Georgia State: Rate Hikes On Hold Until September, Global Economic Breather Affects U.S. Growth Momentum

Staff Report From Georgia CEO

Thursday, February 28th, 2019

The 35-day partial government shutdown was likely economically insignificant except for those who suffered delayed paychecks, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s Robinson College of Business.

“The real bad news was the severe drop in retail sales in December,” Dhawan wrote in his “Forecast of the Nation”. “With job growth in the 200,000-plus monthly range for the year, why did people scrimp on holiday spending?”

Dhawan suggests the negative wealth effect from what he characterized as “brutal” market losses in October and December dampened consumer desire for holiday spending, triggering what the forecaster described as an “alarming” drop in consumer expectations and CEO confidence.

“In an aging expansion, when the low-hanging fruit of investment has been picked clean, policy makers must be nimble. Net-net, the Federal Reserve is on hold for rate hikes until September,” Dhawan said.

Dhawan doubts the United Kingdom (U.K.) will leave the European Union on March 29 without agreements in place for future EU-U.K. relations. But, he anticipates negotiations will go to the wire. With the Bank of England preparing for a potential recession at home, Germany barely avoiding one, and Italian and French economies far from strong, Dhawan does not expect America’s Atlantic trading partners to provide global economic growth in 2019. This leaves China, he said.

China’s economy is in a serious slowdown and its monetary authority is trying to jump-start domestic consumption with cheap credit and other measures. But the biggest threat China faces is threatened escalation of the 10 percent U.S. tariff rate to 25 percent. The war of words between China’s General Secretary Xi Jinping and U.S. President Donald Trump is expected to be resolved soon, which is likely to help both economies continue to grow.

Highlights from the Economic Forecasting Center’s National Report

Expect GDP growth of 2.9 percent in 2018, followed by 2.5 percent in 2019, moderating further to 1.8 percent growth in 2020 and 1.6 percent in 2021.

Investment growth will moderate from 6.9 percent in 2018 to 4.1 percent in 2019, then to 2.9 percent in 2020 and 2021. Monthly job gains will be 189,900 in 2019, drop to 107,200 in 2020 and 105,000 in 2021.

Housing starts will average 1.258 million in 2019, 1.246 million in 2020 and 1.242 million in 2021. Vehicle sales will be 16.2 million in 2019, 15.8 million in 2020 and 15.6 million in 2021.

The 10-year bond rate will average 3.1 percent in 2019, 3.4 percent in 2020 and remain in that range in 2021 following Fed rate cuts.

Georgia’s Job Growth Continues with Moderation on the Horizon

Job additions in Georgia increased from 72,100 new jobs in 2017 to 103,500 job gains in 2018, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s Robinson College of Business.

But, job growth had a seesaw pattern, particularly in high paying catalyst sectors such as corporate, manufacturing and information technology, which lost 2,300 jobs in the first half of 2018 instead of adding its usual share of 15,000 new jobs.

“Was this apparent lack of job gains in the first half a data anomaly or was it reality?” Dhawan wrote in his “Forecast of Georgia and Atlanta.”

To find the answer, the forecaster looked at tax collections to form a complete picture of job quality and purchasing power in the economy.

“Georgia’s state tax revenues did not show a hiccup but continued to grow steadily,” Dhawan said. “The lack of catalyst job gains in the first half of 2018 is likely a data flaw, and the state employment picture completely turned around when corporate job gains rose by a stellar 26,900 jobs in the second half of 2018.”

Gains in the information and manufacturing sectors also drove job growth, with higher wage jobs producing stronger spending power and aiding future job growth in the domestic demand driven sectors of construction, retail trade and hospitality.

Transportation, which includes warehousing and distribution, posted strong gains throughout the year. Healthcare, which grew by 16,100 new jobs in calendar year 2018, is expected to continue to do well, with ongoing announcements and construction of medical centers across Georgia, such as expansions of Piedmont Athens Regional and Southeast Georgia Health System.

Dhawan expects the moderation trend of long-term growth apparent at the end of 2017 to return, as capital expenditures slow to a crawl.

“Advanced indicators of investment, such as commercial loan growth, show a rebound is unlikely. Continued strong growth would be hard to achieve in this mature stage of the investment cycle, because the low-hanging fruit of investment has already been picked,” Dhawan said. “Going forward, the momentum to push Georgia’s job growth onto a higher path is not there yet.”

Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta

Georgia employment will add 78,600 jobs (15,600 premium jobs) in 2019, 64,300 jobs (11,700 premium) in 2020 and 56,500 (10,700) in 2021.

Nominal personal income will grow 4.5 percent in 2019, 5.1 percent in 2020 and 5.2 percent in 2021.

Atlanta will add 52,700 jobs (10,800 premium jobs) in 2019, 42,300 jobs (8,600 premium) in 2020 and 40,100 jobs (8,400 premium) in 2021.

Atlanta housing permitting activity will fall 14.1 percent in 2019, decline 8.6 percent in 2020 and fall a further 3.4 percent in 2021.