Forecasting Georgia's Economic Future: Is The Glass Half-Empty Or Half-Full?

By Dick Pettys
InsiderAdvantage Georgia

(12/4/07) Is the glass half-empty or half-full in terms of Georgia’s economy next year? Depends on who you listened to at the 25th annual economic outlook luncheon hosted by the University of Georgia’s Terry College of Business.

Gov. Sonny Perdue clearly was on the half-full side when he said:

“Our state is in great shape. It doesn’t mean we need to put our heads in the sand ... We need again to be prudent in our budgeting and our spending. But we pulled through those tough times a few years ago. We’ve done our best to exercise some fiscal discipline and I believe we will emerge as a strong and vibrant economy.”

Dean Robert T. Sumichrast of the Terry College put it this way:

“In 2008, there will be no soft landing for Georgia’s economy. Housing, manufacturing, agriculture and the information sector are already in recession and downturns in those key industries put the entire state’s economy dangerously close to the tipping point. However, we haven’t tipped yet. Our economy is still growing, but what appeared to be a soft landing for Georgia’s economy has morphed into a protracted landing - characterized by considerable turbulence.”

He went a step further: “The only thing standing between us and a recession is one major crisis or one unexpected shock or one mistake by the Federal Reserve. The period of greatest risk is imminent. Georgia’s economy will be most vulnerable in the first and second quarters of 2008. For the next six months, we will be living on the edge.”

Perdue, who preceded the dean, was obviously ready for the economist to deliver a jolt, and wasn’t prepared to give any ground. “I love to precede economists because they’re going to tell you what’s going to happen. I have the advantage of telling today what has happened, and I have more confidence in my predictions than theirs. History is a great equalizer.”

Perdue contrasted Georgia’s position with states like California, which has a $10 billion budget shortfall, and New York, which faces a $4.3 billion deficit, and Florida, where economists are expecting tax collections there to be down by $2.5 billion over the next two years, he said.

Georgia now has reserves of $1.4 billion heading into next year, a business-friendly environment and low tax burden that will continue to draw development and a world-class ports system, he said. The Kia plant for west Georgia is moving forward, he said, and six suppliers already have committed to bringing a total 1,400 jobs to that area. Three major Chinese firms have chosen Georgia as their entry point into the U.S. market, he said.

His speech happened to occur just moments after Delta Air Lines announced it plans some job cuts, a partial hiring freeze and other steps in response to high fuel costs.

“We’ll always have challenges in the airline industry with $3 gasoline and $4 jet fuel, and that’s a challenge they’ll work through,” Perdue told reporters later. “Delta’s done a great job getting their organic costs in line. But our economy is dynamic. It will follow and lead the national economy in many ways. Last time we didn’t lead, we followed the national economy and followed it downward further. I do believe our economy is in better shape this year. Our reserves and our budget discipline, I believe, is in much better shape and we’ll be very prudent in this budget session coming up to make sure Georgia, in the public accounting standpoint, not only survives but thrives.”

However, Perdue said the state must pay attention to the problems facing other states. “We cannot stick our heads in the sand and assume that the housing troubles may not affect Georgia ... to some degree they already have, although less to a degree here than other places.”

And he said Georgia’s continued economic vitality does depend on the management and protection of its water resources.

He sent a clear message to lawmakers that they must pass the statewide water management plan when it reaches their desks next month.

“We do have enough water in the state,” he said. “It’s simply a matter of managing it properly, making smart, conservative decisions and working with our neighbors and federal partners to make it last.”

Sumichrast said in his speech the risk of recession is ramping up because of three pressure points:

* Housing: New home building activity will continue to slide until the 4th quarter of 2008. “From its peak in 2005 until it rebounds, we anticipate a 53 percent drop in activity ... Georgia’s housing recession doesn’t end until late 2008 or possibly early 2009.” The good news is that there is no investor-driven price-bubble affecting existing home sales in Georgia, he said.

* Energy: Georgia is exposed to an oil price shock or supply interruption because global energy markets will remain very tight. High fuel prices will do more damage to Georgia’s economy than those of many other states because Georgia, and especially Atlanta, is a major distribution and logistics center.

* Drought. This has already caused recessions in urban agriculture, landscaping and garden centers, he said. “The drought alone will not push Georgia’s economy into recession, but in the tug of war between positive and negative economic forces, the drought could tip the balance toward recession.”