Proper Recovery Will Occur after Vaccine Dissemination, Says GSU Economist
Georgia State Forecaster Says “Proper” Recovery Will Occur Only After Full Vaccine Dissemination
Rajeev Dhawan
ATLANTA–With vaccine rollout underway and picking up steam concurrent to emerging virus variants, Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s Robinson College of Business said recovery remains “an economic tango led by the virus. Reaching a sustained recovery by early 2022 is contingent on the speed and efficacy of vaccinations by mid-2021.”
“There is light at the end of the tunnel but it will take time, with ‘proper’ benefits to come as more people are vaccinated successfully,” Dhawan said. “We must relearn to walk before we can run again. This major biological shock rattled economic foundations.”
Assessing the past impact of stimulus payments, the forecaster pointed out that consumers spent them “rationally.”
“The most vulnerable who had to spend the checks last spring and this winter did so. Others who could afford to save, banked the funds or timed purchases to smoke out retailer incentives spurred by a Covid-19 sales slump in November and December.”
Consumer spending is beginning to return, with away-from-home food purchases up 4.4 percent, and sales of used cars and trucks up 10 percent year-over-year. Also rising: sales of watches and jewelry, which dropped 50 percent during the first two months of the pandemic. Today, watch and jewelry sales are up 20 percent over this time last year.
“Who’s buying all these watches and jewelry? We don’t know. But couples who have been confined together at home and perhaps postponed weddings, may be spending money they saved on peace offerings,” said Dhawan.
Proposed federal-level spending, immaterial of amount, will boost consumer spending for only a short while, followed by an inevitable reversion to the mean in subsequent quarters as stimulus funds run out.
“Real recovery will depend on people feeling comfortable interacting with each other – eating out, attending meetings, going to movies and concerts, and sightseeing,” said Dhawan.
Georgia and Atlanta did not take as hard a job-loss hit as the nation overall when the coronavirus shut down the economy in spring 2020. U.S. employment plunged 14 percent, compared to an 11 percent drop in Georgia. The area’s recovery also has been faster than the nation’s, which Dhawan attributed to Georgia’s relatively brief shutdown compared to the rest of the nation (notably California and Northeastern states).
“Today, the U.S. economy is down six percent by the employment metric, compared to only two percent in Georgia,” Dhawan said at a Feb 25 conference. “That sounds good until one takes a closer look at the performance of the state’s catalyst sectors of well-paying jobs, which is where job growth starts and the multiplier effect fuels downstream activity.”
The forecaster explained that the crucial catalyst sectors – corporate jobs, information technology, business services, manufacturing and transportation – experienced the same sharp eight percent drop in jobs in Georgia as experienced in the U.S. And when it came to recovery, Georgia has not outpaced the nation in this critical income generating category.
“Net-net, the overall job recovery deficit may be only 20 percent. But for high paying jobs it is close to 50 percent. Quality of jobs is a metric by which recovery still lags in the state,” said Dhawan.
One area where economic forces seem to be immaterial at the moment is homebuying, with more purchasers opting to buy single family homes further out instead of high-rise condominiums in the city’s core. How long this change in preference, or demand shock, will last is unknown.
“The rocket recovery of the stock market last spring that has continued into 2021, in conjunction with sharply falling mortgage rates, has helped consumers purchase homes.”
The Federal Reserve dropped its benchmark rate to near zero in March 2020, with subsequent quantitative measures to help shore up the mortgage market, making clear it will not raise rates until recovery fully takes hold.
“The Fed will stand pat until at least until 2023 or even later. But mortgage rates will start rising this year as the long-bond yield climbs in coming quarters. This is not just due to mild inflationary conditions expected from the consumer binge due to additional fiscal stimulus,” said Dhawan.
“The reason for a rise in bond yields is classic demand and supply of investable funds when looked at from a global perspective,” Dhawan said. “As we recover, and so does the rest of the world, rising demand for capital expenditures/investment spending by corporations that is a precursor to job growth will put upward pressure on mortgage interest rates.”
“Whether or not the housing boom continues and outlasts the coronavirus crisis hinges on stock market performance, which is a random factor in this recovery story,” said Dhawan.
Highlights from Rajeev Dhawan’s Economic Forecast
Nation
- Overall GDP growth will be 4.9 percent in 2021, 3.9 percent in 2022 and 2.9 percent in 2023.
