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Economy: The Slow Recovery

 

Georgia’s economy will continue to recover from the Great Recession, but the pace of growth will be modest. The risk of another recession will be elevated – by 30 percent. Since the primary risks that might trigger a new recession are external to the state, the risk of recession in 2013 is no higher in Georgia than for the nation as a whole. 

That contrasts with 2010-12, when the risk in Georgia was heightened by an overdependence on housing, real estate development and closely related industries. Fortunately, the housing down-turn is over and the next up cycle has begun.

The Terry College of Business’s 2013 forecast calls for Georgia’s inflation-adjusted GDP to increase by 2.1 percent, close to the 2 percent increase estimated for 2012. Georgia’s GDP growth rate will be slightly higher than the 1.8 percent estimated for the nation’s GDP due to a  strengthening of the housing market, improving prospects for the financial services industry and a shift in the state’s economic development strategy. 

Nominal personal income will grow by 3.6 percent in 2013, slightly higher than the 3.4 percent gain expected for the U.S. Nonfarm employ-ment will rise by 1.4 percent, about the same as the 1.3 percent gain expected for the nation.

As of mid-2012, Georgia had replaced only 115,000 – 34 percent – of the 341,000 jobs lost to the recession; the nation had replaced 46 percent of its lost jobs. In 2013, some 53,000 jobs should be added, but full recovery of the jobs Georgia lost will not occur before mid-2016.

The state’s unemployment rate for 2013 will average 9 percent, compared to the 9.4 percent rate estimated for 2012. Due primarily to the upturn in housing activity, job growth will be much better balanced in 2013 than in 2010-12 and will accelerate from 1 percent to 1.4 percent.

The fastest job growth will occur in professional and business services, followed by leisure and hospitality and manufacturing. Education and health services will see average gains. Georgia’s information industry will be hiring for the first time in more than a decade.

Construction employment will begin to recover, and positive but slow job growth is projected for financial activities. Job losses will continue in government, the only major economic sector expected to lose jobs in 2013.

It appears that the massive private-sector restructuring of Georgia’s economy has run its course. Overpriced property assets have been fully re-priced. As the direct and indirect effects of private-sector restructuring and the real estate bubble faded, Georgia’s sub-par pace of economic recovery caught up and eventually paced that of the nation.

In 2013, Georgia’s economy will perform slightly better than the U.S. economy, but the differential in the rates of GDP growth will be small – 30 basis points, or 0.3 percentage points.

The last remaining large imbalance, or “bubble,” is hard to miss: government spending. Restructuring of the private sector is complete, but much lies ahead for the public sector. Government employment will decline for the remainder of the decade.

The state’s nominal personal income will expand by 3.6 percent in 2013 – slower than estimated for 2012, but inflation will be lower in 2013. Personal income growth will exceed the rate of inflation by 2.1 percent in 2013. Consumers should have enough income to sustain economic growth, but not enough to significantly accelerate the rate of growth or boost savings.

Many of the positive forces underlying the forecast for the Georgia and U.S. economies are the same. Spending for equipment and software will increase, but at a slower rate. The global economy will continue to expand, also at a slower pace. Housing activity will be on the increase, and home price appreciation will replace depreciation. Oil prices will be flat or will trend slightly higher, but will remain volatile. 

Even if a recession is avoided, there will be powerful negative forces. Government spending and employment will decline sharply; the nastiest declines at the federal level have yet to occur. Still-tight credit standards plus lingering uncertainty in the financial markets will restrain growth in business spending. The tumult in the EU will continue, and uncertainty regarding the federal fiscal policy, federal taxes, the costs of healthcare reform and new federal regulations will continue to weigh on job growth in Georgia and the U.S.

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