Georgia Economic Outlook 2007: Summary Sheet
CHART: Georgia and U.S. Economic Measures (PDF | 11 KB)
TABLE: Georgia Economic Forecast (PDF | 10 KB)
TABLE: U.S. Economic Forecast (PDF | 10 KB)
TABLE: Georgia Employment Forecast (PDF | 14 KB)
CHART: Percentage Change in Georgia Employment (PDF | 109 KB)
Who, What and Where - About 1,400 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 24th annual economic forecast luncheon hosted by UGA's Terry College of Business. Speakers include University of Georgia President Michael Adams, Gov. Sonny Perdue, Forbes magazine publisher Steve Forbes and Terry College Dean George Benson.
The Georgia and U.S. economic forecasts summarized here were prepared by the Selig Center for Economic Growth at UGA's Terry College of Business.
The Georgia Forecast
At a Glance - "While we will not dodge the economy's slowdown, Georgia will outperform the nation in 2007," according to Dean P. George Benson of UGA's Terry College of Business. "But we do expect the percentage gains in Georgia's economic growth and employment to be smaller in 2007 than they were in 2006." Georgia's inflation-adjusted gross state product will increase 3.3 percent in 2007. That's a full percentage point lower than the state's anticipated growth this year (4.3 percent), but also a full percentage point better than the growth projected for the nation next year (2.3 percent). The pace of Georgia's job growth also will erode in 2007. In 2005, state employment grew 2.6 percent. In 2006, it is projected to reach only 2.0 percent and will shrink to 1.5 percent next year. But even at 1.5 percent, Georgia is forecast to rank among the top 10 states for job growth in 2007.
Likewise, Georgia should rebound into the top 10 states for economic growth in 2006 - after falling as far down the list as 43rd in 2002. "As Georgia's companies restructured and cut costs, the economy began to turn around," Benson said. "In 2003, our state growth ranked 38th, then 21st in '04, and 14th last year. When the final numbers are in this year, we should be back in the top 10. And next year we could move up one or two more spots."
Atlanta Tourism Is Booming - The number of out-of-state visitors who attended events at the Georgia World Congress Center in 2006 will be 30 percent higher than in 2005. The Georgia Aquarium far exceeded expectations with 3.6 million visitors in its first year of operation. "With the addition of an expanded World of Coca-Cola and eventually a Civil Rights Museum, downtown Atlanta will have finally assembled a cluster of major tourist attractions that is both compelling and convenient," Benson said.
International visitation to Atlanta through Hartsfield-Jackson Airport also projects well. "Atlanta experienced the fastest growth in 'nonresident arrivals' of any U.S. port of entry in the nation in 2005," he said. "The year-over-year percentage gain was 15 percent versus 7 percent for all U.S. ports of entry. No other port of entry in the South even came close to Atlanta. Second best was Houston at 6 percent, then Orlando at 5 percent."
Who Takes It on the Chin? "The pain associated with the economic slowdown in 2007 will be mostly contained within housing and manufacturing," Benson said. Georgia's housing industry is being pummeled not so much by soaring mortgage rates or overheated home prices, but by a crisis of confidence. "Fears and speculation about possible major price corrections in other states lowers homebuyers' confidence everywhere, including places that did not get overheated - like Georgia," Benson said. "The continuing publicity about major home price declines in other markets will continue to undermine our confidence. We expect homebuyers' confidence to fall to much lower depths before it begins to improve.
"But for Georgians who can see beyond the uncertainty, this may be a good time to find a very good deal in what is fundamentally a solid market for single-family housing," he said. "The bottom line: The selling prices of the vast majority of existing homes in Georgia are unlikely to fall much. Home prices will 'rust' a little, but we don't expect them to 'bust.'"
More Losses in Manufacturing - The other factor, besides housing, that is slowing Georgia's overall growth is continuing heavy job losses in manufacturing. Manufacturing employment will decline by 2.0 percent, which is more than double the percentage decline estimated for 2006. The state has scored many recent success stories (e.g., the new Kia Motors plant at West Point, Gulfstream's expansion in Savannah, Newell Rubbermaid growing its Atlanta headquarters), but the successes in manufacturing are simply not enough to offset the losses (e.g., the GM plant in Doraville, the Ford plant in Hapeville, and the list goes on).
