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."
Highlights from the Economic Forecasting Center's national report:
- Real GDP growth will moderate to a 2.7% growth rate in the first half of 2005, but will display a healthy 3.5% growth rate in the second half. For 2005, real GDP growth will be 3.2% as exports only grow 5%. In 2006, real GDP expands by 3.7% as exports rise by 11.8%. In 2007, real GDP will moderate a bit to 3.5% due to minor decelerations across major categories.
- In 2004, the monthly overall inflation rate fluctuated between 1.8% and 4.8% in response to oil price movements. For the year 2005, the inflation rate will average 2.3%, then decline sharply to 1.6% in 2006, before rising slightly to 1.8% level in 2007. The FED stays on its measured course and the 10-year bond rate does not reach 5% until early next year.
- In the 2005, the price of oil will average $44.90 per barrel, drop to $36.10 in 2006 and moderate further to $34.70 by 2007. The oil price level will remain above the $30 barrel for the coming future.
Georgia and Atlanta – Small Businesses and Tourism Help Lift Economic Fog – 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."
Highlights from the Economic Forecasting Center's local report:
- Georgia employment increased by 1%, or 37,650 for the 2004 calendar year (January to December). For 2005, Georgia employment will grow by 2%, a gain of 78,000 jobs. In 2006, Georgia will gain jobs at a rate of 2.5% or 100,700 jobs. In 2007, Georgia employment will increase by 2% or 81,300 jobs.
- Georgia's high-paying jobs, on a calendar year basis, increased by 600 in 2004 but will increase by 14,600 in 2005. In 2006, Georgia will see 14,100 high-paying jobs and 14,630 in 2007.
- Georgia's unemployment rate declined to 4.1% in 2004 and will end 2005 at 4.1%. In 2006, unemployment will rise slightly at 4.2% and stay at that level in 2007.
- The number of Atlanta's total housing permits increased by 14.3% in 2004. Permits will decrease by 11.8% in 2005 and by 2.5% in 2006. In 2007, permits will again decline, although at the slightly lesser rate of 2.6%.
The J. Mack Robinson College of Business is one of the top-ranked business schools. The College's Flex (part-time) MBA program has been listed in the top ten by U.S. News for the past nine years and its undergraduate business program is ranked among the top 50 in the nation. Robinson's Executive MBA program is listed among the world's bet by The Financial Times and BusinessWeek magazine.
Media Contacts:
Tammy DeMel
Associate Director, Communications and External Affairs
Robinson College of Business
Phone: 404/413-7078
Cell: 404/702-9743
