GSU Economic Forecaster Advises Patience for Remainder of 2018
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.
Georgia Small Businesses Set to Benefit from Tax Cut, But Not Enough to Break Moderating Trend
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.
State Small Business Expert Spoke April 24 to GABB
Mary Ellen McClanahan of the Georgia Department of Economic Development spoke about state resources for entrepreneurs and small businesses at the April 24 monthly meeting of the GABB, the state’s only association of professionals who work to facilitate the purchase and sale of businesses and franchises. The GABB meets at 10:30 a.m. at the Atlanta Realtors Center at 5784 Lake Forrest Dr. NW, Atlanta, GA 30328. The meeting will be preceded by a free networking breakfast provided by Claudia Wilson, Senior Vice President of SBA lending at First Landmark Bank.
Here’s the presentation she made. GABB SB PPT McClanahan
Hear an audio recording of her presentation here.
Mary Ellen McClanahan is Director, Entrepreneur & Small Business and Metro Project Manager of the Georgia Department of Economic Development. In her position, Ms. McClanahan helps find solutions and effective ways to build an entrepreneurial environment to support small business through mentoring, professional development, strategic planning and resource awareness. She also connects with Georgia’s business and community associations so that thousands of businesses, local leaders and practitioners are aware of resources and opportunities. She also directs any size businesses to the specific resources they need.
As an Existing Industry Project Manager within the Metro Atlanta region, she calls on expanding companies making them aware of state resources and incentives and provides assistance with their growth plans and decision-making process. Mary Ellen also works closely with local economic developers with their existing industry support efforts.
During her 20 years with the department, she has helped develop and grow its regional economic development program, the “Entrepreneur Friendly” Initiative and acted as legislative liaison. Prior to that, Ms. McClanahan was the economic developer and president of two rural South Georgia chambers of commerce in Dodge and Sumter Counties.
Originally from Erie, Penn., she has been in Georgia since 1973 and serves on the boards of GEDA (Georgia Economic Developers Association), GACCE (GA Association of Chambers of Commerce Executives), Georgia Mentor Protégé Connection, the DeKalb Workforce Investment Board and Sandy Springs Economic Development Advisory Council. She is a 1997 graduate of Institute for Organization Management, Leadership Georgia and a 2000 graduate of EDI (Economic Development Institute).
The GABB is the state’s only association of professionals who work to facilitate the purchase and sale of businesses and franchises. The group includes business brokers as well as lenders, attorneys, business appraisers, insurance agents, environmental specialists and other professionals. GABB’s member business brokers work with businesses of all sizes to help them through all steps of selling their company: valuation, marketing, financing, and closing. Aspiring business owners also work with business brokers to purchase existing businesses at a fair price.
GABB CPA’s Discussed Tax Law Impact on Businesses
Wondering how the new tax laws will affect your business? Three certified public accountants discussed how tax law changes will affect businesses, individuals and business valuations during the March 27 meeting of the Georgia Association of Business Brokers.
The three accountants also answered questions from the GABB, the state’s only association of professionals who work to facilitate the purchase and sale of businesses and franchises. The GABB meets at 10:30 a.m. at the Atlanta Realtors Center at 5784 Lake Forrest Dr. NW, Atlanta, GA 30328. The meeting was preceded by a free breakfast and networking session sponsored by corporate attorney Germaine Curtin.
An audio recording of the discussion is linked here.
The panelists were: Gary Massey, CPA, MBA, MST, founder and managing director of Massey and Company; Andrew Moore CPA, tax senior manager of Frazier & Deeter; and Will Geer CPA/ABV/CFF, CVA, MAFF, CFE, ASA, CMAP, a founding partner of Geer & Associates, PC.
Gary Massey, CPA, MBA, MST has worked in public accounting formore than 25 years, including a 10-year period at Ernst & Young, Coopers & Lybrand and KPMG. He specializes in tax compliance, tax planning and representation of taxpayers before the IRS. He earned a BA in History, Summa Cum Laude, at Brandeis University. He also earned an MBA in Accounting and MS in Taxation from Fordham University.
Andrew Moore CPA is an active member of his firm’s pass-through team and participates in the overall delivery of tax compliance, consulting, and planning services offered. Prior to joining Frazier & Deeter, Andrew led major initiatives that include helping clients implement the IRS Tangible Property Regulations and filing related accounting method changes which resulted in his clients saving millions of dollars in taxes. Before joining Frazier & Deeter, Andrew spent just over nine years working with clients in the automotive, manufacturing & distribution, trucking, legal, technology, and service based industries at various other accounting firms in Atlanta.
