Georgia State Forecaster Advises Webinar Attendees to Stay Sharply Focused on Economic Fundamentals and Calibrate When Tariff Battles Take Concrete Shape

ATLANTA — The arrival of a new presidential administration always brings change. But the unprecedented speed of directives coming from Washington compelled economic forecaster Rajeev Dhawan to advise attendees at his Feb. 27 webinar conference to stay focused on the fundamentals of the economy.

“The changing of the guard always brings concrete actions accompanied by angst and speculation, which economists call a signal-to-noise ratio,” said Dhawan, who is director of the Economic Forecasting Center at Georgia State’s J. Mack Robinson College of Business. “So, let’s look at what the signals are telling us.”

Dhawan began with a short-term signal, the spending outlook for the next three to six months. “American consumer spending patterns are determined by their income, how wealthy they feel, and what has happened in the stock market over the last few years.”

“The market has gone up substantially over the last two years, with superlative performance in the last six months. And the Federal Reserve has dropped interest rates by 75 basis points over the past six months, thus lowering the cost of financing for vehicles and durable goods. This gives consumers the fire power to continue to shell out for service-based activities such as travel, airfare, lodging, and dining out,” Looking ahead, the forecaster anticipates the Fed will stand pat until the second half of 2025.

“Post-pandemic spending on service-based activities has shown no signs of pulling back in the last six months; the post-Covid desire to travel remains very strong, with no indication of near-term cooling,” Dhawan said. “Aided by the performance of their 401(k) portfolios, people also are spending on healthcare which, all told, is around $3.3 trillion annually – almost one-fifth of total consumer spending.

Dhawan does not foresee a pullback on healthcare spending. “But, ultimately, spending growth depends on job creation — particularly the addition of white-collar, well-paying, middle-management jobs. Unfortunately, the latest national-level benchmark employment revisions reveal no growth at all in catalyst sectors jobs (corporate, IT, and business to business) in the last 18 months.”

According to Dhawan, the prospects for job growth in the latter part of 2025 appear increasingly cloudy as tariff battles heat up. “At present, the shape and form of tariffs are only a bit clear for China but are still up in the air for our immediate neighbors. Tariffs may or may not happen for our neighbors or may not last that long. This type of uncertainty makes large corporations reliant on global trade reluctant to take on expansion risks.”

Small business employment is half of the economy. Dhawan noted that “although small business confidence has improved markedly since the 2024 presidential election, metrics for capital spending and hiring plans have not budged upward at all. Taken together, a disappointing hiring reality by fall will give the Fed ‘cover’ to step in with rate cuts.”

The forecaster posits that the inflation impact of tariffs via imported goods will be minimal – a one-time jump in prices that may even be mild – and will not be sufficient enough for the Fed to hold back projected rate cuts.

“Our trading partners could reduce the inflation bite of tariffs by weakening their currency,” Dhawan said. So far, prices for oil imported into the country are exempted. (The U.S. is a net exporter of oil – typically finished products – but does import substantial oil from Canada to run Gulf Coast and Midwest refineries.) “If oil imports are no longer exempted from tariffs, inflation will become more pronounced and persistent, and Fed rate cuts will not happen,” he said.

Dhawan anticipates the full impact of “Washington shocks” will be felt in 2026. Despite Fed rates cuts, long-term bond yields will not retreat due to fear of high fiscal deficits, notwithstanding reduction efforts underway in Washington, which Dhawan characterized as more “style than sustained savings at present. The fiscal deficit will stabilize at 6.5 percent of GDP. But when you add the impact of expectant tariffs that will drop the trade deficit by close to $100 billion, it will have the unfortunate impact of increasing long bond yields further in 2027. Why? There will be fewer free-floating dollars to channel into the U.S. bond market.

“As for calibration, the battle lines are still being drawn in the ongoing tariff game and should start to become clearer with every passing week,” Dhawan said. “That said, one should analyze the impact of tariffs by changes in long-bond yields rather than indulge in hyperbolic speculation about the availability and cost of goods. That’s why this forecast has a roadmap for adjustment via the trade deficit channel, where a 100-billion-dollar drop will be equivalent to a 50-basis-point rise in long-bond yields.”

