Rajeev Dhawan
ATLANTA – Although the national economy emerged from the fiscal cliff debacle virtually unscathed, Congressional rancor over how to handle the debt ceiling and the indiscriminate spending cuts that will be triggered by the upcoming sequester is tempering corporate investment. Those factors, combined with a precipitous drop in exports caused by global noise (eurozone debt problems, a Japanese recession and China’s inflation-fighting measures) have put the brakes on real GDP growth in 2013, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“Real GDP growth will be only 1.0% in the first half of 2013, and a subpar 1.2% for the year — a steep drop from 2.2% growth in 2012,” Dhawan writes in his quarterly Forecast of the Nation, released today.
What’s behind the drop? Several factors, says Dhawan, who pegs the statistical drag from federal spending cutbacks at 0.5% of GDP in 2013 — a value that he projects will hold for the next several years. Domestic uncertainty — specifically the impasse over the sequester and the inevitable showdown over the debt ceiling — is weighing heavily on the U.S. economy and making the private sector skittish about investment and hiring.
As for the seeming stalemate over the sequester, the forecaster says that Congress cannot yield to its temptation for a full postponement of resolving the matter. “It’s infeasible because we borrow 35 cents on every dollar we spend and lenders will not offer open-ended credit to finance the status quo,” asserts Dhawan. Instead, he says “Politicians will have to send a credible signal to the capital markets that they are serious about controlling big deficits and ballooning future entitlement liabilities.” Dhawan anticipates that will happen around the third quarter of the year. “Congress will buy some time to make a credible down payment on deficit reduction.
Export growth, the other culprit in 2013’s lackluster GDP numbers, will be only 0.8% for 2013 — a drop from 3.2% in 2012 and vigorous 11.1% growth in 2010. The decline can be attributed in part, but not completely, to the contraction of the eurozone GDP. Also responsible: the Chinese economy, which Dhawan says, “practically stalled last year after the Chinese tried to fight inflation by turning off the credit spigot to state-run enterprises,” and a downturn in Japan. Look for the Eurozone to start growing later this year, which will contribute to better export growth in 2014 (4.5%) and 2015 (5.9%), says Dhawan.
Highlights from the Economic Forecasting Center’s National Report
- Real GDP will grow by only 1.0% in the first half of 2013 and 1.5% in the second half of the year. For all of 2013 it will be 1.2%. In 2014, real GDP will expand at a stronger rate of 2.1% and then 2.6% in 2015.
- Private fixed investment will grow by a weak 3.2% in 2013, expand by 5.8% in 2014 and increase again by 6.5% in 2015. The U.S. economy created almost 180,000 jobs per month in 2012. That rate is dropping in 2013 to an average addition of 135,000 jobs per month. It will rise to 160,000 per month in 2014 and 180,000 per month in 2015. Unemployment will not drop below 7% until after 2015.
- Consumer spending growth will average 1.7% in 2013, followed by 2.1% in 2014 and 2.3% in 2015.
- Housing starts will average 0.905 million units in 2013 and gradually rise to 1.229 million units in 2015. In auto sales will average14.7 million units in 2013, improve to 15.0 million units in 2014 and 15.3 million units in 2015. The 10-year bond rate will rise to 2.5% by year-end and to 3% by mid-2015.
National Dynamics Also Felt in Peach State
The same forces that are tamping down the national economy — political acrimony over the upcoming sequester and debt-ceiling debates, a suppressed corporate desire to invest, a decline in exports due to the global slowdown (recessions in the eurozone and Japan, and China’s inflation fighting measures) — are also in play at state and local levels in Georgia, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“We survived election uncertainties and fiscal cliff hijinks,” Dhawan writes in his Forecast for Georgia and Atlanta, released today. “Have we turned a corner at the state and metro level? The answer is a conditional yes.”
One reason the forecaster couches the positive news in conditional terms is state job numbers. In calendar year 2012, the state added 70,300 jobs, which was more than double the 32,500 jobs added in 2011. “The recovery will continue,” says Dhawan, “but at a slightly lower rate of 63,200 jobs in calendar year 2013 because political uncertainty and a weak global economy are taking a toll on the corporate job sector, which has spillover effects on the hospitality and retail trade sectors.”
Also at issue: A decline in demand from the state’s global partners. Export growth, long a bright star in the state economy, has dimmed drastically. After growing by 20.1% in 2011, exports grew by only 2.0% for the first 11 months of calendar year 2012. “Any Georgia firm, whether Coca-Cola or Kia, that relies on overseas sales is facing headwinds from the stalled global economy,” the forecaster says.
Although the state and Atlanta cannot accelerate the job growth posted in 2012, one of the sectors that Dhawan characterizes as “immune to international gyrations” — education and healthcare — will maintain its picked-up pace. The sector added 6,100 in the fourth quarter of 2012 and will continue to do well, Dhawan says, because uncertainty over the Affordable Care Act is over. “Knowing that the act will not be repealed, many hospitals are gearing up for expansion,” he says, and expects the sector to add as many jobs in 2013 as it did in 2012 (11,200).
After 10 years of losses the information sector gained 4,400 jobs last year, 2,300 of which were added in the last quarter — accounting for 10% of that quarter’s job growth, even though its share of employment is only 2.5%. “This sector is marching to a tune that seems different from the rest of the economy,” says Dhawan. “Why? Its success is tied to general growth in IT needs from the financial arena to healthcare where patient records and management systems are being computerized. Expect this sector to add 4,000 jobs annually in coming years.”
Looking ahead, Dhawan says, “In 2014, global economic prospects will improve and actions by Washington in 2013 will pay dividends by boosting corporate and consumer confidence. 2015 will see even more gains.”
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment grew by 70,300 in calendar year 2012. Jobs will grow by 63,200 in calendar 2013, of which 20,100 will be premium jobs (1.7% annual growth rate). The recovery will strengthen in 2014 when the state adds 80,700 jobs (1.9% annual growth), of which 20,200 will be premium jobs. In calendar 2015, job additions will be even stronger at 90,700 (2.1% annual growth), including 24,500 premium jobs.
- The state unemployment rate will average 8.6% in 2013, drop to 8.2% in 2014 and drop further to 7.5% in 2015.Nominal personal income in Georgia will rise 4.2% in 2013, 5.1% in 2014 and 5.2% in 2015.
- Atlanta’s employment base is expected to grow in 2013 by 38,900 jobs (1.5% annual growth), with 10,400 premium jobs. In 2014 Atlanta’s economy will add 53,100 jobs (2.1% annual growth), including 13,200 premium jobs. In 2015 Atlanta’s employment growth will pick up with a strong addition of 63,200 jobs (2.5% annual growth), including 15,700 premium jobs.
- Atlanta housing permits in 2013 as total permits will increase by 9.9%, with multifamily permits growing by only 14.9%. Permit activity will increase by a somewhat stronger 15.5% in 2014, with single family permits increasing by 12.4%. Permit activity will grow again by 21.6% in 2015. This year total housing permits will be about 22,000, a level higher than that of 2008.
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.