Will Geer CPA/ABV/CFF, CVA, MAFF, CFE, ASA, CMAP is a founding partner of Geer & Associates, PC, a firm of CertifiedPublic Accountants and advisors in Atlanta, Georgia. Mr. Geer performs construction, governmental, franchisor, and not-for-profit audit and accounting functions, consults on tax matters and controversies, and provides forensic and valuation services for its clients. Mr. Geer is responsible for creating both the tax practice, audit practice and forensic accounting practice his firm. Prior to founding his firm, Mr. Geer worked for a large regional accounting firm and worked for a United States Bankruptcy Trustee in the Southern District of Georgia. He earned a Bachelor of Science in Accounting from Florida State University with and then a Masters of Business Administration from Georgia Southern University.
The GABB is the state’s only association of professionals who work to facilitate the purchase and sale of businesses and franchises. The group includes business brokers as well as lenders, attorneys, business appraisers, insurance agents, environmental specialists and other professionals. GABB’s member business brokers work with businesses of all sizes to help them through all steps of selling their company: valuation, marketing, financing, and closing. Aspiring business owners also work with business brokers to purchase existing businesses at a fair price.
Read MoreGeorgia’s Job Growth Slows, Employment Strong
ATLANTA–Georgia’s employment grew by 85,500 jobs in calendar year 2017 (January to December), a sharp moderation from the gain of 120,600 jobs in calendar year 2016.
“The question going forward is will this moderation continue or will the positive national and international developments arrest this moderation trend?” said Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“Compared to the nation, there are more peaks and valleys in monthly job numbers, but a clear downward trend can be seen since the state’s job growth rate peaked in the first quarter of 2015. This trend also is evident in neighboring and competitive states like Tennessee, Florida and North Carolina,” Dhawan wrote in his quarterly “Forecast of Georgia and Atlanta,” released Feb. 28, 2018.
Georgia’s employment growth in the fourth quarter of 2017 was better than the national number.
In 2017, small businesses were buoyed by good consumer spending, while large corporations benefitted from strong stock market gains of almost 20 percent in the Standard & Poor’s 500 index. Going forward, recent tax cuts (reforms) also benefit consumers and businesses alike. Specifically, small business and domestically demand-driven sectors in the state will remained buoyed by better consumer spending.
“Global growth recovery is evident in Georgia’s exports, which rose in 2017,” Dhawan said. “Exports to Canada, Mexico and China, the state’s largest trading partners, improved substantially last year.”
Increased trade at the state’s largest port in Savannah led to increased job growth in Savannah. Augusta and Athens also saw substantial increases in job growth.
In metro Atlanta, the construction sector saw a sharp moderation in job growth, which Dhawan attributed to the combination of a slowdown in multifamily activity and the completion of SunTrust Park and Mercedes-Benz Stadium.
“Residential housing permits trended lower in 2017 due to a 38.4 percent drop in multifamily housing permits, a trend we expect to continue until 2019,” Dhawan said.
Moderation in the catalyst sector of manufacturing, due to the strong dollar and global economic weakness with trading partners in the Middle East, Latin America and China, has had a trickle-down effect on other sectors, such as hospitality and retail trade, hitting Dalton and Columbus particularly hard, he said.
Dhawan predicts manufacturing will improve in 2018 as the dollar is predicted to weaken this year.
The sustained stock market bull run and corporate tax reforms will continue to support growth in the metro region and Georgia’s large corporate and financial activities sector. Dhawan believes that capital spending will improve in these sectors and aid in job creation.
“These positive factors, domestic and international in scope, will help mitigate the moderating rate of growth in job creation we saw in the last 18 months,” said Dhawan. “We predict a weakening of this moderating trend in job growth, which is the best we can hope for this late in the business cycle.”
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment will add 76,200 jobs (17,600 premium jobs) in 2018, 64,200 jobs (15,100 premium) in 2019 and 58,900 (13,600 premium) in 2020.
- Nominal personal income will grow 4.1 percent in 2018, 5.3 percent in 2019 and 5.6 percent in 2020.
- Atlanta will add 58,100 jobs (13,100 premium jobs) in 2018, 48,900 jobs (11,700 premium) in 2019 and 43,600 jobs (10,100 premium) in 2020.
- Atlanta permitting activity in 2018 will increase 1.2 percent, increase 2.1 percent in 2019 and 4.0 percent in 2020.