Georgia Economic Outlook 2000

Summary Sheet

Who, what and where — About 1,000 Atlanta business executives and UGA alumni are registered for the Georgia Economic Outlook luncheon in Atlanta. This year’s program at the Georgia World Congress Center is the 17th annual economic forecast luncheon hosted by the University of Georgia’s Terry College of Business.

The Georgia and U.S. economic forecasts summarized here were prepared by the Selig Center for Economic Growth in the Terry College of Business. The forecast is embargoed for 2 p.m. Wednesday, December 8.

The Georgia Forecast

At a Glance — "We think the current expansion will continue through 2000. But we believe that growth will continue to slow down. Georgia has ridden a wave of unprecedented growth. Our economy is 51 percent larger than it was in 1991, when this expansion started. However, the strains of accommodating this growth – such as traffic congestion – are factors in slowing the joy ride," said

P. George Benson, dean of UGA’s Terry College of Business. "Overall, Georgia will still rank among the fastest growing states in the nation. This reflects our many comparative strengths, including Georgia’s industrial diversity, a strong hospitality industry, a low cost structure, an ideal location for distribution centers, and a favorable financial climate." The Selig Center forecast pointed to many encouraging factors contributing to Georgia’s growth. Among the reasons cited in the forecast were:

• An industrial base oriented toward high-performing consumer goods and services.
• High-tech job growth, especially in information technology and biotechnology.
• A solid venture capital market underwriting homegrown innovations.
• A well-developed transportation and telecommunications infrastructure.
• Major convention centers and meeting facilities that help attract national corporate events.
• Hefty government spending for research and development.
• Incentives such as the HOPE Scholarship, Quick Start and ICAPP programs that reinforce the cycle of in-state growth and expansion.
• Affordable housing, office space, industrial facilities and land.

The forecast also identified several barriers that will curb economic growth:

• A K-12 education system that compares poorly with the rest of the nation.
• Highway construction that lags demand in the Atlanta metro area.
• Air quality problems that limit the options for road and highway expansion.
• A multi-lane highway system that bypasses many rural areas.
• Inadequate water distribution and treatment systems.
• Lack of ready-made facilities for companies that want to relocate.
• Poor cash incentives that prompt relocating companies to move to neighboring states offering better incentives.

 

Gross State Product — GSP will increase 4.5 percent in 2000, after adjusting for inflation. That’s down slightly from 5.0 percent growth in 1999 and would be the smallest percentage increase since the recession ended in 1991. Georgia should exceed the growth in U.S. gross domestic product by a large margin, which is forecast to be 3.0 percent in 2000, according to the Terry College’s Selig Center.

Income — Personal income in Georgia will rise a healthy 6.6 percent next year, well ahead of the projected U.S. growth rate of 4.8 percent, before adjusting for inflation. But state income growth will fall short of this year’s expected increase of 7.1 percent.

Employment — Job growth in Georgia is expected to show a moderate decline for the third consecutive year. Non-farm employment is on pace to grow 3.2 percent this year, following growth of 3.5 percent last year. However, job growth will pull back next year to 2.1 percent — or about 80,000 new jobs statewide. The projection for U.S. job growth next year is 1.2 percent. And the state’s jobless rate will inch higher from 3.9 percent in 1999 to 4.0 percent in 2000. Nationwide, unemployment will creep up at the same pace, from 4.2 percent to 4.4 percent.

Population — Atlanta is projected to be the fourth fastest growing metropolitan area among U.S. cities exceeding a population of 1 million. It ranked behind only Las Vegas, Austin (Texas), and Phoenix. By July, Georgia will have 7.9 million residents, a one-year increase of 142,900. The state’s population growth rate will be 1.8 percent in 2000, about double the national rate.

Y2K Ready — Business spending on inventories and capital equipment will slump early next year following the inventory buildup that preceded Jan. 1. In the first quarter, statewide employment will decline by about 5,000 but the losses will be temporary. Alternatively, the purchase of Y2K-compliant technology by businesses and consumers could net higher productivity down the road.

