________________________________________________________ Economic Outlook Page 83

has 100 of its boats tied up at dockside. Chouest has laid off 1,600 from it shipyards. In order to maintain its crew levels, Chouest has gone from a “28 days on; 14 days off” schedule to “14 days on; 14 days off”. Crews get to work fewer hours (and earn less) but they remain employed. 

Bollinger Shipyards was recently acquired by Chouest. Bollinger is in the midst of a $1.5 billion, 32-boat contract with the Coast Guard to build the Fast Response Cutter. In May 2016 the company received a contract for 26 more of these ships, which will keep 800 employees busy into 2020. It is the company’s repair/conversion work---mainly associated with work in the GOM---that is down considerably. Bollinger has filed a WARN notice with the Louisiana Workforce Commission to lay off 275 workers.

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Work at a huge fabricator in the area---Gulf Island Fabricators---is off so much that the company’s workforce has declined from 2,000 to 250. The company has been securing small jobs to keep its workforce. Its Dolphin yard employs 350. Both firms are trying to get fabrication work associated with (1) the chemical boom in South Louisiana and (2) brown water tug and cruise boats.

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Chett Morrison has seen its employment decline from 515 to 400. The company has developed a new riser storage/maintenance unit and plans to hire back 70 people. Executives are looking at land acquisition to get into the maintenance and small fabrication work on land projects.

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In Houma, shipbuilder Thoma-Sea has seen its employment drop from 500 to 300, but the company plans to hire back 50-80 to complete a recently added project. Thoma-Sea is diversifying into non-oil and gas vessels and is on the short list for several projects that will hopefully maintain its labor force.

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At Port Fourchon the evidence of the energy downturn is being manifested in a number of ways. First, the Port has been approached by its tenants for a reduction in lease rates, because the companies for which the tenants provide services are pushing rates for the tenants down. The Port Commission Board has approved a 20% rate reduction from April 2015 through December 2016. Secondly, tenants are taking a step back on planned capital projects at the Port. On the other hand, the 7,000 foot Slip C will be finished by the end of 2016. In Slip C 100% of the space is at right of first refusal with no leases as yet. The Port is beginning a 5-7 year plan to develop Slip D, but the speed of that development will depend on the leasing up of Slip C. The Port will be spending $10 million on capital projects over the next two years, a significant reduction from its $90 million plan announced earlier.

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Baker Hughes announced in February 2015 it was closing its 60-person wire-line facility in Houma.

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CHI Aviation in Galliano is closing its facility and laying off 74 pilots, mechanics, and support staff by the end of 2016.

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National Oilwell Varco is closing its Houma facility in 2016 at a cost of 80 jobs.

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In May 2016, Offshore Specialty Fabricators indicated it would terminate 67 people in mid-summer at its Houma site.

Like Lafayette, Much Depends on the Future of the GOM It bears repeating in the Houma section our position regarding the future of the GOM that was penned in the Lafayette section. The Houma energy sector depends heavily on the prospects for activity in the Gulf of Mexico (GOM). This is especially the case for this MSA due to the preponderance of shipbuilders, fabricators and service firms in the region. Thus, our forecast for Houma’s immediate future turns heavily on the trustworthiness of our analysis of the oil market as detailed back on pages 10 to 18. In that section we argued that oil prices would gradually rise from $42 a barrel this year to $53 in 2017 and then $60 in 2018. In the past, oil prices in this range would leave the GOM exploration market on its last legs. That in turn would mean the Houma economy would be in for an even longer run decline. Though at least one firm (ConocoPhillips) has indicated it is exiting deepwater exploration, our conversations with other oil executives indicate their companies are working strenuously with suppliers to produce a new, lower-cost deepwater exploration environment. They are expecting the breakeven point in the deepwaters to be reduced from the $70-$80 range to the $55-$60 a barrel range. If our oil price forecasts are near the mark, then sometime in 2018 these companies will start to sanction deepwater projects again and hopefully that momentum will reverse the dive in the Houma economy. Deepwater players are also expecting negotiations with BSEE on the new drilling rules to significantly reduce the cost of those regulations. Houma’s long run track depends greatly on that description of the GOM market coming true. A Bump from Virdia, Roads and LOOP While good news is difficult to find in the Houma MSA when “sliding down the V”, there are some positive events on the horizon. Virdia Corporation is constructing a $60 million biochemical plant located next to the Raceland Raw Sugar Mill. The company will turn bagasse from sugar cane into high-value industrial sugars and biofuels. The plant should be completed by the end of 2016 and employ 81 people at $55,000 annually. The Louisiana Offshore Oil Port (LOOP) will spend $25 million to add three above ground storage tanks at the Clovelly Hub. Finally, the state DOTD has let $90.2 million in road projects for this 2-parish region over 2017-18---about the same amount as we reported last year. Of this amount $35.3 million will be used to relocate a piece of ______________________________________________________________________________________ Economic Outlook Page 85

LA1 from Golden Meadow to Leeville. GOMESA monies will start coming to help with this road elevation in 2017.14 If the Louisiana Department of Transportation and Development (DOTD) dedicates 10% of the GOMESA monies for the improvement of LA1, backers will try to bond this earnings stream to build the road out more quickly.

Lake Charles: The Whole Country Envies This Expansion 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 latter includes LNG export terminals). The Lake Area Industry Alliance reports that Calcasieu Parish was the home to 16 different chemical plants, two refineries, one LNG export facility, and three industrial gas processing plants. Total employment in these facilities was 6,180 direct employees and 3,656 contractors in 2014 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 three in operation, plus the Delta Downs Racetrack. The two largest operational casinos are L’Auberge du Lac, which opened in the summer of 2005, and the Golden Nugget, which opened in December 2014. Hurricane Rita badly damaged both of the casinos owned by Harrah’s. Harrah’s sold its two licenses to Pinnacle Entertainment, owner of L’Auberge du Lac. Pinnacle moved a license to Baton Rouge. Isle of Capri closed one of its smaller riverboats and moved that license to Shreveport. Total employment at the three casinos and the racetrack is at 5,713 as of 2016-I. 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 722. A third key sector is aircraft repair. There are now two significant employers located at Chennault Industrial Airpark---Northrop Grumman and AAR. 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. CB&I Modular Solutions (formerly Shaw) is estimated to employ about 1,000 workers whose main focus to date has been manufacturing modular equipment for the nuclear power industry.

14

GOMESA provides for the federal government to share 37.5% of qualified oil and gas leasing revenues from certain Outer Continental Shelf leases with Alabama, Mississippi, Texas and Louisiana. ______________________________________________________________________________________ Economic Outlook Page 86

A History of Ups and Downs A history of the Lake Charles economy is depicted in Figure 22. 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. 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 22 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, 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 22 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 ______________________________________________________________________________________ Economic Outlook Page 87

reduced its workforce from about 350 down to 160 before selling to Aeroframe Services. Fig. 22: Lake Charles MSA Non-Farm Employment 1980-2016 110 2016: +2.7% (+2,800 jobs) X Best in State

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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 22 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 ______________________________________________________________________________________ Economic Outlook Page 88

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 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 b/d); ConocoPhillips (239,400 b/d), and (3) Calcasieu (30,000 b/d). 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, it was 2014 before the New Orleans airport was operating pre-Katrina levels. 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 22. 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 ______________________________________________________________________________________ Economic Outlook Page 89

peaked in 2007 and was slightly lower in 2008, constituting something of a temporary drag on the area economy. 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 3,900 jobs and then it lost another 2,200 in 2010---an employment drop over two years of 6.5%. 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

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

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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.

