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August 25, 2004 (ATLANTA) 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, says Dr. Rajeev Dhawan, director of the Economic Forecasting Center at the Robinson College of Business. However, Dhawan warns that rising oil prices is what could put the economic expansion into a stall next year.
"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," says Dhawan in his Forecast of the Nation (August 2004) released today.
But according to the report, 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 twelve months and the FED keeping inflation under control with its measured hikes - the economy should continue to bounce back," says Dhawan.
However, he cautions that 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, " says Dhawan. "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."
Highlights from the Economic Forecasting Center's national report:
- Real GDP will moderate to a 2.9% growth rate in the second half of 2004 from its 3.8% growth rate in the first half. For 2004, real GDP growth will be 4.2%. In 2005, real GDP growth moderates to a respectable 3.2% rate as capital spending and consumption remain in the moderate range. A similar pattern results in 3.3% growth in 2006.
- Consumption growth is expected to be 2.1% 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% but moderates to 2.7% in 2005 before growing by 3.3% in 2006.
- For the year 2004, the unemployment rate will average 5.6%; remain at that level in 2005, before rising a bit to 5.7% in 2006 as a stable economy draws back people to the labor force.
- The 10-year bond rate averaged 4.6% in the second quarter of 2004. However, it is not expected to reach the 5% level until early 2005. By late 2005, the 10-year bond rate reaches the 6% level and stays there through 2006.
- The federal funds rate will rise gradually to the 3.0% level by late 2005, but will not cross the 4.0% level until late 2006. Inflation will average 2.8% in 2004, decline slightly to 2.6% in 2005, before moderating to 1.8% in 2006.
Georgia and Atlanta - Corporate Morale is Key to Sustaining Local Growth
While Atlanta's small businesses and the "three T's" - tourism, transportation and telecom - have been showing signs of improvement over the past twelve months, none of these sectors has what it takes to carry the area's recovery alone. According to Dhawan, "the ball is now in the court of the large corporations in Georgia who are the only ones that have the capability to make a serious, sustained and significant difference in the state's economy."
However, according to his report, Forecast of Georgia and Atlanta (August 2004), 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," says Dhawan. "But, don't underestimate the concerns over national issues such as rising oil prices, the uncertainty in the presidential election and issues surrounding the Sarbannes-Oxley Act. All of it explains why the morale switch has yet to be flipped."
But Dhawan says 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 up tick in hiring just after November. That's providing oil doesn't rise above $50 a barrel," he warns.
Highlights from the Economic Forecasting Center's local report:
- For 2004, Georgia employment 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 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% of 17,000 jobs will be high paying, a number that rises to 21,750 in 2006. The impact of the improving the job picture is also seen in personal income growth numbers. Personal income grew by 4.1% in 2003 and will see gains of 5.9% and 6.3% in 2005 and 2006 respectively.
- Georgia's unemployment rate declined to 4.7% in 2003 and will end 2004 at 4%. In 2005 and 2006, it fluctuates around that level as job growth matches labor force growth.
- Georgia's total tax collections were up by 7.1% in fiscal year 2004. Projections call for revenues to increase by 4.4% in fiscal year 2005 and 6% in fiscal year 2006.
- Atlanta's total housing permits decreased by 2.1% in 2003 but increased by 18.1% in the first half of 2004. Permits will rise by 2.1% in 2004 but will drop by 7.1% in 2005. By 2006, permits activity will display a turnaround when it increases by 2.2%.
Media Contacts:
Tammy DeMel
Associate Director, Communications and External Affairs
Robinson College of Business
Phone: 404/413-7078
Cell: 404/702-9743
Dr. Rajeev Dhawan
Director, Economic Forecasting Center
Robinson College of Business
Phone: 404/413-7261
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