ATLANTA–Following a quarter-point rate hike in March, expect the Federal Reserve to raise rates twice more this year, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“We will get a rate hike in June,” Dhawan wrote in his “Forecast of the Nation,” released Wednesday, May 23, 2018. “Then the Fed will wait until December to see the impact of its previous hikes.
“Two factors may come in to play as the Fed waits to take further action,” Dhawan said. “First, evidence has to emerge that tax cut-induced consumer spending is finally taking hold as weak retail sales numbers in the first quarter were a snapback from a hurricane rebuilding spending surge in the last quarter of 2017. But the real reason to wait between hikes is to allow the factors that determine a rise in long-bond yields to play out.”
Despite other forecasters and members of the media signaling that an inverted yield curve could be on the horizon, potentially indicating a recession, Dhawan believes the Fed can hold off these concerns.
“Recession talk is premature,” Dhawan wrote. “What happens to the long-bond yield as the Fed hikes rates is key. Long-bond yields are determined both by global capital flows (especially foreign demand for Treasurys) and the domestic debt issuance in response to the federal fiscal deficit. Global capital flows may fluctuate with the volume of trade but it’s clear given the recent budget passage of spending increases and last December’s tax cuts that issuance of Treasury bills is expected to rise sharply in the coming quarters.”
Dhawan expects a steady rise in the long-bond yields.
“After the two remaining hikes in 2018, expect two more in 2019 and one in 2020. This is a perfect soft-landing forecast with no recession,” said Dhawan.
Dhawan advises patience when reviewing poor consumption and retail sales figures from the first quarter.
“Consumers have just begun to experience the tax cuts in their paychecks, but they still haven’t registered fully,” Dhawan said. “Some purchasing power has been eaten away by elevated gas prices, which will delay the impact of the tax cut led spending boom small businesses are eagerly awaiting.”
Gas prices have soared, mostly because of a catastrophic drop-off in imports from Venezuela as OPEC producers have kept supply constant. Dhawan expects oil to level off in the $70 per barrel range for the remainder of 2018, but cautions any NAFTA trade fallout involving Canada, which provides 50 percent of oil imports, could be devastating.
The forecaster expects job growth to remain around the same level due to a slight pickup in business investment.
“We heard a lot of companies making plans to bring back their cash from abroad, but it seems to have gone into share buybacks,” Dhawan wrote. “Tax changes take time to filter through, and businesses require much calmer financial markets than we are currently experiencing.”
As a result of this corporate investment, Dhawan expects GDP to grow by a strong 2.9 percent in 2018. Growth in 2019 will be 2.4 percent, then further moderate to 1.8 percent in 2020.
The forecast has a caveat: No major trade war or skirmish in the coming quarters. Skirmishes at the physical level, including tariffs on goods by each side, are easy to analyze and may not be even that costly.
“But, the biggest unknown of trade actions is their impact on global capital flows,” Dhawan said. “If tariffs on our major trading partners, especially China, drive them out of the U.S. Treasury market, it will make 10-year bond yields rise in three months. In a normal forecast, that would happen in three years.”
If such a scenario occurs, Dhawan said all bets on a soft landing are off.
“But, forecasting the probability of a trade war is more dependent upon political calculations than economic logic,” said Dhawan. “Thus, we aren’t forecasting it, but cannot deny this as a potential outcome.”
Highlights from the Economic Forecasting Center’s National Report
- Following GDP growth of 2.3 percent in the first quarter of 2018, the economy will expand at 2.9 percent in 2018, 2.4 percent in 2019 and 1.8 percent in 2020.
- Business investment grew 6.1 percent in the first quarter of 2018. Growth will settle at 5.9 percent in 2018, 4.8 percent in 2019 and 3.8 percent in 2020. Jobs will grow by a monthly rate of 180,200 in 2018, 158,700 in 2019 and 111,800 in 2020.
- Housing starts will average 1.297 million units in 2018, fall slightly to 1.267 in 2019 and rise again to 1.303 in 2020. Expect auto sales of 17.0 million units in 2018, 16.2 in 2019 and 16.0 in 2020.
- The 10-year bond rate will average 3.2 percent in 2018, 3.9 percent in 2019 and 4.0 percent in 2020.
ATLANTA–Positive tailwinds triggered by income tax cuts are expected to provide a big boost to small businesses but will not be enough to overcome global headwinds, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“International headwinds from tariff talk will create jitters in globally connected sectors, and moderation in catalyst sector job growth will produce trickle-down impacts throughout the Georgia labor market,” Dhawan wrote in his quarterly Forecast of Georgia and Atlanta, released Wednesday, May 23, 2018. “Maintaining the 2017 pace of 72,100 job additions will be a real victory, as that number was a 30 percent drop from the 101,600 jobs gained in 2016.”