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

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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 combination of the Great Recession and the unusually weak recovery negatively impacted the casino market.

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During this period the region's petrochemical firms really tightened their belts especially with regard to capital projects. This is illustrated below in Table 17 which contains data supplied by the Lake Area Industry Alliance which shows an almost 3,000-job decline in contractor jobs at area plants over 2007-10. Fortunately, the data for 2011-12 show this downward trend was reversed, and in the case of contract workers has almost increased over 50% from the 2010 trough.

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Table 17 Employment in Lake Charles Area Petrochemical Plants Year Full Time Employees 2005 6,401 2006 6,158 2007 6,221 2008 6,070 2009 6,042 2010 5,961 2011 6,683 2012 6,754 2013 6,083 2014 6,180 2015 6,420 2016 6,507 Source: Lake Area Industry Alliance

Contract Employees 3,003 2,830 5,412 3,572 3,070 2,456 3,265 4,273 3,611 3,656 4,021 NA

Finally: A Growth Year in 2012 Referring back to Figure 22, readers will notice the beginnings of a recovery in 2011 (+600 jobs) and very good growth over 2012-16. In fact, the latest data indicate Lake Charles is the fastest growing MSA in the state. We estimate that employment in the Lake Charles MSA will grow by 2.7% in 2016, at a time when the overall state employment is falling at a rate of 0.9%. What is particularly impressive about this performance is it has been accomplished despite the fact that a major employer--Dynamic Industries---basically shut down its 500-person operation in Lake Charles in 2013. 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 an estimated 1,000 employees. 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 17 that LAIA 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. 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.

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2014-16: The Real Boom Begins As Lake Charles entered 2014, we began to see the first evidence of a massive boom in this corner of the state unlike any we have ever seen before. Note how the employment line in Figure 22 moves up markedly in 2014, 2015, and 2016. Specifically: 

In 2014 employment in the Lake Charles MSA set a regional record for the first time since 2008.

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In 2015, employment passed the 100,000 mark for the first time in the MSA’s history and it passed Houma to become the fourth largest MSA in the state.

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Lake Charles has now been the fastest growing MSA in the state for three straight years, adding 12,500 jobs and expanding by 4.5% a year. In 40 years of monitoring the Louisiana economy we have never seen back-to-back job performances like that in any MSA in the state.

What was the source of this remarkable performance? By mid-year 2016 we had tabulated $96.4 billion in announced industrial projects for the MSA since 2012. We have been monitoring the state’s economy for four decades; this figure exceeds the best year of announcements for the whole state by a factor of at least 10. Of this total, we estimate that $45.4 billion of these projects are already underway or completed, and approximately $51 billion are at the financing, permitting or FEED stage (that is, they are still “potential” projects). This means that if these projects go vertical, Lake Charles will see record setting growth well into 2018. Our projections for this region are based on the very conservative assumption that few of these projects will go forward. If just one or two break ground, our forecast for 2018 will be too conservative by far. Forecast for 2015-16: Will the Boom Tail Off in 2017? Figure 23 shows our forecasts for the Lake Charles MSA over the next two years. We are expecting Lake Charles to add 3,800 jobs in 2017 (+3.8%), with the growth rate dropping slightly in 2018 to 2,200 jobs (+2%)---a total growth rate of 5.8% over two years. No other MSA in the state is expected to come close to this growth rate. Baton Rouge comes in second with a 2.2% growth rate. Lake Charles’ growth rate is expected to be nine times greater than the state as a whole (0.6%) over that same time period. The slower growth rate in 2018 is based on some of the projects underway beginning to tail off as completion nears. However, our forecast for 2018 assumes almost none of the projects at the FEED stage will go forward to construction. This is a very conservative position and one that could make the 2018 projection far too conservative.

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Fig. 23: Lake Charles MSA Non-Farm Employment Forecast: 2017-18 120 110 100,000+ for first time

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With the abundance of projects announced in the area it is tricky determining how to present them to the reader. This is especially so given that some are underway and some are still at the FEED/financing stage. Our approach is to break the projects down into LNG exporters versus “others” and then each category will be further broken down into “underway” versus FEED stage. Projects Underway: LNG Exporters A key reason for the explosive growth in this region recently has been the construction underway on two massive LNG export facilities. 

The largest of the construction projects underway is the Sabine Pass LNG by Cheniere Energy. The company will be building six “trains”----groups of machinery that takes natural gas from a gas to a liquid form for shipping. The first two trains are about 99.4% complete. In fact, Cheniere made its first export from the facility in summer 2016. Construction of Stage 2 is 87.4% complete, and Stage 3 is 38.3% complete. Cheniere has six, 20-year contracts in hand for buying its product. Importantly, the company also has a permit from the Department of Energy to export to non-free trade partners of the U.S., a permit

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that is absolutely vital before one of these terminals can begin construction. Cheniere will spend $20 billion on this 6-train project. This would make it the largest single capital investment in Louisiana history, if not U.S. history. The project will create 148 new, high-paying ($100,000 a year) jobs and retain 77 jobs. 

Sempra Energy began construction on its Cameron LNG project in August 2014. This export terminal will be a 3-train unit and cost $10 billion to construct. In July 2016, Sempra received final approval in September to export to non-free trade partners of the U.S. Sempra has also filed information with FERC to add two more trains at this site. Operations will begin in 2018, but the firm estimates 100 people will be employed by 2017 and 190 by 2018.

Projects at FEED Stage: LNG Exporters There have been six LNG exporter announcements that are still at the FEED/financing stage. These six projects are at various stages in the planning and financing process. While we are not pessimistic about the viability of all six, it does not seem likely that any will break ground before 2018. One reason was explained back on pages 26 and 27. Right now the pricing competitive advantage that used to exist has narrowed to near zero or to a dis-advantage because of low oil prices. Secondly, right now the market is in an excess supply environment due to the opening, and prospective opening, of several new projects. Data in Figure 24 were put together by BRG Energy to describe the problem visually. Note that the worldwide demand for LNG is projected to rise steadily over 2016-25. The jaggedness in the line is due to within year seasonal demand patterns. Note that due to new capacity coming on line the world market will be in an excess supply mode until about 2022-23. Then the market will start to enter an excess demand environment. The “potential” LNG will want to time their construction to come on line in about 2023. That means that a 5-year construction project would want to commence in the 2018-19 time frame. There may also be a competitive advantage to those projects that involve smaller “trains”. The more typical trains have been large enough to produce five thousand tonnes annually (mtpa). The firm then must sell that much in the market and few markets can absorb five mtpa. There may be an advantage going forward to projects with trains that produce one mtpa. It is easier to sell ½ to one mtpa, which gives these smaller units more flexibility. The experience of the team behind each project and the size of the trains being built may be good signals as to which of the potential LNG exporters actually pulls the trigger and “goes vertical”.

