Forecaster Says Salvaging Growth Will Require More Than Rate Cuts; For Now, Tariffs Are Merely An Irritant

ATLANTA — The drip-drip of weakening of hard data (first half real GDP growth of only 1.2 percent and sharp downward revisions in nonfarm jobs data for May and June) coupled with softening sentiment indicators (consumer confidence and small business optimism surveys) is already resulting in corporate hesitation to hire and slowing consumer spending, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business. Dhawan delivered the semi-annual forecast during his Aug. 28 conference.

“Sudden and massive downward job revisions in BLS (Bureau of Labor Statistics) data can be disconcerting, not just to monetary policymakers but also to forecast practitioners,” said Dhawan. “Triangulating the number of jobs with tax collections, especially federal-level Social Security collections, explains the reality of the ongoing spending slowdown. Social security tax collections grew at a 6.0 percent rate in the second half of 2024, moderated to 4.1 percent growth in the first quarter of 2025, and then increased an anemic 0.8 percent in the second quarter of 2025, in sync with weak job growth numbers.”

“In my ‘Triangle of Money’ concept, jobs produce income that, in turn, predict consumer spending, and then real estate trends. So, if jobs data fluctuates too much and conceals the actual trend (a weak signal-to-noise ratio), use tax collection numbers to gauge the health of the economy” said Dhawan.

Weakened spending power will result in further softening in coming quarters on travel, dining out, furniture-buying, and even healthcare spending which now accounts for almost 20 percent of total consumer spending, Dhawan said.

The forecaster expects the Federal Reserve to begin cutting rates in September and to be aggressive in cutting them to arrest the steady deterioration of the economy as evident in weak tax collections.

“Although firms are not laying off workers, they aren’t hiring them either. Instead, they are ‘labor hoarding.’ Thus, the metric of a steady unemployment rate sends a false positive signal about the labor market,” said Dhawan, who expected rate cuts potentially totaling 150 basis points (bps) by spring 2026, easing financing costs for small businesses and consumer mortgage rates.

As for tariffs, Dhawan noted that “Tariffs aren’t inflationary, because most consumption — domestic services, groceries, and fuel — are exempt from tariffs. But tariffs will reduce the trade deficit, meaning fewer dollars coming in from abroad for investment in U.S. assets.”

“Mortgage rates may fall 75-100 bps initially following rate cuts, but they will not stay down for long due to the unintended consequence of lower trade deficit lessening demand for U.S. treasury bonds,” Dhawan said, adding that 10-year treasury bond yields will snap back to be above 4.5 percent level by late 2027.

The July 4 passage of the One Big Beautiful Bill Act means fewer federal handouts for state and municipal budgets, Dhawan said. “State and local government employs 13 percent of U.S. workers, almost as many as the corporate sector. Federal layoffs are already hurting the housing market in the Washington, DC area, and reduced federal spending will lead to stagnant job growth at the local government level, too.”

Highlights from Rajeev Dhawan’s National Economic Forecast

• U.S. real GDP growth on an annual average basis will be 1.7 percent in 2025, 1.6 percent in 2026, and 2.0 percent in 2027.
• National job growth will weaken further from 87,300 monthly gains in the first half of 2025 to only 36,600 monthly gains in the second half of this year. Following Fed’s aggressive rate cuts, job gains will then slowly rebound to 103,200 monthly rates by late 2026. Job gains will be a better 128,000 monthly rate in 2027.
• CPI inflation will average 2.9 percent in the second half of 2025 but then moderate sharply to 1.4 percent in the first half of 2026. For the full year 2026 it averages 2.0 percent and then moderates slightly to 1.8 percent in 2027. After averaging 2.9 percent in 2025, core inflation will drop to 2.0 percent in 2026 and stay at that level in 2027.
• The 30-year mortgage rate after averaging 6.5 percent in 2025, will drop to 5.8 percent in 2026, but will rise back again to 6.5 percent in 2027.
• Housing starts will average 1.346 million in 2025, 1.367 million in 2026, and 1.460 million in 2027.
• Vehicle sales after averaging 15.8 million in 2024 will be higher at 16.0 million in 2025. They will then drop to 15.9 million in 2026 and then recover to 16.9 million in 2027.

