Home > Magazine > Moneywise > Looking Towards Our Economic Future

 

Looking Towards Our Economic Future

Email
June 2009
Looking Towards Our Economic Future

Despite a growing chorus of experts predicting recovery in the second half of 2009, Georgia State Economic Forecasting Center Director Rajeev Dhawan warns that it will take much more than positive thinking to begin the recovery process.

In his Forecast for the Nation, released today, Dhawan said that positive signs, such as increases in consumer confidence and the stock market¯the so-called “green shoots” of recovery¯will turn into “fullfledged stalks loaded with grain” only with time and careful nurturing. There must be moisture, marked by consumers’ willingness to spend; treatment with fertilizer (i.e. corporate investment); a working relationship between private capital, aka Wall Street, and the government; and the avoidance of an early-stage frost (such as the Lehman and AIG blowups).” He further noted that the green shoots must fight “soil salinity,” created by toxic loans for construction, just to survive.

Dhawan emphasizes that initiatives such as the Treasury’s Public-Private Investment Program (PPIP) are just blueprints for repairing the financial cracks in the economy. “However,” notes Dhawan, “no real repair work has actually been done as yet.”

The Georgia State forecaster also said that first quarter consumption growth was largely due to after-the-holidays bargain shopping in January. Capital spending, the best predictor of future job growth, has fallen at an annual rate of 31% in the last six months. Regarding the 30% plus stock market gains in the last two months, Dhawan said that “sustainability of these gains depends on a substantial turnaround in corporate spending, evidence of which is extremely tenuous.”

And what about the government’s stimulus package? According to Dhawan it can only go so far. “With consumers pulling back on spending, the government stepped in to fill the vacuum, thereby creating an artificial floor on the decline. But,” asks Dhawan, “if corporations continue to sit on the sideline, who will fill the gap when the stimulus package runs out? The key to any sustainable recovery is continuous investment by the business sector.”

Highlights from the Economic Forecasting Center’s National Report

? Overall, real GDP will decline by 3.9% in 2009, improving somewhat to a still negative 0.3% rate in 2010. In 2011 real GDP will grow by a subpar 1.8%. Growth will not be anywhere close to the 3% trend line until 2013.

? Consumption will decline by 1.2% in 2009 but will recover mildly by 0.3% in 2010. It will increase by a subpar 1.2% in 2011. Housing starts will remain below one million units until 2011. Vehicle sales will average less than 11 million units until 2011.

? After growing only 1.6% in 2008, private fixed investment is expected to decline by 21.5% in 2009. Investment growth will decline again by 8.6% in 2010 before making a positive 4.6% comeback in 2011.

? There will be 430,000 job losses per month for the year 2009. In 2010, as the economy enters a jobless recovery, monthly job losses will be limited to 80,000 jobs. The situation will improve in 2011, when the economy will add jobs at a rate of 75,000 per month. Consequently, the peak unemployment rate will be 11.0% by the end of 2010 and also will stay in that range in 2011.

Georgia and Atlanta¯Local Economy Can’t Escape National “Headwinds” Until 2011

While metro Atlanta was once insulated from the “headwinds” of the national economy through the Olympic buildup, corporate relocations, the growth of Delta and investments in hotel and convention facilities, the region’s economy is now suffering with the rest of the United States.

These beneficial factors are currently missing, said Georgia State Economic Forecasting Center Director Rajeev Dhawan in his Forecast of Georgia and Atlanta. “There is no new big public project (or even private project) about to begin. Hotel and commercial construction is at a standstill and the corporate sector is too busy fighting sinking sales to entertain thoughts about relocation.”

Statewide, said Dhawan, efforts to clean up toxic loans related to residential construction also have been less effective in Georgia than in other parts of the nation. The FDIC has shuttered six Georgia banks this year, out of 31 closings nationwide.

Other negative signs in Georgia include substantial job losses in the past few quarters (68,000 in the first quarter of 2009 alone) that will sap purchasing power of consumers in coming quarters.

Dhawan also sees no help from the housing sector where permits are down “an astounding 90% from levels of just a few years ago.” He notes that, “if we want to see decent growth in early 2010 we need to break ground in the next three months. I honestly don’t see that on the horizon. First, the banking system has to be off Federal life support (expected by mid-2010) and only then can we talk about new projects breaking ground. The positive impact resulting from a liquid capital market will be felt at the earliest in 2011.”

On a positive note, Dhawan points out that Georgia’s exports declined less than those of the rest of the nation. The state ranks 14th overall and has increased its share of U.S. exports from 2.0% to 2.2%.

Highlights from the Economic Forecasting Center’s Local Report


Enjoyed reading Khabar magazine? Subscribe to Khabar and get a full digital copy of this Indian-American community magazine.


  • Add to Twitter
  • Add to Facebook
  • Add to Technorati
  • Add to Slashdot
  • Add to Stumbleupon
  • Add to Furl
  • Add to Blinklist
  • Add to Delicious
  • Add to Newsvine
  • Add to Reddit
  • Add to Digg
  • Add to Fark
blog comments powered by Disqus

Back to articles

 

DIGITAL ISSUE

10_17-Cover-Passions.jpg
 

 

eKhabar

Sign up for our weekly newsletter
eKhabar

Click here  

Writing-Contest-BANNER.jpg 

 

Krishnan Co WebBanner.jpg

PCPD- RED.gif

DineshMehta-CPA-Banner-0813.jpg

SDK small banner 7-16.jpg

PrimeTravels_Banner ad_1017.gif

SERVITIX.gif

 
Raj&Patel-CPA-Web-Banner.jpg