February 18, 2004 (ATLANTA) The lack of sufficient job growth continues to plague the nation's recovery, says Dr. Rajeev Dhawan, director of the Economic Forecasting Center at the Robinson College of Business. However, the biggest challenge is creating and sustaining an increase of 150,000 new jobs per month given the perceived forces of globalization and outsourcing
"Over the past four months, the country has added 254,000, jobs which is a significant turnaround from the 195,000 jobs lost in the first four months of 2003. That being said, hiring at the large corporations, which accounts for almost one-half of the job base, is still hard to come by, meaning that we still don't have a stable job market," says Dhawan in his Forecast of the Nation (February 2004) released today.
While some experts blame the slow job growth on outsourcing and globalization, Dhawan says that the real problem lies with the corporate revenue structure. Faced with stagnant revenues and an inability to raise prices due to low inflation, they are cutting costs by using technology to replace workers.
"Using technology to cut costs is a temporary solution because, while it increases current profits, it doesn't increase future revenues," says Dhawan. "The time has arrived for them to think outside the box and look to new product development, which involves new skills and processes not easily replaced by foreign workers or foreign competition."
Overall, Dhawan is optimistic.
"The Federal Reserve will wait until fall, when job growth picks up, to do any type of rate hikes. However, deficits will remain at elevated levels in the coming years."
In addition to the somewhat positive job picture, he says that the economy will get a much needed boost from exports.
"The price of domestic products is a key element and, with the dollar becoming cheaper, we will start to see the rest of the world spend its stash of dollars accumulated over the last decade."
Highlights from the Economic Forecasting Center's national report:
- Real GDP will grow by 4.5% this year. The main factor is a moderating consumption growth, which decelerates from 3.6% growth in 2004 to 3.1% in 2005-2006.
- Investment growth will be a strong 12.6% this year before moderating to 7.6% in 2005. It grows again by 6% in 2006.
- The unemployment rate will drop slightly from its 6% annual average in 2003 to 5.8% in 2004. It then drops again to 5.6% in 2005, but rises a bit to 5.7% in 2006 as healthy labor markets boost labor force growth.
- The 10-year bond rate averaged 4% for the full year of 2003. In 2004, it will average 4.5% and then rise to 5.2% in 2005, and be in the 5.3% range in 2006.
Georgia and Atlanta - Quality Not Quantity Plagues Local Recovery - While Georgia and Atlanta's job growth leads the nation, personal income growth and tax collections have been weak. According to Dhawan, the reason can be found by examining the quality of the jobs being created.
"Out of the 64,000 jobs created over the past 12 months (January to December 2003), 85% were in the low paying category. To add insult to injury, we lost close to 15,000 high paying jobs," says Dhawan in his quarterly Forecast of Georgia and Atlanta (February 2004). "No wonder the personal income growth, which had been in the 8% range in the 90s, is barely above 4% at the current time."
According to the report, Cobb, DeKalb, Gwinnett and Fulton - the core counties of the metro area - have suffered the most losses in high paying jobs and the job gains are coming from outside the metro area.
"This is important because these four counties account for almost 55% of the state, which implies that close to 40% of the state's growth engine is stalled," says Dhawan. "If job quality doesn't pick up soon, then both the state's tax revenue collections and home price appreciation will be below expectations." Dhawan says that, unlike the early 90s, time and the quality of the national recovery will be Georgia's antidote.
Highlights from the Economic Forecasting Center's local report:
- By Spring-end, job growth quality in the nation improves and begins to percolate down to the state level. In 2003 job growth was at 0.7%. In 2004, employment is expected to display an even better growth rate of 1.9%. By 2005, the job growth rate picks up to 2.2% and by 2006 jobs will grow at a 2.5% rate.
- Personal income grew by 3.9% in 2003. The growth rate for 2004 will be 4.7% and will rise to 5.4% in 2005. By 2006, personal income is growing at a healthy rate of 6%.
- Georgia will gain 66,800 jobs in 2004 and Atlanta will end the year up by 49,800 jobs. Growth will be better in 2005, when 98,500 new jobs will be created in Georgia and 64,200 new jobs will be created in Atlanta. The good news is that by late 2004, the quality of job growth begins to pick up.
- The unemployment rate, which for 2003 was 4.7%, will drop again slightly to 4.5% for 2004. It will then decrease further to 4.4% in 2005.
- Overall, professional and business services employment recovered from losses in 2002 to post a 5.3% gain in 2003. This category is expected to increase by 6% in 2004, 5.3% in 2005 and 5.2% in 2006.
- Total housing permits in 2004 will decline by 8.8%. Both single-family and multi-family will have a difficult time this year, with single-family permits declining by 6.8% and losses coming from multi-family permits at 17.9%. In 2005, total permits will decline again by 3.3% with single-family permits decreasing but multi-family rising. Permit activity finally picks up in 2006.
Media Contacts:
Tammy DeMel
Associate Director, Communications and External Affairs
Robinson College of Business
Phone: 404/413-7078
Cell: 404/702-9743
