November 19, 2003 (ATLANTA) Positive job growth, encouraging news from the stock market, and a reported 7.2% real GDP growth rate in the third quarter is more than just a passing blip says Dr. Rajeev Dhawan, director of the Economic Forecasting Center at the Robinson College of Business. But while the economic recovery seems to be gaining traction he cautions against hope of seeing job growth at the quarter-million jobs per month level anytime soon.

In his Forecast of the Nation (November 2003) released today, Dhawan says that "high labor productivity resulting from technological advances of the 90's that is still playing out, plus a structural shift in the economy that favors more foreign-produced manufactured goods" will affect job growth levels.

"In order to push unemployment below 5%, it will require a sustained GDP growth rate in excess of 5% for several years," says Dhawan. "While the 7.2% growth rate in the third quarter was impressive, it was artificially inflated due, in part, to unprecedented auto sales boosted by manufacture discounts and the refinance boom boosted by historically low mortgage rates."

According to Dhawan, now that those "deals" have been pared back, consumption growth will moderate from its high of 6.6% in the third quarter to the 3% range and the GDP will level off to 4% for the next two years. "The good news is that future growth will be fueled by much needed job growth."

The other part of the job growth equation is the CEO mindset.

"They must change from being overly risk-averse to somewhat more of a risk-taker," says Dhawan. "Based on the upswing in the stock market and the reemergence of profits, I am confidant that this "good news" will relax their ultra-cautious stand and lead to additional investment which ultimately will lead to increased hiring."

Highlights from the Economic Forecasting Center's national report:

• Overall, real GDP will exhibit a 2.9% growth rate this year, and the number will climb to 4% in 2004 when capital spending of all types gains traction. The growth rate is above par at 4% in 2005.
• Investment growth will only be 2.4% this year, but will accelerate sharply to 10.8% in 2004. This rate is also maintained in 2005 when investment grows by 10.5%.
• The forecasted unemployment rate of 6% for 2003 will moderate slightly to 5.8% in 2004, and drop again to 5.5% in 2005.
• The 10-year bond rate averaged 4.2% in the third quarter of 2003. It will end the year at 4.6% which will make for a 4.1% average for 2003. In 2004 it will average 5.1% and in 2005, the 10-year bond rate will reach 6% but will average 5.6% for the year making a soft landing for the housing sector.

Georgia and Atlanta - Quality of Jobs Continues to Plague Full Recovery - While Georgia has added 82,000 jobs so far this year, tax collections for the state remain at recessionary levels. According to Dhawan in his quarterly Forecast of Georgia and Atlanta (November 2003), the problem continues to be the quality of the jobs that are being created.

"Jobs that have supposedly been created are showing up in sectors that are low paying at best," says Dhawan. "These low-paying jobs drastically affect purchasing power and subsequently tax revenue." 

During the first half of the 90s, roughly every dollar increase in sales tax collection was matched by a dollar increase in personal income tax collection. In the second half of the decade, that number was even higher with income tax collections adding more than a dollar ($1.34) for every dollar collected -- a win-win for all. However, once the recession began everything dropped.

According to the report, personal income growth has been a better 4.2% for the first two quarters of 2003. However, personal tax collections have dropped even further by 3% from the lows of last year.

"The problem is that we've added almost 44,000 jobs since November 2001 in the low-paying business services category but have lost close to 4,000 jobs at the management level," explains Dhawan. "It seems to me that this is a case of too many foot soldiers for every officer standing, leaving a poorly equipped army -- meaning we may have increased the number of people working but they don't have enough purchasing power to sustain a recovery."

According to the Dhawan, time and the quality of the recovery at the national level will be able to break the area's cycle of low paying job additions. However, Dhawan warns that even when the high-paying jobs return, it will not be at the same pace as the past recovery.

Highlights from the Economic Forecasting Center's local report:

• From fourth quarter 2002 to fourth quarter 2003, Georgia will gain 66,800 jobs and Atlanta will end the year up by 64,300 jobs. By calendar year calculations in 2004, Georgia is expected to gain 63,200 jobs and Atlanta 47,600 jobs. Growth will get closer to the new potential in 2005, when 96,700 new jobs will be created in Georgia and 62,600 new jobs will be created in Atlanta.
• Personal income will grow by 4.7% in 2003, much better than the 2.5% rate of 2002 for Georgia. The growth rate again is 4.6% in 2004 and rises modestly to 5.3% in 2005.
• The unemployment rate for Georgia in 2002 ended up at 5.1%, up sharply from 4% in 2001. It will decrease to 4.7% in 2003. By 2004, the unemployment rate will come down to 4.6%, and in 2005 it will again be 4.6%. In the Atlanta metro area, the unemployment rate has declined significantly from 5.4% in September 2002 to 4.5% in 2003. AtlantaÕs unemployment rate will drop from its 5.3% annual average rate in 2002 to 4.7% in 2003. Unemployment then drops again slightly to 4.5% in 2004 and then further decreases to 4.4% in 2005.
• Overall, professional and business services employment fell 1.5% in 2002 but is expected to recover this year by increasing 4.9%. In 2004, this sector will add jobs at a steady 5.3% pace, followed by a 5.3% increase in 2005.
• Total housing permits in 2003 will decline by 4.3%. The bulk of this loss comes from multi-family permits, which will decline by 30%. Single family permits will actually rise by 3% mimicking the strength of single family housing starts in the U.S. In 2004, housing permit activity will decline by 6.8%. In 2005, total permits will rise by 10.4% with both single and multifamily permits rising by 10% plus.