Georgia Economic Outlook 2005: Summary Sheet

CHART: Georgia and U.S. Economic Measures (PDF | 10 KB)
TABLE: Georgia Economic Forecast (PDF | 10 KB)
TABLE: U.S. Economic Forecast (PDF | 11 KB)
CHART: Percentage Change in Georgia Employment (PDF | 10 KB)

Georgia Forecast | National Forecast

Who, what and where - About 1,000 Atlanta executives and government leaders are registered for the Georgia Economic Outlook luncheon in Atlanta. This year's program at the Georgia World Congress Center is the 22nd annual economic forecast luncheon hosted by UGA's Terry College of Business. Speakers included University of Georgia President Michael Adams, Gov. Sonny Perdue, Global Insight chief economist Nariman Behravesh and Terry College Dean George Benson.

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 - Georgia's economic growth will remain "uninspired" in 2005, despite slow but steady employment gains, according to Dean P. George Benson of UGA's Terry College of Business. "Georgia's gross state product will increase by only 3.2 percent, which is lower than the 3.8 percent growth we expect for the current year," Benson said. "This is well below the state's long-run average growth rate of 4 percent. I can't believe I'm actually saying this, but 2005 will be Georgia's fifth straight year of below-average growth."

Rising interest rates, sluggishness in the economies of trading partners, and consumers who are becoming increasingly overextended in their spending are some of the underlying forces behind the slow pace of growth. Another problem is that several of the state's largest employers are not doing very well. And it's unlikely that Georgia's small businesses and medium-sized companies will grow fast enough to compensate for the malaise among the corporate giants, most notably Delta Air Lines.

Employment - Georgia's labor market was bludgeoned by the recent recession — worse than much of the rest of the nation — and it will take all of 2005 to recoup the losses. The state's non-farm employment will rise by 1.5 percent, or 57,800 jobs, in 2005, which exceeds the 1.1 percent increase projected for 2004. Air transportation, information technology, hospitality and manufacturing suffered the deepest job losses when the recession started in 2001. Almost four years later, only air transportation is still in trouble. In contrast, both I.T. and hospitality will be major areas of job growth in 2005, and the depression in manufacturing employment has waned.

Service Industries Stronger - Professional and business services will create 27,700 jobs — more than any other subsector. Expanding corporate profits and a growing desire among companies to outsource non-essential services are the primary forces behind the projected 5.4 percent increase in employment. The hospitality industry did very well in 2004 and will do even better in 2005. Employment will grow by 3 percent, or 11,100 jobs. Most hotels will see a boost in occupancy rates, and restaurants will see moderate increases in overall sales, powered by population growth, more tourism and more dining choices.

"Atlanta is the nation's fifth largest metro area in terms of the size of its travel and tourism industry," Benson said, "behind only New York, Las Vegas, Chicago, and Los Angeles."

Employment in government services will expand by only 0.6 percent, or 3,800 jobs. Virtually all of the new jobs will be with local governments, where property taxes provide a solid boost to revenue collections. State and federal government will not be a source of new jobs in 2005, as budgetary belt-tightening continues.

Tech Sector Rebound - Following several extremely difficult years, characterized by relentless layoffs and bankruptcies, information services companies are hiring again. The industry has addressed most of its overcapacity issues, and demand is surging for a broad range of services.

"We expect both households and businesses to allocate more of their budgets to telecom and Internet services," Benson said. Mobile telecom services will be a major source of revenue growth, and the potential of wireless Internet is just beginning to be felt. Still, it will be several years before employment in I.T. fully recovers from the 2001 recession.

Manufacturing Out of the Mire - From December 1998 through September 2004, Georgia lost 100,000 manufacturing jobs, or nearly one out of every five factory jobs. Manufacturers are beginning to regain some footing and are expected to create 5,400 jobs in Georgia next year. Reasons for the turnaround include cutting into excess capacity, recruitment of new auto manufacturers and their suppliers to the region, decreased competition from imported goods because of the weaker dollar and, likewise, better markets for Georgia exports. Gains in manufacturing productivity will tend to limit employment growth.

