J. Mack Robinson College of Business
Director, Economic Forecasting Center
ATLANTA – High oil prices, cautious consumer sentiment and fiscal cutbacks at all levels of government continue to hamper the nation’s economic recovery, said 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, Dhawan said that the recent spike in oil prices began with Tunisia's Jasmine Revolution last December. “The revolt spilled over to Egypt in January, which led that country to change regimes in February,” said the forecaster. “The big unknown now,” continued Dhawan “is how the change in Egypt will affect the stability of oil-producing regimes in the region, particularly those hostile to the West.”
Dhawan said that even without these “political Black Swan events,” oil prices will remain high because of China’s demand for oil to support its construction industry.
“Another area of concern,” said Dhawan, “is the mood of consumers. Personal consumption may have grown by 4.4 percent in the fourth quarter of 2010. But don’t look for the momentum of that quarter to continue to get us to the 5 percent-plus GDP growth rate needed to make for a strong job market.” He said that “stagnant consumer confidence coupled with federal budget cutbacks and the hard reality of record fiscal deficits, has led Congress to consider drastic changes in discretionary federal spending.” He also noted that another impediment to reaching the higher rate of GDP is an idle construction industry.
“New home sales were the lowest on record last year, and even in 2013, housing starts will remain well below the one million mark,” said Dhawan. A consumer, still unwilling to invest in an asset that “may depreciate 10 percent or 20 percent in the future” is the primary reason for why housing will continue to lag.
Dhawan also predicted that unemployment will remain above 9 percent until late 2012. He said that students who use “delaying tactics such as going for advanced degrees or postponing graduation” will eventually have to enter the workforce. At the same time, older workers will stay longer in the workforce to recoup portfolio losses (from the stock market and their homes), adding to the rising labor force participation rate.
“One worry we don’t have,” concluded Dhawan, is inflation. “Inflation occurs when the economy is running above its potential to grow given the limits of population, equipment, software and facilities available. That is not the case in the United States right now, but a dose of inflation would not be bad “because it would put all those people who lost jobs during the Great Recession back to work."
Highlights from the Economic Forecasting Center’s National Report
Georgia Economy Leads Florida, Trails North Carolina; Healthcare and Manufacturing Pace Peach State’s Modest Recovery; Job Growth to Pick Up Speed in 2012
Georgia’s recovery, marked by a turnaround in income creation, healthcare jobs and improved prospects for manufacturing, is outpacing Florida, but it lags behind North Carolina, according to Dhawan.
In his Forecast for Georgia and Atlanta, Dhawan said that Georgia’s unemployment rate of 10 percent is less than Florida’s 12 percent but more than North Carolina’s 9.8 percent. Georgia’s personal income increased by 3.6 percent compared to Florida’s 3.1 percent and North Carolina’s 4.6 percent. North Carolina’s corporate job growth was up above 5 percent, Georgia’s was barely 2 percent and Florida’s was almost non-existent.
Dhawan said that while healthcare remains one of the state’s strong suits, particularly in the Atlanta area, manufacturing will prosper because of “a weak dollar that helps exports (which grew 22.3 percent in 2010), the presence of a port and a shift of industrial production to transportation, as exemplified by the Kia plant in West Point.”
The Egyptian Revolution offers a possible impediment to corporate job growth. The high oil prices could have a negative effect on the hospitality industry and the airline business. According to Dhawan, “Delta as a dominant player in international travel will have to deal with hiccups in Europe and the Middle East from the Egyptian revolution as well as the fallout from the debt crisis in the Eurozone.” The forecaster also said that “if oil prices escalate suddenly in response to real or perceived problems, the result is a negative effect on both consumer and business confidence.” The corporate sector may then suffer from both lack of internal investment and fewer companies moving to Georgia Small businesses, which are dependent on credit, continue to lag as the result of the moribund banking sector. Construction continues to falter, and the fallout from the poor real estate market is hitting local tax collections—thereby hurting local government and impeding its ability to hire. One bright spot for the housing market is the demand for multifamily housing, particularly apartments, which, said Dhawan, are being sought by recent college graduates and people with foreclosed properties. Dhawan noted that purchasing power is also limited due to personal bankruptcies and foreclosures.
According to Dhawan, adding all the positives and negatives, the state will go from a loss of 5,600 jobs in 2010 to a gain of nearly 50,000 in 2011 and approximately 80,000 in 2012 and 2013.
Highlights from the Economic Forecasting Center’s Local Report
Published Feb. 23, 2011