- Investment growth will be only 7.2 percent in 2021, 5.4 percent in 2022 and 6.1 percent in 2023. Monthly job gains will be 298,000 in 2021, rise to 414,000 in 2022 and moderate to 202,900 in 2023.
- Housing starts will average 1.474 million in 2021, 1.339 million in 2022 and 1.272 million in 2023. Vehicle sales will average 16.7 million in 2021, 17.0 million in 2022 and 17.4 million in 2023.
- CPI inflation will be 2.3 percent in 2021, rise to 2.6 percent in 2022, and then moderate a bit to 2.4 percent in 2023. The 10-year bond rate will average 1.6 percent in 2021, 2.2 percent in 2022 and 2.6 percent in 2023.
Georgia and Atlanta
- Georgia will add 68,900 jobs (13,200 premium jobs) in 2021, gain a better 100,000 jobs (33,700 premium) in 2022 and increase by 77,100 (19,700 premium) in 2023.
- Nominal personal income will grow 4.0 percent in 2021, moderate to 0.6 percent in 2022 and rise 4.2 percent in 2023.
- Atlanta will add 54,000 jobs (11,900 premium positions) in 2021, grow by 86,600 jobs (29,400 premium) in 2022 and a further 64,900 jobs (17,000 premium) in 2023.
- Atlanta housing permitting activity will increase by 5.8 percent in 2021, decline mildly by 0.6 percent in 2022, then rise by 3.0 percent in 2023.
Global Economic Woes Contribute to Continued Economic Moderation in Georgia
ATLANTA–Stuttering global growth and escalating trade tiffs that are affecting national economic prospects are also being felt in Georgia across many employment sectors, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s Robinson College of Business.
In his quarterly “Forecast of Georgia and Atlanta,” Dhawan wrote that he expects two Federal Reserve rate cuts before 2019 ends, asking, “Will these extra cuts help us negate the fallout from our trade spats? And what relief will it provide at the state and Atlanta metro levels?”
The forecaster’s answer to these questions is mixed. Yes, lower rates should help with interest-sensitive sectors such as home refinancing, vehicle sales and small business loans.
“But, these rate cuts cannot overcome the hesitation of big corporations to undertake the capital expansions that determine future job growth,” said Dhawan in the report released Aug. 28, 2019. “These firms are global in scope and dependent on external markets for a big proportion of their revenues.”
A case in point is Delta Air Lines. The state’s largest corporate employer collects 30 percent of its passenger revenue from international operations. In the second quarter of 2019, its global sector grew by 5.2 percent, compared to 8.7 percent for the same period in 2018.
The Port of Savannah, another transportation crown jewel, is largely responsible for driving the economic growth of the Savannah metro area. In mid-2018, Savannah’s job growth was 2.7 percent, outpacing the state’s job growth rate of 1.9 percent when global trade volumes were good. But by June 2019, Savannah’s growth rate dropped to 1.2 percent, putting it below the state’s 1.7 percent growth as the global economy cooled.
“Globally connected sectors and areas grow higher than average when the world economy is booming, but they decelerate sharply when the tide turns,” Dhawan said.
The global health of Fortune 500 companies headquartered in Georgia determines the hiring of managerial jobs in Atlanta, which has a multiplier effect on downstream sectors.
Domestic demand sectors are performing better than globally connected ones, particularly hospitality (historically high occupancy rates), education (growing due to population growth), healthcare (overall population growth and aging) and construction (new hotel, office and apartment developments).
“Fed rate cuts will alleviate the pain somewhat, and relatively clear skies will emerge, but without a rainbow,” said Dhawan.
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment will add 65,200 jobs (11,400 premium jobs) in 2019, gain 53,500 jobs (9,400 premium) in 2020 and increase by 48,200 (9,700 premium) in 2021.
- Nominal personal income will grow 4.3 percent in 2019, then increase by a better 5.1 percent in 2020 and 2021.
- Atlanta will add 45,300 jobs (7,900 premium positions) in 2019, moderate to 37,900 jobs (7,200 premium) in 2020 and 35,600 jobs (7,300 premium) in 2021.
- Atlanta housing permitting activity will fall 18.9