Highlights from Rajeev Dhawan’s National Economic Forecast

• U.S. real GDP growth on an annual average basis will be 2.4 percent in 2025, 1.5 percent in 2026, and 2.1 percent in 2027.
• National job growth will weaken sharply from 123,000 monthly gains in the first half of 2025 to only 78,000 monthly gains in the second half of this year. Following Fed rate cuts that spur investment spending, and digesting tariff changes, job growth will then slowly rebound to 100,900 monthly rate by late 2026. Job growth will be a better 133,000 monthly rate in 2027.
• CPI inflation will average 4.0 percent in the first half of 2025 but then moderate sharply to 1.8 percent in the second half of 2025. For the year 2026 it averages 2.0 percent and then rises slightly to 2.2 percent in 2027. After averaging 2.6 percent in 2025, core inflation will drop to 2.0 percent in 2026 and then rise modestly to 2.3 percent in 2027.
• The 30-year mortgage rate after averaging 6.9 percent in 2025, will rise to 7.2 percent in 2026, and further to 7.3 percent in 2027.
• Housing starts will average 1.345 million in 2025, 1.315 million in 2026, and 1.428 million in 2027.
• Vehicle sales after averaging 15.8 million in 2024 will be higher at 16.3 million in 2025. They will then drop to 15.9 million in 2026 and then recover to 16.4 million in 2027.

Peach State Tempers Fallout from Washington Shocks by Leaning on Its Unique and Emerging Growth Drivers

ATLANTA — The global nature of Georgia’s economy means it will have to contend with curveballs that are a consequence of tariffs and global economic developments. “But the Peach State has a few aces up its sleeve to mitigate these shocks,” according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

Georgia added 60,400 jobs in the last 12 months. “Although that sounds good, the jobs gained are not in catalyst sectors (corporate, IT and business to business) that stimulate downstream spending. In fact, Georgia’s catalyst sectors lost almost 9,000 jobs in the last 12 months, and just over 31,000 jobs since January 2023.”

“In my ‘Triangle of Money’ concept, jobs produce income, resulting in spending, and, ultimately, tax collection,” said Dhawan. “Catalyst-sector job losses are reflected in sales tax collections, which began weakening in the second half of 2023 and were practically flat in the first half of 2024, with marginal growth in the last half of the year.”

The forecaster noted several positive job announcements in Georgia in 2024, including the announcement of new data centers. “Atlanta has the second-highest amount of data center space under construction, behind Northern Virginia – notwithstanding a challenge from China’s development of AI products requiring less data space,” he said.

“Although Georgia’s data center building boom will produce a multiplier effect during construction, downstream benefits end when construction is complete; data centers are not office parks with employees who generate income, then purchase goods and services,” Dhawan said.

“Atlanta also has an emerging robotic sector, and more technology firms are being founded because of the AI boom. But overall growth will slow because of international and national factors,” the forecaster said. “That said, Los Angeles-area destruction caused by the recent California wildfires has the potential to drive more television and film production to Georgia, which will have a positive economic effect.”

Multiple announcements portend future weakness in job creation.

“News about CNN layoffs, three Atlanta-area Macy’s closing in 2025, job cut announcements at the Centers for Disease Control and Prevention, and pullbacks in planned electric vehicle battery plant projects, reflect slowing in hiring, spending, and tax collections,” Dhawan said.

“When the tariff battle heats up, negatively impacting U.S. imports, an area of Georgia economic growth — the Port of Savannah and the logistics corridor of warehouses, storage, inland ports, and trucking into Atlanta metro and extending to North Georgia — will experience diminished growth opportunities,” Dhawan said.

Turning to housing, Dhawan expects mortgage rates will remain high, affecting the residential resale market, but developers will continue to build multifamily and single-family homes. “Georgia remains a powerful magnet for people moving to the South from the rest of the nation, and it’s a powerful magnet within the South, too,” said Dhawan.

“Job growth quality has been iffy for the past two years and will take time to improve. Net migration — the influx of residents from outside Georgia will keep home building strong,” Dhawan said. “The question becomes what sort of housing do we need to build? Will it be single family housing for family participating in the workforce, or a mix of housing for older adults and retired persons. Time will tell.”

Highlights from Rajeev Dhawan’s Economic Forecast for Atlanta and Georgia

• Georgia jobs: The state added 57,700 jobs (2,900 premium jobs) in calendar year 2024, but this rate will moderate down to 50,900 jobs in 2025 (8,000 premium). In 2026, the state will add a better 71,000 jobs (16,600 premium) and 87,800 jobs (21,100 premium) in 2027.
• Georgia’s nominal personal income will grow 4.6 percent in 2025, a higher 5.4 percent in 2026, and again by 5.5 percent in 2027.
• Atlanta jobs: The metro area will add 37,200 jobs (6,700 premium) in 2025. As recovery takes hold in 2026, the metro area will add a respectable 53,100 jobs (12,100 premium), and 64,300 jobs (15,200 premium) in 2027.
• Atlanta housing permitting activity grew by 4.7 percent in 2024; single-family permits increased by 6.5 percent, and multifamily permits by 2.0 percent. Total permit numbers will fall by 6.5 percent in 2025 as multifamily permits drop by double digits even as single-family permits increase 3.9 percent. In 2026, total permit numbers again drop by a marginal 1.0 percent as multifamily permits drop by 6.2 percent. Normalcy will return in 2027 when permit activity grows by 7.4 percent.