EconSouth (Fourth Quarter 2005)
Georgia’s Outlook Is Positive but Guarded
In the 1990s, vigorous growth in service industries, such as information technology, provided a catalyst for strong economic growth in Georgia. Since the 2001 recession, no similar engine for growth has emerged, and the state’s economy has remained subdued. Employment levels have not yet fully recovered from the 2001 recession, and the state’s employment growth lagged behind that of the nation for much of the year. The growth in real per capita income also lagged the nation as a whole, and state tax collections grew more slowly than in 2004.
More positively, industries such as leisure and hospitality, employment services, and health and education services posted moderate employment gains during 2005. Furthermore, Georgia’s manufacturing sector, which has been eliminating jobs since 1998, has seen the pace of industry downsizing slow markedly over the past two years (see the chart). The leisure and hospitality industry, with the addition of venues and events, could be an important source of growth for the state in 2006.
However, Georgia’s economy faces some significant challenges in the coming years. These challenges include the closing of one large auto assembly plant in 2008 and the potential closure of another, uncertainty surrounding the restructuring of bankrupt Delta Air Lines and the resulting elimination of many high-paying jobs, and the closure of military facilities. These factors will restrain the pace of economic growth in 2006, especially in the metropolitan Atlanta area.
Real estate and construction still robust
Home sales and new home construction continued at strong levels in 2005. However, the year-over-year gains were lower than in 2004; existing home sales rose 14 percent in the third quarter of 2005 compared to a 27 percent increase a year earlier. Condominium construction was brisk during 2005, particularly in and around Atlanta. The growth in single-family permits is the lowest in the non-hurricane-damaged states in the Southeast but is similar to the national rate. However, gains in multifamily building permits significantly lag the national rate. Lagging growth in permits suggests that construction activity in 2006 may be relatively subdued. Although housing markets should remain generally healthy, the growth should continue to moderate overall in line with the modest outlook for job growth and higher mortgage rates.
Atlanta’s office market improved only marginally during 2005. Office vacancy rates declined from 23 percent to 21 percent over the year and remain among the highest in the Southeast. Although vacancy rates in the Atlanta industrial market declined by 3 percentage points, the level remained at a historically high 16 percent. New office space scheduled to come online in early 2006 could pause the trend toward improving vacancy rates, while higher input costs and resources diverted for hurricane repairs elsewhere in the Southeast could hinder new construction.
Services and tourism are sluggish
Employment in Georgia’s service sector was on a slight upward trend in the second half of the year. In November, employment was 1.5 percent higher than a year earlier, similar to the level of national growth. The primary gainers were employment services, which include temporary staffing agencies, and leisure and hospitality industries as well as demographically driven industries such as health and education. Professional and business services employment growth was modest while employment levels in the trade and transportation service and information technology industries remained largely unchanged over the year.
|Photo by Flip Chalfant|
|The recently opened Georgia Aquarium is expected to have a multimillion-dollar impact on the state’s tourism industry.|
The service sector should receive a boost from the leisure and hospitality industry as the Sugar Bowl will be held in Atlanta in 2006, along with several conventions that were originally scheduled for New Orleans. Furthermore, analysts expect the new Georgia Aquarium, which opened in November 2005, to have a large economic impact on Atlanta.
Planned military base closings will have a mixed impact on the outlook. The closing of Fort McPherson and the Naval Air Station will eliminate approximately 5,300 military and civilian jobs at these Atlanta installations, along with numerous other affiliated jobs. But the state as a whole is expected to have a net gain of approximately 4,000 military jobs, largely because of expansions at Fort Benning.
Manufacturing expects mixed performance
Manufacturing employment in Georgia fell by approximately 0.6 percent in 2005, about the same decline as in 2004. While employment in the state’s durable goods sector, which includes the large transportation equipment industry, was up moderately, employment in the nondurable sector continued to decline.
The manufacturing outlook for 2006 is guarded. The state’s large carpet and rug industry will get a boost from the rebuilding of residences and businesses damaged by the hurricanes. The future of the transportation equipment industry in the state is less certain, however. General Motors announced that it will close its Doraville plant in 2008, and the state’s other large auto-producing facility—Ford’s historic Hapeville plant—is on a list of possible future plant closings.