High-tech Capital — Atlanta, and not North Carolina’s Research Triangle, is the high-tech capital of the South, Benson said. "The Raleigh-Durham-Chapel Hill area grabs the headlines, but these three cities produce less than 1 percent of the nation’s high-tech output. Atlanta produces more than two and a half times as much."

Biotechnology — Georgia is well-positioned to become a center for biotechnology, Benson said. "Biotech firms most readily take root and flourish in areas rich in high technology, research and medical infrastructure, and venture capital. Georgia has all the necessary ingredients. But it won’t happen unless we declare biotechnology to be one of the state’s development priorities."

Metro Area Job Growth — (see attached chart for complete forecast of Georgia metro job growth)

• Savannah will lead the state in employment growth, with an increase of 2.7 percent. The city is poised to become a premier destination for national conventions and meetings with the newly opened Savannah International Trade and Convention Center on Hutchinson Island and more than 1,000 additional hotel rooms and new non-stop flights from New York and Chicago.
• Atlanta will add 42,100 jobs, but the 20-county metro area’s job growth rate will fall from 3.5 percent in 1999 to 2.5 percent next year – still the second-fastest rate in the state. Atlanta’s low unemployment rate and overburdened infrastructure will hamper job growth.
• Job growth in the remaining five metro areas will lag below the statewide job growth average of 2.1 percent forecast for Georgia by the Selig Center.

The National Forecast

At a Glance — "The record for uninterrupted economic growth in the United States is eight years and 10 months. That happened from 1961 to 1969, fueled in part by the Vietnam War," Benson said. "The current expansion will match the record next month and surpass it in February." In fact, the Selig Center’s outlook calls for the expansion to continue through 2000, but at a slower pace. Subdued growth will result from anticipated increases in inflation and interest rates. Nationwide, corporate profits and new construction will cool off. Energy and commodity prices will rise. And high valuations in U.S. equity markets will be vulnerable to corrections. The indicators supporting economic growth next year include: increased consumer spending, net hiring gains, higher business investment in durable equipment and stronger export markets.

Gross Domestic Product — After rising by 3.8 percent in 1999, the nation’s economy will expand by 3.0 percent in 2000, adjusted for inflation. Though growth will slow, the forecasted GDP growth rate still exceeds the annual average of the past 20 years, which is 2.6 percent.

Odds of Recession — The Selig Center places the odds of recession in 2000 at a mere 10 percent. The leading downside risks are a sharp decline in the stock market hurting consumer confidence and renewed financial crises in emerging foreign markets, as happened two years ago.

Income — Total personal income will climb 4.8 percent next year, without adjusting for inflation. Two of the factors driving these income gains are an increase in the number of jobs and an upward pressure on wages in a tight labor market. The savings rate will remain relatively steady at 2.5 percent in 2000.

Employment — The rate of job growth will slow to 1.2 percent, or 1.6 million new jobs in 2000, down from 2.2 percent job growth in 1999. From 1991 through 1999, the U.S. economy added 20.1 million jobs, or about 210,000 jobs per month. But at 1.2 percent growth, the forecast for 2000 translates to only about 74,200 new jobs created per month.

Interest Rates — In 1999 the Federal Reserve took back all of the interest rate decreases that followed the foreign markets crisis in 1998. The federal funds rate currently is 5.5 percent, up from the 4.75 percent rate that prevailed at the start of 1999. The Selig Center is predicting the Fed will react to evidence of rising wages and prices and raise the federal funds rate still higher – from 5.5 percent to 6.0 percent in 2000.

Inflation — The consumer price index bottomed out in 1998 at 1.6 percent, and rose to 2.1 percent in 1999, mostly due to higher energy prices. Wage pressure in a tightening labor market, particularly for skilled workers, will push inflation slightly higher to 2.4 percent next year. Also, rising global demand for basic commodities, such as oil, will cause inflationary pressure.

E-commerce — The benefits associated with the spread of e-commerce – bargain-hunting consumers, lower distribution costs and cost efficiency – all help to restrain inflation. Traditional retailers and wholesalers will have to adopt the technology or become more efficient to compete. And service providers, such as travel agencies, insurance firms and stockbrokers, will lose market share to online competitors.