UGA Economic Outlook Forecast Brighter Year Ahead for Georgia
Monday, December 14th, 2015
Benjamin Ayers, Dean of the Terry School of Business of The University of Georgia, and Mark Vitner, Managing Director and Senior Economist for Wells Fargo, each presented a case for improved national, state and local conditions in 2016. The forum for their forecasts was the Georgia Economic Outlook series held in Atlanta on Friday, December 10th, at which Jere W. Morehead, President of the University of Georgia, offered introductory and closing remarks.
In certain statistical analyses, data for Georgia and the Atlanta metro area may even surpass the national figures. For example, both speakers independently concurred that the U.S. Gross Domestic Product next year will be very near 2.5 percent, slightly higher than in 2015. Georgia’s GDP, however, is forecasted to be 3.3 percent, according to Ayers.
Vitner noted that there is a 100% possibility that the Federal Reserve will increase interest rates imminently, a difficult time to do so given currently widening credit spreads. On the other hand, he reasoned that oil prices will continue to drop dramatically, but will eventually rise again as consolidation among smaller independent oil producers should occur. Federal expenditures will be at the highest increase since 2009, and an already agreed upon, long-term transportation bill by Congress will also help. Another positive factor, said Vitner, is inflation, which is expected to remain relatively low next year at 1.7 percent, as is also predicated in the Georgia Economic Outlook summary report.
Vitner flatly termed the global economy “a mess,” particularly with China’s steel production and the country’s electricity consumption both decreasing. While the U.S. manufacturing sector remains in recession and the global economy is slowing, nonetheless, GDP here will be on “solid footing,” since 85 percent of the nation’s output stays within the country. The U.S. dollar will be strong, as well.
Job growth over the previous couple of months has been good, and the quality of the jobs has improved, many going from part-time to full time. Furthermore, statistics show an increase in the number of higher paying jobs. However, the biggest growth factor, stated Vitner, will be the housing market, where single housing starts are expected to grow 11 percent because inventory of completed new homes is at its lowest level ever. Later, Ayers estimated that Georgia’s housing starts are expected to increase by 23 percent.
Nationally, income growth outlook is strongest in several Western states, where the high technology sector is making a huge impact. “And then we’ve got Georgia in the East, which has joined that group. For those of us that are here in the Atlanta area it’s very easy to see why. Atlanta has not always had a very large tech sector, but the tech sector that we have is in some of the best places to be in this industry: global communications and health management software. The technology sectors that we do have are growing very, very rapidly.”
Following Vitner’s presentation, Ayers added that, while the state’s economy will grow faster than the nation’s in 2016, the pace of job growth in Georgia will slow down. Personal income for the state, however, will rise 5.7 percent and GDP, as mentioned, will increase by 3.3 percent.
“What accounts for our optimism? First, Georgia has a large number of major projects in its development pipeline,” Ayers said. “Second, Georgia’s economy will get more leverage from the housing recovery than the national economy. Third, Georgia will see much faster population growth than the nation. Finally, continued low oil and gas prices are much better for Georgia’s economy than for the U.S. economy.”
Georgia’s 2016 growth stems in part from projects already in the economic development pipeline, such as Baxter International’s new facility in Covington, Sage’s North American headquarters in downtown Atlanta, Mercedes headquarters in Sandy Springs and General Motors’ IT-innovation center in Roswell.
Furthermore, a continued up cycle in the housing recovery, supportive demographic forces and a rise in small business starts and expansions will enhance the economic situation.
But, while these projects will create some employment opportunities, job growth will slow in the coming year. “One reason why Georgia’s job growth will slow is that in the wake of the Great Recession many companies were too cautious about hiring and were essentially playing catch up in 2014 and 2015,” Ayers said. “Now, most companies are no longer significantly understaffed. So, this extra push for job growth is gone. A second reason is that businesses’ profits are coming under more stress. That’s partially because expectations about the national and global economies moving into higher gear have not been realized.”
Specifically, Georgia’s non-farm employment will rise by 2.4 percent, which is nearly half a percent below the estimate for state employment in 2015. Still that compares favorably to an estimated rise in U.S. employment of only 1.4 percent.
Mirroring comments from Wells Fargo’s Vitner on the improved quality of new jobs nationally, Ayers said, “On a more positive note, the quality of the jobs created is likely to increase. For example, a larger share of the new jobs created will be full time rather than part time. Also, Georgia’s tighter labor market should cause wage growth to accelerate.”
The Terry College of Business Economic Outlook series is the state’s premier forecasting event. Using modeling from Terry’s Selig Center for Economic Growth, the series will travel to nine other cities across the state this season, sharing predictions with business and government leaders. To see a full calendar of events, visit www.terry.uga.edu/eo.