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Figure 24 Supply & Demand for LNG Worldwide: 2016-25

The potential LNG exporters include the following:

15 16



Driftwood LNG is a proposed 4-train unit that is being headed by the former chief of Cheniere. This $10 billion project (according to the Port) would be located on 44 acres on the western side of the Calcasieu River. This project is probably three years out before construction begins. It would employ 100 workers at an average annual pay of $75,000. The site will actually be designed to hold eight trains and five metric tons of exports.



An Australian company---Magnolia LNG---is planning a 4-train LNG export facility at the Port of Lake Charles. An EPC was let with SK E&C USA in December 2014 to build the first two trains for $1.98 billion. FERC approval was received for Magnolia in April 2016. An epc agreement15 has been signed, and is ready to go. The firm is still working on commercial sales, and has sold two million tonnes to the U.K which is about one train worth of LNG. They are marketing another six mtpa. No FID16 has been reached.

Engineering/procurement/construction Final Investment Decision by the company’s Board of Directors

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

Southern California Telephone & Energy (SCTE) signed a 99-year lease on 232 acres on Monkey Island to build a 6-train, $9.3 billion liquefaction plant. These trains would produce 12 mtpa. The company filed a permit with FERC and submitted a permit to the Department of Energy for permission to export to nonfree trade partners. SCTE signed a 20-year, binding natural gas supply agreement this June. In May, the firm secured a long-term agreement with the Chinese JOVO Group to buy LNG and perhaps invest in the facility.



In December 2014, Venture Global announced plans to build a $4.25 billion LNG export facility on 938 acres at the mouth of the Calcasieu Ship Channel that would be capable of producing 11.1 mtpa. In February, Shell agreed to a 20-year contract to buy 1.1 mtpa. Venture Global has received DOE permission to export to Free Trade countries and its application to export to non-FTA countries is pending. This company is well-funded with commercial teams living in Europe and Asia. A FID has yet to be made.



In October 2015, a team involving former Governor Buddy Roemer announced plans for an $11 billion LNG export facility on the Calcasieu Ship Channel. G2 LNG would employ 250 people at an average wage of $85,000 once operational. KBR has been awarded the FEED work on the project.



Bechtel Corporation has been selected to conduct the FEED work on the $7 billion Delfin FLNG project. Delfin would be a floating deepwater port about 50 miles off the coast of Cameron Parish. A draft EIS (environmental impact study) has been submitted. Few Louisiana construction jobs would be associated with this project.

We should note that in last year’s LEO there was another announced, and very large ($10 billion), LNG export project---Lake Charles LNG. This was one of the older projects, having been announced back in mid-2011. Regulators had given final approval to the project and we expected it to be the next “potential” project to go vertical. However, this project was tabled by Shell in mid-summer this year. Indications are that this was a “hard” tabling of the project. Projects Underway: Chemicals & Others There are several non-LNG export projects underway in ths MSA, and two are quite large. 

In March 2015, Sasol broke ground in March 2015 on its $8.9 billion ethylene cracker and derivatives project. The price of that project has down been raised to $11 billion due to heavy rains, higher labor costs, and elevated bid contracts. Once completed the facility would employ 528 Sasol employees plus 358 contract workers with a $58.9 million annual payroll. Sasol’s planned hiring schedule was: 2015 -100; 2016 – 200; 2017 – 350; 2018 – 500. Since actual opening has been pushed forward to 2019 the hiring schedule may be pushed forward.

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

One of Lake Charles’ larger employers---Axiall Corporation---with 1,250 employees presently in the area has chosen the MSA for a $3 billion suite of facilities. This project is a joint venture with the Korean firm Lottie Chemical Corporation. The new units include a world-scale ethane cracker and an ethylene derivatives plant. This project will ultimately employ 215 people at $76,000$87,000 annually. The project broke ground in June 2016.



Construction should be completed this year on Matheson Tri-Gas’ a state-of-theart air separation unit to supply gases to Sasol. This $130 million project will create 27 new hires at $76,900 annually.



Westlake Chemicals is spending $330 million to expand its ethylene production. Work on this project started in mid-2016. The firm will hire 25 more employees.



Indorama Ventures has begun a $175 million renovation of a dormant ethane cracker at the old OxyChem site (closed since 2001). The firm expects to be operational in 2017-III and employ 125 employees at an average annual salary of $50,000.



Dongsung FineTech has begun a $5 million renovation of a building at the Port of Lake Charles for a cryogenic insulation manufacturing facility. Once completed the firm will hire 250 people at $40,000 a year.



Union Pacific Railroad will be spending $19 million to replace railroad ties, add rock ballast, and replace tracks between Iowa and Sulphur and between Dequincy and Kinder.

This very impressive list of projects, plus the two LNG projects underway, is the reason that Lake Charles is one of the fastest growing MSAs in the entire country. Potential Projects: Chemicals & Others It addition to the projects listed above there are several waiting in the wings that are at the FEED stage. Our forecasts do not allow for these projects to start construction over 2017-18, so if any do, that will make our forecasts to pessimistic for the region. These projects include the following: 

The larger of Sasol’s two announced projects is its proposed $11-$14 billion Gasto-Liquids facility. The company would take natural gas and produce from it 96,000 b/d of diesel, naphtha, and other chemical products. This huge facility would employ 700 people with a $95 million annual payroll. The company announced in January 2015 that this project would be delayed until (1) an evaluation is made of any cost overruns at the $11 billion ethylene plant now under construction (there have been significant overruns) and (2) the price of oil, diesel, and the state of the global economy.

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

Juniper LNG was building a $100 million plant to manufacture diesels, waxes, and naphtha at a Praxair site in Westlake. Financial problems forced the company into bankruptcy in April 2016. York Capital purchased the assets in July 2017 so there is hope the project will be completed. The company was renovating a dormant steam methane reformer, with plans to add 29 new jobs at $85,000 annually.



Advanced Refining Technologies---a joint venture of W.R. Grace and Chevron--has planned a $135 million residue hydro-processing catalyst production plant and additional alumina capacity at the Grace site. The group has ordered some long-lead items but has delayed construction due to market conditions.



Another large plant proposed for the Port of Lake Charles is a $1.5 billion GTL plant by G2X Energy. Air permits have been secured but water (and some other) permits are still pending. This plant will have three modules: (1) one to convert natural gas into methanol (Big Lake Fuels), (2) a second to refine methanol into liquid propane and 87-octane zero sulfur gasoline and (3) a unit composed of cooling towers, waste treatment and other auxiliary units. Methanol Holdings Trinidad Limited (MHTL) announced it will partner with G2X on the Big Lake Fuels module. Once operational, the Big Lake Fuels module would employ 125, and once all three units are built the modules would employ 243 workers at an average annual wage of $66,500. Ground was broken on the Big Lake Fuels plant in January 2016. Then the company purchased a similar facility in Beaumont and has shifted its focus to that plant. Work on the Lake Charles site has been delayed until after the Beaumont facility is completed.



