Housing Slowdown and Decreased Consumer Spending Are Key to Keeping Inflation at Bay
The orderly moderation of the housing market
combined with less consumer spending has
already begun to produce a mild slowdown
in the nation’s economy. This slowdown will
further deepen as housing starts continue to
moderate and consumer discretionary spending takes a hit from
elevated oil prices, thus keeping inflationary pressures in check.
Economic indicators in the last few months are clearly signaling
a slowdown in the home-building sector. This is precisely what
the Bernanke-led Fed has been aiming for while undertaking
17 consecutive rate hikes before finally pausing at 5.25 percent.
This pause should become permanent as the economy begins
to moderate to a subpar growth rate of 2.0 percent in the second
half of this year and a weak 1.9 percent in the first quarter
of 2007. At that point, the Fed will do a rate cut to squelch the
slowdown from spiraling further into a stall.
Meanwhile, concern over rising labor costs have made many
wonder if we will see a wage-price inflation spiral similar to
what happened in the 1970s.
However, should the Fed begin to see signs of an increase in
inflation expectations, it will jump back in with rate hikes. That
will happen only if the continuing moderation in housing stops
or oil prices crash like they did in 1986, making for boomlike
conditions that will stoke the inflationary fire. Fortunately, that
is a very low probability scenario.
Georgia’s Economy Weathers External Headwinds
While nationally the economy has been plagued with an
increase in short-term interest rates, oil prices topping $70 per
barrel, and the highest inflation in four years, Georgia has held
For the first six months of this year, Georgia created more than
50,000 jobs, and for the 12-month period ending in June 2006,
the state added a total of 80,000 jobs. In addition, Georgia
ended its fiscal year up by 9.3 percent in tax collections, and
the state’s nominal personal income increased by 5.5 percent
in the first quarter of 2006 compared to a year ago.
However, there are still some areas of concern, including
exports, manufacturing, construction, and management jobs.
Yet I still see a resilient Georgia with an increase in premium jobs
(more than $45,000) and strong growth in cities like Savannah
and Brunswick. Other bright spots for Georgia include strong
tourism and the health care and small business sectors. We’re
even getting reports that recruiters in the technology sector
are busier than ever. Technology has already added 250 jobs in
the last six months, and I expect to see good job growth there
for the next several years, with 900 jobs in 2006, 2,200 jobs in
2007, and 3,500 jobs in 2008. Not bad for an industry that has
lost a total of 30,000 jobs since 2001.