Georgia’s economic prognosticator of prognosticators, Rajeev Dhawan and the Georgia State J. Mack Robinson College of Business, released their quarterly update “Forecast of the Nation” and “Forecast of Georgia and Atlanta” last week. In short, don’t expect a lot.
Despite much buzz, the Feds are not likely to proceed with any rate increases this year. In its effort to continue the return to normal, the Feds would like to raise rates but it appears the economy may still be too fragile to take it. Dhawan points to specific comments from the Federal Open Market Committee (FOMC) that appear to indicate a delay in the rate hike is likely. “The FOMC said consumer sentiment was high, which is true, but it has been moderating since last fall,” Dhawan said. “The momentum indicator for confidence is not up, but down.” Uncertainty over the stock market, as well as a looming presidential election that presents very different candidates and possible outcomes for Congress, mean both Wall Street and Main Street are a little more gun shy on spending than last year.
Dhawan also noted that income gains have been slow and consumers are limiting discretionary spending. An increase in vehicle sales has been offset by lower spending elsewhere. Housing and apartment demand is decreasing and the shock of lower oil prices beginning last year is still filtering through the economy, perhaps counter-intuitively limiting growth.
In Georgia and Metro Atlanta, another possibly counter-intuitive event is occurring. The domestic economy, not the export-related global economy, is creating the most jobs. Employment in education, health, hospitality, government and financial sectors were all up in 2015at a higher rate than other positions. However, in 2016, domestic growth is slowing, primarily due to lack of business investment. This is driven partially by the aforementioned uncertainty, as well as the aforementioned decline in oils prices. Said Dhawan, “Consumer spending can keep the economy humming, but we need one more element to maintain a 10,000 monthly job growth at the state level. The missing ingredient is business investment, which has been very weak for the last nine months.”
Georgia’s manufacturing sector performed quite well in 2015 and 2016 looks to be the same, with some slowing. Manufacturing nationally grew by only 1.1% in 2015, Georgia’s manufacturing sector saw 3.2% growth. Many states produce products for a global market, Georgia produces more products for domestic consumption, such as textiles and processed foods. This may have made things tougher at the beginning of the Great Recession but is now helpful in recovery. Georgia has in at least one way, benefitted by lacking a natural resource, fracking-friendly natural gas. Hydraulic fracturing technology fueled an oil and gas drilling boom that created 725,000 jobs nationwide between 2005 and 2012. Georgia, however, saw very few of those jobs. Eventually, a glut of supply gave way to a dramatic drop in prices and a dramatic drop in jobs. Dhawan said, “Given that we didn’t share in the fracking boom, we aren’t feeling the fracking bust.”
Dhawan’s takeaway for Georgia is to be wary of 2017. “A gain of 2.7 percent in 2016 is slightly less than 3.0 percent in 2015,” he said, “but in 2017 we will feel the full impact of weakened investment when we grow by only 2.0 percent.”
