State Economy to Pick Up, Acording to GSU Economist

Press release from the issuing company

Thursday, August 28th, 2014

Mixed consumer spending patterns are flummoxing retailers, car dealers, economists and policymakers who make plans and projections based on their behavior, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business. 

“It’s a rascal of a recovery.” Dhawan writes in his Forecast of The Nation, released today.

Contrast retail sales, which the forecaster characterizes as “nothing great, but in sync with the recovery’s subpar income growth,” with new vehicle sales, which have exploded this year due to price wars and deep discounts. In addition to cars, consumers are in the mood to buy new homes. But the multiplier effect triggered by new home sales is cascading only so far. Banks are lending; construction companies are building. “When it comes to buying furnishings, we are seeing a puzzle,” Dhawan says. “Retail level spending that typically goes hand-in-glove with new home construction has slowed sharply.”

Dhawan attributes the resurgence of big-ticket purchases to consumers’ reflated balance sheets, where the biggest investments, homes and stock market portfolios, are up. “Reflation puts consumers in the mood to buy things for which they see clear value.” There’s just one rub. “With money limited due to weak income growth, something has to give. The rascal of a consumer clams up by showing thriftiness on the purchase of basic items” — a new facet of spending patterns with which business planners must contend.

Going forward, the health of the stock market will be critical for consumer spending on big-ticket items and durable goods, Dhawan says. And question marks loom on the horizon. At home, the Federal Reserve will start to raise rates after winding up its bond-buying program in October. Although the Fed is promising to delay rate increases, uncertainty and confusion will cause stock market volatility until they go up. As a result, the wealth effect from the stock market will be muted in coming months.

Offshore situations with potential implications for the U.S. economy include the tussle between Russia and Ukraine, and unrest in Iraq and Syria; both have the capability to disrupt Europe’s already weak growth prospects even further. The surprise rise of ISIS did impact oil prices seriously in July. Although prices have retreated a bit since then, Dhawan forecasts oil to be around $100 a barrel over the next few years. “This is a problem that will not be solved soon.”

Looking ahead, Dhawan projects a consistent upward trajectory in business fixed investment even as the Fed hikes rates in mid-2015. The resulting job growth and, more importantly, job quality will improve income and GDP growth in 2015 and 2016.


  • After a 2.1% drop in the first quarter of 2014 due to harsh weather, real GDP jumped 4.0% in the second quarter and will average 2.0% for the year. It will expand at a better rate of 2.4% in 2015. The impact of investments made in 2015 will emerge in 2016 when real GDP grows by 2.7%.
  • Business fixed investment will grow by 5.1% in 2014, 5.5% in 2015, and 5.4% in 2016. Jobs grow by a monthly rate of 206,000 in 2014, dip to 188,000 in 2015 (due to Fed rate hikes), and rise to 200,000 in 2016. The unemployment rate will gradually fall below 6.0% by mid-2016.
  • Housing starts will average 0.979 million units in 2014, rise sharply to 1.158 million units in 2015, and rise further to 1.216 million units in 2016 as the recovery strengthens. Auto sales will average 16.0 million units in 2014, then edge lower to 15.6 million units in both 2015 and 2016.
  • The 10-year bond rate will average 2.7% in 2014, rise to 3.5% in 2015, and reach 4.1% in 2016.


Unease stemming from global factors (oil price spikes triggered by the rise of ISIS, Russia-Ukraine tensions putting downward pressure on Europe, and China’s inability to jumpstart its economy), as well as national factors (market reaction when the Federal Reserve completes its bond-buying program this fall), will somewhat impede the state’s forward momentum, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

“The Peach State job engine is indeed humming,” says Dhawan in his Forecast of Georgia and Atlanta. Second quarter job growth was “very encouraging,” with 25,900 positions added — a marked increase from the 6,800 created in the inclement first quarter — and projects a total gain of 74,100 jobs in 2014.

There is some concern over the recent rise in the state’s unemployment rate, which can be explained by putting Dhawan’s Triangle of Money concept in motion. In brief, when a job is created, it results in a paycheck and new income tax collection. People making money spend it on taxable items, and thus sales tax revenue collections increase. When the job growth engine is humming, tax collections are rising. And indeed they are rising across all categories. Total tax collections increased 5.2% in the last six months of FY2014. This pace of tax collections is more or less expected to continue, says Dhawan, as investment spending translates into job creation.

However, the quality of these new jobs matters, especially for Atlanta real estate developers. “When calculating the demand for real estate, developers should look not only at total job gains, but also at the purchasing potential of the jobs,” advises Dhawan. Could developers overreach, as happened with office and condo developments in the mid-2000s? “Not yet, but if all the high-rise apartment plans currently announced for Midtown receive financing, it could happen.”

Looking at Georgia’s important catalyst sectors, which start a chain reaction of job creation, jobs in professional and business services will grow by 25,500 this year, with further gains in coming years. Growth in manufacturing, which gained only 2,400 positions in 2013, will pick up in 2014 with 4,900 new jobs, and grow further in 2015 with 7,200 jobs added. Education and healthcare will add 6,800 jobs in 2014, down from 10,500 jobs in 2013 – a drop Dhawan attributes in part to hospital downsizing and mergers. The sector will soon experience strong growth, gaining 11,000 jobs in 2015 and 12,200 in 2016.


  • Georgia employment grew by 83,400 in calendar year 2013. Expect a gain of 74,100 positions in calendar year 2014 (15,300 premium jobs). Employment growth will improve to 83,600 jobs (18,600 premium jobs) in 2015 and 86,600 jobs (16,900 premium) in calendar year 2016.
  • State unemployment will average 7.2% in 2014, fall to 6.5% in 2015, and 5.9% in 2016. Nominal personal income will increase 3.5% in 2014, 4.9% in 2015, and 5.6% in 2016.
  • Atlanta will add 52,900 jobs (11,300 premium jobs) in calendar year 2014. Total payrolls for Metro Atlanta will grow by 55,600 jobs (13,600 premium jobs) in calendar year 2015. Atlanta employment will rise by 59,400 positions (13,300 premium jobs) in calendar year 2016.
  • Atlanta’s housing permits increased 70.2% to 24,065 units in 2013 due to an 85% increase in multifamily permits. In 2014, permitting activity will increase a paltry 0.3% to 24,143. Permit activity will grow 5.9% in 2015 and 13.7% in 2016 as single and multifamily permits ramp up.