Contact:
Jenifer Shockley, 404-413-7078
Robinson College of Business
ATLANTA – The looming fiscal cliff and attendant political discord are souring consumer and corporate confidence and will slow down U.S. economic growth into early 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 the Nation,” released today, Dhawan says that due to these factors, as well as the ongoing recession in Europe and downturn in China, real GDP growth will continue the slide that began in the second quarter of 2012 into early 2013, then pick up a bit before declining for the year, finally rebounding in 2014 when a proper solution to the fiscal cliff has been achieved and business investments, personal consumption and international trade improve.
The economic situation would be worse, says Dhawan, if not for the continuing solvency crisis throughout Europe. “The longer the European debt problem festers, the longer the Chinese, Brazilians, Russians, sheikdoms, money market and pension funds, and others will keep buying U.S. debt. Their fear-driven behavior will keep our interest rates low and delay our day of reckoning.”
Europe’s woes are part of a growing global slowdown that includes China. “Almost 60 percent of the world economy is in recession or decelerating sharply,” says Dhawan. “Businesses are feeling the first-round effects of the slowdown, which is contributing to a dour business mood, especially at the CEO level.”
But the negative trajectory of business sentiment is due more to homegrown matters than global decline and will trend further downward through Election Day, if not longer. “As the political cacophony increases, a reality is setting in that nothing will be done about the fiscal cliff until Congress returns in 2013, well after the deadline.”
Fiscal cliff concerns are not only prompting businesses to put off risk-taking activities for the rest of the year, but also causing consumers to abstain from buying unnecessary big ticket items, especially autos and homes. “Net-net,” says Dhawan, “the anticipation effect will ruin the second half of 2012.”
As for what’s ahead, Dhawan says, “The economic game in 2013 will focus on what actions Congress will take to tackle the issues it created in birthing the fiscal cliff.”
Highlights from the Economic Forecasting Center’s National Report
• After growing 2 percent and 1.5 percent in the first and second quarters of 2012, real GDP will grow 1.3 percent in the third and 1 percent in the fourth quarters, and 2.1 percent for the year. It will decelerate to 1.6 percent in 2013, then grow at a stronger rate of 2.6 percent in 2014 as business investments, personal consumption and international trade improve. Personal consumption growth will average 1.8 percent for 2012, 1.7 percent in 2013 and 2.2 percent in 2013.
• The U.S. economy created upwards of 500,000 jobs in the first two months of 2012 and 500,000 more jobs the next five. This will moderate to 80,000 per month through year end. In 2013, expect 120,000 new jobs per month and 150,000 new jobs per month in 2014. Unemployment will be over 8 percent until mid-2014.
• The Consumer Price Index inflation rate will be 2 percent for 2012 and will average 2.3 percent in 2013 and 2 percent in 2014. Crude oil prices will hover around $100 per barrel for the next few years at $94.9 per barrel in 2012, $101.1 in 2013 and $104.7 in 2014.
• Housing starts will average 0.684 million units in 2012, dip to 0.675 million units in 2013 and increase to 0.803 million units in 2014. Auto sales will average 13.9 million units in 2012 and 2013, but then will improve substantially in 2014 to an average of 14.6 million units.
Georgia Economy Pauses Due to Uncertainty
The impending fiscal cliff, political dithering, plunging corporate confidence and an iffy consumer mood are among the factors causing Georgia’s economic growth to pause, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business. Also contributing to the standstill are falling demand for exports and the rising price of oil.
In his quarterly “Forecast of Georgia and Atlanta,” Dhawan reports that after close to 20 percent annual growth for the last two years, Georgia exports to Europe slowed sharply in the first five months of 2012. “Europe accounted for almost 22 percent of Georgia’s exports of commodities, such as aircraft and parts (Lockheed Martin, Gulfstream), vehicles (Kia), paper products (Georgia-Pacific) and industrial machinery and surgical equipment,” he said. “The drop in demand from Europe and U.S. political uncertainty are muting companies’ desire to expand.”
Dhawan points out that Peach State manufacturers are not bearing the brunt alone. “The impact of the slowing global economy already is being felt in Savannah, where growth has decelerated sharply in the past six months and where port traffic and future expansion will take a hit in coming months.”
After adding 25,000 jobs in the last 12 months, the forecaster says the pace of corporate job growth in Georgia will moderate due to national political dysfunction. “This sector may only add 10,000 jobs in the next 12 months.”
“Look for spillover to the hospitality industry,” says Dhawan. “Although it grew very well after the end of the Great Recession, it has since stalled due to high gas prices and corporate reluctance to hold big gatherings.” Also a factor is Delta’s plan to cut routes and capacity as it battles high oil prices and global headwinds. “I do not expect this sector to add any jobs in the next six months, until America’s fiscal and political difficulties are resolved.”
Healthcare will grow as it always does, even during a recession. With healthcare reform legality resolved, hospitals can move ahead with growth plans, including digitizing records, which will create numerous jobs for software consultants. “The sector will grow, but it won’t accelerate,” says Dhawan. “Why? Consumers will cut back on health services as their paychecks are affected by a slowing economy.”
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
• Georgia’s employment base will grow by 41,300 jobs in calendar year 2012, including 8,800 premium jobs, for an annual job growth rate of 1.1 percent. The recovery will be similar in 2013 when the state adds 42,600 jobs (0.8 percent annual job growth rate) with 9,300 premium jobs among that number. In 2014, new job numbers will rise to 69,600 (1.6 percent annual job growth rate) including 13,200 premium jobs.
• Georgia’s unemployment rate for 2012 will be 9.1 percent. With tepid job growth in 2013, unemployment will rise to 9.2 percent. When growth picks up in 2014, unemployment will decline to 8.5 percent.
• Statewide nominal personal income will rise a moderate 3.4 percent in 2012, increasing to 3.6 percent in 2013, with an anticipated strong increase of 4.8 percent in 2014.
• Atlanta’s employment base will grow by 29,800 jobs, including 6,500 premium jobs, for a growth rate of 1.5 percent. Job growth will show similar strength in 2013, when Atlanta adds 32,900 jobs, of which 7,900 are premium jobs (1.1 percent growth). In 2014 metro area employment growth will pick up with 54,200 jobs (2.1 percent growth) with 12,300 premium jobs.
• Atlanta housing permits will increase by 37 percent in 2012 to 11,557 units, due to an 82.6 percent rise in multifamily housing permits. Permit activity will increase by a paltry 0.8 percent in 2013, but will grow strongly in 2014, posting an overall increase of 26.6 percent.
The Economic Forecasting Center at Georgia State University's J. Mack Robinson College of Business is one of the few university-based centers providing an analysis of the economy, various industries and international trade, as well as prices and interest rates. The center holds quarterly conferences at which its director, Rajeev Dhawan, forecasts the economic outlook for the nation, Georgia and Atlanta. For more information, please visit robinson.gsu.edu/efc.
Aug. 22, 2012