Georgia Small Businesses Set to Benefit from Tax Cut, But Not Enough to Break Moderating Trend

Rajeev Dhawan

Rajeev Dhawan, Director, Economic Forecasting Center,
J. Mack Robinson College of Business, Georgia State University

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.