Georgia Economic Outlook 2004: Summary Sheet

CHART: Georgia and U.S. Economic Measures (PDF | 42 KB)
TABLE: Georgia Economic Forecast (PDF | 50 KB)
TABLE: U.S. Economic Forecast (PDF | 52 KB)
TABLE: Georgia Employment Forecast (PDF | 61 KB)
CHART: Percentage Change in Georgia Employment (PDF | 56 KB)

Georgia Forecast | National Forecast

Who, what and where - About 1,000 Atlanta executives, government leaders 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 21st 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 - After two full years of uninspired growth, Georgia's economy will strengthen substantially in 2004. Sub-par growth will be replaced by growth that is typical — or average — for this stage of the business cycle. Even better, the job machine is finally in forward gear and gaining speed. At some point during 2004, the number of jobs in Georgia will exceed pre-recession levels, and Georgia's economic recovery will finally be complete.

Georgia's inflation-adjusted gross state product will increase 4.2 percent in 2004, topping the 3.5 percent growth forecast for the U.S. economy. At 4.2 percent, Georgia's growth would be slightly higher than the state's long-term average rate of growth of 3.8 percent. "But after what we've been through over the last few years, even ordinary growth will feel mighty good," said P. George Benson, dean of UGA's Terry College of Business.

Employment - The jobless phase of Georgia's economic recovery ended last April, five months before the national upturn in jobs. "Georgia led the nation into the jobs recession, fell farther and deeper than most of the country, but is now leading the U.S. toward better times," Benson said. The number of people looking for jobs will grow faster than the number of jobs created, however, driving up unemployment. The jobless rate will rise from 5.0 percent in 2003 to 5.3 percent in 2004. "We don't expect the unemployment rate to fall below 5 percent until sometime in 2005."

Goods vs. Services - While the overall forecast for Georgia is good, Benson said it masks two very divergent outlooks: The state's services-producing sectors (identified in the Georgia Employment Forecast table)will see sales and profits climb and jobs created. In stark contrast, goods-producing sectors are retreating and cutting jobs.

Manufacturing - among the sectors in retreat- is mired in a prolonged depression that predates the 2001 recession. Since 1998, Georgia has lost 99,400 manufacturing jobs. One out of every five factory jobs in Georgia has been eliminated in the last five years. Plant closings and layoffs have devastated several Georgia communities, with the pain being especially acute in rural areas where the local economies are less diversified.

After such a long and painful period of major job cutbacks, the 1,300 manufacturing jobs that Georgia is expected to lose in 2004 will feel like stability by comparison, Benson said. And continued in-migration of transportation equipment manufacturers and parts suppliers will help offset jobs lost elsewhere in manufacturing.

Construction - The Selig Center forecast calls for less new home construction in Georgia in 2004. Mortgage rates are on the way back up, Benson said, and record home sales over the past three years have lessened pent-up demand. Construction employment will drop by 5,500 jobs, or 2.7 percent. "This will return construction employment to its level in the spring of 1999," Benson said. "For the first time in many years, the homebuilding industry will hurt rather than help the state's total employment numbers."

Medicaid - Health care will continue to be a growth industry, but health care providers will be especially vulnerable to stepped-up efforts to contain the costs of Medicaid in 2004 and beyond. State governments typically pay about 40 percent of the entitlement program's cost, with the federal government paying the remaining 60 percent. In Georgia, the total Medicaid budget is about $5 billion and covers roughly 1.3 million people. Georgia and other states looking for ways to balance their budgets are tightening Medicaid eligibility, restricting the medical services covered, encouraging changes in the utilization of services and lowering reimbursement rates paid to health care providers. "Georgia is in that squeeze now and will likely stay there into 2005," Benson said. "Our Medicaid budget is expected to show a deficit of at least $172 million next summer and more than double that a year later."

Military Base Closures - Defense spending is big business in Georgia. The state's allocation of total federal military spending ranks fifth nationally, and it ranks seventh in Department of Defense contracts awarded. Georgia's 13 military bases employ 120,000 people, including 35,000 civilians. Indirectly, another 380,000 jobs depend on the spending of the bases and their employees. The economic impact of these bases on the state is estimated to be $22 billion a year.

