Despite strong domestic consumption, Georgia’s dependence on the global economy is set to make an impact on the state’s growth, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“Our manufacturers and exporters sent almost $40 billion of goods to the global marketplace last year, and three-quarters of the state’s 18 Fortune 500 companies operate on a global scale,” Dhawan wrote in his “Forecast of Georgia and Atlanta,” released today (August 24). “Not only the Brexit decision (for the United Kingdom to leave the European Union) but also overall global economic health issues, such as China’s stalled economy and oil-driven budgetary constraints in the Middle East, are key factors in our domestic-led growth.”
The U.S. economy expanded at a weak 1.2% in the second quarter of 2016; however domestic consumption grew a strong 4.2%.
“The U.S. economy stood on shaky ground in the second quarter with a good pace of consumption,” Dhawan said. “This came in the context of an anemic investment climate and one primary growth source. The uncertainty of Brexit adds to this weak investment environment.”
This could have some impact as the U.K. is the Peach State’s fourth largest trading partner. But the EU as a whole accounts for 15% of state exports (excluding the U.K.) and their health matters more.
“With the EU already on fragile footing, the U.K.’s eventual exit could push their economic activity lower and affect the importing capabilities of its countries. However, the drop in exports to Canada, China, Singapore, Brazil and Japan (accounting for more than 33% of state exports) will have greater impact.”
Uncertainty caused by Brexit and global struggles hasn’t been all bad, though. One Georgia catalyst sector, corporate, is benefitting from the flight to safety of international investors, creating a net-positive effect of cash flow. As a result, the corporate sector created 16,500 jobs in the first half of the year, just off pace for the last half of 2015.
Another Georgia catalyst sector, manufacturing, did not fare as well despite benefitting from the state’s lack of dependence on shale oil and gas activity. This sector created only 800 new jobs in the first half of the year.
By contrast, the construction sector benefitted from a surge in permits for the first half of 2016.
“An increase in residential permit activity, combined with a sustained level of commercial and industrial construction, saw good job gains in Georgia’s construction industry.” Dhawan said, although it’s a trend he does not expect to continue.
“Going forward, expect a deceleration due to several factors. One is slowing personal income growth, which affects purchasing power,” Dhawan said. “Another is the fact that a large chunk of this activity is being generated in a relatively small area, with land availability becoming an issue.”
Construction isn’t the only sector Dhawan expects to slow, advising that instead of mechanically counting the number of jobs added to focus on their quality and purchasing power instead.
“The quality of jobs being created now is less than before, and the income pinch on catalyst sectors (i.e. corporate and manufacturing) has a trickle-down effect that leads to weak job growth in the tertiary sectors of retail trade and hospitality, as well as an overall lessening of job growth,” Dhawan said. “Growth is unable to get into the next gear, and even maintenance might be tough.”
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment will gain 98,000 jobs (16,900 premium jobs) in calendar year 2016, 75,100 jobs (13,300 premium) in 2017 and 69,800 (12,100 premium) in 2018.
- Nominal personal income will increase 4.9% in 2016, 5.2% in 2017 and 5.5% in 2018.
- Atlanta will add 65,700 jobs (13,600 premium jobs) in calendar year 2016, 54,600 jobs (11,600 premium) in 2017 and 52,300 jobs (10,600 premium) in 2018.
- Atlanta permitting activity in 2016 will increase 20.8%, fall 3.3% in 2017 and grow 1.0% in 2018.