Multifaceted Georgia Economy Rolls with World Events

ATLANTA — Georgia is enduring its fair share of hits, ranging in spectrum from federal layoffs and spending cuts, less tourism from abroad to a pullback in film and TV spending by big Hollywood studios. But the Peach State’s multifaceted economy is also benefiting from a boom in data center construction, continued in-migration of retirees, and an expected boost to the state’s aerospace industry due to European NATO nations pledging to boost defense spending in coming years, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business. Dhawan delivered the semi-annual forecast during his Aug. 28 conference.

Job additions in calendar year 2024 (Jan.–Dec.) totaled 41,900, much lower than the 66,800 jobs added in calendar year 2023. This pace was incidentally half of the rate of job creation seen from 2017 to 2019. In the first half of 2025 the state added only 11,700 jobs. The biggest reason for this sharp slowdown and anemic job growth performance is the stress seen in the white-collar, middle-management, service-sector jobs that are battling A.I. advances, iffy world economic growth, and the changing focus of film-and-television production, where notably Marvel Studios has pulled up stakes for London.

Revenue growth in the first half of 2025 for Delta Air Lines, the state’s largest private employer with a big footprint in international travel, was an anemic 1.0 percent, with coach ticket sales dropping by 3.6 percent.

“The bread-and-butter of middle-class jobs in three well-paying service sectors — corporate, information technology (including specialized movie production) and wholesale (B2B) — constitute almost one-fourth of the state’s employment base and have lost more than 37,000 jobs since Jan. 2023,” Dhawan said.

Following Dhawan’s “Triangle of Money” logic, the impact of anemic job growth in high-paying service sectors that affects consumer spending is also evident in the rate of growth for sales tax collections at the state level. These collections grew at a solid double-digit level in 2022 but have since fallen to low single-digit levels.

Turning to positives in the state’s multifaceted economy, a data center construction boom initiated by technology giants has created an arms race in AI computing. With Georgia having surpassed Northern Virginia as the nation’s most active market for data centers, Dhawan noted that the data center boom has expanded beyond metro Atlanta to locations including Bartow and Richmond counties (home to Cartersville and Augusta, respectively) in the search for cheap land and energy.

“This is good news for construction industry, and other supporting professions (e.g. HVAC technicians, ready-made concrete suppliers, and electricians) who have had steady work
and will continue to do so,” said Dhawan. As electricity needs rise, more power plants will be constructed outside core Atlanta metro counties, along with the associated construction multiplier.

In the interim, the state’s economy must ride the economic swells as best as it can before job growth starts to pick up by early 2026 as tariff rate structure settles, and the expected, and aggressive rate cuts by the Federal Reserve help the housing market.

Also about to benefit: the state’s aerospace and defense companies, including Lockhead Martin and Gulfstream Aerospace, due to European NATO nations pledging to raise defense spending to 5 percent of their GDP. More demand for aerospace products will start its own multiplier for suppliers downstream that located all over Georgia.

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

• Georgia jobs: The state added 66,800 jobs in calendar year 2023 and that pace moderated to 41,900 jobs in 2024. Job additions will moderate further to 33,700 jobs in 2025 (3,400 premium). In 2026, the state will add a better number of 65,800 jobs (12,500 premium) and then 83,300 jobs in 2027 (19,200 premium).
• Georgia’s nominal personal income will grow 5.4 percent in 2025, a similar rate of 5.3 percent in 2026, and a better 6.0 percent in 2027.
• Atlanta jobs: The metro area will add 24,800 jobs in 2025 (2,200 premium). As recovery takes hold in 2026, the metro area will add a respectable 44,300 jobs (9,900 premium), and 60,500 jobs (14,800 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 21.5 percent in 2025 as multifamily permits experience a sharp drop of 40.0 percent and single-family permits also decrease by 10.0 percent. In 2026, total permit numbers inch up by 1.3 percent as single-family permits increase by 2.4 percent. Normalcy will return in 2027 when permit activity grows by 13.0 percent.