To support all the action taking place in this region, Entergy Corporation is planning to start a $187 million transmission project in the area that would be one of the largest transmission projects in the company’s history. The company is seeking PSC approval to proceed.



Finally, an investment group is planning a new facility on the Cameron Parish coast to service the offshore oil and gas exploration industry. The $1.5 billion Port Cameron would be a 500 acre deepwater port.

Construction Labor Demand: Huge Bump, Then Big Decline? A quick review of the projects we have detailed that are underway in this region leads to the inevitable conclusion that there will be an historic demand for construction workers in this MSA. The Lake Area Industry Alliance (LAIA) has generated estimates of the demand for construction workers needed over the next 18 months to build these projects for which there is an engineering/procurement/construction (EPC) in place. LAIA’s results are summarized in Figure 25. Estimated employment will grow from about 10,000 in August 2016 to a peak of about 14,900 in April 2017---a remarkable

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bump of 4,900 additional workers. What is even more remarkable is that in mid-2012 LAIA’s survey showed 5,500 construction workers employed by its members. Figure 25 Estimates of the Demand for Industrial Construction Workers In the Lake Charles MSA

Source: Lake Area Industry Alliance Note that because some of these facilities will be completed by mid-2017, construction employment among LAIA members is projected to enter a significant slide, dropping by some 4,500 jobs. It is this projected decline that is largely responsible for our forecasted reduction in total employment in the MSA in 2018. There are two factors that might prevent this decline from happening or at least to temper the decline rate. First, the Figure 25 is a survey of LAIA members. Membership at LAIA does not include key companies such as Cheniere LNG, Indorama Ventures, G2X Energy, Juniper LNG or Advanced Refining Technologies. These are non-trivial projects or potential projects that could keep the construction numbers up. Secondly, the data in Figure 25 are only for projects for which an epc has been awarded. If any of the numerous potential projects we listed above go vertical, that will boost the decline line as well.

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Finally, LAIA has done economic developers and economy watchers in general a great service by also surveying their members about expected increases in permanent jobs as projects come to completion. Those estimates are as follows: 2016 - +109; 2017 +312; and 2018 - +180. This unusually large jump in construction workers has created housing challenge to the region. Entrepreneurs have responded by developing temporary housing villages for the workers. One Lodge North Lake in Sulphur broke ground on a $4 million worker village in June 2016. It will start with 208 bed units on 28 acres, with 40 more acres available with a 2,500-person capacity. One Lodge North Lake should be ready for occupancy by November 2016. At Port Vinton, work began in May 2016 on Mossville Lodge, a $60 million temporary housing project with a 2,350-person capacity. An Adjustment in the Casino Market Lake Charles enjoys the state’s second largest casino market, drawing crowds from casino-less Texas. In a real surprise to many, the MSA’s casino market actually grew in 2015 when the new Golden Nugget Casino opened. Expectations were that the new casino would simply cannibalize business away from the other two casinos with no net gain to the market. However, as seen in Table 18, casino employment grew substantially between 2014-I and 2015-I---from 3,329 employees to 5,748. Not only was there no cannibalization, but the market grew by 2,419 employees while the Golden Nugget added a lesser 2,337. Table 18 Lake Charles Casino Employment Casino 2014-I 2015-I 2016-I Change: 2014-I to 2015-I 2,285 2,402 2,055 117 La’Berge 1,044 1,009 947 -35 Isle of Capri 0 2,337 1,989 2,337 Golden Nugget 3,329 5,748 4,991 2,419 Total Source: Louisiana Gaming Control Board

Change: 2015-I to 2016-I -347 -62 -348 -757

The year 2016 has clearly been a year of adjusting to the new tenant in the region. All three casinos have adjusted their employment downward. The result is the region lost 757 casino jobs this year. Chennault: Good News & Bad News The news at the Chennault Airpark is decidedly mixed. The good news is the employment growth at Northrop Grumman. NG does MRO (maintenance, repair, overhaul) work on the military’s JSTARS and KC-10 Extender fleet. Employment has ramped up from 730 to 950 in the past year, and the firm plans to add another 100 jobs by year end and then remain steady through 2017.

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At the other extreme are the deteriorating conditions at AAR. AAR is the largest aircraft maintenance, repair, and overhaul (MRO) organization in the U.S. and the third largest in the world. The firm can do MRO work on wide-bodied aircraft up to the Airbus A380. In January, the company had 600 people employed at this site. At this writing, AAR is down to 100 employees. The firm is down to one plane that will be finished in August and there is nothing on the horizon afterwards. Chennault Airpark has signed a professional services agreement with CSRS of Baton Rouge to determine interest in an expansion to begin in late 2017. The Airpark proposes a $257 million expansion to build and operate an air cargo facility on 220 acres now occupied by the Mallard Golf Course. Other Public Construction In addition to the private sector projects listed earlier there will be public monies being spent in the area as well. The state has let $157.2 million in state road projects in this MSA over 2017-18. After spending $38 million on capital projects this year, the Port of Lake Charles will spend another $46 million in 2017.

Monroe: Slow Recovery Underway 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 third smallest MSA in the state (ahead of Alexandria and Hammond), with an estimated 79,400 non-farm jobs in 2016. Until the turn of the century, 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 2,400-person JPMorgan Chase Mortgage facility, the service part (400 employees) of which was spun off to Wing Span Portfolio. Wingspan subsequently folded. 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 1,340 people at its three sites. CenturyLink---one of Louisiana’s Fortune 500 Companies--- also plays a key role in this MSA’s economy with its workforce now approaching 2,600. Delphi Lighting was a major player until it closed its 800-person headlight manufacturing facility in June 2007. Vantage Health Plan is a newer addition to the region and has grown to employ 1,280 people. The University of Louisiana Monroe is also located in this MSA and has about 300 faculty members.

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Monroe Employment History Figure 26 traces Monroe’s employment history from 1980 to 2016. 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 from 2002 through 2011 were not good ones for the Monroe MSA as evident in Figure 26. Remarkably, Monroe did not have a growth year during this entire 9-year period. The decline was not horrendous, but it was steady. After going flat in 2003, the MSA lost 4,300 jobs over 2003-11, a 5.4 % 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.

Fig. 26: Monroe MSA Non Farm Employment 1980-2016 85 80

Thousands

75 70

Losses: Wingspan Portfolio State Farm IP-Bastrop Shaw Fabrication Pilgrim's Pride Accent Marketing Guide Group Coca Cola

X

2009-11: -2,300 (-3.0% )

65 60 Union Parish Added X 55

X 2016: +600 jobs (+0.8% ) 800 Jobs Below 2002 Peak 50 1980

1985

1990

1995

2000

2005

2010

2015

Consider the body blows this region took during those nine years:

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

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.

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

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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 workers 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 9 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 26, 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 received a shot in the arm from a number of sources. 

CenturyLink continued to move like a freight train in its acquisition efforts. In 2014, the company made a commitment to keep its headquarters in Monroe through 2020 and added to its Monroe workforce.



