Dhawan Waiting for Businesses to Invest Before Getting Optimistic About Economy

Strong job growth, rising home prices and continued stock market appreciation point to economic health, but global tensions and lack of business spending are cause for concern, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

portrait of Rajeev Dhawan, Director of the Robinson College of Business Economic Forecasting Center

Rajeev Dhawan

“You might assume that we are back in the late 1990s when we looked to the future with great anticipation, but I see quite a few differences between now and then,” Dhawan writes in his “Forecast of The Nation,” released Thursday, May 29.

Among the differences: Extremely low interest rates and a disinflationary environment. Executives and policymakers want to know when rates will rise, as evidenced by the questioning of Federal Reserve Chair Janet Yellen when she testified before the U.S. Congress Joint Economic Committee earlier in May.

A sharp decline in export growth is also contributing to the forecaster’s tempered expectations.

“Exports represent foreign demand for our goods, and as such, they are a reflection of our trading partners’ economic health, which is iffy to say the least,” Dhawan said.

Anxiety over Russia’s tussle with Ukraine and Germany’s dependence on Russian energy sources has shorted growth prospects for a European economic rebound this year. China’s continued stagnation is affecting its suppliers in the emerging markets. All this will ultimately affect financial markets in the U.S.

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Jenifer Shockley
Robinson College of Business
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That said, Dhawan asserts the news is not all bad.

“Vehicle sales cracked the 16-million mark, housing starts are still decent and home prices grew by double digits in 2013,” he said.

New home sales are rising, too, but sales of discretionary items remain flat.

“Buyers are moving into new homes with old furniture,” Dhawan said.

Dhawan’s said his concerns will be assuaged when “we witness consistent growth in all GDP categories, including exports, and that can happen only when our trading partners are back on their feet and our businesses are investing, which leads to sustained hiring.”

As for the Fed, the forecaster says the nation’s central bank won’t move on interest rates until it has concrete evidence that business investment growth is here to stay.

Business investment will slowly increase by year’s end, says Dhawan, leading to enhanced growth prospects in 2015.

“2016 will mark a great year by the current recovery standard,” Dhawan said.

Highlights from the Economic Forecasting Center’s National Report

• The weather-affected growth of 0.1% in the first quarter of 2014 will recover to 3.7% in the second, but the year will average 2.2%. Real GDP expands at 2.5% in 2015 and 2.9% in 2016.
• Investment will grow by 3.7% in 2014, 5.1% in 2015 and 6.5% in 2016. Expect an average of 196,000 new jobs per month in 2014, 186,000 per month in 2015 and 203,000 per month in 2016.
• Housing starts will average 0.953 million units in 2014, rise sharply to 1.223 million units in 2015, and increase further to 1.323 million units in 2016. Auto sales will average 15.5 million units in 2014 and increase slightly to 15.6 million units in 2015 and 15.7 million units in 2016.
• The 10-year bond rate will rise to 3.6% by year-end of 2014 and not cross 4.0% until mid-2016.

Peach State Bets Gingerly on Growth

After a slow start to 2014 caused by January’s “snowpocalypse,” Georgia will add 20,000 jobs per quarter for the rest of the year, according to Dhawan.

“When you look at the positives and the negatives you get numbers that seem slightly off-kilter for state job growth,” Dhawan writes in his forecast. “In the first three months Georgia added only 6,000-odd jobs, due to the weather effect. All told, my forecast calls for 65,100 new jobs in the state by year end.”

The March benchmarking process revised 2013 job growth downward by a miniscule 0.2%, to 83,200, including a 2% reduction in the corporate sector triggered in part by a slowdown in hiring due to global factors such as the Russia-Ukraine standoff and a stagnant Chinese economy. The transportation sector encountered an even larger downward revision of 2.9%. Government jobs were revised slightly upwards.

Consistent with national trends, retail and hospitality generated 40% of new jobs in Georgia last year. But if oil prices remain high and global issues continue to affect the catalyst sectors (manufacturing, corporate and healthcare) Dhawan is concerned these two sectors could suffer.

“No announcements of new hotel building or malls are on the horizon,” he said, “just refurbishing at the most. Momentum will slow this year for these sectors.”

Dhawan predicts “significant growth” in construction due to multiple announcements of apartment building intown Atlanta and the new Falcons stadium, which began with a groundbreaking ceremony last week.

“Approval of the Savannah dredging project and expected lower energy prices makes me bullish on manufacturing-related employment in the coming years,” he said.

Also on the upswing are metro Atlanta home prices, which rose by double digits during 2012-13, with permits increasing by 70%. The forecaster expects the home price growth to moderate as potential purchasers take a wait-and-see approach around mortgage rates.

Multi-family housing permits in metro Atlanta also increased during 2012-13, two-thirds of the permits originating in Fulton County.

“This is no surprise,” Dhawan said, “given millenials’ preference to live in town near their jobs,” a trend he anticipates will easily continue.

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

• In calendar year 2014 (January-December), growth will slow with the state adding 65,100 jobs, (14,800 premium jobs). In 2015, growth picks up as Georgia adds 89,200 jobs (18,400 premium jobs). In 2016, growth will be even better with 100,100 jobs added (20,700 premium jobs).
• State unemployment averaged 8.2% in 2013. It will drop further to 6.9% in 2014, 6.3% in 2015, fall below 6% to 5.7% in 2016. Nominal personal income rose 2.7% in 2013 and will increase 3.3% in 2014. Income will rise by a strong 5.3% rate in 2015 and an even better 5.6% in 2016.
• Atlanta added 59,800 jobs in 2013. Expect this to moderate in 2014 as Atlanta will add 46,800 jobs, including 10,800 premium jobs. Employment will grow strongly in calendar year 2015, gaining 61,300 jobs (14,300 premium), and by 67,800 jobs (15,800 premium) in 2016.
• Atlanta’s housing permits numbered 24,065 units in 2013 because of an 85% increase in multifamily permits. In 2014, permitting activity levels will be maintained at about 23,103, a decrease of 4%. Permit activity will rise to 23,974 in 2015 and then jump sharply to 27,609 in 2016.

 
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