Even with benchmarking revisions that turned manufacturing job losses into superlative job gains, job creation in this important catalyst sector has been moderating since 2014. The chief reasons were weak global growth, especially among top export destinations, combined with a strengthening dollar in the 2014-16 period. Even as the dollar has weakened in the last few months, it will take time for this to play out for this sector. Meanwhile, this catalyst sector saw a reduction of 100 jobs in the first quarter of 2018.
“However, recent news related to manufacturing goods for domestic consumption as well as relocation of small manufacturers from Europe remains favorable,” Dhawan wrote. “We still expect job growth in manufacturing, but it will take place outside the Atlanta metro area, particularly in Augusta, Gainesville and Savannah.”
Dhawan expects these metro areas to grow stronger than the overall state’s growth rate in coming years.
Employment in transportation and warehousing, fueled by domestic demand, grew by a decent 6,100 jobs in 2017, but this was a moderation from 9,000 additions in 2016. Going forward, Dhawan expects job growth to be buoyed by online spending growth, which has been spurred by recent tax cuts, demand for air travel and growth at the port. The only constraining factor is the shortage of workers, such as truck drivers.
The corporate sector grew by only 11,600 new positions in 2017, a sharp moderation from 22,400 job gains in 2016. However, Dhawan expects to this trend to reverse in 2018, due in part to small business growth.
“We expect large corporations to experience some turbulence from tariff imposition threats and financial market volatility,” Dhawan wrote. “At the same time, corporate and individual tax cuts will aid small businesses and lift overall growth of the corporate sector.”
Dhawan also expects small business growth due to the tax cuts will contribute to growth in the retail trade sector, which lost 400 jobs in 2017.
In total, Georgia saw 72,100 new jobs added in 2017, and Dhawan anticipates a similar 69,800 jobs to be added in 2018.
Metro Atlanta is expected to experience the same impacts as the state overall.
“The metro area contains a bigger portion of the state’s large corporations, so we could see stronger effects there,” Dhawan wrote. “Yet, similar to the state, small business growth is expected to offset any negative effects.”
Total housing permits in the metro region amounted to 32,205 in 2017. Going forward, it will be what Dhawan characterizes as “a victory” to maintain an annual pace of 33,000 permits.
“Multifamily permits remain near the 2017 level of 8,000 when activity in other counties will not be able to make up for Fulton’s decline,” Dhawan wrote. “Meanwhile, single-family permit growth will remain tempered due to rising financing costs and the lack of affordable lots in the core counties.”
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment will add 69,800 jobs (14,900 premium jobs) in 2018, 60,200 jobs (13,300 premium) in 2019 and 55,300 (12,100 premium) in 2020.
- Nominal personal income will rise 4.2 percent in 2018, 5.2 percent in 2019 and 5.3 percent in 2020.
- Atlanta will add 48,900 jobs (10,700 premium jobs) in 2018, 44,200 jobs (9,700 premium) in 2019 and 40,200 jobs (9,000 premium) in 2020.
- Atlanta permitting activity in 2018 will increase 3.1 percent, increase 1.1 percent in 2019 and 1.0 percent in 2020.
The simple fact is that without employees, you don’t have a business. Given the tremendous importance of your employees, it is important to step back and reflect on the value associated with keeping those employees happy.
There is a direct relationship between happy employees and happy customers. A happy employee takes steps to ensure that your customers are satisfied. This approach in turn leads to a higher level of customer retention and helps in attracting new customers. On the flip side, unhappy employees can be quite dangerous to your company’s bottom line.
The hiring process is a key process for the health of your business and should never be overlooked or treated as a secondary process within your business. Cultivating happy employees begins at this point. Hiring can and will either make or break your business.
Offering great pay and benefits is only one important factor in keeping employees happy. A more overlooked important factor is to appreciate the contributions that employees make. If employees feel as though they are being overlooked or not appreciated, their overall happiness level will falter. Many owners unnaturally expect their employees to have the same dedication to their business that they do, and this can lead to problems.
Your employees realize that they don’t own the business. As a result, most are only willing to invest so much of themselves, their talents and their abilities into your business. Taking steps to keep your employees engaged, such as showcasing that their talents are appreciated, will help keep employees invested and happy. Research has also revealed feeling happy will make them more productive. A few years ago, Fortune Magazine wrote an article that cited a UK study connecting employee happiness and productivity. It’s definitely worth a look.
Being a positive owner is a gigantic step in the right direction where cultivating happy employees is concerned. Being a good role model is at the heart of having happy employees. It is vital that you reward people with praise and bonuses for jobs well done and fire employees that are consistently negative or failing to perform their respective duties. Special touches, such as giving employees their birthdays off, can go a long way towards cultivating the kind of climate that leads to increased satisfactions. And don’t forget, your team’s satisfaction will increase your bottom line.
