Georgia’s Economic Outlook Is Uncharacteristically Ugly

Today’s Courier Herald Column:

The good news coming out of Athens may be limited to the football field these days. It certainly isn’t coming from the University of Georgia’s Terry College of Business and their economic forecast for the state. Dean Robert Sumichrast presented the school’s annual outlook for Georgia’s economy Tuesday, and their predictions are stark and frankly somewhat bleak with respect to economic recovery and job creation.

The state, facing unemployment rates that have exceeded the national average since the housing/financial crisis began in 2008, is expected to add less than 20,000 jobs next year, with unemployment continuing to exceed 10% statewide. This is despite the fact that the center is not projecting another economic downturn.

Georgia has lost over 357,000 jobs since the economic downturn began with total employment now at roughly 3.8 million. This is down from 2008’s peak of 4.15 Million, with about 25,000 jobs lost during 2011. UGA’s prediction for this year was originally that we would add just over 40,000 jobs, demonstrating that the recovery here at home remains stubbornly elusive. UGA now says it may be 8 more years until Georgia’s employment returns to 2008 levels. This stands in stark contrast to the previous two decades, when the state created jobs at a much faster rate than the rest of the country.

At the root of Georgia’s problem is housing, as it is in many areas of the country which experienced extreme overbuilding during the last decade. Georgia is also not seeing the in migration of new residents which have fueled housing, population, and economic growth for decades. With population growth slowed by the lack of people moving to Georgia, the oversupply of housing remains difficult to absorb.

The continued lack of demand for Georgia’s existing housing supply contributed to another stark number released yesterday, as the widely followed Case-Shiller housing index showed that the price of homes in metro Atlanta fell to a new low in September, with their index now at 95.99 for the month. With the benchmark set at 100 for year 2000 home prices, this means that homes in Atlanta are now at less than 96% of what they were worth at the dawn of this millennium. Or put another way, the average homeowner who purchased a home in the last 12 years has a home that is worth less than it was when it was purchased.

The continued loss of Georgia jobs combined with dropping home values feed a vicious cycle of lowered home prices, with more than half of metro area homes worth less than the mortgages owed on them. This makes the home difficult to sell, and impossible in most cases without the aid of a “short sale”, where the bank must agree to waive the remaining balance it is owed above the net proceeds – the sale price less commissions and closing costs – to facilitate a sale.

An extremely high percentage of sales in metro Atlanta are short sales, which are time consuming and tedious transactions which are difficult to estimate the timing for an actual close. Those who are unable to complete a short sale or are unwilling to participate in an extended process that can take many months end up in foreclosure, with fully one third of metro Atlanta’s sales represented by foreclosures. These foreclosures are often now purchased by investors at a discount, continuing the downward pressure on home prices.

While fixes for the housing market remain mostly in the realm of national and international financial and banking policies, Georgia leaders can be expected to feel the heat for a general lack of demand. The fact that Georgia remains stagnant in job creation means that Georgians are having difficulty finding the jobs needed to purchase these homes or pay their existing mortgages, while the flood of those from other states who once came here for better economic opportunities are no longer arriving to fuel our economic growth.

The state’s current vision for a competitive advantage continues to rely on logistical infrastructure from a Hartsfield Jackson airport which is completing yet another expansion and a Port of Savannah that is seeking a half billion in federal funds to accommodate larger ships and the good that they will carry. If grim predictions like the ones released from Athens continue, expect some Georgia politicians to arrive in Savannah with snorkels and shovels preparing to start the dredging themselves.

16 comments

  1. Max Power says:

    I’m going to say something that’s based only on my observations of metro-Atlanta, but since metro-Atlanta contains more than half the state’s population and probably more than half of the state’s economic activity it’s probably telling. The reason Georgia was hit so hard by the recession is that so many Georgians were living above their means. Too much of what was happening in Atlanta was built on easy credit, and now that’s gone it’s going to be a long road back.

    • CobbGOPer says:

      Georgians living above their means is not the reason Georgia companies have put 400,000+ workers on the street since 2008. It’s the reason those 400,000+ people are facing foreclosure/bankruptcy/myriad financial problems now that they’ve lost their jobs and can’t find one in Georgia to save their lives. It’s also the reason many of these people can’t afford to move somewhere else where there are jobs available.

      This news is just one more reason why I’m doing everything possible to get away from Georgia.

      • Max Power says:

        I disagree, when the downturn came and demand collapsed businesses were forced to react, and in most cases they reacted by either going out of business or curtailing their work force. If there was more demand companies would hire more and new companies would be formed strengthening the economy.

        • CobbGOPer says:

          Except that as demand is slowly recovering, jobs aren’t coming back. ‘Jobless recovery’. These companies are finding they can flog reduced workforces into the same level of productivity for the same level of pay. I see it in my own office every day. And no one complains because they’re just happy to have any job at this point.

