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Diamonds in Georgia’s Slowing Economy

December 2006
Diamonds in Georgia’s Slowing Economy

Recently recognized by Bloomberg News as the economist with the "most accurate GDP (Gross Domestic Product) forecast", Dr Rajeev Dhawan enjoys an enviable track record and reputation as one of Georgia's leading economists. As director of the Economic Forecasting Center at Georgia State University's Robinson College of Business, Dhawan develops U.S., Southeast regional and local metro economy forecasts, which are published and presented to business leaders and the media at quarterly forecast conferences.

The most recent such conference on November 15, 2006 was aptly titled "Finding Diamonds in the Economic Rough", as it brought to light a few sectors, which are doing well in the slowing economy. The conference started right on time in spite of the rain and storm. The Auditorium at the GSU Student Center was packed with attendees representing different industries, government, press and students. The Conference kicked off with the experts from Canada and New Orleans as well as from Manufacturing and Federal industries giving their insights on how some of the sectors of the economy performed and what the future holds for them.

The highlight of Conference was the 3-year forecast: 2006 - 2008 for the nation, Georgia and Atlanta, presented by Dhawan, who tied it all together with his informative, entertaining and honest take on the US, Georgia and Atlanta economy.

Dhawan said that the US and the Georgia economy have shown a slow growth rate and forecasts that Georgia's economy will slow down over the next few years in sync with the US economy. His forecast on the states employment looks bleak. Georgia's employment would increase at a slower rate, by 2.1% in 2006, 1.5% in 2007 and 1.8% in 2008. Sectors like healthcare, tourism, retail will add jobs in the next few years but at a much slower pace. Georgia's other metro areas that will see growth in 2007 are Warner Robins, Savannah, and Brunswick. Dhawan says he sees numerous signs in the economy that signals the Federal Reserve will start cutting the interest rate in March 2007 which will help keep the economy from going into a recession. "There are three additional reasons why the Fed will begin easing rates soon. First, they have just about achieved their goal of moderating runaway housing activity. Housing starts are now much closer to the sustainable 1.6 million unit pace and the direction for new and existing home sales is clearly downward. Second, the decrease in the price of oil. And finally, consumption growth has been slowly inching its way down from the strong 3.9% rate we saw in 2004 to a pace of about 2.8% over the last six months. The idea is to get that number just a little below 2.5% for a while but not crush it into oblivion while fighting the mild inflation problem we currently are experiencing," says Dhawan. He forecasts that the GDP growth will be 3.2% in 2006 but will slow to a 2.1% rate in 2007 and 2.8% growth rate in 2008. Oil prices will drop slightly by 2008. The 10-year bond rate will average 4.8% in 2006 and rise to 4.9% in 2007. In 2008, it will average 5.1%, and is not expected to cross the 5.5% mark.

Some of the sectors in Georgia that he gave a red flag because of the negative growth rates are Telecom, Airlines, and Textile Manufacturing. But there are some sub-sectors within these that are doing well like the Internet and wireless sector in Telecom, warehousing and courier in the Airlines sector. He stated that while the Telecom industry growth rate is -3%, its sub-sector, the Internet and wireless is growing at a rate of 6%.

Dhawan ended with an optimistic slant by concluding that even though the economy as a whole may be slowing, but there are some (very few) sectors that are doing well and growing at a fast rate and these are the Diamonds of our economy!

- Deepa Sreetal

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