Economic Outlook Is Positive
This month’s issue contains our annual Economic Yearbook, which gives a region by region picture of Georgia’s economic well being, and our Industry Outlook.
This issue should be a valuable tool for you, our readers, in your professional and personal lives. We use University of Georgia economist Jeff Humphreys’ yearly industry analysis to measure the state’s business health.
I am going to expand on his projections with comments from two other economists – David Rosenberg with Merrill Lynch Brokers and Albert Niemi, former Georgia Trend columnist and dean of the business school at Southern Methodist University.
Textiles: Georgia has taken many body blows in the past 10 years. Most of our community stories during this time have chronicled how many places have survived the loss of manufacturing jobs, mainly in the textile sector. This trend was largely due to retail giant Wal-Mart’s decision some years ago to purchase manufactured goods from overseas.
Wal-Mart has recently fallen on hard times with Wall Street. Critics suggest the company’s decision to buy most of its goods overseas has mostly hurt its own customers, who have lost jobs and income in the manufacturing sector here in the United States. In 1975, manufacturing, mainly from the textile sector, employed 35 percent of Georgia’s workforce. Today it accounts for only 10 percent.
Things could have been worse. In the late 1980s, Georgia’s giant tufted carpet manufacturing industry could have been moved to Mexico or to other offshore locations. Bob Shaw, Jeff Lorberbaum, Julian Saul and other carpet manufacturing leaders in Dalton put hometown loyalty ahead of Wall Street’s demands for increased profit, and decided to stay put. We owe them a debt of gratitude.
Automobiles: Rosenberg wrote in a recent special supplement to Merrill Lynch Advisor that he believes the automobile industry is now in a recession. This sector (along with housing) makes up one-fifth of the U.S. economy, maybe more in Georgia. Atlanta has recently lost Ford and GM as manufacturing assets, but the state should make up some of this loss from South Korean manufacturer, Kia, which is planning to build a new plant in West Point.
Housing: According to Rosenberg, the U.S. residential real estate market has some $22 trillion in assets. He believes the nation has “the most overleveraged, oversupplied housing market in modern history.”
Both Humphreys and Niemi say our state’s housing industry will take a small hit. Nationally, housing will decline in 2007, but things should rebound as inventories are reduced. Total 2007 growth for all Georgia should slow from 3.3 percent to 2.6 percent, more or less.
Consumer Debt: Niemi is concerned that Georgians are betting the farm on their home equity.
He says Georgians have a high level of consumer debt and are spending beyond their means. In 2006, savings rates were negative 1.9 percent. Home prices have risen over the past several years, and homeowners have borrowed on this increase in home value. Now prices are falling.
Another concern – 70 percent of these home equity loans are interest only, which means homeowners aren’t building any equity for long term savings needs.
Overall, however, Niemi gives a rosy forecast for our state’s economy. Georgia is one of the eight fastest growing states in the nation. In the next 10 years Niemi predicts our population will grow by 22 percent. The majority of that growth will be among 18- to 25-year-olds, called Echo Boomers. In the United States today there are more teens than people over 65. These children and grandchildren of Baby Boomers will propel consumer demand for shopping centers, restaurants and other services.
Georgia’s economy should prosper, Niemi says, because the costs of doing business are low (land, energy, no unions and low taxes). The state has a pro-business attitude at the governmental level.
Georgia is in a strong position compared with the rest of the country. Let’s hope our future Economic Yearbook stories continue to reflect this positive trend.