Georgia Economic Outlook 2010: Summary Sheet
CHART: Georgia and U.S. Economic Measures (PDF | 27 KB)
TABLE: Georgia and U.S. Economic Forecast (PDF | 35 KB)
CHART: Percentage Change in Georgia Employment by Metro Area (PDF | 37 KB)
TABLE: Georgia Employment Forecast (PDF | 34 KB)
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. The Dec. 15th program at the Georgia World Congress Center is the 27th annual economic forecast luncheon hosted by UGA's Terry College of Business. Speakers include UGA President Michael F. Adams, Standard & Poor's Chief Economist David A. Wyss and Terry College Dean Robert T. Sumichrast.
The Georgia and U.S. economic forecasts summarized here were prepared by the Terry College's Selig Center for Economic Growth.
The Georgia Forecast
At a Glance — Last year's forecast by the Selig Center predicted the recession would last 18 months, which came to pass with the statistical end of the recession arriving this past June. However, what has followed since then hasn't felt much like a recovery, said Dean Robert T. Sumichrast of UGA's Terry College of Business. "In fact, we still feel awful. Employment is declining. Non-residential property is plunging. Consumer spending is restrained. Capital needs reallocation. And on top of all that, the banking system is not completely fixed, with too many banks still holding onto assets that are clearly distressed," he said. "Despite this list of concerns, our forecast is for the recovery to be sustained."
Even though the economy has bottomed out and is not expected to dip a second time into recessionary levels, it will be the most subdued bounce back in consumer spending since World War II. "A slow rebound after a deep recession like this is unusual," Sumichrast said, "but this upturn will be different. Our recovery will be slow and bumpy. You can expect Georgia's economy to underperform the national economy until real estate and construction stabilize sometime in 2011."
Reasons Georgia Will Lag the U.S. Recovery "Our state will continue to suffer from its heavy exposure to the real estate downturn, which was the epicenter of this recession," Sumichrast said. "Georgia's economy is geared toward new residential and nonresidential development. Going into this recession, Georgia had an outsized construction industry, a huge supply bubble of residential and commercial properties, and a swollen pipeline of properties at various stages of development. Georgia also has a very high concentration of manufacturing industries that are closely aligned with construction, such as lumber and wood products, building materials and floor coverings.
"Plus, Georgia's overdependence on development meant that the financial crisis did much more damage to Georgia's banks than to the nation's financial sector," he said. "The job losses in firms providing financial services were 30 percent deeper in Georgia than they have been nationally."
By the Numbers — Georgia's economy in 2009 has retrenched by about 3.8 percent, after adjusting for inflation. In 2010, the state's gross domestic product is forecast to begin expanding again, with a projected growth rate of 1.7 percent. It would represent the first year-over-year expansion of the state's economy since 2007. "Even though the recovery will be bumpy, growth in terms of economic output is back," Sumichrast said. "And by spring, the recovery in output will be accompanied by a small recovery in jobs."
Job Loss Turns Corner in Spring of 2010 — "The period of heavy job losses is over, although some job losses will persist into early 2010," Sumichrast said. "Georgia will end up losing about 370,000 jobs over the course of this recession. That's more than twice as many jobs as we lost in the previous recession and represents about 9 percent of total employment." Even though job growth in Georgia will finally turn positive next spring, it will be too weak to keep pace with the number of people entering the job market. "Georgia's unemployment rate will continue to rise, topping out at more than 11 percent in mid-2010," said Sumichrast, who contrasted the double-digit benchmark with the more bearable 4.6 percent jobless rates of 2006 and 2007.
Consumer Spending Remains Sluggish — "You hear almost every day that consumer spending is weak and you may wonder how we can recover without it," Sumichrast said. "The truth is we can't." The Selig Center forecast anticipates that consumer spending in Georgia will increase only about 1 percent in 2010. As the recession deepened and job losses mounted, households shifted from spending to saving and the higher savings rates is another drag on the recovery. "At this juncture, job creation — and the income growth that accompanies it — is absolutely vital to the outlook for both consumer spending and the Georgia economy," he said. "Job growth should be just adequate enough to sustain the expansion."
