E l e c t i o n U n c e r t a i n t y T e m p e r s J o b
G r o w t h; E l e v a t e d O i l a t P r i c e s C o u l d
C a u s e "S t a g f l a t i o n L i t e"
-- Rajeev Dhawan
Director of the Robinson College of Business
Economic Forecasting Center
The uncertainty over whether a Republican or Democrat will sit in the White House has corporate America holding back on expansion plans, which will temper job gains for the remainder of the year. Also, rising oil prices have the potential of causing a stall next year if oil goes above $50 a barrel. While that is not my forecast, it is something worth keeping an eye on.
With polls showing that this election is anybody's game, executives are feeling handicapped and are taking a wait-and-see attitude toward capital expenditures and hiring. In the short term, this will ding the economy's job creation engine. But even election uncertainty isn't enough to cause the economy to tank.
Taking everything into consideration - consumer confidence levels at a two-year high in July, close to 1.5 million jobs created over the past 12 months and the Fed keeping inflation under control with its measured hikes - the economy should continue to bounce back. However, this optimistic forecast could take a turn for the worse if oil prices continue to climb.
As long as oil prices moderate to less than $40 a barrel by early 2005 as expected, the economy will continue its recovery. However, if oil prices cross the $50 mark and stay there through the end of next year, then we could be looking at a case of "stagflation lite" or worse.
Here are a few more predictions as stated at my quarterly economic forecasting conference in August:
- Real GDP will moderate to a 2.9 percent growth rate in the second half of 2004 from its 3.8 percent growth rate in the first half. For 2004, real GDP growth will be 4.2 percent. In 2005, real GDP growth will moderate to a respectable 3.2 percent rate as capital spending and consumption remain in the moderate range. A similar pattern results in 3.3 percent growth in 2006.
- Consumption growth is expected to be 2.1 percent in the third quarter of 2004, which is twice the growth rate seen in the second quarter. For the second half of 2004, consumption growth will be a decent 3.2 percent, but it moderates to 2.7 percent in 2005 before growing by 3.3 percent in 2006.
- For the year 2004, the unemployment rate will average 5.6 percent and remain at that level in 2005 before rising a bit to 5.7 percent in 2006 as a stable economy draws people back to the labor force.
- The 10-year bond rate averaged 4.6 percent in the second quarter of 2004. However, it is not expected to reach the 5 percent level until early 2005. By late 2005, the 10-year bond rate will reach the 6 percent level and stay there through 2006.
- The federal funds rate will rise gradually to the 3.0 percent level by late 2005 but will not cross the 4.0 percent level until late 2006. Inflation will average 2.8 percent in 2004, decline slightly to 2.6 percent in 2005, before moderating to 1.8 percent in 2006.
Taking everything into consideration, the economy should continue to bounce back.
Regarding the state and local economies, while Atlanta's small businesses and the "three T's" - tourism, transportation and telecom - have been showing signs of improvement over the past 12 months, none of these sectors has what it takes to carry the area's recovery alone. The ball is now in the court of the large corporations in Georgia, the only ones that have the capability to make a serious, sustained and significant difference in the state's economy.
However, confidence levels at local corporations such as BellSouth, Delta and Coca-Cola are low, and that could stall growth. Part of the reason for their low morale is flat revenue growth, but don't underestimate concern over national issues such as rising oil prices, the uncertainty in the presidential election and issues surrounding the Sarbanes-Oxley Act. All of it explains why the morale switch has yet to be flipped. But morale at Georgia's large corporations should pick up with the presidential outcome.
With news of increased revenues on Wall Street, we should see an uptick in hiring just after November. That's providing oil doesn't rise above $50 a barrel.
Also from my August report are these observations:
- For 2004, Georgia will gain 40,000 jobs in the calendar year (January to December). In calendar year 2005, Georgia will gain 94,000 jobs. In calendar year 2006, Georgia employment will increase by 103,900 jobs. Atlanta metro is expected to gain, on a calendar year basis, 32,100 jobs in 2004, 63,000 jobs in 2005 and 66,400 jobs in 2006.
- Of the jobs created in 2004, 13,200 will be high-paying ones, which is a big turnaround from a loss of 38,000 high-paying jobs in 2003. In 2005, 18 percent of 17,000 jobs will be high paying, a number that rises to 21,750 in 2006. The impact of the improving job picture is also seen in personal income growth numbers. Personal income grew by 4.1 percent in 2003 and will see gains of 5.9 percent and 6.3 percent in 2005 and 2006, respectively.
- Georgia's unemployment rate declined to 4.7 percent in 2003 and will end 2004 at 4 percent. In 2005 and 2006, it will fluctuate around that level as job growth matches labor force growth.
- Georgia's total tax collections were up by 7.1 percent in fiscal year 2004. Projections call for revenues to increase by 4.4 percent in fiscal year 2005 and 6 percent in fiscal year 2006.
- Atlanta's total housing permits decreased by 2.1 percent in 2003 but increased by 18.1 percent in the first half of 2004. Permits will rise by 2.1 percent in 2004 but will drop by 7.1 percent in 2005. By 2006, permits activity will display a turnaround when it increases by 2.2 percent.
For more information on the economy and on Robinson's Economic Forecasting Center, go to www.robinson.gsu.edu/efc.
