Why non-traditional? Because, although the U.S. stands to benefit from a drop in gas prices, Dhawan doesn't expect oil prices to be this low forever: They will rise later this year as supply is cut back. Thus, consumers are treating it like a temporary tax cut. "People are rational economic agents," he said. "They will splurge some on discretionary spending (eating out, for example), but otherwise will hoard and channel the savings towards a down payment on a home or other big-ticket items, like cars." Retail data support Dhawan's claim by showing a weakening growth rate in discretionary spending, but a rising one for vehicle sales. This elevated rate of vehicle sales is expected to continue this year and next.
The news for 2015 is not all good, though. The significant drop in oil prices has damaged domestic investment, which grew by a weak 1.9 percent in the fourth quarter of 2014. "The drop was concentrated in the industrial equipment category that serves shale gas and other energy producers. They now are doing outright layoffs and cutting back on capital expenditures," Dhawan said. Exports also are weak and the forecaster expects that to be the case until China ramps up production later in 2016 and the Eurozone straightens out its woes, including an inflation rate near zero.
Dhawan anticipates oil will level off around $60/barrel by early 2016. However, the Federal Reserve will gingerly start raising rates this fall as job growth continues due to rising domestic demand. It can even pause in mid-2016 to gauge the economic impact of its tightening process. In the meantime, low yields on treasuries due to capital fleeing Russia and the European Central Bank embarking on its own version of quantitative easing will boost interest sensitive spending in the coming quarters. Dhawan does not expect low oil prices to have much of an impact on underlying growth potential of the economy. "I just don't see any reasonable instrument that can boost the potential GDP growth rate to 3.0 percent. Oil is a big negative on the way up, but not much of a help when it drops."
Forecaster Says Georgia Economy Is Set to Gain in 2015
Following an excellent end to 2014, Georgia is poised for a strong 2015, 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 writes, "Strong consumer confidence, buoyed in part by continuing job growth and a resurgent stock market, has reflated consumers' wealth position and their ability to spend, which is in turn good news for our hospitality, transportation, government coffers, trade sector, and the area's real estate and construction sector."
Consumer confidence also has been bolstered by falling oil and gas prices. As a result, the forecaster anticipates the manufacturing sector (one of three Peach State catalyst sectors, the other two being healthcare and corporate) will continue to grow. "With a cheaper energy input price, many companies will likely see their bottom lines increase, which could transfer into job creation and more investment."
The transportation sector also stands to gain from falling oil prices and the increase in manufacturing. "With the majority of transportation hubs located outside the Atlanta Metro region, I expect these centers to improve on their 2014 performance," Dhawan said. "Growth in Gainesville will be the strongest in the state at 3.0 percent, outperforming Atlanta's rate." The area has seen good announcements from companies ramping up expansion plans. Augusta will benefit from the emerging tech sector and Savannah will reap the benefits of the port deepening despite experiencing some global export setbacks.
Falling oil prices won't benefit all players, of course. Georgia's global suppliers of machinery are already seeing that, most notably the world's third largest agricultural equipment maker, AGCO, whose net sales fell 13.1 percent in February due to weaker global demand caused by falling oil prices. The global ills (stagnant Chinese economy, stagnant and dysfunctional Europe, and a strong dollar) are also impacting the performance and expansion plans of large companies headquartered in Metro Atlanta.
Despite the spillover of global ills on the corporate sector, the overall economy in Georgia will benefit from small business confidence, which employs more than half of all workers in any given region in the state. "This confidence will buoy job growth and together with consumer spending will keep the Georgia economic engine humming," says Dhawan, "and corporate relocations point to economic vitality of the region." One marquee announcement is the relocation of Mercedes-Benz headquarters from New Jersey to Atlanta. Such corporate relocations will benefit Atlanta's housing market. "With more firms moving into the metro core area, housing activity is poised to grow," Dhawan said. He also expects this to benefit the construction sector which added 5,200 jobs in 2014 and is set for an even larger 7,700 jobs in 2015.
Based on preliminary benchmarked employment data for 2014 alone, released on March 6 by the Georgia Department of Labor, the state appears to have added about 115,000 jobs in calendar year 2014, or a 2.4% growth on an annual basis. This better performance is now in sync with the steady growth in the tax receipt data which grew by 5.5% in 2014. Furthermore, individual income tax receipts have gained strength in recent months, growing 6.5% from July 2014 to February 2015.
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.