On the surface, the news is good. October non-farm numbers from the Bureau of Labor Statistics show 204,000 total job gains, and job revisions were revised upward by 60,000 for the two prior months. The third-quarter Gross Domestic Product (GDP) report showed 2.8 percent growth, a marked contrast to the paltry 0.1 percent growth in the fourth quarter of 2012.
“Although such numbers are welcome signs that the underlying growth trend is still positive,” he said, “the trend is not yet strong enough for us or for the Federal Reserve to breathe a sigh of relief.”
In his Forecast of the Nation, released today, Dhawan identifies factors that will dampen the GDP, weaken business investment and lead to a decrease in job creation in coming quarters and through much of 2014. These include the quality of jobs created, combined with wounds inflicted on corporate and consumer confidence by the government shutdown and worries about the potential for another stoppage in the new year, along with continuing global malaise that is depressing manufacturing,
Regarding the quality of jobs created, Dhawan points to the 60,000 new jobs reported in upward revisions for September-October. Ninety percent of the revisions came from the low-paying leisure and hospitality category, with the rest from retail trade, also low-paying.
“It doesn’t matter what the headline number is,” Dhawan said. “What matters is the purchasing power of the jobs.”
The potential for more shenanigans when Congress opens in 2014 has introduced an element of uncertainty to corporate and consumer confidence which has implications for retail hiring and spending, household decisions, corporate investments and capital spending, and more.
Dhawan expects the Federal Reserve will start a taper for “non-economic reasons” by spring 2014. He foresees consumption and overall GDP staying around 2.0 percent in 2014, moving towards 3.0 percent by late 2015.
“A new Congress will be a factor in that change,” he said, “ushering in the possibility of less partisanship and bickering. Such a shift will free investment to take off and, in turn, produce good job and income growth in 2015.”
Highlights from the Economic Forecasting Center’s National Report
- Real GDP grew 2.8 percent in the third quarter of 2013 after a 2.5 percent growth rate in the second quarter. Fourth quarter growth is expected to be 2.0 percent concluding the year with an annual growth rate of 1.7 percent. Real GDP will expand at 2.1 percent in 2014 and at a stronger rate of 2.5 percent in 2015.
- Business fixed investment will grow by a weak 2.2 percent in 2013, expand by 4.1 percent in 2014 and increase by 4.5 percent in 2015. In the final quarter of 2013, the economy will add jobs at a monthly rate of 138,000, then decrease to 130,000 new jobs per month in 2014, and return growth to normalcy with 175,000 jobs per month in 2015. Unemployment will finally drop below 7.0 percent in late 2015.
- Housing starts will average 0.887 million units in 2013, rising to 0.901 million units in 2014 and 1.102 million units in 2015. Auto sales will average 15.4 million units in 2013, then decrease slightly to 14.9 million units in 2014 and decrease again to 14.8 million units in 2015.
- The 10-year bond rate will rise to 3.3 percent by mid-2014. It will not cross the 4.0 percent threshold during the forecast period (end of 2015).
Peach State Poised for Take Off, But Facing Roadblocks on the Runway
Georgia’s year-over-year job growth rate in August outperformed the national job growth rate for the same period (2.3 percent vs. 1.7 percent) and the Atlanta metro area is closing the gap on returning to its pre-recession job peak, according to Dhawan.
“We could be poised for a takeoff in growth,” Dhawan writes in his Forecast of Georgia and Atlanta, also released today. Just be prepared to sit on the runway for a while. “There are national and global roadblocks over which we have no state control.”
Among those roadblocks: uncertainty over the potential for a second government shutdown – which hurts corporate morale that will delay capital expenditures and affect job growth in 2014, affecting consumer spending on retail goods – along with mixed news from the global arena, will be dragging forces in 2014. In its latest quarterly, Delta reported revenue growth in transatlantic and Latin American operations but not in the Pacific region, where China’s economy remains stalled.
“We should not expect the foreign sector to act as a release valve for our lack of growth at home,” Dhawan said.
Dhawan reports some sectors – professional and business services, transportation and hospitality – have recovered all the jobs lost during the Great Recession. But others, most of which are high-paying – manufacturing, wholesale and retail trade, finance, information, and state and local government – are still lagging. Two sectors, healthcare and education, never stopped growing.
According to the forecaster, “The quality of the jobs gained, as measured by personal income or wage growth, has been less than stellar.”
Commercial projects already in the pipeline as well as expected ones (apart from the new Falcons stadium) due to a rebound in housing values will add to the demand for construction workers. This rebound has lifted property tax collections and offered municipalities the ability to undertake much needed infrastructure improvement and repairs.
Dhawan anticipates the roadblocks inhibiting takeoff will be off the runaway by 2015.
“Perhaps it is naïveté,” he said, “but I believe that one way or another, we will have a palatable budget deal by then.”
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 84,900, of which 13,000 will be premium jobs. In 2014, the state will add 77,700 jobs (14,700 premium jobs) and in 2015 job numbers will be even stronger at 96,700 (21,300 premium jobs).
- State unemployment will average 8.5 percent in 2013, drop to 8.2 percent in 2014 and to 7.3 percent in 2015. Nominal personal income will rise 2.6 percent in 2013, increase 4.8 percent in 2014 and 5.0 percent in 2015.
- In calendar year 2013, Atlanta will gain 63,600 jobs, including 10,500 premium jobs. In 2014, Atlanta will add 55,700 jobs, including 12,700 premium jobs. Atlanta employment will grow strongly in calendar year 2015, gaining 67,700 jobs of which 17,300 will be premium jobs.
- Atlanta’s housing permits in 2013 will increase 50.7 percent, and multifamily permits moderate to 53.6 percent. Permitting activity will grow by 6.0 percent in 2014 as multifamily activity moderates to 0.8 percent. Permit activity picks up in 2015 to 20.2 percent, higher than the level seen in 2008.
Robinson College of Business