Job gains, strong auto sales and a rise in housing starts, offset by poor income growth, consumer caution and ongoing political uncertainty that will continue to hinder corporate investment in coming quarters is fostering “a challenging economic recovery,” according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s Robinson College of Business.
In his Forecast of the Nation, released today (Aug. 28), Dhawan paints a nuanced picture of economic recovery.
Auto sales, for example, are substantially above an annual rate of 15 million for the year, a level at which the forecaster had previously predicted a strong economic recovery will take hold.
“But car manufacturers needed to clear out an inventory buildup and consumers responded to the resultant price drops by buying,” he says. “Thus, the growth in auto sales is not fully indicative of a proper recovery that is gaining steam, but of special circumstances.”
The other key component of the economic recovery, home prices and housing starts, also comes with an asterisk, Dhawan says, due to a seeming change in the multiplier effect. The effect, which is triggered by new construction, typically cascades from banks to builders to suppliers and finally to buyers, who purchase home accessories for their new residences. The last leg of the multiplier, home goods purchases, appears weaker, Dhawan says.
“People are now utility shoppers,” he says. “If you don’t give them deals, they will move into their new houses with old goods.”
The forecaster attributes this restraint in discretionary spending in part to somewhat higher gas prices, but says the caution basically boils down to the second basic lesson of forecasting.
“Spending is determined by disposable income,” he says.”Home prices are rising and consumer morale is lifting, but only so far. “The sticking point is income growth,” says Dhawan. “It’s running at 3 percent, half of what it was in 2011.”
Increasing income growth will require the creation of what Dhawan terms “catalyst jobs” in the arenas of manufacturing, scientific, corporate, information technology and healthcare, a development that will remain in limbo until a palatable Congressional budget deal (anticipated by year-end) is struck and corporations are more willing to invest.
In the meantime, exports offer no prospect for an economic quick fix.
“Although things are not getting any worse in Europe,” Dhawan says, “our largest trading partner is a long way from being able to carry its weight.” Dhawan added that “China is having trouble jumpstarting its economy, due in no small part to the ongoing recession in Europe that has reduced demand for its products.”
Highlights from the Economic Forecasting Center’s National Report
- Real GDP grew 1.4 percent in the first half of 2013 and will grow only 1.6 percent in the second half, for an annual average of 1.4 percent. It will expand at 2.1 percent in 2014 and at a stronger rate of 2.9 percent in 2015.
- Private fixed investment will grow by a weak 2.5 percent in 2013, expand by 4.9 percent in 2014 and increase by a strong 6.5 percent in 2015. In the second half of 2013, the economy will add jobs at a monthly rate of 150,000, which will improve to 177,000 new jobs per month in 2014 and rise further to 200,000 jobs per month in 2015. The unemployment rate will finally drop below 7 percent in late 2015.
- Housing starts will average 0.962 million units in 2013, rising to 1.144 million units in 2014 and 1.306 million units in 2015. Auto sales will average 15.3 million units in 2013 and 2014, then improve to 15.5 million units in 2015.
- The 10-year bond rate will rise to 3.3 percent by mid-2014. It will not cross the 4 percent threshold during the forecast period (end of 2015).
Georgia: No Viable Local Antidote to Global, National Headwinds
The Peach State continues to feel the economic impact of the global slowdown, ongoing sequester and political dysfunction in Washington, according to Dhawan.
In his Forecast of Georgia and Atlanta, also released today, Dhawan writes, “There is no viable local antidote to these global and domestic headwinds. Instead, we have to take the punch on the chin.”
The sting of the weak global economy is especially sharp in the state’s manufacturing sector, which includes Gulfstream, Kia and Georgia-Pacific. Twelve thousand jobs were added between 2010 and 2012, but more than 4,000 were lost in the first half of 2013.
“A majority of products manufactured in Georgia are for export. If our trading partners aren’t doing well, they buy fewer of them,” the forecaster says.
Global headwinds continue to impinge on revenue growth at Atlanta’s largest private employer, Delta. Passenger revenue growth was 0.7 percent in the second quarter of 2013. Although domestic revenue grew 3.7 percent in the second quarter of 2013, Pacific region revenue, a casualty of the slowdown in China, did not grow at all during the same period.
“Welcome to globalization,” says Dhawan. “Growth arenas have risks.”
As for domestic headwinds, as soon as Congress strikes a budget deal and the next leader of the Federal Reserve Bank is determined, corporations will invest again, triggering income growth by creating what Dhawan terms “catalyst jobs” in the manufacturing, scientific, corporate, pharmaceutical and information technology sectors.
Based on national trends, Dhawan sees the emergence of strong growth forces for the state in two categories: automobiles and housing.
“Sales consistently above the 15 million mark are keeping automakers humming from Kia in West Point to Ford in Detroit,” he says, “and with new home sales at the half-million mark, builders are building, buyers are buying and inventory is low.”
As for residential construction in metro Atlanta, Dhawan foresees a reasonable number of housing permits.
“There will be no crazy building bubble,” he says, “based on an analysis of expected catalyst jobs.”
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment grew by 63,400 in calendar year 2012. In calendar year 2013, jobs will grow by 66,200, of which 9,600 will be premium jobs. In 2014, the state will add 76,000 jobs (17,100 premium jobs) and in 2015, job numbers will be even stronger at 93,100 (22,200 premium jobs).
- State unemployment will average 8.5 percent in 2013, drop to 8.3 percent in 2014 and to 7.4 percent in 2015. Nominal personal income will rise 2.3 percent in 2013, increase 5.0 percent in 2014 and 5.1 percent in 2015.
- In calendar year 2013, Atlanta will gain 47,300 jobs, including 7,300 premium jobs. In 2014, Atlanta will add 51,800 jobs, including 11,700 premium jobs. Atlanta employment will grow strongly in calendar year 2015, gaining 62,800 jobs of which 14,300 will be premium jobs.
- Atlanta’s housing permits in 2013 will increase 47.5 percent, and multifamily permits will grow 63.3 percent. Permitting activity will grow by 11.2 percent in 2014 as multifamily activity moderates to 11.3 percent. Permit activity picks up in 2015 to 14.7 percent – higher than the level seen in 2008 – a total of 26,600 permits.
Robinson College of Business