Atlanta, Ga. – The Georgia Economic Outlook 2012 was held Nov. 29 in Atlanta. The following are charts and graphs that outline specific economic forecasts, as well as a summary report of the information provided during the program.
Who, what and where — More than 800 Atlanta executives, government leaders and University of Georgia alumni registered for the Georgia Economic Outlook luncheon in Atlanta. Held at the Georgia World Congress Center, the program was the 29th annual economic forecast luncheon hosted by the University of Georgia Terry College of Business. Speakers included UGA President Michael F. Adams, Federal Reserve Bank of Atlanta President Dennis P. Lockhart and Terry College Dean Robert T. Sumichrast.
The Georgia and U.S. economic forecasts summarized were prepared by the Terry College Selig Center for Economic Growth.
The Georgia Forecast
The baseline forecast — In the forecast prepared by the UGA Terry College of Business, Dean Robert Sumichrast said slow growth remains the mantra in 2012. “Our forecast is for more of what we have seen the past couple of years,” he said. “We might see continued slow growth or, technically, we might see patches of recession. Either way, unemployment will remain high.”
While the United States has been on the plus side of job creation since 2009, Georgia has only managed to slow its rate of job loss. “In 2009, we lost about a quarter-million jobs,” he said. “That decreased to 50,000 in 2010, and we estimate that Georgia will lose another 25,000 jobs in 2011.”
According to the Selig Center forecast, Georgia’s jobless expansion should finally turn the corner into job growth in 2012. Net employment in the state is projected to increase by 18,000 jobs. “That small uptick will be the first annual gain in employment since 2007.” Sumichrast said. “But that is only five percent of the total jobs Georgia lost due to the recession. That won’t help Georgia’s unemployment rate improve much. It will average just over 10 percent in 2012.”
Risk of recession — With the economy continuing to grow slowly next year, the risk of recession becomes larger than it was this past year. The Selig Center places the odds of recession at 45 percent in 2012.
“Consumer confidence is very low, and that alone could cause the recovery to fizzle out-as confidence, spending, asset values, and gross domestic product spiral down,” Sumichrast said. “Historically, policy mistakes are the most common cause of back-to-back recessions. And, given the political climate, there is considerable risk that fiscal policy will be tightened too quickly. Beyond our borders, European policy with respect to its sovereign debt is not inspiring confidence anywhere and could derail our recovery.
“On the plus side,” Sumichrast said, “if the economy moves into recession, it will not be a long or deep recession.”
Economic growth in Georgia lags the U.S. — “We estimate that Georgia’s economy will expand by only 1.5 percent in 2012, adjusted for inflation,” Sumichrast said. “That will be a little less than the 1.8 percent growth rate we predict for the U.S economy.”
The anemic rate of economic growth reflects the expectation of tighter federal fiscal policy, less spending by many state and local governments, depressed home prices and disciplined spending by consumers.
Painful restructuring of Georgia’s economy — The financial crisis and the bursting of the housing bubble were a shock to the state’s economic engine, and it caused the steady influx of people and businesses migrating to Georgia to stop abruptly. That has resulted in a “painful restructuring” of Georgia’s economy, to move away from the state’s overdependence on real estate development to fuel growth.
“As of mid-2011, it appears that this massive private-sector restructuring has nearly run its course,” Sumichrast said. “Property assets have been fully re-priced. And, outside of the financial sector, corporate balance sheets are pristine. Households also have improved their balance sheets.”
The last large spending imbalance — Even as the restructuring of Georgia’s private sector nears completion, a lot of restructuring remains ahead for the public sector.
“The last remaining large imbalance is hard to miss. It’s government spending,” Sumichrast said, noting that Georgia is in better shape than most states. State and local government tax burdens in Georgia are lower per capita than they were 20 years ago. And they also are low compared to other states. Georgia’s economy is not overly dependent on federal spending either.
“Georgia receives about $1 in federal spending for each $1 Georgians pay in federal taxes,” Sumichrast said. “Unlike the bursting of both the housing and technology bubbles, the bursting of the government bubble should not hit Georgia any harder than the nation as a whole.
“State government restructuring is already well under way, and we have seen some local government restructuring. But restructuring is only beginning at the federal level.”
A long road to recovering 360,000 lost jobs — Using the Selig Center’s baseline forecast, Georgia would replace the 360,000 jobs that were lost during the recession by 2020-more than eight years from today. That’s also four years later than the United States is expected to recover its lost jobs. “Our employment will continue to grow at half the U.S. rate until 2012, when construction and financial services begin to recover.”
