Georgia Economic Forecast Favorable, Stronger than U.S. Average for Sixth Consecutive Year
Tuesday, December 11th, 2018
Benjamin Ayers, Dean of the Terry School of Business of The University of Georgia, has forecasted a positive, annual economic outlook for the state for the sixth consecutive year to an audience including approximately 600 Atlanta business leaders, government officials, and chamber members. He added that the numbers for Georgia are also expected to be better than the national figures—again—for the sixth year in a row. Concurrently, during each of these same years, “Site Magazine” has named the state as the top place in which to do business.
The forum for the UGA forecast was the Georgia Economic Outlook series held in Atlanta on Thursday, December 6th, at which Jere W. Morehead, President of the University of Georgia, offered opening and closing remarks.
Morehead and Ayers shared the podium with Raphael W. Bostic, President and CEO, Federal Reserve Bank of Atlanta, who gave his personal views and analyses of the U.S. economy for 2019. While the country’s economic growth will continue through the end of 2020, Bostic cautioned, however, that the rate is expected to run about 2 percent, compared to the projected 3 percent figure for the current year.
GEORGIA KEY STATISTICS AND ECONOMIC FACTORS
The presentation by Ayers was the first of nine such strategic meetings he is holding at Georgia cities over a period of the next two months. The gatherings in each locale will include discussions of the state’s fiscal outlook, as well as what to expect in each local area for the upcoming year from forecasts based on data from the Selig Center for Economic Growth department of the UGA business school.
Construction, education and health services, leisure and hospitality, business services, and mining
and logging represent the leading sectors of the state’s growth. “Homebuilding and real estate development will be a driver of Georgia’s growth,” Ayers noted.
Every metro area should see positive job growth in 2019, but some regions, particularly, Gainesville and Augusta, will grow somewhat faster than Atlanta and Athens, which will nevertheless have average or somewhat above average numbers. “We predict job growth in all of Georgia’s 14 metropolitan areas and in all of the state’s major industries,” added Ayers.
Personal income growth in Georgia for next year is forecasted at 4.9 versus 5.4 percent this past year, but still expected to be above the nation’s average of 4.5 percent.
On the downside, while low unemployment and a tight labor market benefit employee wages, they can spell worker shortages for companies. Coupled with leveraged lending to non-financial businesses, rising asset prices, and a large federal deficit, these trends raise concerns, but not enough to cause a recession, according to Ayers.
Trade tensions, however, could have an impact on Georgia’s growth. “Georgia is the nation’s 11th-largest export state and seventh-largest import state,” Ayers said. “We have a substantial transportation, distribution and logistics industry focused on international trade. Georgia’s large manufacturing and agriculture industries also depend heavily on easy access to global markets. That means Georgia is extremely vulnerable to any major step back from globalization. But more favorable trade terms, like those we’ve seen with NAFTA, could boost our exports and enhance the prospects for our transportation and logistics industry.”
Ayers concluded, “Absent a full-blown trade war, the risk of a 2019 recession is low. And if we can avoid a major shock or policy mistakes, the current expansion could continue for some time.”
U.S. ECONOMY BY THE NUMBERS, TRENDS
Offering a caveat that his presentation represented his personal views—not those of the Federal Reserve—Bostic prefaced his outlook for next year with projections for the fourth quarter and 2018 year-end numbers for the U.S. economy.
He stated, “Gross Domestic Product is on something of a tear recently,” illustrating that for the first three quarters of this year GDP increased by 3.3 percent above last year, and will project to be 2.5 per cent in the final quarter. While some uncertainty stills exists for the current quarter, if the numbers hold, it would be the first time since 2005 that GDP would reach an annual rate of 3 percent. Job gains in recent months running at a 200,000 clip a month translates to a 3.7 percent unemployment rate, which “has not been sustained for at least half a century.”
Bostic noted that price stability and inflation have been at, or very close to target, even with the acceleration of consumer spending in discretionary areas—especially concentrated in apparel and food services—as a main driver of the economy. The other key driver has been federal government spending, which had been a head wind in the past, but has proven to be a tail wind this year. Business investment has been tepid, however.
As for 2019, the Federal Reserve official foresees a less torrid, but still solid consumer spending pace, suggesting that some of the impacts of tax reform on household spending growth are waning. Bostic said, “I see real GDP slowing over the next few years. By the end of 2020 my projection has real GDP keeping pace with the underlying potential growth rate of the economy, which I estimate to be modestly below 2 percent.” Based upon research conducted by the Federal Reserve Bank with selected business firms, since the trajectory of capital expenditures is again not expected to be strong, he is a somewhat skeptical that the current pace of growth can be sustained into next year.
Trade tensions, financial volatility, and the slowing of the global economy may present obstacles, yet most firms seem to be taking the tariff situation in stride and “businesses are still generally, quite optimistic about their outlook over the year ahead,” said Bostic.
He added, “Now, given the combination of strong growth, favorable unemployment rate, and inflation close to 2 percent, I think that monetary policy ought to be taking a more ‘neutral’ position, one that neither provides policy accommodation, nor hinders growth.” He has adopted a risk management approach, noting the consequence of “staying too accommodative on rates and risking an overheated, unstable economic and financial environment.” Another risk is pushing rates up too far and too fast, which might hurt a sustainable expansion.
Bottom line for Bostic: “It is very difficult in real time to determine when the economy is actually overheating and that is especially true at the moment.” Thus, he concluded that we should proceed with caution while staying focused on the data over the next six to twelve months. “We are within shouting distance of ‘neutral,’ and I do think that ‘neutral’ is where we need to be.”
The Georgia Economic Outlook series is the largest outreach program hosted by the Terry College of Business and prepared by the college’s Selig Center for Economic Growth. It has been considered the premier forecasting event in the state of Georgia.
In January the economic forecasters will resume their tour of the state, visiting eight other cities to deliver information about the nation’s economic trajectory, the trends shaping the state’s fiscal outlook, and what to expect in local areas for the upcoming year. The schedule and ticket information are available at terry.uga.edu/eo.
The complete Georgia Economic Outlook forecast is available for purchase online at terry.uga.edu/selig.