Georgia State Economist: Rebuild From Hurricane Season Expected to Boost 4Q Economy
Thursday, November 16th, 2017
Despite doom and gloom estimates due to an unusually active hurricane season, third quarter gross domestic product growth came in at 3.0 percent, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“The loss of vehicles and damage to homes and equipment is there, as we all know,” Dhawan wrote in his quarterly “Forecast of the Nation,” released Nov. 15. “When we rebuild the damaged capital stock by buying new vehicles, they become additions to GDP, and these effects will linger into the fourth quarter as the rebuilding process continues on the mainland.”
U.S. GDP numbers also will benefit from the massive rebuild in Puerto Rico, as any material shipped from the mainland to the island will be counted as spending, contributing to the calculation.
The economy also stands to grow from what Dhawan has called “the Trump investment bull run.”
“In the three quarters prior to last November’s elections, investment growth was an abysmal 0.9 percent,” Dhawan wrote. “In the three quarters post-election, investment growth has been a healthy 5.9 percent.”
Oil prices around $50 a barrel, where shale oil companies are profitable, also are boosting equipment investment.
“The world economic outlook outside the U.S. is much better now, with the eurozone gaining traction and expected growth in 2018,” Dhawan said. “But a growing Europe doesn’t add to oil demand, and a slower China will result in oil prices dropping in the second half of 2018.”
Healthy investment growth helps explain monthly job growth above 150,000 jobs. Dhawan does not believe this rate of investment is enough to keep GDP growth above 3.0 percent, but he points to tax reform as a providing possible boost. However, the impacts of tax reform will not be felt until late 2018.
“Individual income tax cuts aimed specifically at middle tax brackets should pass early next year,” said Dhawan. “I expect to see an impact on spending towards the end of the second quarter in 2018. No substantial corporate tax reform will emerge from Congress due to large impacts to the budget deficit.”
Consumption demand created by income-tax cuts will have implications for future Federal Reserve interest rate hikes. Dhawan believes the Fed is poised to raise rates in December.
“Following the December rate hike, there will be a pause to see what kind of tax cuts get enacted,” the forecaster said. “When the tax-cut consumption demand starts to take hold, the Fed will begin to move in the second half of 2018.”
Highlights from the Economic Forecasting Center’s National Report
Following GDP growth of 3.0 percent in the third quarter of 2017, the economy will expand by 3.5 percent in the fourth quarter to make for a growth of 2.3 percent in 2017. It will then grow by 2.6 percent in 2018 and moderate to 2.2 percent in 2019 as Fed hikes have their impact.
After falling by 0.6 percent in 2016, business investment will grow by 4.6 percent in 2017, then rise to 5.6 percent in 2018 and 2019. Jobs will grow by a monthly rate of 174,000 in 2017, 170,000 in 2018 and 161,000 in 2019.
Housing starts will average 1.200 million units in 2017, rise to 1.256 in 2018 and 1.268 in 2019. Expect auto sales of 17.1 million units in 2017, 16.6 in 2018 and 16.3 in 2019.
The 10-year bond rate will average 2.4 percent in 2017, 2.9 percent in 2018 and 3.4 percent in 2019.
Atlanta Aims for Amazon HQ2
ATLANTA - Amid a dip in major corporate announcements in the Atlanta area, attention has turned to Amazon’s much anticipated second headquarters, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“Media have homed in on metro Atlanta and offered up various sites that could be developed for Amazon HQ2 including the Gulch, Midtown, Fort McPherson and Doraville’s Assembly,” Dhawan wrote in his quarterly “Forecast of Georgia and Atlanta,” released today (Nov. 15). “The workforce Amazon is looking for is mostly centered in the Midtown area and searching for a work/play lifestyle, pointing to the most likely location as Midtown.”
Despite a substantial uptick in metro area office construction, with potential speculation space for HQ2, the construction sector has lost more than 2,000 jobs because of a dip in housing permits. Residential permits are down 6.2 percent for the first nine months of the year compared to 2016, with multi-family permits down 30.5 percent, but single-family permits were up 7.3 percent.
Georgia’s manufacturing sector also is struggling in 2017.
“In the first nine months of this year, employment fell by 4,200 jobs,” Dhawan wrote. “The likely culprits are a strong dollar combined with global economic weakness in the Middle East and Latin America."
Employment in Savannah grew over the first nine months of 2017 because of increased import activity at Georgia’s largest port. The transportation sector has added jobs in 2017 driven mostly by domestic spending through online sales.
“In the most recent data for the nation, e-commerce spending grew by 15.8 percent in the first half of 2017 compared to the year before,” Dhawan said. “Atlanta stands to benefit from this increase with another Amazon distribution hub set to add 1,000 new jobs in the metro area.”
Shifts to online sales have moderated retail trade job growth. The domestic demand driven-sectors of government, education, healthcare and hospitality have seen 2017 job growth slow compared to 2016.
Georgia’s white-hot film industry adds jobs in many sectors, including hospitality, but it had the biggest impact in the information technology sector.
“This sector, which most of us don’t consider when we think of film, counts jobs in sound recording, video editing and animation,” Dhawan said. IT employment increased by 2,300 positions over the first nine months of 2017, a substantial increase from the reduction of 1,700 jobs over the same period in 2016. Historic highs in the stock market also have led the financial activities sector to show an acceleration in job growth over 2016.
Recently, Georgia’s monthly job gains have been volatile. For example, in June, monthly job gains were a strong 25,000 but then fell by 3,500 in July and jumped 7,300 in August. This volatility precedes the hurricanes whose impact can be seen in neighboring states’ employment figures such as Florida, which showed a decline of more than 120,000 jobs in September.
In the first nine months of this year, Georgia added 66,400 new jobs, less than the 88,700 additions in the same period in 2016. The current growth of 2.2 percent is a slow but steady moderation from the 2.8 percent growth seen in 2016.
According to Dhawan’s Triangle of Money analysis, which looks at tax collections to get a complete picture of the quality of jobs and the purchasing power of those jobs, job growth is moderating.
The impact of moderation in job creation pace can be seen in the state’s tax revenues. Tax collections grew by a strong 7.9 percent in calendar year 2015, then moderated to 6.9 percent in calendar year 2016 and slowed to only 3.6 percent in the first 10 months of 2017.
“Despite some uptick in sales tax collections due to local-level tax rate increases, tax revenue growth has moderated as job growth has moderated,” Dhawan wrote. “Expect a continuation of this trend in employment and housing activity in the coming quarters.”
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
Georgia employment will gain 87,800 jobs (21,300 premium jobs) in calendar year 2017, 70,400 jobs (16,900 premium) in 2018 and 65,500 (15,900 premium) in 2019.
Nominal personal income will rise 4.5 percent in 2017, 5.3 percent in 2018 and 5.4 percent in 2019.
Atlanta will add 68,900 jobs (17,000 premium jobs) in calendar year 2017, 51,900 jobs (12,500 premium) in 2018 and 48,800 jobs (11,700 premium) in 2019.
Atlanta permitting activity will drop 4.7 percent in 2017, then rise 0.5 percent in 2018 and 3.0 percent in 2019.