Georgia Economic Outlook 2002: Summary Sheet

CHART: Georgia and U.S. Economic Measures (PDF | 39 KB)
TABLE: Georgia Economic Forecast
TABLE: U.S. Economic Forecast
CHART: Percentage Change in Georgia Employment (PDF | 21 KB)
TABLE: Georgia Employment Forecast

Georgia Forecast | National Forecast

Who, what and where — About 1,200 Atlanta business executives and University of Georgia alumni are registered for the Georgia Economic Outlook luncheon in Atlanta. This year's program at the Georgia World Congress Center is the 19th annual economic forecast luncheon hosted by UGA's Terry College of Business.

The Georgia and U.S. economic forecasts summarized here were prepared by the Selig Center for Economic Growth in the Terry College of Business.

The Georgia Forecast

At a Glance — "We are currently experiencing synchronous recessions of the global, national and state economies," said P. George Benson, dean of UGA's Terry College of Business. The National Bureau of Economic Research has pegged last March as the start of the recession. "Taking that as a given, many economists expect the recession to last no more than one year, followed by a relatively strong recovery that begins in the second quarter of 2002," Benson said. "We believe this viewpoint is a little too optimistic. We expect the recession to last for 15 months — through the middle of 2002. The growth in the third and fourth quarters of 2002 will be modest, but by 2003 we believe that economic growth will exceed the average annual rate of growth of the past 20 years, which is 3.2 percent."

In 2002, Georgia's inflation-adjusted gross state product will decline by 0.9 percent, with deeper losses in the first six months of the year partially offset by increases in the third and fourth quarters. The Selig Center expects the state to end 2001 with a growth rate of 1.6 percent for the year. Georgia's projected drop in 2002 GSP will mirror the 1.0- percent decline in gross domestic product expected for the United States.

Hardest Hit Sectors — "Today's recession is unlike previous recessions, in which Georgia and Atlanta held out a little longer," Benson said. "Atlanta, and therefore Georgia, depends heavily on three industry segments, all of which are getting hit hard."

• Airlines: "We all know too well that Atlanta's air transportation industry has been hammered by both terrorism and the recession. Delta Air Lines, for example, used to accumulate $8 million in cash a day. Now they're burning $8 million a day."
• Hospitality: "Consider Atlanta's stock of 88,000 hotel rooms, which is one of Atlanta's most important assets. But this year's hotel occupancy rate is expected to experience its biggest drop since 1958 and finish the year at about 60 percent occupancy. Major conventions haven't canceled, but attendance is down. Overall, Georgia's convention and tourism business appears to be down about 30 to 35 percent from last year."
• Information Technology: "One of our oft-touted strengths is now a short-term liability. Internet companies that were high-fliers are now trading for pennies, or are out of business altogether, or have been sold to firms headquartered in other states. What happened? We over-invested in information technology and information services. Excessive investment by business was the primary reason for the slowdown in growth that preceded the recession. Companies just spent too much money too casually."

Employment — Georgia will lose about 33,000 jobs in 2002, and the state's unemployment rate will rise by almost two full percentage points, from 4.2 percent in 2001 to 6.1 percent next year. "Still, the predicted job losses are significantly smaller than the 54,000 jobs Georgia lost in the 1990-91 recession that followed Iraq's invasion of Kuwait," Benson said.

Most of the job cuts will be in manufacturing and construction, but jobs also will be lost in transportation, financial services, insurance, real estate, lodging, restaurants and state government. "Business will continue to shed workers through the second quarter of 2002," he said. "Households will hunker down until the job engine shifts out of reverse and into forward."

Income — Personal income in Georgia will decrease by 0.4 percent in 2002, after adjusting for inflation. The decline follows income gains of 2.6 percent in 2001, 5.0 percent in 2000 and 4.9 percent in 1999. Job losses will be the most important factor stalling income growth in Georgia.

Population — One positive note for Georgia's economy is the continuing influx of people moving into the state's most popular regions, particularly Atlanta, the coast and the mountains. Georgia's 1.5 percent annual rate of growth will just about double the nation's population growth. Benson identified three reasons why above-average population growth will continue:

• Perception of Prosperity: "People will continue to move to Georgia because of the perception that economic opportunities are better here than elsewhere."
• Chain Migration: "The chain migration of family members of those who moved to Georgia during the 1990s will prove to be very resilient to recession. Brothers following sisters. Grandparents and parents following children."
• Retiree Migration: "Migration of retirees to Georgia will continue to be strong. In fact, more people migrate from Florida to Georgia than vice versa. They bring financial stability with them. Their incomes are less affected by the business cycle than wage and salary workers."

