Contact:
Jenifer Shockley, 404-413-7078
J. Mack Robinson College of Business
ATLANTA – Despite upticks in GDP growth, job creation and auto sales in the last few months – a welcome relief from the dreariness of last fall – the economy cannot sustain such momentum moving forward this year, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
In his quarterly "Forecast of the Nation," Dhawan says GDP growth of 2.8 percent in the fourth quarter of 2011, the creation of 603,000 jobs between November and January, and 14.1 million new vehicle sales in January “created a false perception of acceleration in economic growth.” He added that “the economy’s output capacity has not increased in a fundamental sense since last summer and the factors preventing the economy from reaching its full potential remain in place.”
Among the factors preventing acceleration: weak consumer confidence due to a depressed prognosis for future home valuation, resulting in increased caution and a high savings rate; the banking sector’s weak balance sheet, which is inhibiting credit creation for the small business sector; and a sharp reduction in corporate business confidence, which is keeping the investment rate too low to support monthly creation of 250,000 jobs.
The forecaster says that European sovereign debt problems and slowing growth in emerging markets, especially China and Brazil, are adding to an already cautious corporate mood. “Europe is a key trading partner. Any worsening of its ongoing recession will have a detrimental impact on U.S. exports and growth at home,” says Dhawan. “But, a more immediate worry is slowdown fears in China, (which will produce a second-round effect on U.S. growth via the Europe Channel) and in emerging markets such as Brazil.”
With almost 60 percent of the world either slowing or already in a recession, the U.S. will face a sharp hit to its exports. Will that lead to a recession in the United States? Dhawan thinks not. “A recession here is unlikely unless the Eurozone dismantles its currency and China has a hard landing at the same time – an outcome not seemingly in the cards.”
Highlights from the Economic Forecasting Center’s national report
• Following a real GDP growth rate of 2.8 percent in the fourth quarter of 2011, real GDP will expand by 1.4 percent in the first half of 2012 and 2.1 percent in the second half of the year. For all of 2012 real GDP growth will be limited to 1.8 percent. In 2013, real GDP will expand at a stronger rate of 2.3 percent and then 2.7 percent in 2014. Personal consumption growth will average 1.7 percent in 2012, followed by 1.9 percent in 2013 and 2.1 percent in 2014.
• The U.S. economy created jobs at a 200,000 monthly pace in the last three months. Expect this rate to moderate to about 150,000 jobs per month for the rest of the year. In 2013 and 2014 the economy will add an average of 160,000 jobs per month. Unemployment will remain above 8 percent for the next two years.
• The Consumer Price Index inflation rate will be 2.1 percent in 2012, moderating to 1.5 percent in 2013 and rising to 1.8 percent in 2014. The price of oil will remain elevated over the next three years – $99.2 per barrel in 2012, $103.2 in 2013, and $104.8 in 2014.
• Housing starts will average 0.723 million units in 2012, gradually rising to 0.852 million units in 2013 and 0.940 million units in 2014. Auto and light truck sales will be 13.6 million in 2012, increasing to 13.9 million in 2013 and 14.1 million in 2014.
Georgia’s expanding sectors overshadowed by contracting ones
Global turmoil, cautious consumers, weak corporate confidence and a bifurcated economy are the headwinds that Georgia’s economy will face in 2012 and 2013, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business. In his quarterly "Forecast of Georgia and Atlanta," Dhawan says that gains in growing sectors, such as professional and business services, manufacturing, and healthcare services, have not been great enough to offset losses in lagging sectors such as construction, local government and banking.
Bifurcation occurs not only between sectors but within them, resulting in gains being masked by losses. For instance, job gains in durable goods manufacturing (automotive and aviation) were offset by job losses in non-durables (textiles and food processing). “The growth is in heavy manufacturing, high tech and new technology,” says Dhawan, “and old staples are becoming a drag on growth.”
There also is bifurcation in the Peach State’s information and technology sector. After declining 30 percent in the last decade, it has recently begun to experience growth in the software, security and wireless subsectors – but not in the landline phone subsector. As a result, “on a net basis the sector won’t add jobs for years,” Dhawan says.
Healthcare, a sector that grows even during a recession, added only 5,300 jobs in 2011 – less than half its normal pace. Although the demand for healthcare services will grow (because of population growth and technology needs such as digitizing medical records), employment additions will continue to be lackluster due to, among other factors, hospital system consolidations, and a decline in elective procedures caused by tepid consumer income growth. “Going forward, I think this sector will not be able to contribute at its former pace of growth,” says the forecaster.
As for hospitality, Dhawan says the sector will do “okay,” but that high oil prices will put a dent in Delta’s expansion plans in Atlanta (notwithstanding its play for American Airlines parent AMR Corporation) and the building of new hotels. One caveat, he says, is “If the situation in Iran leads to an embargo on oil shipping in the Persian Gulf, where 25 percent of the world’s supply flows, all bets are off.”
With 8,700 new jobs, the professional and business services posted the largest gains of all sectors in 2011. Large corporations are still talking about moving their headquarters here but, Dhawan notes, “In the old days, there would have been an extra zero at the end of this figure.” Additionally, the turmoil in Europe, political dysfunction and a cautious consumer makes corporate CEOs reluctant to be aggressive with growth. Furthermore, the small business sector is still dealing with credit availability issues due to Georgia's moribund banking system. Thus, it will be hard for this sector to get back to adding 20,000-plus jobs until 2014.
Among the lagging sectors, construction will lose some jobs once again in 2012, but is expected to get on the positive side of job creation in 2013 and later due to a big surge in multifamily (apartment) housing.
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
• Georgia will add 14,300 jobs, including 2,500 premium jobs, in calendar year 2012. Employment levels will improve in 2013 when the state will add 40,600 jobs, of which 7,200 are premium jobs (resulting in a 0.8 percent annual growth rate). In 2014, the recovery will be better but moderate, with the economy adding 66,700 jobs, 14,100 of which will be premium jobs (a 1.5 percent annual growth rate).
• Georgia’s unemployment rate will be 9.7 percent in 2012, only 0.3 basis points lower than levels in 2011. In 2013, unemployment will decline to 9.3 percent. In 2014, it will decline again significantly to 8.5 percent.
• Atlanta employment will mirror statewide conditions for calendar year 2012 with 10,300 job gains (2,900 premium jobs). Employment will grow in 2013 with the Atlanta economy posting 28,700 job gains (5,200 premium jobs). Atlanta employment will increase again in 2014 by 44,800 jobs (9,600 premium jobs).
• Atlanta housing permits will increase by 12.6 percent in 2012 to 9,594 units due to a boost in multifamily housing permits (28.9 percent). Single family permits will post a mild increase of 5.9 percent this year. Permit activity will increase by 17.1 percent in 2013, with single and multifamily housing activity posting increases of 11.7 percent and 27.8 percent respectively. Permit activity will grow again in 2014, posting an overall increase of 22.4 percent, with multifamily permits growing at 31.6 percent.
Feb. 23, 2012