Home Sales and Construction - "Coming off the fourth strongest month ever for home sales in the U.S. in October, we're predicting a downturn in Georgia's housing market next year," Benson said. "In '05, we expect the rate on a 30-year fixed home mortgage to increase close to one percentage point. If that happens, you'll see the slowdown." In commercial construction, developers saw the bottom of the cycle in 2004, but extremely high vacancy rates and meager demand will limit office and industrial construction. With many construction projects still on hold, construction employment in Georgia will drop by 4,000, or 1.4 percent, next year.

Research Park Planning - If steps are taken soon, Georgia still has time to establish a linear research park for high-tech and bio-tech industries along Georgia Highway 316 between Athens and Atlanta, similar in concept to North Carolina's famed Research Triangle.

Much like the Research Triangle links and multiplies the research strengths of North Carolina's major research universities, the Athens-Atlanta corridor could capitalize on the intellectual resources of such institutions as the University of Georgia, Georgia Tech, Emory and the Centers for Disease Control and Prevention. Unlike the Research Triangle, which is now running out of land, Benson said a linear research park along 316 would have few obstacles to expansion.

"Other advantages of the University Parkway corridor include the proposed Athens-Atlanta passenger rail," Benson said. "The existing rail line is accessible along the entire length of the corridor. The area is also accessible by air. The Gwinnett County Airport lies at the western end of the corridor, the Winder-Barrow Airport lies near the middle, and Athens' Ben Epps Airport is near the eastern end.

"We're letting the opportunity to develop a linear research park along University Parkway slip right through our fingers," he said. "Within a few years the ongoing, random commercial and residential development will extinguish this opportunity."

The National Forecast

At A Glance - Largely because of a slowdown in consumer spending, the Selig Center anticipates economic growth, as measured by gross domestic product, to increase 3 percent in 2005, down a full percentage point from the 4 percent growth rate expected in 2004, after adjusting for inflation.

Because job creation has been too scant to create a vigorous, self-sustaining economic expansion, the risk of recession will rise in 2005. The Selig Center predicted a 40 percent chance of a double-dip recession by the second half of 2005. More restrictive monetary and fiscal policies, along with a growing federal budget deficit, make the economy increasingly vulnerable to a financial crisis or unexpected shock. However, increased hiring and spending by businesses, receding energy prices, decent wage growth and improving markets for U.S. exports will all work in favor of the recovery.

Labor Markets - Despite slower economic growth in 2005, employment will gradually increase as businesses capitalize on pent-up demand for workers. Following net job losses in 2002 and 2003, and tepid job growth of 0.9 percent in 2004, total non-farm employment will expand by 1.5 percent in 2005. That pace will be enough to shave the U.S. unemployment rate from 5.7 percent in 2004 to 5.5 percent next year, according to the Selig Center forecast. Employment will grow fastest in professional and business services, followed by hospitality and health care.

Consumer Spending - Consumer spending will grow more slowly in 2005, as job creation and wage and salary growth have not been high enough to spur a surge in confidence. In addition, many consumers are heavily in debt and short on savings. A stubbornly high unemployment rate also will temper their optimism. Spending for non-durable goods will outpace spending for durable goods.

Inflation - Many of the economic factors that have held consumer price inflation to a 30-year low are weakening. Now the signs of accelerating inflation are hard to miss: excess capacity is dwindling, unemployment is falling and the dollar is weakening. Core inflation, which excludes food and energy prices, will rise from 2 percent in 2004 to 2.5 percent in 2005, according to the forecast. But businesses will find it only slightly easier to raise prices, which implies that inflationary pressure will be exerted slowly and not dramatically.

Interest Rates - The Selig Center forecast anticipates that the Federal Reserve's monetary policy will be biased toward higher interest rates, unless the pace of economic growth decelerates sharply. Given the movement toward a more neutral policy, the federal funds rate is projected to be 3 percent by the end of 2005.

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