Economy: The 2014 Georgia Outlook

Georgia’s economy will continue to recover from the Great Recession. The pace of growth will be modest, but faster than in 2013. Because the massive restructuring of Georgia’s private sector is complete, the risk of another recession will be lower in 2014 – 30 percent – than it was from 2010 to 2013. Primary risks are familiar: mistakes in fiscal and/or monetary policies, oil price shocks and contagion from financial panics originating overseas.

The Terry College 2014 forecast calls for Georgia’s inflation-adjusted GDP to increase by 3 percent, 0.7 percentage points higher than the 2.3 percent rate estimated for U.S. GDP. Georgia’s nonfarm employment will rise by 1.8 percent, exceeding the 1.5 percent gain estimated for the U.S. These positive differentials reflect strategic shifts in economic development policy, the housing recovery and more supportive demographic forces.

In 2012, state leaders passed key legislation that made Georgia more competitive, including the creation of a closing fund for significant deals and sales tax exemptions for energy used in manufacturing. One result is an increased number of large relocation and expansion projects, such as Baxter Interna-tional’s facility near Covington, GM’s IT Innova-tion Center in Roswell and Engineered Floors’ manufacturing and distribution facilities in northwest Georgia.

Housing and real estate development will help Georgia’s economy outperform the nation’s economy in 2014. The number of single-family home starts for new construction will increase by 36 percent.

Demographic forces are a third factor behind Georgia’s improving economic performance. For decades, Georgia depended on a growth model based on high levels of in-migration. That model stopped working during the Great Recession and was slow to restart. Due to job growth and the housing recovery, in-migration will rebound strongly in 2014. The birth rate will rise as households become more confident in the economic situation.

The broadening base of statewide job growth reflects an upturn in manufacturing jobs, noteworthy given that Georgia has lost four of every 10 manufacturing jobs that existed in 2000.

Cyclical economic recovery in combination with more competitive economic development incentives will help Georgia add more manufacturing jobs in 2014. Incoming data show that manufacturing jobs are not coming back too quickly, however. The state added 5,600 such jobs in 2011, 4,000 in 2012 and an estimated 2,100 in 2013. We expect manufacturing employment to rise by 4,100 jobs in 2014.

That will sustain the cyclical recovery, but at that pace it will take 50 years to replace the manufacturing jobs that Georgia lost. We believe the talk of a manufacturing renaissance is premature. To become a state where manufacturing activity concentrates, Georgia must develop a much better educated and more highly skilled blue-collar workforce and become a more fertile ground for innovative productivity-enhancing technologies.

The minimum skill requirements for U.S. factory workers will rise very rapidly.

The last remaining large economic imbalance, or “bubble,” is hard to miss: government spending. A new era of federal fiscal austerity is just beginning. Federal spending accounts for 6.9 percent of Georgia’s GDP; this exceeds the U.S. average of 5.3 percent.

Georgia’s dependence on federal spending reflects the presence of many large military bases; defense spending accounts for 5.2 percent of state GDP compared to the U.S. average of only 3.5 percent. In contrast, federal nondefense spending accounts for only 1.7 percent of Georgia’s GDP, below the U.S. average.

Because the default budget cuts mandated by the federal spending sequester are heavily skewed towards military spending, Georgia communities that are dependent economically on military bases are especially vulnerable.

Still, Georgia is making progress. It helps that the nation is continuing its economic recovery. It helps that the state’s political leaders enacted changes to make our state more competitive, and it helps that housing is recovering. Georgia will outperform the nation in 2014, but to outperform by large margins, the state must put a much higher priority on educating its people.