Military spending will again help the state's economy in 2004, but a dark cloud is looming. Congress recently announced another round of base closings and realignments to begin in May 2005. In the previous rounds of base closings in 1988, 1991, 1993, and 1995, 95 bases were closed but none in Georgia. "Despite their obvious merits, I am concerned that our bases will not fare as well this time," Benson said. "Merit alone may not be enough to save them."

Latin America - Atlanta, spurred by the state's Department of Industry, Trade and Tourism, is in the running to become the new home of the Office of the Secretariat of the Free Trade Area of the Americas. If Atlanta is selected, "not only would bureaucrats from 34 countries move here, but the regional economy would become a base of operations for many more multinational corporations. Georgia would become a financial, communications and transportation hub for the Americas," Benson said.

Whether or not Atlanta wins the site location, an increased focus on doing business with Latin America is not only warranted, but long overdue, he said, citing several reasons:

• By the end of 2004, Mexico probably will become Georgia's second largest export market, surpassing Japan and trailing only Canada.
• The buying power of Georgia's Hispanic population is growing faster than any segment of the state's economy, up 661 percent since 1990. The state's non-Hispanic consumer market grew by only 122 percent during the same period.
• At $10 billion, Georgia's Hispanic consumer market is the 10th largest in the nation and, just as importantly, the third fastest growing.

State Revenue - Tax revenue collections in Georgia are projected to rise at an annual rate between 6 percent and 7 percent through the remainder of this fiscal year and into the next. While balancing the state's budget will still be a challenge, that growth may help the state avoid the full 5 percent budget cut planned for fiscal year 2005.

The National Forecast

At A Glance - The combination of net job creation, faster economic growth, and more vigorous spending by businesses will make the economy much less vulnerable to a sudden economic shock. The Selig Center anticipates economic growth, as measured by gross domestic product, to increase 2.7 percent this year and inch up to 3.5 percent in 2004, after adjusting for inflation.

With the national economy operating above its stall-speed, the Selig Center puts the odds of a double-dip recession in 2004 at only 20 percent. Monetary and fiscal policies will continue to be very expansionary, the stock market has rallied decisively and the high-tech bust is over. Inventories are lean, and restocking will provide a pop to growth. Geopolitical risks also appear to be lower than they were in either 2002 or 2003.

Employment - To date, the current recovery has not only been "jobless," it's been a "job loss" recovery. In the two years since economists defined the recession as over and the recovery under way, the economy has grown slightly more than 5 percent, but employment has declined 1.3 percent. In that span, the United States has lost 1.7 million jobs or about 70 thousand jobs per month.

UGA forecasters identified five main reasons why U.S. companies have cut jobs in the face of expanding markets for their products.

• Job cuts are payback for the excesses of the late 1990s. Analysts' rosy projections of future growth and managers who believed them led businesses to become grossly overstaffed.
• The "job loss" recovery is a byproduct of an exceptionally long period of strong productivity growth.
• Sustained high levels of geopolitical and economic uncertainty caused many companies to delay new hires even when justified by increases in demand.
• In the wake of the recession and dot com bust, venture capital dwindled.
• U.S. companies have been outsourcing professional and white-collar jobs to a degree never before possible.

Sustained growth in corporate profits will give businesses the confidence, as well as the means, to step up hiring in 2004. Nationally, nonfarm employment will increase by 1 percent next year, but due to labor force growth the unemployment rate will stay above 6 percent.

Inflation - Due to a stubbornly high unemployment rate and slack capacity in many product markets, consumer price inflation will decline in 2004 even as the rate of economic growth accelerates, according to the forecast. Inflation will fall from 2.2 percent in 2003 to 1.5 percent in 2004, with the drop most evident for goods. This denotes the lowest rate of inflation for the current economic cycle and the lowest annual inflation since 1964. Even though inflation is approaching all-time lows, the combination of significant growth in the supply of money and accelerating economic growth will be more than adequate to stave off outright deflation.

Interest Rates - The Federal Reserve will be inclined to maintain its accommodating monetary policy at least into the final months of 2004. The Selig Center anticipates the Fed keeping short-term interest rates very low, but the federal budget deficit and the trade deficit already have begun to exert some upward pressure on long-term interest rates. The price to borrow money will be incredibly low in 2004, but on average it will not be quite as low as it was this year.

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