Nov. 18, 2009
Gary McKillips, Communications and Marketing
Rajeev Dhawan, director
Economic Forecasting Center
Robinson College of Business
ATLANTA - Unless the economy can find a spark similar to the Internet revolution of the 90's or the construction boom of the early 2000s-factors that helped create jobs and take the nation out of previous recessions-the current recovery will be slow and drawn out through 2011 and beyond according to Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University's J. Mack Robinson College of Business.
In his Forecast for the Nation, released today, Dhawan said that even though the general consensus of economists is that the recession is over, job losses will continue during the first half of 2010 at a rate of 75,000 month, which becomes a small positive of 35,000 in the second half of the year. He said that 2011 will see better numbers with 100,000 job gains monthly, but unemployment will stay above 10 percent until 2011.
Dhawan said that the chance of finding that singular phenomena-a spark-that will make the economy recover faster is unlikely. He says that many approaches related to the much-hyped development of alternative energy sources are non-starters and that, "We need to put 7.3 million people back to work, and none of these ideas can make a dent of more than a few hundred thousand at best and then only after a long gestation time."
The Georgia State forecaster says that "what we need to do first is clean up the overhang of toxic assets, which sit in zombie-like banks." He adds that this can be done by "moving the debt or illiquid assets into a holding entity that will dispose of them slowly over time." However, notes Dhawan, unlike in the previous Savings and Loan crisis, where "regular banks were still functional, this time trouble is all over the country and permeates the entire banking sector. There are not enough healthy banks left to absorb the bad ones. So one has to look to alternative sources of funding such as private equity or foreign investors."
Foreign ownership can also help with the real estate crisis. When Los Angeles experienced a real estate bust in the early 90s, a new set of primarily Hispanic buyers (domestic and/or foreign from Mexico and Latin America) emerged. "Today we should be able to entice the rest of the world to buy assets here, given the lack of restrictions on home ownership by foreigners," notes Dhawan. "Under any circumstance," he concludes, this cleanup will be slow and difficult."
Highlights from the Economic Center's National Report
Water, Water, Everywhere, but State Economy Still Thirsty for Growth
Nature's forces took hold and relieved the drought that gripped Georgia last summer. Unfortunately, the state's economy has found no such relief.
In his Forecast of Georgia and Atlanta, Georgia State Economic Forecasting Center Director Rajeev Dhawan says that although "it is generally assumed the national recession ended sometime this summer, the Georgia recession in terms of job losses remains unabated." The third quarter of 2009 saw 50,000 plus job losses in Georgia, the fourth such quarter in a row. The state has lost about 310,000 jobs since September of 2007, or 7.5 percent of its job base, a much bigger drop than the national number.
"Tax collections also dropped 14.2 percent in the third quarter of this year compared to that same period in 2009," said Dhawan. He noted that this happened as a result of the reduced purchasing power of the 10 percent unemployed, the duration of unemployment and the tendency for "discouraged workers to leave the state and newcomers postpone coming in. However," according to the forecaster, "as the national economy recovers slowly but surely, so will the mobility of people and hopefully Atlanta will grow again."
Commenting on some key business areas, Dhawan says that the hospitality and airline sectors will continue to suffer from cutbacks in business travel and other forms of corporate belt-tightening. He stated that "Delta is also still retrenching after gobbling up Northwest and we expect this trajectory to continue in the coming quarters."
Statewide there is good news emanating from places such as LaGrange area with the opening of the Kia plant and Columbus, which has the promise of a new NCR manufacturing plant. "Unfortunately," said the Georgia State forecaster, "this collection of other metro areas in Georgia accounts for just 20 percent of the employment base, and is unable to compensate for the deep hole that metro Atlanta is in."
Dhawan sees the state's recovery beginning in 2011 as "repair work by the Fed and the Treasury finally pays dividends by improving credit flow to small and medium enterprises, which is a must for any type of growth to be seen in 2011."
Highlights from the Economic Forecasting Center's Local Report