Economy: Positive Outlook
The 2022 forecast for the Peach State shows the economic recovery will stay on track.
The 2022 economic forecast for Georgia is positive and the pattern of slightly faster economic recovery for the state than for the U.S. will continue. Last year, I predicted that Georgia’s economic recovery would occur in three distinct phases: an initial bounce in economic activity due to the lifting of stay-at-home restrictions and business re-openings; then a period of choppy economic growth; followed by a period of steadier above-average economic growth. The bounce and choppy phases are over and in 2021, Georgia and U.S. Gross Domestic Product (GDP) fully recovered.
In 2022, I predict the state’s GDP will grow by 4.3%, exceeding the long-term average rate of 2.3% GDP growth. The pace of Georgia’s GDP growth will be slower than in 2021, but it will be steadier. Before the end of 2022, Georgia’s job count will surpass its pre-pandemic peak. At that time, Georgia’s economy can be considered fully healed in terms of jobs. In contrast, the U.S. job count is unlikely to surpass its pre-pandemic peak until the second quarter of 2023.
One big difference between the forecast for 2022 and what transpired over the last couple of years is that the private sector will be the main strength of the economy. Spending by consumers, investment spending by businesses and the housing market will be the main economic drivers. In addition, we enter 2022 with an abundance of unfilled jobs. That’s quite a change from 2020 and 2021 when the federal government was the main, and at times only, economic driver. This year, federal fiscal stimulus will wind down rapidly. The Federal Reserve’s monetary policy stance will shift from providing stimulus, to neutral and then to restrictive.
Although the economic forecast for Georgia is positive, there are several headwinds. I am mostly concerned about supply-side problems, including shortages of raw materials, intermediate goods, finished goods and workers. Supply constraints and transportation bottlenecks slowed economic growth last year and will do so again. Most of the demand for goods and workers that goes unmet is simply delayed, which raises the prospects for growth once supply chain problems are resolved.
The main risk from supply constraints is that inflation will run hotter for longer than expected. We’ve already seen some of that. If the Federal Reserve responds by increasing interest rates faster than market participants currently expect, the quick, aggressive pivot from easy money to tight money could trigger a recession because the economy is not well positioned to absorb substantially higher interest rates. In addition, stock prices are inflated and corporate leverage is at historic highs, which could also lead to recession through either a stock market correction or a corporate debt crisis.
Another risk to the economy is that the pandemic is not over. The expectation is that each succeeding wave of cases will do less damage to the economy, but mutations of the virus that are more deadly could develop.Nonetheless, I believe the risk that COVID-19 will trigger another recession is very low. In fact, I estimate the risk of recession in 2022 is about 20%.
Although downside risks dominate the headlines, there are many upside possibilities that could cause Georgia’s economy to grow significantly faster than I predict. Consumers may spend more of their massive accumulation of savings than expected, spending for high-contact services such as travel and dining out may increase, and households will spend more if products become more readily available.
The labor force could grow faster than expected, especially if people who stopped working during the pandemic to care for family members or for other reasons re-enter the labor force in larger numbers. In addition, Georgia’s economic development project announcements could be even stronger than expected.
I predict the number of jobs will rise by 3.2% in 2022, which exceeds the 2.7% estimated for the nation. Georgia’s unemployment rate for 2022 will be below pre-pandemic levels, averaging 3.2% or about 0.9% lower than the 4.1% rate estimated for the nation. The low unemployment rate implies fast growth in workers’ salaries. Overall, the upside and downside risks to our 2022 forecast for Georgia are evenly balanced.