Georgia Catches Up
Georgia's economy will grow a little faster in 2006 than in 2005.
Inflation-adjusted gross state product will increase by 3.2 percent, better than the 3 percent we expect for 2005 when the final numbers are in. Better news: The pace of job growth will nearly double from 0.7 percent in 2005 to 1.3 percent in 2006.
This speeding up of Georgia’s economy contrasts sharply with our expectation – and that of many other economists – for slower job growth in the U.S. economy in 2006 (1.5 percent vs. 1.6 percent in 2005). Unfortunately, this doesn’t mean Georgia is doing better overall than the nation. We’re merely catching up to job growth rates in the rest of the country.
For the last four years our economic structure has been holding us back. Georgia’s large IT, air transportation and manufacturing clusters got clobbered by the 2001 recession. Job losses were further aggravated by rapid retail restructuring, which eliminated more than 26,000 positions since 2000. Retail job losses of that magnitude are unprecedented in Georgia, particularly given the exceptionally robust growth in consumer spending that prevailed.
Georgia’s job machine finally shifted into forward gear in July 2003. Since then, the state has added jobs, particularly in professional and business services, education and health care, leisure and hospitality, homebuilding and financial activities. Unfortunately, these gains have been partially offset by continuing job losses in retail, IT, manufacturing and air transportation.
By January 2005, the United States had fully replaced all jobs lost in the recession. Georgia won’t be so lucky until mid-2006. One consequence of the slow job creation pace is that since last June our unemployment rate has been above the nation’s – an uncomfortable state of affairs that Georgians have not experienced since August 1989. In 2006, Georgia’s unemployment rate will drop to 5.1 percent from 2005’s 5.3 percent, but will remain above the 4.9 percent rate predicted for the nation.
Georgia’s quickening pace of production and hiring reflects the union of a great many forces. Our economy will receive powerful boosts from businesses’ higher spending, above-average population growth and booming exports. From 2003 to 2004 (the latest data available), Georgia jumped from the 14th largest exporting state to the 11th, with exports growing by 21 percent compared to the 13 percent growth in U.S. exports.
The hospitality industry fared well in 2005 and is poised to fare even better in 2006. Displaced bookings from hurricane-stricken areas, the opening of the Georgia Aquarium, CNN’s upgraded studio tour and the continued fast-paced growth of the African-American travel market will encourage more travelers to visit Georgia.
Given generally improving trends in tax revenue collections, we also expect an upturn in state and local government hiring.
After five years of job losses, 2006 will be the turnaround year for Georgia’s massive information technology industry. The pace of layoffs has already decelerated sharply: Information employment dropped by 8.3 percent in 2002, by 6.4 percent in 2003 and by 4 percent in 2004; it’s expected to drop by only 0.6 percent in 2005.
Essentially, the rightsizing process is virtually complete – more than one out of five information jobs has been cut. But it may take the rest of the decade to recover the 31,000 information jobs lost since 2000.
Finally, the negative economic shocks associated with Katrina – high energy prices and lower consumer confidence – will dissipate, and gradually be dominated by the positive economic impacts of the hurricanes.
A significant proportion of the households and businesses that “temporarily” moved to Georgia will never return to Mississippi and Louisiana. Many leisure travelers looking for reasonable destinations to substitute for the Gulf Coast will choose Savannah and the Golden Isles. Until the Port of New Orleans is fully operational, shippers will be looking for alternatives, such as the Port of Savannah.
Some Georgia industries will benefit from the large-scale rebuilding of destroyed homes and commercial properties. Producers of lumber and construction materials will benefit from higher demand for several years.
P. George Benson is dean of the Terry College of Business at the University of Georgia. He holds the Simon S. Selig, Jr. Chair for Economic Growth and can be reached at email@example.com.