The Georgia economy will slowly lose speed over the coming year, adding jobs and new homes at a slower pace than during the past several years, according to a prediction Wednesday from one of the state’s high-profile forecasters.
No recession is on the horizon, but even tax cuts, a bullish stock market and corporate investment will not keep the local economy from decelerating, said Rajeev Dhawan, director of the Georgia State University’s Economic Forecasting Center.
Because the economy is smaller than that of the U.S., the region’s trajectory is bumpier with monthly spikes and dips, he said, during the center’s quarterly conference. “But a clear downward trend can be seen since the state’s job growth rate peaked in the first quarter of 2015.”
The Georgia economy will add about 76,200 jobs this year, down from growth of 85,500 jobs last year, Dhawan predicted.
The state will keep adding jobs in 2019 and 2020, but fewer each year, he said.
Georgia’s economy has been growing since mid-2009, a continuous expansion that is one of the longest on record. But economists are fond of saying that old age alone is not enough to kill an expansion – it generally takes a negative “shock.”
And while there is no immediate threat to the economy, there are many potential dangers, Dhawan said:
Housing construction has never returned to its pre-recession frenzy in metro Atlanta, but it remains an important source of jobs and wealth. But the number of new housing permits will edge up only about barely 1 percent this year, according to the center’s forecast.
The lack of new building, in turn, tends to push home prices higher, since there are so many more buyers than sellers — and that makes it ever-harder for first-time homebuyers. And a slight improvement could easily turn into steep decline if mortgage rates rise sharply, Dhawan said.
The Federal Reserve, which sets short-term interest rates, has tipped the economy into recession a number of times in the past by dramatically lifting rates to head off inflation. The Fed has already raised rates modestly and Dhawan predicted three rate hikes this year, which, he said, shouldn’t be enough to throttle the expansion.
However, if the Fed is spooked by the specter of inflation it could act more rashly, he said. “The market is not ready for a 6 percent mortgage rate.”
— Oil costs are currently modest, but the ongoing collapse of Venezuela – a major supplier to U.S. refineries – could send prices soaring.
Despite record production from U.S. oil fields, the nation still imports about 8 million barrels of oil a day. And while the economy isn’t as sensitive to energy costs as in decades past, but Georgia’s economy still runs on oil.
“If you want us to import less oil, you should drive less,” Dhawan said.
— The dollar’s strength during the past two years has undercut Georgia exporters, since it makes their products more expensive overseas, he said.
But trade in both directions is critical to the state’s economy, accounting for tens of thousands of jobs. Talk about renegotiating – or ripping up – trade deals raises the specter of trouble at a sea port like the one in Savannah or an airport like Hartsfield-Jackson.
For example, many of the blue jeans that are sold in the United States are made in Mexico with materials like buttons and zippers from Georgia, Dhawan said.
“Your eyes the next nine months should be peeled on trade,” he said. “That is what floats our boat.”
But barring a negative “shock” the economy will keep growing, Dhawan said: But the corporate sector will benefit from the recent tax cuts and the surging stock market. Combined with tax cuts for individuals – that will keep any slowdown from being much more dramatic, he predicted.
Consumers have some reason to feel confident, he said. “There’s a tighter job market and that should mean higher wages. And the income tax cuts will put more money in most people’s pockets.”
Job growth, past and prediction, Georgia
2016 – 120,600 jobs
2017 – 85,500 jobs
2018 - 76,200 jobs
2019 – 64,200 jobs
2020 – 58,900 jobs
Source: Economic Forecasting Center at Georgia State University, Bureau of Labor Statistics
Housing starts, past and prediction, Georgia
2016 – 37,700
2018 – 42,800
2019 – 44,400
Source: Economic Forecasting Center at Georgia State University