Military Towns — "While we typically think of military installations as economic engines, when troops are deployed overseas, they can't spend money here in Georgia. And understandably, their dependents also are not in the mood to spend," Benson said. "During the Persian Gulf War, military towns across Georgia experienced a sharp drop in consumer spending. This pattern undoubtedly will be repeated in the months ahead."

Government Revenue — State tax revenues were down 5.7 percent from July through November, compared with last year's collections. Because Georgia is required by law to balance its $15 billion budget, state government spending has been cut 2.5 percent in the current fiscal year (ending June 30, 2002) and 5.0 percent in the next fiscal year. "While the budget cuts may be necessary, make no mistake about it, they will work to prolong the recession," Benson said. Fortunately, the state has a budget surplus of about $815 million and a rainy day reserve fund of about $735 million. Those funds are available to help reduce the impact of lower revenue collections on the 2002 and 2003 state budgets.

Imports/Exports — With deterioration in the global economy, both exports and imports have been declining since the fourth quarter of 2000. The strong U.S. dollar is making it more difficult for Georgia companies to sell their products abroad. Increased security measures being implemented by virtually every business and government in the free world add another impediment to international trade for Georgia industries. "They will act like a tax on cross-border business activities," Benson said.

The National Forecast

At a Glance — The Selig Center describes the 2001-2002 economic cycle as being "in the shape of an elongated U," marked by a sharp decline in growth, giving way to a drawn-out plateau at the bottom, followed by a relatively sharp rebound in economic activity. The U.S. economy will scrape bottom in the first and second quarters of 2002. On an annual basis, inflation-adjusted gross domestic product will decline by 1.0 percent next year. The longest and strongest economic expansion in the nation's history ends in 2001 with meager GDP growth projected to be 0.8 percent. Symbolically, it ended with the catastrophic events of September 11.

"Our growth may not reach the heights of the late 1990s anytime soon," Benson said. "As we invest more resources in defense, business and personal security, in public health, in securing our borders, in mail handling, in insurance, in information technology security, and in securing our transportation and energy systems, our productivity will suffer. Quite simply, it takes more resources now to produce a given level of goods and services than it did prior to September 11. Since productivity will be lower, so will the potential rate of growth of the economy."

Recent Recession History — In the last four recessions, the economy shrank by 3.0 percent (1973-75), 2.2 percent (1980), 2.9 percent (1981-82) and 1.5 percent (1990-91). The Selig Center predicts the economy will contract by about 2.0 percent in the current recession. "Thus, the 2001-2002 recession will be milder than three of the last four recessions," Benson said.

Employment — In 2002, total civilian employment will decrease by 1.2 percent, or about 1.6 million jobs nationwide, down from 0.4 percent job growth in 2001. Most of next year's job cuts will occur by the second quarter. Net hiring gains are expected to resume in the third quarter, but the U.S. unemployment rate will jump substantially to 6.8 percent, up from 4.8 percent this year. Employment will rise slightly in the services sector next year, while manufacturing will continue to be the weakest link in the nation's labor market.

Interest Rates — In 2001, the Federal Reserve has cut interest rates 11 times, lowering the federal funds rate from 6.5 percent to 1.75 percent. The Selig Center anticipates further cuts of a half-point from short-term interest rates in 2002, but the Fed will reverse course and begin raising interest rates as soon as the economy shows signs of strengthening. Homeowners will continue refinancing mortgages, which will improve household finances and help prop up consumer spending. Businesses will refinance old debts to lower their capital costs and use the savings to resume hiring and other spending.

Inflation — The consumer price index bottomed out in 1998 at 1.6 percent and has risen back to 3.1 percent in 2001, partly due to energy prices. If oil prices behave as expected, inflation will increase by 1.8 percent next year, according to the Selig Center.

Conclusion — Benson said that in the wake of September 11 he was reminded of the words spoken in the 1960s by the late University of Georgia economist David McCord Wright, who was known to tell his students: "Growth comes through change and causes change."

"The terrorists who attacked the World Trade Center were striking against that which causes change: growth, be it economic globalism or social pluralism," Benson said. "Ironically, and fortunately, they miscalculated. The terrorists would have us withdraw and move apart. But we will come together. Over the long run, our democratic values and free enterprise system will grow and flourish around the world — even in the barren lands of the Middle East."

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