2007 State of the Economy
My forecast for Georgia in 2007 is relatively upbeat. The inflation-adjusted gross domestic product (GDP) will increase by 3.3 percent, a full percentage point lower than the 4.3 percent advance I expect for 2006. Statistically, it appears that the cool-down actually started this year, with the rate of Georgia's GDP growth dropping by 0.3 percent.
Although the pace of growth of Georgia's gross domestic product will slow in 2007, it still will be a full percentage point higher than the 2.3 percent growth in the nation's GDP. The slowdown will be much less evident here in Georgia than in many other states, due to traditional strengths such as our above-average population growth and strong business climate. It also is a testament to successful efforts by the Georgia Department of Economic Development and state and local economic development professionals who have worked to bring expansions and relocation projects to Georgia over the last two fiscal years.
The number of recent announcements is impressive, and those projects will be high octane fuel for economic growth in 2007. In FY 2006, the Georgia Department of Economic Development announced 254 projects that will create 24,660 new jobs and more than $5.7 billion in new investment. These are the highest such numbers that Georgia has ever seen; 48 percent of the projects represent companies new to Georgia and 52 percent represent expansions of existing industries.
Of course, we still face some challenges with respect to major employers. We have lost our two major auto assembly plants, and we will have to come to terms with the shuttering of several military bases. There also is ongoing restructuring in the wake of some major acquisitions and mergers that affected several of Atlanta's corporate icons.
Nonetheless, I predict that 2007 will be the third straight year in which Georgia's GDP grows at least a full percentage point faster than the nation's. This stretch of above average growth is what's needed to set things right after Georgia's economy underperformed the national economy in the first four years of the decade, 2000-2003, and posted mediocre gains in 2004.
You may recall those halcyon years in the mid- and late-1990s, when Georgia consistently ranked among the top 10 states in rate of GDP growth - 7th in 1998 and 8th in 1999. But the dot-com meltdown hit Atlanta hard. In just a single year, Georgia plummeted 16 places in the national rankings, from 8th in 1999 to 24th in 2000. Then the 2000-01 recession laid waste several of our most vulnerable manufacturing clusters. The events of 9-11 temporarily benched our thriving hospitality industry and played a role in the Delta Air Lines bankruptcy. In 2001, we dropped in the rankings to 31st, and the next year we fell to 43rd.
In 2003, we began to claw our way back, climbing five places in the rankings, up to 38th. Not great, but out of the basement. In 2004, we moved back to the middle of the pack - ranking 21st among the 50 states. In 2005, we were 14th, and it looks like we made it back into the top 10 for 2006. When the final numbers are in, Georgia should rank 8th, 9th or 10th in GDP growth. For 2007 we have a solid shot at advancing a couple more spots. It feels good to be back at the front of the pack.
I don't expect the pace of personal income growth to slow in 2007. Georgia's personal income will expand by 6.1 percent, essentially matching the 6.2 percent gain I expect for 2006. One reason for the steady growth is that virtually all of the net job growth will occur in areas of Georgia where prevailing salary levels are relatively high. I also expect faster growth in high wage occupations and industries.
Prospects for income derived from dividends and interest are still good, and home sales will continue to decline even as above-average growth in both jobs and population adds to the demand for housing. This bodes well for that portion of personal income that is derived from rent.
Finally, government transfer payments (such as social security) and farm income both will grow faster in 2007 than they did in 2006, lending support to overall personal income growth. Over the next few years income growth will take on greater importance to the outlook for both consumer spending and the overall economy.
Dr. Jeffrey Humphreys is the director of the Selig Center for Economic Growth at the Terry College of Business at the University of Georgia.