Economic Rattling Means Humdrum Growth for Remainder of Year

ATLANTA – Even as consumers unleashed a spending spree that pushed vehicle sales to post-recession highs the last several months, this pace can’t be sustained because of existing and expected weak personal income and job growth, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s  J. Mack Robinson College of Business.

In his quarterly Forecast of the Nation, Dhawan says real GDP growth is decelerating and will drop further as payback for winter shopping that came at the expense of personal savings. Due to these factors, along with sluggish job creation and the vulnerability of the U.S. economy to global downturns, including in Europe and China, “there is definitely a rattle under the hood. The economic vehicle will lurch at times due to a faulty investment channel that doesn’t allow the engine to produce a steady RPM at full throttle.”

But don’t worry. “The economy is not going to stall,” he adds. Instead, the economy will expand at a slower pace. After real GDP grew 3 percent in the last quarter of 2011, it slowed to 2.2 percent in the opening quarter of the year. Expect to see GDP growth leveling off to 1.5 percent in the second quarter.

The U.S. economy added more than 500,000 jobs in the first two months of the year and only half that in March and April. Looking ahead, the job creation rate will moderate further to about 120,000 jobs per month for the remainder of the year. Most worrisome is the hiring slowdown in manufacturing, which Dhawan called a “surprise in light of an auto sector on speed.” He adds, “The decline indicates that a slowdown in the world economy – with outright recession in Europe – is now beginning to bite this sector.”

As the European crisis worsened, exports have fallen sharply from the double-digit growth of last year. More uncertainties surround crisis-stricken Greece and whether the country and its broken finances will remain a part of the eurozone. An exit could sound economic alarm bells that will be heard around the world. Another wild card is the slowdown in China that is hurting suppliers. If China’s housing “bubble” bursts similar to the U.S., any hard landing will lead to reduced financing of U.S. budget deficits. While these factors won’t derail the U.S. economy, they will continue to hurt manufacturing and employment going forward.

Highlights from the Economic Forecasting Center’s National Report

  • Real GDP growth rate decelerated from 3 percent in the last quarter of 2011 to 2.2 percent in the opening quarter of 2012. Looking ahead, the economy will expand by 1.5 percent in the second quarter and 1.7 percent in the back half of the year. For the year, real GDP growth will be 2 percent and it will increase only slightly to 2.1 percent for 2013. It will grow at a stronger rate of 2.6 percent in 2014 as business investments and international trade improve. Personal consumption growth will average 2.1 percent in 2012, followed by 1.9 percent in 2013 and 2 percent in 2014.
  • The U.S. economy created more than 500,000 jobs in January and February and only half that for the next two months. Expect this rate to moderate further to about 120,000 jobs per month for rest of the year. In 2013, the economy will add 140,000 jobs per month, picking up in 2014 to 160,000 per month. Unemployment will remain above 8 percent for the next two years.
  • The Consumer Price Index inflation rate will be 2.4 percent in 2012, moderating to 1.7 percent in 2013 and rising to 1.8 percent in 2014. The price of oil will remain high during the next three years – $105.2 per barrel in 2012, $114.8 in 2013, and $115.5 in 2014.
  • Housing starts will average 0.662 million units in 2012, gradually rising to 0.831 million units in 2013 and 0.956 million units in 2014. Auto and light truck sales will be 14 million in 2012, increasing to 14.3 million in 2013 and 14.6 million in 2014.


Georgia’s Growth Up Against Global Headwinds

Global headwinds – elevated oil prices, ongoing recession in Europe and a slowdown in China that will hamper growth in other emerging economies – will impact demand for Georgia exports, the state’s biggest employer, Delta, and growth in the general hospitality sector. Add in the existing distress of a very weak housing market and a cautious corporate sector, and it makes for pressures that produce an iffy job market and income growth by historical standards in 2012, according to Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center.

In his quarterly Forecast of Georgia and Atlanta, Dhawan says, “The thing that will lift home prices out of the doldrums is more employees looking for housing.” But that’s not likely to occur for at least another year or more.

Some good news comes from an unexpected source: annual benchmark revisions. From previously reported 25,000 job losses in 2011, the state came out on top with nearly 33,000 jobs created, including upward revisions in professional and business services (corporate), government and finance and insurance positions. The financial sector created jobs “despite the record number of bank failures due to growth from new players who moved in to fill a service vacuum but did very little to kick-start demand for new housing,” Dhawan says.

Decent job growth – which will pick up the pace with 65,000 jobs in calendar year 2013 – is the key to unlocking the housing malaise. There’s also another reality. Metro Atlanta home prices have fallen to 1996 levels, according to the Case-Shiller Index. Said Dhawan, “This estimate seems rock-bottom until we realize that distress sales and foreclosures have skewered the numbers on the low side.”

Housing distress continues to be a drag on mortgage refinancing. Instead, growth is coming from a boost in rentals, giving rise to multifamily permits, especially in Cherokee County where more permits were logged in the first quarter than in Cobb and DeKalb combined.

Then, there’s the state of the global economy whose impact hits home, especially Atlanta area’s largest employer, Delta. The airline is cutting staff locally due to continued stress of high oil prices and lower demand for international routes. Delta’s answer to this is buying an old oil refinery in Philadelphia. The company hopes to trade its distillates for jet fuel to supply almost 80 percent of its domestic needs. “Only time will tell if this is brilliant or folly. Either way, it means that Delta will not be adding jobs, at least in metro Atlanta,” Dhawan says.

The impact of Delta, high gas prices, the global slowdown and a skittish corporate sector will affect hospitality, which added 5,000 jobs in the last two years. Growth in that sector will remain moderate in 2012.

On the bright side, employment will grow in 10 of the 11 Georgia metro areas this year, including Gainesville, which will see a strong 2.2 percent jump this year and 2.5 percent in 2013. Savannah will see a sharp rise in its employment levels to 2.4 percent in 2013, up from 1.1 percent this year as global headwinds abate. The Port of Savannah continues to be an anchor for Georgia’s economy and the planned deepening of the harbor will only bolster state economic prospects, including attracting manufacturing jobs, even though most will be outside of metro Atlanta.

Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta

  • Georgia employment grew by more than previously reported –32,500– in calendar year 2011, according to the latest benchmark revisions. This calendar year, employment will expand by 48,400 jobs with 9,200 premium jobs. For calendar years 2013 and 2014, the pace will pick up, as the state adds 65,000 jobs, including 13,100 premium jobs, then 78,100 jobs with 14,800 premium positions, respectively.
  • Georgia unemployment will drop sharply to 8.9 percent this year, down from 9.8 percent in 2011. By 2013, the state’s unemployment will decline to 8.6 percent and drop further to 8.1 percent in 2014.
  • Metro Atlanta employment performance will lead the state’s recovery this calendar year when it gains 37,600 jobs, including 7,300 premium jobs. In calendar year 2013, expect 47,300 job gains with 11,500 premium jobs. By 2014, jobs will grow by 57,400 with 12,600 premium jobs. This year, Atlanta’s employment base grows to 2.4 million workers, which is just 1 percent below pre-recession levels of 2007.
  • Metro Atlanta housing permits will grow by 21.9 percent to 10,365 units this year due to a boost in multifamily housing permits of 67.9 percent. Permit activity will increase by 13.2 percent in 2013, with multifamily permits again increasing by 20.5 percent. In 2014, total permits will be at 14,340, or about a quarter of the levels of 2005.
  • Nominal personal income in the state will rise moderately by 3.2 percent this year, followed by a 3.9 percent increase in 2013. A strong increase of 5.1 percent is expected in 2014.

May 23, 2012