February 16, 2005 (Atlanta) - While the fourth quarter GDP report showed positive signs for investment and consumption growth, Dr. Rajeev Dhawan, director of the Economic Forecasting Center at the Robinson College of Business says that the nation's economy will not gain full speed until the global economy improves.
In his latest Forecast of the Nation (February 2005) released today, Dhawan says that even though the weakened dollar has made U.S. exports more affordable, the European economy has dampened demand.
"Our partners have to be in the mood, or have the ability, to demand our lower-priced products," says Dhawan. "In Germany, the unemployment rate is above 10 percent and home price appreciation is absent. Meanwhile, the UK is actively trying to cure its housing bubble."
This "global malaise" also has implications for the U.S. job market. According to Dhawan, only 411,000 jobs were created in the last three months with 40,000 jobs being lost in the manufacturing sector. "Three years into the recovery, the labor force participation rate is still falling. This implies that slack exists in the system to hire more people for production and a boost from our global partners is just what the country needs to put these people back to work."
But what will spark the global recovery? The answer lies in determining the cause for the malaise, which Dhawan says is oil.
"The price of oil is currently around $50 a barrel or approximately 37 Euro. We need the price of oil to come down to $40 by the end of 2005 or 30 Euro, which would provide much needed relief for European consumers who pay a huge gasoline tax," he said. "Fortunately, this price correction is expected by year-end."
The fog of uncertainty that enveloped Georgia's growth prospects is slowly lifting, says Dhawan in his report, Forecast of Georgia and Atlanta (February 2005). But this time the heroes are not Georgia's top 20 employers, instead it's the small business sector leading the charge.
"The small business cylinder is firing at full strength and producing much awaited jobs in a variety of sectors," said Dhawan. "We gained 37,600 jobs, most of which came from small business. This is quite impressive considering that small businesses numerically make up just above 50% of the employment base. When thousands of small businesses add one or two employees it eventually makes a difference to the state's bottom line."
In addition to small businesses, Georgia's tourism sector is also starting to recuperate from the hit it took post 9/11 as bookings for the next several years for the Georgia World Congress Center have increased with 2005 occupancy projections at 55% so far. Additionally, the most recent data for hotel occupancy shows a 6% increase from levels seen in 2003.
Still, Dhawan is quick to temper his optimism with a bit of concern over other areas including the transportation industry, telecom and the military.
"Consolidation in the telecom sector, the continuing Delta saga, and the charge to eliminate excess capacity within the military still holds challenges for Georgia's economy," said Dhawan. "But the good news is that even these challenges are not as severe as 2004 and with a little patience, more inclination for risk-taking and the belief that our economy will improve, Georgia should see much better increases for the next few years."
Mobile: 678-644-9032 Rajeev Dhawan
Economic Forecasting Center