When it comes time to sell a business, you can be sure that prospective buyers will be interested in your level of profits. In this way, the investment you make in the happiness of your employees can be returned many fold.Read More
ATLANTA–Mike Chriszt, Vice President of Public Affairs, of the Federal Reserve Bank of Atlanta, spoke about the Federal Reserve and its role in Georgia economy at the June 26 meeting of the Georgia Association of Business Brokers (GABB), the state’s only professional association of professionals who help in the sale and purchase of businesses and franchises.
His powerpoint presentation is here: GABB June 26
The GABB meets at the Atlanta Realtors Center at 5784 Lake Forrest Dr. NW, Atlanta, GA 30328. The monthly meeting begins at 10:30 a.m. and is preceded at 9:45 a.m. by a free light breakfast and networking session sponsored by Bob Smith, Health Insurance Advisor with North American Health Plans.
The GABB is composed of professionals who work with owners of Georgia businesses. Many of today’s business buyers are individuals who have decided not to re-enter corporate America, but are ready to control their own destiny by purchasing and operating a Georgia business.
In his role as a vice president and public affairs officer in the Federal Reserve Bank of Atlanta’s Public Affairs department, he is responsible for the Bank’s communications, which include media relations, publications, websites, conferences, and outreach activities such as speeches, economic education, and corporate citizenship. He also oversees the Bank’s internal communications and the Knowledge and Information Management function.
Prior to assuming his current responsibilities, Chriszt was a vice president in the Research department. There, he was responsible for the Regional Economic Information Network and the Center for Real Estate Analytics. From 2008 to 2010, Chriszt served as assistant vice president in the Research department. He was director of international and regional analysis from 2004 to 2008. In these roles, he oversaw the analysis of economic conditions in the Sixth Federal Reserve District and of international economic developments. Chriszt joined the Bank in 1989 as a public information specialist and moved to the research department in 1990.
While at Miami University in Ohio, Chriszt earned two bachelor’s degrees, one in history and one in diplomacy and foreign affairs. He also earned a master’s degree there in political science with emphases on international economics and comparative politics. Chriszt received a certificate of study of the European Union and is a graduate of executive education programs at Duke University’s Fuqua School of Business and the University of Virginia’s Darden Graduate School of Business Administration.
Chriszt is a member of the National Association of Business Economists and the Atlanta Economics Club, where he served as the group’s president. He also serves on the board of the Georgia Council on Economic Education. A native of Cleveland, Ohio, Mr. Chriszt is married to Maxine and they have five children.
For more information about the GABB, contact GABB President Mike Ramatowski at 770-634-0428 or firstname.lastname@example.org call Diane Loupe at 404-374-3990 or email email@example.com.
If you are NOT a GABB member, please fill out this form to let us know you plan to attend our meeting.Read More
Owners often don’t understand their leases, and this can be an expensive oversight. If your business is location-sensitive, then the status of your lease is likely a major factor in the value of your business. The location of restaurants and retail businesses is usually critical to the operational success of the business. But every business should understand in detail the terms of its leases.
Key factors involving leases should not be ignored or overlooked. If you adhere to these guidelines, you’ll be much more likely to control your outcomes.
- Lease length. Usually, the longer your lease the better.
- Buying the property. If the property goes on the market, it is often in an owner’s best interest to buy the property or he or she may be forced to move.
- Exit clause. When negotiating a lease, it is best to negotiate a way out of the lease if possible; this is particularly important for new businesses where the fate of your business is still an unknown. Experts recommend opting for a one-year lease with a long option period.
- Transfer provisions. You may want to sell your business at some point, and this is why it is important to see if your landlord will allow for the transfer of the lease and what his or her requirements are for the transfer.
- Non-compete clause. If your business is located in a shopping center, have it written into your lease that you’re the only tenant that can engage in your type of business.
- Anchor store closing. If you’re located in a shopping center, then try to outline in your agreement a reduction of your rent if an anchor store closes.
- Tenant/Landlord responsibilities. Your lease should describe what your responsibilities are and what responsibilities your landlords hold. Keep in mind that if you are a new business, it is quite possible that your landlord will likely require a personal guarantee from you, the owner.
- Insurance/Disaster Provisions. What happens in the event of a natural disaster or fire? Who will pay to rebuild?
- Percentage clause. Are you obligated to pay a percentage of your gross sales in rent, or a percentage clause? If so, is that percentage clause reasonable?
- Taxes and Fees. How are real estate taxes, grounds-keeping fees and maintenance fees handled?
- The bottom line: show me the money. The dollar amount is necessarily the most important factor in determining the quality of your lease. It is important to carefully assess every aspect of the lease and understand all of its terms.
Investing the time to understand every aspect of your lease will not only save you headaches in the long run, but it will also help to preserve the integrity of your business.Read More