Georgia State University forecast: State economy to stall, Augusta to shrink

ATLANTA -- Political uncertainty is stalling the Georgia and U.S. economies at a time when the power of the state’s second-largest economic engine – its ports – is losing strength, one prominent forecaster warned Wednesday.


Augusta’s situation will be weaker than the state’s. The metro area will see a 0.5 percent decline in jobs this year and add only 0.2 percent in 2013, according to the outlook from the Economic Forecasting Center at Georgia State University.

Also released Wednesday, a Federal Reserve survey shows business types in the Southeast are expecting inflation to rise.

Rajeev Dhawan, director of the Forecasting Center, said rising oil prices and falling demand for exports add to other factors to push the “pause” button. Both corporate and consumer confidence has been shaken by questions about the election and what Washington will do about coming tax increases and deep spending cuts known as the “fiscal cliff” triggered by congressional failure last year to reduce the federal deficit.

Georgia-based military contractors and installations are bracing for the sting of the cuts.

One area of the state economy that hasn’t been timid since the recession is exports to Europe. Over the last two years, they have exerted a powerful pull on the state economy, rising 20 percent annually in that period. More than one-fifth of Georgia’s exports went there, ranging from Gulfstream’s airplanes to Kia Motors’ cars, paper, industrial machinery and surgical equipment.

But European activity is slowing.

“The drop in demand from Europe and U.S. political uncertainty are muting companies’ desire to expand,” Dhawan said.

Between April and July, metro Augusta lost 1,000 jobs, the fifth consecutive quarter of decline locally.

So far for the year, retailers issued the most pink slips (800), followed by factories and builders (1,200 combined). Gains came mainly in the education/health sector (1,020).

Consequently, the area’s unemployment rate rose to 9.3 percent, topping the state rate of 8.9 and worse than the state’s other metropolitan areas except for Albany, Dalton and Macon.

A factor that’s weakening those areas is the loss of steam by the ports, one of the most vibrant sources of economic fuel for the state is beginning to lose steam.

“The impact of the slowing global economy already is being felt in Savannah, where growth has decelerated sharply in the past six months and where port traffic and future expansion will take a hit in coming months,” he said.

The hospitality industry is also losing momentum. He predicted it would not add any jobs until the fiscal and political difficulties are resolved.

“Although it grew very well after the end of the Great Recession, it has since stalled due to high gas prices and corporate reluctance to hold big gatherings,” he said.

One remaining bright spot is healthcare. The recent decision by the U.S. Supreme Court upholding federal health reform signals hospitals and other providers they can proceed with plans for expansion and converting to electronic records. The sector will grow, but not zoom because consumers worried about their paychecks will put off elective procedures, he predicted.

Dhawan is forecasting 1.1 percent job-growth rate for Georgia and an unemployment rate stuck around 9.2 percent for the next two years.

Inflation will also be growing, according to 169 firms across the Southeast surveyed by the Federal Reserve Bank of Atlanta. Those questioned expect inflation to rise by 1.9 percent over the next 12 months, an increase over the 1.7 percent the same survey found in July.

The companies reported deterioration in their sales and profits during the past month, and most said they would only be able to pass along about half of any cost increases to their own customers.