Originally created 09/12/99

Area economy precarious



Here is next year's local economic forecast in a nutshell: more of the same, but a little less.

Economists predict Augusta's modest growth will continue into 2000, but at a slightly slower pace because rising interest rates may discourage business expansion and consumer purchases.

Although the state and national economies could cool as well, economists say a slowdown would have more impact in Augusta, which has struggled to keep up with the broader economies for most of the 1990s.

"It would make it harder for Augusta to sustain its current rate of growth," said Jeffrey Humphreys, University of Georgia's director of economic forecasting.

Nonfarm job growth in Augusta-Aiken was about 1.8 percent during 1998, compared to the statewide average of nearly 5 percent.

Donald Ratajczak, director of the Economic Forecasting Center at Georgia State University in Atlanta, predicts Augusta will finish 1999 with modest job growth somewhere around 1 percent.

That's nothing to brag about, he said, but it's still an improvement over previous years when gains were less than half a percentage point.

"A couple of years ago, Augusta had no employment growth at all," Dr. Ratajczak said. "There was a question as to whether it was in recession."

He said gains could easily fall below 1 percent in the new year if rising interest rates discourage businesses from investing in expansion, buying new equipment or hiring new employees.

Higher borrowing costs could also cause local consumers to slow spending on clothes and travel or even postpone major purchases such as cars, homes and furniture.

However, Augusta is small enough that a few major announcements of layoffs or new jobs could drastically change its economic outlook either way.

"Decisions by one or two players could throw (forecasts) off quite a bit," Dr. Humphreys said.

Dr. Ratajczak predicts statewide growth will fall to 4 percent at the end of 1999, possibly to 3.5 percent in 2000.

Standard & Poor's is less optimistic, predicting Georgia employment growth to fall to 3 percent in 1999 and to 1.8 percent in 2000 because of construction job cutbacks, mostly in Atlanta.

"Excessive residential growth and commercial overbuilding will finally begin to take their toll, leading to construction layoffs and making a severe dent in the economy," said Sara Johnson, chief regional economist for Standard & Poor's.

Augusta will see little, if any, growth in the construction sector in 2000, economists say.

"Virtually everyone who wanted to build built because rates were very attractive," Dr. Humphreys said. "What we're really calling for now is stability, a leveling off of activity."

Home construction is a key economic force because it drives demand for products such as building supplies, appliances and home furnishings.

The Federal Reserve on Aug. 25 raised the federal funds rate for the second time this summer by a quarter point to 5.25, prompting commercial banks to raise their prime lending rate a quarter point to 8.25.

Many economists believe the Fed, which is attempting to keep inflation in check, will probably raise rates again later this year.

Local builders say higher rates in the new year will cool the local market somewhat, but probably not to the point where it falls below the gains made during the last two years.

The 2,973 residential building permits issued in the five-county area in 1998 made it the best housing year since 1992.

"We expect a slight slowdown, but we're not looking for a big downturn," said Tom Werner, president of Pierwood Construction Co. and the Builders Association of Metro Augusta. "You would not see us having problems unless rates got up to 9.5 percent."

As for other employment sectors, economists expect weakness in the timber industry if a construction slowdown occurs.

Retail growth in Augusta-Aiken should remain strong while government employment should show gains consistent with the overall economy.

Augusta's service industry is one of its strongest sectors, with most of the employment gains coming from the real estate and mortgage banking industries, First Union economist Mark Vitner said.

"The call-center jobs, like the new Delta reservation center, are also starting to show up," he said.

Manufacturing, which accounts for about one-fifth of all local jobs, is showing a 2.6 percent increase in productivity so far over last year, Mr. Vitner said.

However, actual employment growth should be flat in the new year as gains in the chemical industries, fueled mostly by hiring at Aiken's Bridgestone/Firestone plant, are offset by reductions in the apparel and textile manufacturing industries, which continue to automate and relocate overseas to remain competitive, he said.

Augusta's lack of high-tech jobs, the type of computer technology and telecommunications jobs that have fueled Atlanta's during most of the decade, may be what hurts the most in the coming years, Dr. Ratajczak said.

Local officials have only recently begun attempting to spin-off private industries from technology developed at local government institutions such as Savannah River Site, Medical College of Georgia and Fort Gordon.

"We have technology growth in parts of the state, Columbus is a winner, Macon is getting pieces, but we're not getting it in other areas at this point," Dr. Ratajczak said. "Not being a part of that is a handicap."

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Damon Cline at (706) 823-3486.