What Is Goin’ On?

Robert Sumichrast, Dean of the Terry College of Business at the University of Georgia, gives an overview of the Georgia economy. It sounds like Georgia is in good shape and can expect continued growth in 2008, but as the Dean said, there is a lot of risk out there.

So what can we expect in 2008?

Population: An increase of about 2% in 2008. It is this growth that demands we create new jobs.

New Jobs: In 2007 Georgia created about 55,000 new jobs. In 2008, we can expect about 44,000 new jobs.

Economic growth: 2.4% in 2008, which is about the same as 2007.

Drought recession: Businesses that are water intensive are in a recession. This year the state will lose an estimated $800 million in agribusiness production due to the drought.

Recession generally: about a 40% chance. I don’t like the word recession, but from an economic standpoint, it may not be that bad unless it lasts and lasts and lasts. Technically, a recession is 2 quarters of negative growth in the economy. That doesn’t mean you lost your job, but someone may not have gotten one they needed. Many times we don’t know if we are in a recession until it has already occurred.

Why is Georgia doing well in these times? Climate is a big attraction. One of the concerns about the current drought is that if it continues it may damage the state’s reputation for a favorable climate.

The drought that we are experiencing is the state’s worst ever. Dean Sumichrast points out that economic developers are now asking about the water supply in areas of Georgia. The very fact that the water supply is of concern means that unless an adequate water supply is assured, at some point this will adversely affect growth and the economy.

In fact, when I asked Dean Sumichrast what he would say to the legislature when it convenes in January, at the top of his list was dealing with the drought long term. This is going to require a major investment in infrastructure. Of course, the battle that is developing in 2008 is trying to solve the Metro Atlanta water crisis by depriving other areas of the state of water.

If we do experience a recession in Georgia, the main impact will be the loss of jobs in industries related to building materials, textiles and automobiles.

Other industries such as food and beverage manufacturing, equipment manufacturing, and pharmaceuticals, are likely to do better in the face of a recession.

Subprime lending scandal: Georgia is in better shape than much of the country because our home prices are not inflated. Rather, home prices in Georgia have increased at the same rate as average income has increased. For this reason, Georgia doesn’t have a dangerous price bubble that exists in other areas. He sees the housing market stable this next year with only a 1% to 2% decrease in home prices.

Savings: As elsewhere, savings in Georgia is very low. The problem is that consumers are relying on debt to finance purchases. A blip in the economy that interfers with the income necessary to pay that debt can result in a rise in foreclosures and bankruptcies, less purchases and a slow down in the economy generally. Be careful what you spend for Christmas!

The most surprising comment by Dean Sumichrast is that according to recent studies, Atlanta is the lowest cost city in the country in which to start a business. Atlanta has lower wages, good location and proximity to transportation, including the ports, all of which keeps the cost down. And I thought everything was high in Atlanta.

You can read more about the economic forecast here.