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- Full Economic Recovery Expected in Early 2003
- Unemployment Rises to 6% plus before Declining in 2003
- Strong Metro Atlanta Job Growth Delayed Until 2004
August 21, 2002 (ATLANTA) -- Barring any catastrophic events the nation will escape a double dip recession according to the Forecast of the Nation (August 2002) released today by Dr. Rajeev Dhawan, director of the Economic Forecasting Center at the Robinson College of Business.
Dhawan says that despite the "crisis of confidence" the past two months have produced among market investors, the country will survive this tumultuous period. He does, however, warn that there will be damages. "One has to pay for volatility and our price will be lackluster growth for the next few quarters."
In the report, Dhawan also discusses what effects a possible attack on Iraq may have on the economic recovery.
"Any type of uncertainty breeds indecision and subsequent scaling back of economic activity," explains Dhawan. "In this case, it seems that an attack on Iraq is a done deal and now it's just a matter of when it will happen. This threat of war is muddying the economic picture and is delaying an outright recovery."
Despite the uncertainty, Dhawan remains optimistic about the economy overall. He credits consumer spending prompted by reduced mortgage financing costs, tax cuts and the lower cost of servicing debt for "holding the fort."
He also believes that the Federal Reserve Board should and will refrain from any further rate cuts. "They need to keep the prospect of further rate cuts in reserve for any catastrophic events such as a stock market crash, credit market meltdown or a future terrorist attack," said Dhawan.
Highlights from the Economic Forecasting Center's national report:
- Real GDP will increase by 2.1% in the 3rd quarter. The economy will continue it's moderate, yet steady; pace of recovery in the 4th quarter whet it grows 2.3%. For the whole year 2002, the real GDP growth is a moderate 2.2%, followed by a 2.6 % growth rate in 2003. It will post a solid growth in 2004 when the economy grows by 3.3% and comes much closer to the trend rate of growth.
- Inflation will come down to be 1.5% in 2002 and then rise to be 2.3% in 2003 as the economy recovers fully from the current recession. The funds rate will remain steady throughout the remainder of the year and will be raised in the 2nd quarter of 2003, and inflation is in the 2.5% range. The prediction for 10-year bond rate is to average 4.8% in 2002, then rise to 5.1% in 2003 and be in 5.5% range by 2004.
- Fixed investment will fall 0.9% in the third quarter and 1.0% in the fourth quarter. On an annual basis, investment declined by 3.8% in 2001. In 2002 it will also decline by 5.8%. It is expected to grow by 3.4% in 2003. In 2004 it grows by a healthy 10.4%.
- The unemployment rate is currently (in July) at 5.9% and will rise to the 6.0% - 6.2% level for the remainder of the year. Following sustained job growth by mid 2003, the unemployment rate should come down in late 2003 to average 6.0% for the year and 5.4% in 2004.
Georgia Lags National Recovery -- Strong Metro Area Job Growth Delayed Until 2004 Georgia will begin to see an improvement in job growth during the second quarter of 2003, however on an annual growth rate basis, it will be 2004 before any true recovery in the job sector occurs, according to the Forecast of Georgia and Atlanta (August 2002) released today.
"Over the duration of the recession, Atlanta has lost close to 75,000 jobs. Thus, we have been put back by a year's worth of job losses," said Dhawan. "In the calendar year 2003 we will add close to 55,000 jobs and while this is a very healthy number in light of the economic turmoil, it is still almost 35% less than the job increases we experienced during the go-go 90's."
The good news is that Georgia appears to have weathered the storm somewhat better than other major technology areas such as Silicon Valley, Seattle and Denver. However, people need to remember that Atlanta's boom during the 90's was fueled by more than just the technology boom.
"The Olympics provided the extra spice in growth. Atlanta became a magnet for the region attracting skilled workers as well as becoming a tourist and shopping destination," reminds Dhawan. "The conventioneers became a welcome feature in downtown and all of this helped fuel the growth in the hospitality industry." According to Dhawan, the "mighty multiplier process worked for everyone." The service sector boomed and the state benefited from an increase in sales and personal income tax.
"Now, the convention business is hurting with competition from other states and the technology sector will be the last to recover this time around," says Dhawan. "Add to that the "crisis of confidence" effecting local companies and the picture is not as bright as what Atlanta enjoyed a decade ago."
Highlights from the Economic Forecasting Center's local report:
- Service sector jobs are expected to contract by 1.5% in 2002, and then grow by 2.4% and 3.7% in 2003 and 2004, respectively. Within services, the biggest decline will be in Business Services, which will contract by 7.4% this year. This category will rebound in to a positive 1.2% growth in 2003 followed by a 3.9% gain in 2004. • The unemployment rate will rise this year to 4.9% range by early fall but will come down a bit to 4.7% in 2003 and then hover in that range at 4.6% in 2004.
- Atlanta's unemployment rate will rise from 3.5% rate in 2001 to be 5.0% in 2002. It then comes down to 4.8% in 2003, and then further to 4.3% in 2004. • The number of housing permits issued in Atlanta is expected to decline sharply by 13.8% in 2002 and drop again by 4.7% in 2003 before recovering to a 5.3% growth in 2004.
Media Contacts:
Tammy DeMel
Associate Director, Communications and External Affairs
Robinson College of Business
Phone: 404/413-7078
Cell: 404/702-9743
Dr. Rajeev Dhawan
Director, Economic Forecasting Center
Robinson College of Business
Phone: 404/413-7261 |