          • Max Power says:

            Ah but what’s that demand for, consumer electronics made in China, cars made in Mexico, the reason housing buoyed the entire economy is that it is produced in the US, mainly of materials made in the US. Because we’re so overbuilt in housing it’ll take years before that sector comes back. Until Americans are willing to accept the economic inefficiencies necessary to maintain our economy, we’re in trouble. But that’s a public policy problem that no one is willing to address head on.

    • benevolus says:

      Easy credit for companies too.
      Developers built too many houses.
      Companies expanded too fast.

      And of course, the “easy credit” is just as much the fault of the banks (if not more so) as it is the Georgians getting the loans.

      Reminds me of when we criticize athletes for making so much money. It’s the owners who choose to pay them. What is the athlete supposed to do, turn them down?

  2. David C says:

    It’s a larger problem with Georgia’s economy than just the recession and the housing crash. From the 1970s, when they first started checking state by state employment, until the 2000s, Georgia never had a job loss. Not even in the 1982 recession that saw nationwide double digit unemployment did Georgia actually lose jobs. But, with the ’01 recession, Georgia had a negative job loss in a brief period for the first time. For a few of the years in the mid 2000s, even with positive job growth, the state wasn’t growing enough jobs to meet population increases, so the local unemployment rate went up. I think Georgia’s reached the limits of its previous growth strategies, which revolved around lower wage / non union work force and logistics hubs. It needs to drastically rethink its growth model and start working to create a better growth environment, in things like education, energy, and transportation. Sadly, I doubt that’s going to happen: Instead, the legislature will go to its favorite trick, tax breaks for whomever has the prettiest lobbyist under the Gold Dome.

  3. Rick Day says:

    This economy is good for those like me who foresaw all this mess back when Bush 2 was re-elected.
    The writing was on the wall:
    “First comes war. Then comes plunder”.

    Ain’t I smart?

    I have two businesses that are in a rapid growth phase. One is a discount event rental center (a convention center designed more for conferences than conventions) started in 2005. Competition (what little there is in the discount venue market in Atlanta) has had to alter their pricing downward to be as competitive as us, but our overhead is lower so we compete on many levels for event space. Every Dec 31st some large venue quietly shutters, license not renewed.

    The second business next door is a live entertainment facility licensed as a restaurant we opened a year ago. Our demographic is typically 18-24, college student or underemployed, otherwise homogeneous, who mostly make under $24,000 a year. The only way we can draw this demographic is with cheap drinks and cheap cover and quality DJ talent. How do we do it? Volume! Our larger facility is big (18k ft sq), but the rent is so cheap, and our location good that our competition can not keep up with us and our overhead is probably 15% lower overall. Hell, the ‘night clubs’ don’t want this demographic! Our competition is illegal venues and code violating establishments. It is cheaper for me to have my own security than hire expensive cops to sit outside the door.

    Are we getting rich? No, not off this investment, and not ever likely to. But we are employing over 30 people, 5 of them full time. Are we going to make it? Well, we just extended our leases to 2016. And we do have other sources of revenue. Nor are we on the dole. We pay plenty of taxes, and GLADLY. It is unamerican to gripe about paying taxes. Wasted tax spending? Another thing altogether but I digress…

    During Thanksgiving week we had over 30o0 people attend the three nights we were open. Last night in the bitter cold we still had about 900. Even in winter, we will kill our competition numbers wise.

    International agents and talent are contacting us for booking dates because of Atlanta’s and our exploding reputation as a ‘fun place’ to party. We will stay here until the landlord buys out the bath house behind us (which has no intention to sell their property), razes both plats to build a tasty high rise in about 10 years. Until then, we do them a service and pay them some badly needed revenue by occupying, residing and utilizing this old factory/strip center. That, and good timing for the genre of music we have helped nurture is rapidly becoming the next ‘new mainstream’ of music is what makes us survive these tough times.

    So, bootstraps, homework on politics, forward thinking, the perfect storm, incredible tenacity and luck, making the best of a horrible situation: this is how entrepreneurial types survive the Bad Days™.

    And the Doctors of Emory© told me 5 years ago I only had three years left on this liver. pft.

    Saying that: 5 bad months and we are toast. But even given seasonal changes, that is not likely to happen. People like to party when times suck. And people like to have a lot of fun without spending a lot of money.

    And eventually, I will find a $300k condo in Midtown for $55,000, and it shall be mine, paid with cash.

    Good Times™. See you on the boulevard.

  4. Jeff Yoder says:

    I left the 3rd world state of GA 2 years ago and have never been happier. Georgia’s GOP controlled Govt. seems more interested in legislating morality than getting the economy humming. I just read this morning in the Washington Post that Atlanta had the highest housing depreciation in the country since Sept @ 9.10%. GA also has one of the highest job losses and seems to be haeding back towards reconstruction. How’s that GOP leadership doin’ ya down thier//LOL

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