Foster Farms reopened the shuttered Pilgrim's Pride plant and is now back up to 1,200 employees in Union Parish.



Gardner Denver Thomas relocated operations in Wisconsin to the Monroe area in 2010, generating 67 jobs initially and now employs 300.

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

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, 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.

Fortunately, that growth pattern in 2012 continued through 2014. averaged 800 new jobs a year over 2012-14.

The MSA

2015-16: Adding 600 Jobs a Year Despite the loss of 400 jobs at Wingspan Portfolio Advisors, the Monroe MSA has steadily added 600 jobs a year for the past two years. Continued growth at CenturyLink, the entrance of IBM to the market, and the steady growth at Vantage Health Plan have kept Monroe on a steady, if not spectacular growth path. We estimate that by the end on this year, this MSA will be only 800 jobs shy of recovering all the jobs lost during the disastrous nine years between 2002 and 2011. Forecast for 2017-2018: Prepare to Set a New Record Our projections for this MSA are shown in Figure 27. We project that employment in the Monroe MSA will add 400 jobs a year over 2017-18, for a total growth rate of 1%. This growth rate will rank Monroe fourth among the nine MSAs in Louisiana over this two year period. If this forecast holds true, sometime in 2018 Monroe will pass its old employment peak and begin setting records again. At the present, the key to Monroe’s economic future appears to lie in the prospects for its larger existing businesses. Ground-breaking for the new IBM Applications Development and Innovations Center in an 88-acre, mixed use development across from CenturyLink took place in March. This is the only really new addition to the area of which we are aware. This new facility is scheduled to open in 2017-IV, but IBM is already hiring and using Tower Place in downtown Monroe as a temporary base. The firm is at about 150 employees and will increase to 400 by 2019. After a series of layoffs at the Chase Mortgage facility employment has stabilized at about 1,200. The employment decline was due to (1) a shedding of extra workers hired to handle the post-Great Recession mortgage crisis and (2) the spin-off of a business unit to Wingspan. Wingspan ultimately closed in Monroe. Of course, the real key to the future health of this economy is the outlook for its largest employer---CenturyLink. This company has just opened its new Technology Center of Excellence along with 800 new jobs. CenturyLink now employs 2,600 people

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in Monroe. CenturyLink is one of the major success stories in Louisiana in the past 10 years.

Fig. 27: Monroe MSA Wage & Salary Employment Forecast: 2017-18 85 80

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75 70

2017: +400 Jobs (+0.5% ) 2018: +400 jobs (+0.5% )

65 60 55 50 80

85

90

95

00

05

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15

A relatively new player in the area---and also a great success story---is Vantage Health Plan. Vantage is now at 1,280 employees and is scheduled to add 170 a year over the next two years. In 2016, the company completed a $24 million specialty office building and spent $20 million to renovate a state office building downtown. Nearby Angus Chemical was bought by an investment and it is our understanding the firm is launching a multi-year, $100 million upgrade plan at the site. Over 2017-18, the state will be letting $86.9 million in new road projects---up 19% from last year’s number. Of this amount, $36.6 million will be used to widen Arkansas Road from Caldwell Road to LA143, and $24 million will be spent on the Kansas Lane/Garrett Road connector. Alexandria: Popped by UTC & GE, but RA? Alexandria is the second smallest of Louisiana’s nine MSAs with about 64,200 non-farm employees in 2016. This MSA is comprised of two parishes---Rapides and Grant. Alexandria derives the lowest percentage of its employment from the “basic” ______________________________________________________________________________________ Economic Outlook Page 105

sectors---mining and manufacturing---of all the MSAs in the state except Hammond. 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 second highest percentage of employment in the government sector (20%) of all the MSAs as well---even larger than Baton Rouge (16.5%), which is the state capital and home to two large state universities. Among the significant state agencies in the area was the Huey P. Long Medical Center, the 400person charity hospital for this region, which was taken over by two of the private hospitals in the region. Pinecrest Support and Services Center 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, and Union Tank Car with just over 400 employees. The utility company Cleco, with 1,200 employees, is also a major force in this MSA’s economy, and Roy O. Martin employs about 1,200 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 about 600. Alexandria’s Recent Employment History Alexandria’s employment history is illustrated in Figure 28. 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 second-least impacted of all the state’s nine MSAs---not a surprising finding given the lower manufacturing base and the government-orientation of the region. (Hammond was the least impacted.) 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 ______________________________________________________________________________________ Economic Outlook Page 106

the site, and the regional airport has been relocated there. A new, 150-person Immigration and Customs Transfer facility was opened at the Airpark in the summer of 2014 and serves as a domestic transportation hub for moving detainees. 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. 28: Alexandria MSA Non-Farm Employment 1980-2016 70 X = 2016: +200 Jobs (0.4% )

65

X

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60 55 2001: Recession -200 jobs (-0.3% )

50 45

2009-12: -4,200 (-6.3% )

40 80

85

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15

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 28 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 one of the best performances in the state over that 4-year time frame. 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) ______________________________________________________________________________________ Economic Outlook Page 107

$132 million on the construction phase of Union Tank Car (UTC), (4) UTC began a hiring process that resulted in 670 workers initially 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 28 is the continuous drop in employment over the four years from 2009-13. During that period, this MSA lost 4,200 jobs---a 6.3% decline. Great Recession Effects: The Great Recession was partly the culprit. Alexandria’s employment took quite a hit over 2009-10, losing 3,600 jobs or a 5.4 percent decline. 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 railcars 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, terminating 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 was that its employment continued to trend downwards well past the recession time frame. From 2011 to 2013, this MSA lost ______________________________________________________________________________________ Economic Outlook Page 108

another 800 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 2014 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 1,400 jobs and local government has declined by 400 jobs. Forecast for 2017-18: Popped by UTC & GE But RA & Sundrop? Figure 29 contains our forecasts for the Alexandria MSA for the next two years. We are projecting that this MSA will lose 200 jobs in 2017 and rebound with 200 jobs in 2918. Thus, we are expecting the regions employment to be net flat over these two years. This growth rate will place Alexandria in 7th place among the nine MSAs in the state. It is important to note that this forecast makes no allowance for two major projects to break ground. If these projects come to fruition, Alexandria will enjoy a much larger growth rate.

Fig. 29: Alexandria MSA Non-Farm Employment Forecast: 2017-18 70 2016: -200 jobs (-0.3% ) 2017: +200 Jobs (+0.3% )

65

Thousands

60 55 50

X Grant Parish added ASA? Sundrop?

