The Georgia and U.S. economic forecasts summarized here were prepared by the Terry College’s Selig Center for Economic Growth.
The 30th annual Georgia Economic Outlook series reaches 12 cities throughout the region, providing a complete picture of what the coming year brings for the local, state and national economies. Backed by 100 years of research at the University of Georgia Terry College of Business and the sound reasoning of the Selig Center for Economic Growth, the Economic Outlook series helps explain Georgia’s model for growth, trends shaping the nation’s economic focus and what different cities across the state can expect in the months ahead.
Georgia’s economic growth is on track to outpace the national average in 2013. That was the message delivered by Robert T. Sumichrast, dean of UGA’s Terry College of Business, at the Georgia Economic Outlook series.
“There are two main reasons for Georgia’s improvement relative to the country,” Sumichrast said. “First, the massive restructuring of the state’s private sector is now complete. Our real estate bubble is in the past. The second reason is the opening of several large relocation and expansion projects, which will provide a tailwind to Georgia’s economic growth.”
According to the forecast, prepared by the Selig Center for Economic Growth, the state’s GDP will rise by 2.1 percent—better than years past but still modest. Comparatively, the national economy will grow by 1.8 percent.
The resurgence comes courtesy of some smart policy decisions, and will be buoyed by a rise in single-family home buying, Sumichrast said.
Businesses like Caterpillar Inc. and Baxter International are expanding into Georgia, which will help the state add a predicted 53,000 jobs in 2013. In addition, population growth, a regular driver of economic growth, will increase to 1.3 percent—just above the national figure of 0.9 percent.
“Due to cost, logistics and tax advantages, Georgia remains very competitive with other states when it comes to landing economic development projects,” Sumichrast said. “These advantages are beginning to bear fruit. That’s partially because Georgia made several strategic shifts in its economic development strategy, including the creation of a $100 million deal-closing fund. Legislation passed in 2012 makes Georgia much more competitive, but our state will have to be aggressive in closing the right deals.
“We should target industries that expand the economic base and have good potential for long-term growth. We must invest strategically and grow clusters in areas such as bio- and nano-technology, and we should encourage innovation-based companies,” he said.
But it’s not all good news.
Georgia suffered disproportionate job losses during the great recession, and has recovered more slowly than the nation as a whole, Sumichrast said.
All the state’s new jobs will come from the private sector. The public sector will continue to lose jobs for the next 10 years as the state and local governments continue adjusting to doing more with less.
“The problem is not that we are doing worse. On many measures, we are doing better than we did in the past. The challenge is that our competition in both the developed and the developing world is improving faster than we are,” Sumichrast said. “A poorly educated workforce puts Georgia at a competitive disadvantage with other states and nations when it comes to recruiting companies. That problem is especially bad when it comes to high-paying, high-technology companies.”
In addition, Sumichrast cautioned that Georgia’s resources for attracting new jobs remain scarce, and must be used wisely.
“Georgia is making progress. It helps that the nation is continuing its economic recovery, even if it’s slow. It also helps that Georgia’s political leaders have enacted some changes to make the state more competitive,” Sumichrast added. “We will outperform the average state by a small margin in 2013. We need to expand the improvements of 2012 to other areas, such as education, to assure that our performance is once again among the best in the country.”
Sources of strength:
- State GDP will rise by 2.1 percent
- Georgia’s population growth will exceed the national average at 1.3 percent, with a net migration of 61,000
- Single-family home starts will rise by almost 20 percent
- Personal income growth will outpace inflation by 2.1 percent
- Nominal personal income will grow by 3.6 percent
- About 53,000 jobs will be added in total
- The newly created $100 million deal-closing fund will help economic development
- The fastest job growth will be in professional and business services, followed by leisure and hospitality, then manufacturing.
- Caterpillar Inc. will create 1,400 jobs in the Athens area
- Baxter International will add 1,500 jobs in the Covington area
- State Farm Insurance will create 500 jobs near Perimeter Mall
- Academy Sports will add 250 jobs in Jeffersonville
- Georgia will see 7,600 new goods-producing jobs
- Construction employment will rise by 1.1 percent or 1,600 jobs
- All services-related industries will grow
- Industrial production will grow by 2.5 percent
- Manufacturing employment will rise by 1.7 percent
- Georgia’s information industry will start hiring for the first time in a decade
- Job losses will continue in the government sector
- Unemployment will stick at about 9 percent (0.4 less than 2012)
- A continuing mismatch between worker skills and new jobs
- A lag in K–12 education
- Georgia will be hit hard if federal spending cuts skew toward domestic military bases or the Centers for Disease Control
- The European Union’s recession has weakened export-oriented business
- The risk of recession in 2013 stands at 30 percent (comparable to 45 percent in 2012)
The U.S. economy’s slow-but-steady recovery from the Great Recession should continue in 2013, barring any policy mistakes or financial crises, Sumichrast, said.
“Our key assumption is that our politicians act to avoid the looming disaster that has been called the ‘fiscal cliff.’ It would be unconscionable to inflict that much pain on ourselves for no good purpose,” he said. “We also assume the Bush tax rates are extended and that the sequester is eliminated. In contrast, we also assume that the 2 percent Social Security payroll tax rate is phased out over several years, and that both emergency unemployment benefits and the 50 percent bonus depreciation will expire.
“With these and other changes, federal spending will drop by about 3.5% in 2013,” Sumichrast added. “That’s a significant headwind which subtracts 0.3 percent from GDP.”
If these assumptions hold, GDP growth will rise by a modest 1.8 percent, single-family home starts will grow by about 15 percent and consumer price inflation will increase by 1.5 percent (as compared to 2 percent in 2012).
In addition, nonresidential construction will begin a new up cycle, and corporate profits will eke out a few more gains, according to the forecast.
Overall, the picture is positive if not exciting, Sumichrast said. Most industries will see slight growth, but not enough to overcome consumer fears of uncertainty in the global economy. Wages and benefits will rise slightly, and consumer spending will be positive, but less than it was in 2012.
Sources of strength:
- Total non-farm employment will increase by 1.3 percent
- Wages will rise by 2 percent on average
- Benefits will rise by 3 percent on average
- Existing home prices will rise by about 3 percent
- Unemployment will drop from 8.4 percent to 8.2 percent
- Oil imports should decline, thanks to increased domestic production
- Mortgage rates will remain low
- Spending on nondurable goods will rise moderately
- Professional and business services companies will post the fastest rate of job growth
- Transportation and warehousing will see the second-fastest rate of job growth
- Education, health services, construction, the arts and recreation will see solid gains
- U.S. manufacturing will continue to hire, due to the demand for durable goods
- Real exports and imports will grow twice as fast as GDP
- The fiscal cliff
- Government, utilities and mining jobs will decline
- Consumers’ outlays for restaurants and utilities will grow slowly
- A European Union crisis could spark a disaster in the U.S.
- The nation’s risk of recessions stands at 30 percent
Simon S. Selig, Jr. Center for Economic Growth