Dhawan Expects More of the Same for 2015; Eyeing 2016 for Acceleration
“Human nature encourages us to dream about better days that are just around the corner and makes us overlook the real problems,” Dhawan writes in his Forecast of The Nation, released today.
Problems that Dhawan points to include second and third quarter GDP numbers skewed by anomalies in defense spending and exports; a lack of real income growth; and economic trouble in Europe and China. “My downward revisions have to do with negatives that I see at the global front as well as a slight temperance in consumers’ desires to buy cars and reluctance to buy new homes at a stronger clip.”
These feelings come despite what many economists see as the best news for consumer spending: a significant drop in the price of oil. Analysts commonly say that for every penny drop in the gasoline price, the economy sees an extra billion dollars in spending. But this has not been the case with the current recovery due to lack of income growth. “When income growth is limited, forcing consumers to draw on liquid assets to buy a big-ticket item, something else has to give. That something else in the view of rational consumers is discretionary spending,” says the forecaster.
According to Dhawan, the news for next year isn’t entirely bad though. “Income growth is a function of job growth, and on this front the economy is on decent footing. For the last nine months, monthly job additions have been above 200,000. Furthermore, strong gains in the stock market have buoyed consumer confidence and will maintain the level of consumption growth.”
Expect the Fed to begin enacting rate hikes in early 2016. “That year is when some major concerns that worry me and keep growth down will start to abate as wage growth gets closer to the 4.0% rate.”
Highlights from the Economic Forecasting Center’s National Report
- After a 4.6% jump in the second quarter of 2014, real GDP grew 3.5% in the third quarter and will expand 2.3% in the fourth quarter. It will expand at a better rate of 2.6% in 2015. The impact of investments made in 2015 will emerge in 2016 when real GDP grows by 2.7%.
- Business fixed investment will grow by 5.1% in 2014, 4.9% in 2015, and 6.2% in 2016. Jobs grow by a monthly rate of 204,000 in 2014, dip to 195,000 in 2015 (due to a European slowdown and stalled Chinese economy), and rise to 204,000 in 2016.
- Housing starts will average 0.993 million units in 2014, rise to 1.069 million units in 2015, and rise further to 1.228 million units in 2016. Auto sales will average 16.2 million units in 2014 and then edge lower to 15.8 million units in 2015 and 15.7 million units in 2016.
- The 10-year bond rate will average 2.6% in 2014, and should rise to 3.5% by the end of 2016.
Global Concerns Affect Georgia’s Job Growth
Although the unemployment rate remains the highest in the country, Georgia’s job landscape is not as terrible as such figures seem to indicate, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“One needs to discount unemployment rate movements as a broad indicator of economic well-being,” Dhawan writes in his Forecast of Georgia and Atlanta, released today. “The reasons are statistical, and the current culprit is something called rotation group bias,” caused by unemployment survey methodology, which was redesigned in 1994 and led to a higher nonresponse rate by survey participants.
“The sharpest rise in the unemployment rate has occurred in states that have a higher concentration of manufacturing jobs, such as South Carolina and Georgia, whereas it is lowest in service-providing states such as Florida, where the rate remained essentially flat. One expects the nonresponse rate to be lower in white-collar jobs.”
To try to paint a better picture, Dhawan looked at the tax receipts of Georgia. “Tax collections grew by a decent 5.2% in the first nine months of this year.” Also in the last nine months, the nonfarm payroll survey indicated 65,000 jobs were created. Dhawan believes that this is “a good footing of growth.”
However, global woes are dampening the spirits here at home. The slowing of the Chinese economy and the economic weakness of Europe has put the pressure on global companies headquartered in Atlanta. “This means that the globally diverse companies headquartered in the Atlanta metro area will have to deal with this global slowdown.” Dhawan cites Delta, Coke and Turner as sufferers of these concerns already. As a result, corporate job creation will suffer adding only 21,000 jobs in 2015 after a stellar 2014 in which 32,000 jobs were created.
The recovery of homes prices has led to higher property tax collections which have reflated the budgets in cities and counties across the region. “Unsurprisingly, this has led to higher employment levels, where 1 in 10 people work for their local government in this modern era,” states Dhawan. “Furthermore, home prices are expected to continue to rise which will result in more local spending and subsequent hiring.”
On the other hand, Dhawan believes that the construction industry should remain somewhat immune to global malaise. Housing permit activity has increased to 24,000 units and projects like the new Atlanta Falcons and Braves stadium with the recently approved deepening of the Savannah port will create jobs in the coming years. Expect construction to add 5,000 jobs in 2014, 8,000 in 2015 and 9,800 in 2016.
Dhawan concludes: “Focus on jobs, the type of jobs, and income creation that manifests in tax collections, first and foremost as the indicator of economic health. Time to retire the faulty unemployment rate metric for good.” Dhawan predicts that income growth will be 4%-5% in the coming years.
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment grew by 83,400 in calendar year 2013. Expect a gain of 81,100 positions in calendar year 2014 (19,400 premium jobs). Employment growth slows to 71,000 jobs (16,400 premium jobs) in 2015 and jumps up to 83,500 jobs (18,400 premium) in calendar year 2016.
- Nominal personal income will increase 4.4% in 2014, 4.6% in 2015, and 5.5% in 2016.
- Atlanta will add 59,600 jobs (13,900 premium jobs) in calendar year 2014. Total payrolls for Metro Atlanta will grow by 52,200 jobs (12,300 premium jobs) in calendar year 2015. Atlanta employment will rise by 62,800 positions (14,500 premium jobs) in calendar year 2016.
- Atlanta’s housing permits increased 4.2% to 5,989 units in third quarter 2014 due to a 16.5% increase in single-family units. In 2014, permitting activity will increase 4.0%. Permit activity will grow 5.4% in 2015 and 11.6% in 2016 as multifamily permits return to positive growth.
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 75,000 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 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.