45 40 80

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Thumped by UTC and GE/Dresser The drop in employment that is projected for this MSA in 2017 can be traced to two key employers. Union Tank Car has announced it is laying off 244 workers in summer 2016 because a primary customer is leaving its fleet. UTC is now operating at a reduced force, a condition that will likely last at least a year. The firm purchased the GE fleet, which means there will be an even lesser need to build new cars. GE Oil & Gas (the old Dresser facility) announced it will terminate 269 of 289 employees at the company’s valve manufacturing plant in Pineville. These layoffs should be completed by year end and are part of a restructuring by GE. Stability among the Big Four Alexandria is host to four key private companies that are projecting stable workforces over the next two years: 

Cleco is one of the largest employers in this region at 1,200 employees. In March 2016, Cleco was purchased by a consortium made up of (1) Macquarie Infrastructure & Real Assets (an Australian investment bank), (2) British Columbia Investment Management Corporation, and (3) John Hancock Financial to purchase Cleco. Assurances have been secured that the CEO and other senior management will be Louisiana residents, as well as four members of the Board including the Chair, and employment at the company is to remain at least stable in the near term.



Similar in size to Cleco are the three Roy O. Martin (Martco) plants in the area that employ 1,100. This very successful company has secured a strong market share in the wood-oriented building materials market. Demand remains very strong at the plants. No major capital expenditures or employment changes are expected over 2017-18.



Proctor & Gamble’s large plant employs about 1,200 direct and contract employees. The company has shifted powder detergent operations from Georgia to Alexandria and added about 50 at its site.



Modest growth (+40 jobs) is expected at the 600-employee Crest Industries. Crest is the umbrella company for Dis-Tran, CNR, Beta Engineering, and MidState Supply. The company’s makes steel poles and substations for the electrical utility industry.

Investimus Foris & SolScapes Add a Punch There are some new monies coming to the Alexandria MSA, which while small compared to what is happening in the lower part of the state, are non-trivial for an MSA of this size. The largest of these is the decision by Investimus Foris---a Lithuanian ______________________________________________________________________________________ Economic Outlook Page 110

Company---to invest $265 million to convert an idled biofuels refinery in Grant Parish into an ammonia manufacturing plant. The company is aiming to produce 500,000 tons of ammonia annually and hire a workforce of 85 at a $55,000 annual wage. It is our understanding that construction will start on this facility about the time the LEO is released. SolScapes in Lecompte has announced will be adding 40 jobs to its 35-person workforce. The average annual salary for these new jobs will be $28,000. SolScapes is a utility maintenance firm. Construction at England & State Roads At England Airpark, some $72.3 million in capital expenditures are scheduled for the next two years. Of this amount, $52.8 million will be spent on the airfield side, rebuilding the infrastructure of runways and working on ramps and electricity. Another $19.5 million will go to the land side, on road projects, a rental car maintenance facility, and a warehouse for prospects. Last year, Airpark officials announced the creation of a new 1,600 acre mega-site to help bring new industry to the MSA. A further injection of construction monies will come from new state road lettings. These lettings will total $64.8 million over 2017-18. The biggest project will be $15.9 million on the UP overpass on US71 near Tioga.

ASA, Sundrop & Cool Planet: Big Potential for Alexandria Among Louisiana’s smaller MSAs, few have a greater potential for a breakout two-year period than Alexandria. There are two potential projects that could radically improve this MSA’s growth in the immediate future and another that could give it some solid gains. The most exciting of these by far is the announcement by Revolution Aluminum (RA) that it would spend $2.4 billion on a new mill and campus at the old International Paper site in Pineville. RA plans to make strong, light-weight aluminum metals for the automotive/aerospace sector. There would be 850 ASA employees at the site and another 600 workers at corporate partners. An average annual wage of $70,500 is expected for these employees---much higher than the average for the area. The site has been purchased, dirt is being moved, and improvements are being made to rail infrastructure. Speculation is that financing will be finalized on this project in September and the project will go vertical in 2016-IV. We have not built the possibility of RA going vertical into our forecast. We have been reporting for about two years on the possibility of Sundrop Fuels building a facility in this region. Sundrop is perfecting a technology that combines forest waste with hydrogen to produce fuel. In a positive move for this project, the Sundrop team has purchased Cowboy Town on the north side of Alexandria. The company will start building a $40 million test facility there in January 2017 which is scheduled to open in 2017-IV with about 30 employees. The company is at the pre-FEED stage on a $2______________________________________________________________________________________ Economic Outlook Page 111

$2.5 billion plant. This stage is required to secure a loan guarantee for DOE. A final investment decision is expected by 2018-II. It would require three years to construct this larger plant. To Sundrop’s advantage their fuel can be used to meet renewal fuels standards (RFSs). Companies refining petroleum-based fuels must use cellulose-based fuels in their process to meet their RFSs. Finally, Cool Planet Energy is considering building three biomass-to-gasoline refineries in north-central Louisiana. One of the plants would be at the Port of Alexandria. The renewable fuels sector has suffered setbacks as the price of oil has fallen. At this juncture the firm is trying to build a market for its CoolTerra product---a product that can be put in soil to hold moister longer. This project has been on the potential board for quite a while now and is looking iffy. Obviously, Alexandria’ outlook depends significantly on these three projects going forward.

Hammond: Look to SLU & North Oaks For the first time in decades, Louisiana has added a new MSA to its ledger. The Hammond MSA is composed of one parish---Tangipahoa---and is located from the northwestern edge of Lake Ponchartrain north to the Mississippi line and between Baton Rouge on the west and Slidell on the east (see Map 1). This parish is perhaps best known as the “Strawberry Capital of the World” and is host to a famous strawberry festival each year. In 2016, an estimated 43,600 people were employed in this MSA, making it the smallest of the nine in Louisiana. The two largest employers in the parish (aside from the School Board) are North Oaks Medical Center (2,601 employees) and Southeastern Louisiana University (1,398 employees). Bringing up a close third to SLU is North Lake Division Evergreen Life Services (1,100 employees) which provides services to about 214 residents with intellectual and developmental disabilities. Evergreen Presbyterian Ministries manages NLDELS for the Louisiana Department of Health and Hospitals. The dominance of these three players means healthcare and educational services play a larger role in this economy than in the state as a whole. Healthcare represents 22.1% of employment in this MSA versus 15.3% at the state level, and educational service is 11.8% versus 8.7% at the state level. This MSA has the highest percentage of government employment (24.5%) of any MSA in the state. Manufacturing is not as large an element in this MSA (3.8% of employment) as is the case at the state level (7.6%), and manufacturing has a larger food processing component than the other MSAs, headed up by the 550-person Sanderson Farms poultry processing plant and the 164-person (and growing) Elmer’s Candy plant.

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There are two significant distribution centers in this region. A large 800-person Walmart Distribution Center is located in Tangipahoa Parish as is the 376-person SNS Wholesale Grocers (formerly Winn-Dixie). The city of Hammond enjoys a unique location only 40 miles from the state capitol to the west and about the same distance to the North Shore business region to the east. Residents in the southern part of the parish are a relatively easy commute to New Orleans via I-55 or to the plants along the Mississippi River. As a consequence, a relatively high percentage (14%) of this parish’s residents earns their income outside of the parish. History of Hammond MSA: After 7 Years of Stagnation - Growth The history of this MSA from 1990 through 2016 is illustrated in Figure 30. It is apparent from a casual glance at this chart that the Hammond MSA has been through two distinct periods---a period of solid upward growth from 1990-2007 followed by nine years of stagnation from 2008-16.

