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Economic Forecast

Improvement Seen in 2003

Mike Haberman

The post-Sept. 11 economy has been tougher on Georgia and metro Atlanta compared with the rest of the nation, with unemployment expected to continue to rise before finally decreasing in 2003, said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.

Georgia’s economy has lost 125,000 jobs since last April and the damage is expected to continue for a while. Nationally, Georgia was ranked fourth in terms of absolute job loss with only New York, Illinois and Florida registering more job losses, Dhawan reported. The damage so severe here because while metro-Atlanta was able to endure the high-tech bust, it was impossible for the city to survive the hit to travel and tourism that came after the tragedy of Sept. 11, Dhawan said.

“Of the 80,000 jobs lost in the metro region, almost three-fourths happened after the terrorist attack,” said Dhawan. “In fact, this loss accounts for the 4.7 percent unemployment rate in the metro area which is higher than the entire state of Georgia, a pattern never seen before.”

However, according to Dhawan’s forecast, Georgia will begin to see signs of recovery and job growth in the fall and early winter. “In the next nine months it should show a small gain of 30,000 jobs but given the job losses in the first three months this makes for a small gain of 5,000 for the calendar year,” Dhawan said.

Highlights from the forecast:

In 2003, Georgia will add 100,000 jobs resulting in a 2.6 percent job growth rate that will increase slightly to 2.8 percent in 2004.
Service sector jobs will decrease this year before recovering to a 4.1 percent growth in 2003. Within the services area, the biggest declines will be in engineering and management, which will decrease to 4.5 percent this year before rebounding to 6.6 percent in 2003. Business services will decrease to 3.3 percent for the year but will bounce up to 5.2 percent in 2003.
Unemployment for the state will rise to 5 percent by late summer, but will come down to 4.6 percent by 2003. The Atlanta metro-area unemployment rate will rise to 5.1 percent before it decreases to 4.7 percent in 2003.
The number of housing permits in Atlanta is expected to decline sharply by 15.3 percent in 2002 and will drop again by 0.7 percent in 2003.
Nationally, the recovery is clearer, Dhawan said. There are enough economic signals to proclaim that the nation is experiencing a recovery in income and production, he said. However, unemployment levels are still high and until there is a significant increase in employment, we should not yet declare this recession over, Dhawan said.

“We will need to see a number of 100,000 plus job gains to really declare this recession over,” Dhawan said. On the positive side, he noted that layoff announcements have declined sharply from their highs in January. However, according to Dhawan’s forecast, the continued productivity gains imply that companies can use their current labor to increase output before they hire more people.

“Another problem is the lack of pricing power which has kept profits and revenues low across the board,” Dhawan said. “This has caused a so-called ‘CEO Gloom’ that is restraining business investment, and without business investment there is no employment growth, and consequently no 'real' recovery.”

Dhawan said time will cure the cycle of pessimism.

“Consumer spending is strong and assuming we can avoid a fall out from the turmoil in the Middle East, we should see a growth in income and production capacity as well as the addition of more jobs by late fall when the unemployment rate will begin to drop,” he said. “Meanwhile, look for the Federal Reserve to help by keeping rate hikes mild in August.”

However, Dhawan warns that there may be a few bumps in the road before things improve.

“High volatility in the equity and financing markets are creating credit problems for companies. Add the uncertainty of the Middle East and the ever present threat of terrorism and it all makes for a very reactionary environment to any economic news.”