"Georgia has long since lost its comparative advantage in labor-intensive manufacturing industries, and there is no conceivable devaluation of China's currency that will change that fact," Benson said. "Open world trade and cheaper labor give a tremendous price advantage to many foreign manufacturers. That is not going to change."
Three Parting Observations - Benson closed his remarks about the state forecast, which will be his last in Atlanta before leaving the Terry College to accept the presidency of the College of Charleston next February, with three observations about Atlanta's regional vision, innovation in business, and the gradual privatization of public higher education.
- He implored a regional vision for "the Southern Cross" (the multistate region stretching from Birmingham in the west to Raleigh-Durham in the east and from Chattanooga in the north to Macon in the south, with Atlanta at the center of the cross). "Please find a way to work with Alabama, Tennessee, South Carolina and North Carolina to develop a vision for the Southern Cross," he said. "It's clear that high-speed rail is needed along the arms of the cross; that those high-speed arteries need to be fed by light rail - the veins of the Cross - which are fed by highways - the capillaries of the system. It also becomes clear that a second airport is needed near the nexus of the cross: Atlanta."
- Benson also spoke of Georgia's move to become an industry leader in nanotechnology and biotechnology, but cautioned against falling in love with technological innovation to the exclusion of social science innovations. "We need innovative business models, innovative organizational structures and innovative business processes. Without these, new technologies can't be produced, distributed, sold, or used by consumers."
- Finally, he told the audience to take note that higher education is gradually being privatized in Georgia and throughout the nation. "When I arrived at UGA in 1998, 45 percent of our budget came from the state. Today, it's about 30 percent," he said. "My message is simply to be aware that this privatization is occurring. It has implications for student access to higher education and implications for the governance of higher education."
The National Forecast
At a Glance - The U.S. economic expansion, now into its fifth year, is in no immediate danger of faltering. However, the housing recession nationally, as well as more cautious consumers pulling in the reins a bit on household spending, will result in a fairly steep slowdown in the pace of economic growth. After adjusting for inflation, the nation's gross domestic product is forecast by the Selig Center to rise by 2.3 percent next year, which is a decrease from the 3.3 percent growth rate expected for 2006. It's also below the long-term average growth rate of 3.1 percent, but it's still strong enough to signal a soft landing ahead.
"It looks like the Federal Reserve successfully pulled off a mid-cycle correction," Benson said. "Of course, the Fed's interest rate adjustments weren't the only factor. Market forces also helped to put the brakes on GDP growth. High commodity prices - especially energy prices - and affordability issues with respect to housing have both been a drag on the economy."
Maintaining the mid-cycle momentum in 2007 will hinge on several factors. Most notably, the Selig Center pointed to achieving strong growth in U.S. exports, continued increases in business spending for new equipment and in nonresidential construction, and energy prices remaining well below 2006's peaks.
Consumers Curb Their Enthusiasm - Consumer spending will continue to grow in 2007, but at a much slower pace. Now that homes aren't appreciating in value like they were and mortgage rates have risen above their recent historic lows, U.S. consumers are feeling heavily in debt and short on savings. What growth there will be in consumer spending will come from new job creation and the income growth that comes with it. Spending for consumer durables will decline — sharply so for cars and household appliances. But spending on non-durables will increase.
Housing Recession - The Selig Center expects the nation's overheated housing market will continue to retrench in 2007. Sales of existing homes will decline by 11 percent, sales of new single-family homes will decline by 10 percent, and housing starts for single-family homes will decline by 9 percent. "Given the setbacks already reported for 2006, these may seem like dramatic declines, but it's only because the market was so extremely overheated in 2004 and 2005," said Selig Center Director Jeffrey M. Humphreys.
The biggest hurdle facing the housing market is affordability. According to federal data, home prices are up 56 percent over the past five years, which is more than double the 25 percent increase in total personal income for the same period. "This fundamental mismatch between income growth and price growth is the root cause of today's housing recession," Benson said.
Inflation and International Trade - If oil prices steady or decline slightly, consumer price inflation will increase by 2.6 percent in 2007, compared with 3.6 percent in 2006. The Federal Reserve's short-term interest rates are slightly restrictive, and heightened competition for jobs from foreign workers also helps to keep the lid on U.S. wage inflation.
In 2007, U.S. exports will increase more than twice as fast as imports, leading to net exports contributing significantly to U.S. economic growth. A weaker U.S. dollar will help exports and deter imports. Lower oil prices and increases in domestic production also significantly improve the outlook for trade.