Fig. 30: Hammond MSA Non-Farm Employment 1990-2016 44 40

X X = 2016: -0.4% (-200 jobs)

Thousands

36 2005-06: The "Katrina Effect" +1,600 jobs (+3.9% )

32 28

No Impact 2001 Recession

24 20 1990

1995

2000

2005

2009-10: -800 jobs (-1.8% )

2010

2015

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In a College Town Enrollments Matter What is behind this peculiar pattern? It is important to note that the largest city in this MSA---Hammond---is very much a university town. SLU is one of its largest employers at 1,398. However, the university attracts ten times that many students to the region, students who bring a great deal of spending power to the community. The powerful influence that SLU has on this MSA is seen when comparing the MSA employment data in Figure 30 with SLU’s enrollment data in Figure 31 and the university’s budget data in Figure 32. Hammond’s growth phase from 1990-2007 was mirrored by a huge growth in fall enrollment and budget at SLU. Enrollment at the university jumped by 5,670 students over 1990-2005, an impressive rise of 54.5% and the budget rose a whopping 175.4%.

Fig. 31: Southeastern Louisiana University Enrollment Fall 1990 - Fall 2015 17,000 2005 Peak: 16,068 X

Enrollment Fall Semester

16,000 15,000 14,000

1990-2005: +5,670 (+54.5% )

13,000

2006-15: Down 1,474 (-9.2% )

12,000 11,000 10,000 90

92

94

96

98

00

02

04

06

08

10

12

14

Source: SLU Office of Institutional Research & Assessment

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Fig. 32: Southeastern Louisiana University Budget Fall 1992 - Fall 2016 130,000,000 2008 Peak: $122.7 million X

Budget as of the Fall Semester

120,000,000 110,000,000 100,000,000

1992-2008: +$78 mm (+174.5% )

90,000,000

2013-16: +8.8%

80,000,000 70,000,000

2009-13: Down $16.3 mm (-13.3% )

60,000,000 50,000,000 40,000,000 92

94

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10

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16

Source: SLU Office of Institutional Research & Assessment

Hammond’s seven years of employment stagnation from 2008-2016 were accompanied by an actual decline in enrollment and generally reduced funding at SLU. Enrollment declined from a peak of 16,068 students in the fall of 2005 to 14,594 in fall 2015---a 9.2% decline. The university’s funding dropped by 13.3% over 2008-13,before recovering by 8.8% the next three years. Still, by fall 2016 the budget at SLU was $6.9 million below its fall 2008 peak. The combination of declining enrollment and funding was a key reason behind the lethargy in this MSA from 2008-16 shown back in Figure 30. Healthcare Keeps MSA’s Head above Water Economic conditions would have been much worse for this region had it not been for an energetic healthcare sector. Unfortunately, data on this small MSA’s healthcare sector are sparse. The U.S. Bureau of Economic Analysis and Bureau of Labor Statistics and Louisiana’s Workforce Commission only provide data back to 2005 and up to 2013 on the Hammond MSA healthcare sector. What is available are data on employment at the largest healthcare system in this MSA----North Oaks Medical System. The history of employment at North Oaks is shown in Figure 33. Again, it is instructive just how closely employment at North Oaks mirrors the pattern of employment in the MSA in general. Note that North Oak’s employment grew rapidly (+63%) over 1995-09, the same period when employment in the MSA was rising as well. However since 2009, employment at North Oaks has been basically flat, just like employment in the MSA as a whole. ______________________________________________________________________________________ Economic Outlook Page 115

Fig. 33: North Oaks Medical System Employment 2,800 2,600 1995-09: +1,005 jobs (+63% )

Employment

2,400 2,200 2,000 1,800 1,600 1,400 94

96

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06

08

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16

Source: North Oaks Medical System Human Resources Division

Almost Impervious to Recessions Figure 30 reveals another unique characteristic of the Hammond MSA over 19902015: This MSA is almost impervious to the impact of national recessions. There was a short U.S. recession from July 1990 to March, 1991 during which this MSA’s employment actually grew. Employment rose again during the 2001 recession, then during the Great Recession---when the U.S. lost 6.1% of its jobs---the Hammond MSA’s employment only declined 1.8%, a loss of only 800 jobs. This resilience can largely be traced to the makeup of the region’s economy. Its huge healthcare and educational services sectors are typically touched only lightly, if at all, by national downturns. On the other hand, the durable goods manufacturing sector that typically gets hammered by a national recession, is largely absent from the Hammond region. Only 3.8% of its employment is in manufacturing (as compared to 7.6% at the state level), and even then employment is heavily concentrated in nondurable goods manufacturing such as food processing. Forecast for 2017-18: Figure 34 contains our forecasts for the Hammond MSA over 2016-17. We are projecting that the region will add 100 jobs a year over the next two years which will mean a growth rate of about 0.2% a year. In terms of percentage growth this will rank

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the MSA fifth among Louisiana’s nine MSAs. In absolute terms, its 200 new jobs will rank sixth.

Fig. 34: Hammond MSA Nonfarm Employment Forecast 2017-18 44

40

Thousands

36 2017: +100 jobs (0.2% ) 2018: +100 jobs (0.2% )

32

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24

20 90

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While the ranking among the MSAs in the state is okay, the reality is that the trend line in Figure 34 is not really moving. There are no major capital projects or employment spurts planned at North Oaks. While “budgeted expenditures at SLU are up 0.9% this fall, the state budget is in such a bind that administrators have to plan for the very real possibility of mid-year budget cuts. No spike in enrollments at SLU is expected. The combination of these events tends to keep the trend line in Figure 34 pretty constant. A break to a trend like the one from 1990 to 2007 is going to require some significant, large announcements from the private sector and those are noticeably absent. The Walmart Distribution center plans to add 70 jobs to its 750-person workforce, and Southern Foods is moving its Brown’s Dairy from New Orleans to Tangipahoa Parish, creating 186 jobs. The state will be letting $30.1 million in road projects for the region over 2017-18---a 46% increase over last year’s announcements. This does not count another $24.9 million that will be spent in the region on other public infrastructure projects. These gains were partially offset by 81 layoffs at the Garden City Group, a legal administrative services firm in Hammond. The construction sector will benefit from millions in insurance, FEMA, and private dollars flowing into the MSA to help folks rebuild from the Great Flood of 2016. ______________________________________________________________________________________ Economic Outlook Page 117

A regrettably small percentage of homes that were flooded in Tangipahoa Parish were covered by flood insurance, which will certainly stretch out the timing of the recovery in addition to adding to the financial grief of those impacted.

THE OUTLOOK FOR THE RURAL PARISHES: 2017-18 Back in Map 1 we illustrated where the nine MSAs are located in Louisiana. With the recent expansions to three of our MSAs and the addition of the Hammond MSA, there are now 35 of the state’s 64 parishes located in these nine MSAs. The remaining 29 parishes are designated as “rural”. With few exceptions, most of these rural parishes have a distinctly agricultural economic base. Among the exceptions are Lincoln and Natchitoches Parishes---which are homes to relatively large universities---the coastal parish of St. Mary---which has 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. A little less than 11% of the state’s employment exists in these 29 parishes. Figure 35 tracks employment trends since 1990 in these rural parishes and provides forecasts for 2017-18.

