Georgia State Economist: Consumer Demand, Investment Pickup Will Trump Market Turbulence

Staff Report From Georgia CEO

Monday, August 31st, 2015

With China’s economy stalled and the European economy limping, gross domestic product growth in coming quarters is predicated on healthy domestic consumer demand and the return of investmentspending despite recent stock market turmoil, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

Dhawan made the assertions in his quarterly “Forecast of the Nation,” released today (Aug. 27), against the backdrop of China’s devaluation of the yuan over two consecutive days in mid-August, a move the forecaster said “rattled stock markets here and in Europe,” and “is formal proof China’s economy needs a jump-start.”

Although initial reactions to the devaluation were negative, Dhawan characterizes the move as “positive news for the economy overall” that will boost domestic profit margins on imported goods.

Between low gas prices and wealth gains from reflated home prices and stock portfolios, post-recession consumers are in the mood to spend, albeit judiciously, on utility items, he said.

For the first seven months of the year, vehicle sales averaged 17.0 million units, up 4.5 percent over the previous year’s strong sales numbers. Light trucks, including sports utility vehicles, drove the increase, rising by 10.7 percent over the previous year, thanks to automaker discounts and lower prices at the gas pump. By contrast, consumers hit the brakes when it came to passenger car purchases, which declined 1.9 percent.

As for oil, Dhawan anticipates prices will stay below $60/barrel until late 2016 due to a drop in global demand and an increase in drilling efficiency by U.S. producers.

“People can safely expect low gas prices to continue for the next year,” he said.

“The expected rebound in investment spending (forecast to rise 6.2 percent in the second half of 2015), will be strong enough for the Federal Reserve to start normalizing interest rates,” Dhawan said. “The issue is whether it will do so at the September or December meeting.”

At present, remarks by Fed key officials strongly telegraph a September move provided the ongoing market correction doesn’t deepen further.


  • Following a stumble in the first quarter, real GDP grew at a strong 2.3 percent in the second quarter of 2015. Growth of 2.2 percent is expected for the second half, for an overall rate of 2.2 percent for 2015. It will expand at a better rate of 2.5 percent in 2016 and 2017.
  • Business investment will grow by 3 percent in 2015, rebound to 5.4 percent in 2016 and 5.2 percent in 2017. Expect jobs to grow by a monthly rate of 219,000 in 2015, 226,000 in 2016 and 214,000 in 2017.
  • Housing starts will average 1.105 million units in 2015, rise to 1.202 in 2016 and 1.275 in 2017. Expect auto sales of 17 million units in 2015, 16.5 in 2016 and 16.4 in 2017.
  • The 10-year bond rate will rise to 2.7 percent in 2015 and should rise to 3.3 percent before the end of 2017.

Domestic Factors Re-energize State Growth

In his “Forecast of Georgia and Atlanta,” released today (Aug. 27), Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business reported the sharp deceleration seen in Georgia’s employment growth, from 3.9 percent in the second half of 2014 to 1.7 percent in the first half of 2015, will reverse in the second half of the year.

“As global economic health stabilizes, consumers demonstrate a greater propensity to spend and corporate spending resumes, Peach State job growth will accelerate to 2.6 percent for the 2015 calendar year,” Dhawan said.

Small business hiring, national demand for carpet and auto parts manufactured in Dalton and Gainesville, and economic activity at the Port of Savannah also will add to the growth.

The Georgia Ports Authority announced it moved a record number of shipping containers in the most recent fiscal year. The Port of Savannah experienced a 17 percent increase in 20-foot equivalent container units, and the authority as a whole experienced a 7.8 percent increase in total tonnage. 

Construction is expected to begin this year on an inland port in Murray County that will serve as a direct link from the Port of Savannah to North Georgia, Alabama, Tennessee and parts of Kentucky. According to Dhawan, “that’s good news for manufacturers in North Georgia who will likely see positive economic growth and benefit from national housing and auto demand.”

The corporate sector is faring well in Georgia and Atlanta. Statewide, the sector posted a 7.2 percent gain in the second quarter, “pointing to momentum moving forward,” the forecaster said. Furthermore, the move of several headquarters to Atlanta continues to result in professional and business services hiring. 

“Although this sector is enduring weaker global growth, domestic consumption is taking up any shortfalls,” Dhawan said.

Housing demand has been boosted by numerous moves of headquarters and offices to metro Atlanta. In the second quarter of 2015, total housing permits in the area grew by 25.3 percent over the same period in 2014, driven by a 36.6 percent growth in multi-family permits.

Dhawan said millennials, who constituted 23.6 percent of metro Atlanta’s population in the 2010 census, are making their influence felt in several regards.

“To no one’s surprise,” he said, “millennials are fueling demand for multi-family housing. They’re also spurring area companies to relocate to downtown and Midtown in order to draw on their high-tech skills.” 

Also gaining momentum is Atlanta’s information sector, which added 600 jobs in the first half of the year. 

“I expect the area’s information sector to continue to expand in coming years as it benefits from a robust fiber optic infrastructure, relatively low-cost electricity generation and a reliable power grid,” Dhawan said.

Attracting young, technologically savvy talent is one of the reasons that healthcare added almost 3,500 jobs in the first half of 2015. For the full year, this sector will add 8,100 jobs.

Although growth in the metro area’s hospitality and transportation sectors slowed somewhat in the first half of the year, both will benefit from the spillover of domestic demand growth in catalyst sectors (corporate, healthcare, technology and manufacturing) for a combined total of 12,800 jobs in 2015.


  • Georgia employment will gain 82,900 jobs (23,400 premium jobs) in calendar year 2015, 87,500 jobs (21,400 premium) in 2016 and 94,100 (22,900 premium) in 2017.
  • Nominal personal income will increase 4.6 percent in 2015, 5.1 percent in 2016 and 5.8 percent in 2017.
  • Atlanta will add 62,400 jobs (16,200 premium jobs) in calendar year 2015, 63,300 jobs (14,800 premium) in 2016 and 65,500 jobs (15,600 premium) in 2017.
  • Atlanta’s housing permits increased 25.3 percent over the second quarter of 2015 compared to the same period in 2014. Permitting activity in 2015 will increase 8.9 percent. Permit activity will grow 11.2 percent in 2016 and will grow 6.9 percent in 2017.