November 14, 2012
Jenifer Shockley, 404-413-7078
Robinson College of Business
ATLANTA – Domestic confusion and uncertainty triggered by the looming “fiscal cliff” are causing more harm to the U.S. economy than the slowdowns in Europe and Asia, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“The damage from the fiscal cliff is done and playing out now,” Dhawan writes in his quarterly Forecast of the Nation, released today. “The issue is can we can contain it?” The forecaster offers a conditional yes, contingent on the president and Congress soon reaching a credible grand bargain that assuages capital markets.
Striking a deal is all the more imperative, Dhawan says, because the United States must look domestically for sparks to ignite economic growth in the coming year—as it did until the 1990s. The reason: Exports are down, falling 3.5 percent in the third quarter of 2012, a sharp reversal from 7.0 percent growth in the second quarter.
Across the Atlantic, “Don’t expect the Europeans to solve their debt problems anytime soon,” asserts Dhawan. As a result, he says, “Growth will be a luxury item out of Europe’s reach for the coming years.”
China had provided what Dhawan characterizes as a “release valve” for U.S. and German industrial and electrical machinery exports. But the nation’s growth has slowed appreciably, as evidenced by government statistics and monthly indicators. Additionally, efforts to dampen home price inflation in big cities have led to a slowdown. Compounding the problem, the forecaster says, “China’s leadership is focused on battling the party’s image of corruption and the Bo Xilai scandal rather than tackling economic growth.”
Based on these and other variables, “We shouldn’t expect any upside from global growth in 2013,” Dhawan says. But the forecaster paints a somewhat brighter picture for 2014 when the fiscal cliff will hopefully be resolved with a credible down payment towards budget deficit reduction. “When combined with the full impact of stimulus measures from the worlds’ central banks will lead to an improvement in corporate mood,” says Dhawan. “This will result in higher investment spending leading to better job growth.” As a plus, as Chinese stimulus measures and European debt solutions pay dividends, U.S. exports will pick up, adding to the previous growth momentum.
Real GDP will grow only 0.9% in the fourth quarter and 1.0% in the first quarter of 2013. After 2.1% growth in 2012, GDP growth will be only 1.5% in 2013 due to moderate-at-best domestic consumption and abysmal international trade. In 2014, real GDP will grow at a stronger rate of 2.6%.
The U.S. economy created almost 700,000 jobs from July to October 2012&mash;a rate that will moderate in coming months. In 2013, expect 115,000 jobs per month on average and 160,000 per month in 2014. The unemployment rate, which dipped to 7.8% in September, will be around 8% for the next two years.
Export growth decelerates sharply from 3.0% in 2012 to only 0.2% in 2013, rising to 5% in 2014.
Housing starts will average 0.764 million units in 2012 and gradually rise to 0.980 million units in 2014—nowhere near the pre-recessionary level of 2 million-plus some six years ago. The 10-year Treasury bond rate will remain below 3% through 2014.
Exports, which were until recently a bright star in Georgia's economy, are presently on the wane due to a worldwide downturn that is hitting China and Europe especially hard. As a result, the Peach State must look to domestic sources for growth in the coming year, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
In his quarterly Forecast of Georgia and Atlanta, released today, Dhawan posits that this dynamic and the looming “fiscal cliff” will make for “a nervous upcoming six months,” but that anxiety will mitigate in the second half of the year when a bipartisan grand bargain is reached with a clear down payment towards deficit reduction.
Where Georgia exports grew by almost 20 percent in 2011, year-to-date numbers (January to July) show an increase of only 2.3 percent. Additionally, the dour international economy and concomitant decline in exports will have a cascading effect on other industries in the Peach State. “A global slowdown led by China affects Georgia’s transportation and manufacturing sectors via lower demand for state exports—especially of machinery, aircraft and vehicles,” the forecaster says.
Among Georgia companies taking a hit is Delta Air Lines, which derives almost half of its mainline revenue (total passenger revenue excluding regional operations) from international operations. In its third quarter report, the company’s mainline revenue grew by only two percent, down from 11 percent growth in 2011.
The state’s other key sectors—construction, corporate and local government—have what Dhawan characterizes as “dim growth prospects” for the coming six months. Combined with exports, transportation and manufacturing, they constitute half of Georgia’s employment base. “Other areas will grow, but negative spillovers from the leading sectors will mean that their growth likewise will be impacted.”
The lone exception will be healthcare, which has grown consistently even during the great recession.
“The first half of 2013 will be weak but then will pick up,” Dhawan says. The reason? “Congress will have found a solution to the fiscal cliff, which will improve business confidence, leading to better job growth prospects.” As Georgia heads into 2014, the Chinese will have jumpstarted their economy and the European Union will have gotten a handle on its debt crisis. “The resultant upturn in the world economy will lead to an increase in Georgia’s exports that will have a positive ripple effect across Georgia’s key economic sectors,” Dhawan says.
Georgia’s employment base will grow by 50,800 in calendar 2012, of which 10,900 will be premium jobs (a 1.2% annual growth rate). In 2013, the recovery will be similar, with the state adding 55,300 jobs (1.1% annual growth), of which 9,800 will be premium jobs. In calendar 2014, job numbers will rise to 77,300 (1.8% annual growth), including 15,300 premium jobs.
Georgia’s unemployment rate will average 9.1% in 2012, and in 2013 unemployment will drop to 8.9%. As Georgia’s economy picks up in 2014, the unemployment rate will decline further to 8.2%.
Nominal personal income in Georgia will rise by 3.8% in 2012, followed by another increase of 3.9% in 2013. Expect a strong increase of 5.0% in 2014.
Atlanta’s employment base is expected to grow in 2012 by 39,200 jobs (1.7% annual growth) with 7,800 premium jobs. In 2013 Atlanta’s economy will add 40,900 jobs (1.5% growth), including 7,600 premium jobs. In 2014 Atlanta’s employment growth will pick up with a strong addition of 54,000 jobs (2.1% growth) with 11,300 premium jobs.
Atlanta’s housing permits will increase by 56.4% in 2012 to 13,191 units, thanks to a boost in multifamily housing permits (96.7%). Single family permits will rise by 40.4% this year. Permit activity will increase by 3.3% in 2013, with single family permits increasing barely by 1.8% and multifamily permits growing only 6.0%. Permit activity will grow strongly in 2014, posting an overall increase of 24.7%. This year total housing permits will be about 16,987 units or 25% of the levels in 2005.
The largest business school in the South and part of a major research institution, Georgia State University's J. Mack Robinson College of Business has 200 faculty, 8,000 students and 80,000 alumni. With programs on five continents and students from 88 countries, the college is world-class and worldwide. Its part-time MBA is ranked among the best by the Aspen Institute, Bloomberg Businessweek and U.S. News & World Report, and its Executive MBA is on the Financial Times list of the world's premier programs. Located in Atlanta, the Robinson College and Georgia State have produced more of Georgia's top executives with graduate degrees than any other school in the Southeast.