Business Spending Gains Momentum — While consumer spending rises slowly, business spending will increase sharply and will be a powerful driver of Georgia's recovery. "The growth in business spending reflects strengthening cash flows and higher corporate profits," Sumichrast said. "Credit will remain tight, but the impact of tight credit will be less severe because many companies have sufficient cash on hand for their investment needs." Spending for transportation equipment will increase the fastest, along with computers, software and communications.
Home Values Should Rise Faster than Inflation — Too much supply and too little demand caused the price of single-family homes to drop 12 percent in Georgia, and Sumichrast said he thinks homes are significantly undervalued here because Georgia never developed a price bubble during the housing boom. "That means home prices could rise appreciably once the unsold inventory normalizes," he said. "And your home might appreciate significantly faster than inflation. That should happen once job growth resumes and credit is more widely available."
Commercial Real Estate Takes It on the Chin — Georgia's non-residential real estate market will get much worse in 2010. "Lots of empty space, weak demand for new space, plummeting prices, and extremely tight credit are huge problems," Sumichrast said. "High and rising delinquency rates on commercial real estate loans will stymie conventional lending. Plus, the securitization market has collapsed. The bottom line is that non-residential is so bad that it overwhelms the positives in home construction. Only in 2011 will Georgia's overall construction industry begin to make significant contributions to the state's economic growth. And, until that happens, Georgia's economic recovery will continue to proceed more slowly than the nation's."
The National Forecast
At a Glance — The depth of the recession is evident in the amount of time the Selig Center predicts it will take the U.S. economy to regain the ground it lost. "We predict it will take eight quarters for U.S. gross domestic product to surpass its previous peak," Sumichrast said. "That means it will be midway through 2011 before the GDP completely recovers. It will take two additional years — that is 2013 — before the labor market replaces the 8.5 million jobs lost during this historic downturn. Only then will the U.S. economy be fully healed."
The U.S. economy hemorrhaged job losses throughout 2009. After recording a low of 4.6 percent in 2007, the nation's unemployment rate grew to 5.8 percent in 2008 before spiraling to 9.2 percent this year. Joblessness will reach an average annual rate of 10.1 percent in 2010 before it finally is forecast to recede in 2011.
Wealth Destruction Scorecard — The Selig Center forecast included a stark illustration of the wealth destruction that took place during the recession. "Between the first quarter of 2007 and the first quarter of 2009, U.S. households lost $14 trillion, representing 22 percent of the net worth that they had accumulated over their entire lifetimes," Sumichrast said. The losses were more than the total personal income of all U.S. households in 2008, according to the forecast.
Homebuilding Will Spur Growth in 2010 — The prolonged freefall in single-family homebuilding ended in the first quarter of 2009. Next year, the number of home starts will increase by 50 percent, meaning homebuilding will provide a boost to U.S. economic growth. However, the increase in new home permits pales in comparison to the level of peak activity in 2005. "Still, the projected upturn in homebuilding will be a very positive sign and is one of the main distinctions between the outlook for 2010 and the economy's performance in 2009," said Selig Center Director Jeffrey M. Humphreys.
Keeping a Lid on Inflationary Pressure — The Selig Center forecast projects consumer price inflation to increase by 2 percent in 2010, compared with -0.5 percent this year. Next year's estimate assumes oil prices remain steady, and it would drop even lower if energy prices tumble, as unlikely as that may be. The trend indicates that consumer price inflation hit bottom in early 2009 and is drifting higher. Inflationary pressures will be more intense in 2010 than in 2009, but there are no signs of runaway inflation. Inflation will also be mitigated by the abundance of excess capacity, evidenced by the high unemployment rate and very low levels of capacity utilization in many sectors.
Interest Rates — Once U.S. economic growth gets stronger, the Federal Reserve will act swiftly to remove some of its rate cuts, but the forecast anticipates the Fed will keep rates on hold until the second half of 2010. The Federal Funds Rate is currently 0.25 percent, and the timing of future rate increases will depend on the perceived durability of the expansion. "Based on the Selig Center's forecast of lackluster growth, the first rate increase probably will not occur until the third quarter of 2010," Humphreys said.