What can be done to improve on the state’s baseline forecast
Has Georgia lost its competitive edge over other states? Sumichrast offered a quick statistical comparison to illustrate employment growth over the past half century:
- In the ’60s, Georgia experienced a 48 percent increase in jobs vs. 31 percent for the U.S.
- In the ’70s, a 39 percent gain for Georgia vs. 28 percent for the U.S.
- In the ’80s, a 39 percent gain vs. 21 percent for the U.S.
- In the ’90s, a 32 percent gain vs. 20 percent for the U.S.
But what has happened in the 2000s has been “quite a reversal of fortune,” Sumichrast said.
“Georgia was hit much harder than the nation by the Great Recession, and we have substantially lagged the nation during the recovery.”
Sumichrast said he believes Georgia has lost the competitive edge it once held. Too much of the state’s economic growth came to depend on a never-ending cycle of in-migration and real estate development, he said, and after more than four decades that cycle has mostly run its course. “The population growth driver stopped working during the Great Recession, and we should not make major investments to reinvigorate it,” he said.
What can be done? “If we hope to be more than an average state, we must change our policies and economic development strategies,” Sumichrast said.
Economic Development Incentives: Though the pace of corporate relocation has slowed in the current climate, the state needs to become more aggressive with the incentives it offers companies to locate or expand in Georgia. “We live in the region of the country where states use incentives most aggressively, but too often Georgia is not able to do what it takes to close the deal,” he said. “Georgia will have to be more assertive when it comes to offering deal-closing incentives for major projects, especially when those projects show good potential for long-term growth.”
Supporting Research & Development: “R&D as a share of Georgia’s GDP is less than half the national average,” Sumichrast said. “Georgia scores very well on academic R&D, but we do not score well when it comes to R&D funded by businesses or state agencies. As a result, Georgia does not generate as many patents as you would expect.”
More Homegrown Venture Capital: R&D, like other types of commercial innovation, takes money. Sumichrast suggested that “Georgia desperately needs to develop its venture capital markets.”
“About 85 percent of the venture capital investment in Georgia companies comes from firms headquartered outside the state,” he said. “That’s a problem because the personal connections that enable a company to grow are often made where the capital is coming from. All too often, our high-tech startups leave the state just as they are on the verge of achieving commercial success. When that happens, Georgia misses out on the big payoff from the jobs generated by our talent. We can do a much better job of harnessing and nurturing our entrepreneurial assets to keep the high-tech companies that will create high-paying jobs.”
“Most of you came of age during a time when Georgia regularly outperformed the nation by huge margins,” Sumichrast concluded. “Going forward, Georgia is unlikely to substantially outperform the nation unless we change our economic development strategy.”
The National Forecast
At a glance — The U.S. economic expansion that began in the second half of 2009 and gained momentum in 2010 slowed down in 2011, but it did not turn into a double-dip recession. The rate of U.S. economic growth, measured as gross domestic product, is forecast to increase slightly, from 1.5 percent in 2011 to 1.8 percent in 2012.
“Anytime the rate of growth is less than 2 percent, the economy is vulnerable to a setback,” Sumichrast said. “The U.S. economy may flip between periods of weak growth and mild recession for the remainder of the decade. But a growing economy, even a slowly growing economy, typically does not stop growing on its own. In fact, the U.S. economy has continued to grow in the face of high oil prices, major supply chain interruptions and the downgrade of our sovereign debt.”
Interest rates — The Selig Center forecast anticipates the Federal Reserve keeping interest rates near zero percent through 2013. Going by the baseline forecast of lackluster U.S. economic growth and a slowdown in the global economy, “the Federal Reserve is unlikely to begin increasing short-term policy interest rates until the first quarter of 2014.” But the exact timing of future rate increases will depend on both the magnitude and perceived durability of the expansion.
Inflation — The Selig Center forecast also projects consumer price inflation to increase 2 percent in 2012, compared with 3 percent this year. No signs indicate that inflation will be a problem in 2012, and the usual triggers of inflation are not expected to be any more intense than they were in 2011.
But the outlook for inflation beyond 2013 is menacing. The national debt is skyrocketing in absolute terms and in terms of percentage of GDP. According to the forecast, “the mushrooming federal debt does not have to produce more inflation. Instead, it may simply force interest rates higher to attract the needed capital. Either way, outsized budget deficits cannot be sustained for more than a few years without doing significant damage to the U.S. economy and its prospects for growth.”