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Dhawan’s Rosy Economic Outlook Predicts A Bloom

December 2004
Dhawan’s Rosy Economic Outlook Predicts A Bloom

The uncertainty surrounding the election is over and with President Bush back in the White House, corporate America and Wall Street are breathing a loud sigh of relief, says Dr. Rajeev Dhawan, director of the Economic Forecasting Center at the Robinson College of Business. And according to his latest Forecast of the Nation (November 2004), it appears that while there are "rosy times ahead we're not quite there yet."

"The election has resolved one major uncertainty clouding economic prospects," notes Dhawan. "Combined with the fact that public corporations are experiencing double-digit growth in their revenues apart from improved profit margins, this makes me more confident for job prospects next year. Based upon my statistical work that causally links job creation to company revenue growth, these large corporations can easily add one million of the two million jobs expected next year!"

But will the higher cost of oil spoil this upbeat forecast?

According to Dhawan, the impact on the economy of increasing oil prices can be seen in two phases ? the first-round effects and the second-round effects. In the first round, the overall Consumer Price Index (CPI) will go up in response to the higher cost of living resulting from higher energy prices. Dhawan says this may be painful for consumers in the short-term but not detrimental to the economy.

"The second-round effect impacts the core rate of inflation. That's when companies pass on their increased cost of production which leads to a rise in prices for services and other non-energy goods," explains

Dhawan. "However, this time around the second-round effects will be weak or non-existent because improved technological substitution opportunities stifle the pass-on-the cost desire, and a concomitant rise in core CPI Inflation."

According to the report, a weakened dollar has boosted our exports but foreign demand for our "cheaper" products will be negatively affected due to the weakness in the global economy. This is the result of China trying to engineer a slowdown, which will impact its Asian suppliers. Meanwhile, in Europe, Germany is suffering from very high unemployment, which is negatively affecting that region. All told, this will keep the trade deficit numbers high in coming years.

Prospects For Georgia and Atlanta

While revenue growth at most of Georgia's large companies ? BellSouth, Coca-Cola, Georgia-Pacific and Sun Trust ? has been sluggish at best, the situation at Delta looms large for Georgia's economy, Dhawan remarks in his report.

"While the company may have avoided disaster in the short-term, the concessions are sure to negatively affect the Atlanta area," he says. "The one billion dollars in pilot concessions translates into approximately $625 million lost in consumer spending for the Atlanta area and a 5% reduction in retail sales in South Metro area. This is a potential loss of 9,000 jobs or 20% of next year's growth."

As for the other powerhouse companies picking up the load for Delta's losses, Dhawan notes that it isn't likely. "Revenue growth, not healthy profit levels, are what really matters," explains Dhawan. "Unless revenues pick up, these corporations will continue to add jobs, if any, at a snail's pace."

On a positive note, small firms are hiring new employees and the housing market continues to prosper, since interest rates remain consistently low. In addition, Hartsfield-Jackson's $5.4 billion expansion plan is keeping construction firms busy. Meanwhile, Atlantic Station is helping to revitalize the midtown area, and the Georgia Aquarium, set to open in late 2005, is expected to attract two million visitors a year.

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