Fig. 35: Non-Farm Employment - Rural Parishes 1990-2016: Actual; 2017-18: Forecast 245 240

Thousands

235 1991-93: 230

-15,200 Jobs (-6.6% )

225

2007-11: -13,200 Jobs (-5.5% )

220

2001-02: -17,100 Jobs (-7% ) 2017: -3,200 Jobs (-1.5% ) 2018: Flat

215 210 1990

1995

2000

2005

2010

2015

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Recession Impact on Rural Parishes Hard While employment in the rural parishes is quite variable, the reader is urged to note the vertical axis in this graph. Since 1990, employment in this region has only varied over a range from a low of 210,000 to a high of 241,000---not as wide a fluctuation as may appear initially. Having noted that, this region’s employment is very sensitive to national recessions. In the early 1990s’ recession rural employment fell for three straight years. Rural parishes lost 15,200 jobs, a drop of 6.6 percent. Then in the post-9/11 recession, rural region employment fell hard for two years---a loss of 17,100 jobs or seven percent. During the Great Recession, rural employment fell for four straight years by a total of 5.5%. Employment in rural areas actually started to decline a year before the initiation of the Great Recession. Bursting of the housing bubble starting in 2007 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 keep rural losses from their typical routine of experiencing losses greater than the nation. Some Recovery: 2012-13 Note that the rural area of the state had two years (2012-13) of recovery from the Great Recession but remained well shy of its pre-recession employment mark. By 2013, the region was 8,500 jobs away from its previous 2006 peak. Having noted that, it is important to note that the area enjoyed some nice announcements post Great Recession. Among the positives are:

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

In Bogalusa General Dynamics opened a call center that handles government healthcare calls. GD opened its facility in the summer of 2013 and now employs over 600 people.



Gulf Coast Spinning has spent $130 million on a new cotton spinning facility at the Bunkie Industrial Park. Over 300 jobs were created at the plant, paying an average annual wage of $30,100.



In Urania, German Pellets GmbH constructed the world’s largest wood pellets manufacturing plant, capable of producing 1.1 million tons of pellets a year. About 150 people are employed at this plant in LaSalle Parish.



Universal Plant Services recently completed its $3.9 million plant in Jena in LaSalle Parish. The firm hired 95 employees who work on welding, fabrication, and equipment overhaul and repair.



A real success story for Ruston in Lincoln Parish is Mortgage Contracting Services, a firm that protects and preserves vacant properties for mortgage companies. MCS doubled the size of their facility to 200,000 square feet and added 90 new jobs.



Conagra built a 2-phase sweet potato processing plant in Richland Parish adding several hundred jobs.



Metal Shark Boats in Jeanerette secured a $192 million contract with the Coast Guard to construct 500 patrol boats. The firm added 100 workers to its workforce.

The 2014-16 Decline Sadly the recovery in rural Louisiana was short-lived. The region has been in a free fall for the last four years. No small part of this decline is associated with the deteriorating exploration market. The rig count has plummeted in the rural parishes in the Haynesville Shale region in northwest Louisiana. St. Mary Parish on the southern coast is host to numerous firms that service the offshore exploration industry. Specifically, Danos & Curole have terminated 80 people from their relatively new site. In Vidalia, Fruit-of-the-Loom closed its plant ending 167 jobs. Gulf Coast Spinning shuttered its facility in Bunkie. Construction delays and cost over-runs drove the new German Pellets plant in LaSalle Parish into bankruptcy. The 125-150 jobs associated with the opening of that plant are in jeopardy. Rural Forecast for 2017-18: Another Year of Decline; Then Stability Note in Figure 35 that we are projecting rural employment will fall another 3,200 jobs in 2017 (-1.5%) before stabilizing in 2018. The primary reason for the ______________________________________________________________________________________ Economic Outlook Page 120

continued decline next year is the same as our expectations of more losses in Lafayette and Houma---a problematic exploration industry. The industry is heavily enough represented in these parishes to create a drag well into 2017. That is not to say there are no positives for the region. In fact there are enough positives to mitigate the losses in 2017 and add to stability in 2018. Among these positives are: 

Hazelwood Energy Hub is spending $400 million on four salt domes and above ground tanks to store and blend 10 types of oil. Construction is underway and is scheduled for completion in 2018. Located in Port Barre, Hazelwood will hire 123 workers at an average annual pay of $63,500---a very high rate for a rural area.



Close to Hazelwood in Grand Coteau in St. Landry Parish C&G Scientific Containers is spending $8.3 million on a packaging, environmental and pharmaceutical facility. The firm will hire 100-175 people.



Tennessee Gas Pipeline will hire 300 people to construct a pipeline to serve southwest Louisiana. The $170 million project will involve a natural gas compressor station in Franklin Parish and the expansion of an existing compressor and pipeline in Madison Parish.



Monster Moto has spent $4 million on a headquarters and manufacturing facility for mini-bikes and go-carts in Ruston. Presently, the company has only an assembly operation underway with 25 employees. Once its market is more fully developed the firm expects to add a manufacturing side and grow to 287 jobs over 10 years.



An advance was filed with the Department of Economic Development by BOE Midstream for a $127.8 million railcar storage, repair, and cleaning facility in Lacassine that was expected to yield 300 new jobs paying an average annual salary of $40,000. BOE has now exited this project and due diligence is underway by another prospect. It is our understanding that the scope of the project has changed as well.



The construction industry in these rural areas will also get a boost from $433.9 million in state road projects that will be let over 2017-18.



Roy O. Martin has three lumber yards in the rural areas of the state that employ 1,100 people. That number is expected to remain the same over 2017-18.



Finally, Vidalia is spending $39 million on a new 145 acre port (Vidalia Port). It is scheduled to be opened in mid-2017. The city has already built a road connecting the Vidalia Industrial park to the new port.

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THE OUTLOOK FOR THE STATE: 2017-18 In the pages above we have reviewed the prospects for each of Louisiana’s nine MSAs and its rural parishes for 2017-18. Figure 36 illustrates the results of summing up these individual area forecasts to get the outlook for the state as a whole. We are forecasting a net loss of 700 jobs in 2017 due to the heavy drag of the exploration sector. Some negative oil-related spillover will occur in 2018, but growth in other sectors with push the state into a growth mode, adding 13,700 jobs (+0.7%).

Fig. 36: Louisiana Non-Farm Employment Forecast: 2017-18 2,000 1,900

Thousands

1,800 1,700 1,600 2017: -700 jobs (-0.1% ) 2018: +13,700 Jobs (+0,7% )

1,500 1,400 80

85

90

95

00

05

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15

The elusive annual 2,000,000 job mark---which was actually achieved in the last three months of 2014---will remain tantalizingly elusive for the next two years. Actual construction of some of the large “potential” plants in the Lake Charles, Baton Rouge and New Orleans MSA could give us a much more promising future. An early turn-around in the oil and gas exploration industry could do the trick as well.

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