Dr. Albert Niemi, currently the Dean of the Cox Business College at Southern Methodist University, recently gave his annual economic forecast at a meeting in Atlanta at the invitation of the Bank of North Georgia – a forecast he has given to Atlanta leaders for more than 10 years. His comments are always interesting and provide many valuable insights. We hope you'll read the synopsis of his comments below and use them as a thought-starter as you plan for 2010.
Following is a synopsis of Dr. Niemi's remarks courtesy of Bill Cooper, the CEO of the Cobb Chamber of Commerce:
From 1982 to 2007, the United States experienced an unprecedented period of economic growth, which we will not experience again in the foreseeable future. There were three major factors driving this growth:
Invention of the microchip – altogether, technology industries (computers, cell phones, etc.) contribute one trillion dollars to our economy.
Globalization of the economy. China, India, Russia = 4.5 billion people become part of our economy.
Economic policies: Marginal tax rate dropped from 70 percent to 35 percent. Inflation dropped from 14 percent to 2 percent, and international free trade has been adopted.
Current federal economic policies are the wrong policies to grow economy.
California is a perfect example of the way our nation is headed with current policies:
Expansion of the role of government – more since the 1930's.
Anti-business sentiment – businesses are leaving the state, resulting in less tax income.
More expensive government benefit programs; unsustainable environmental restrictions.
California has huge negative growth for foreseeable future.
The nation lost 6 percent of its GDP from 2007 to 2009, compared to the 1980 – 1982 recession, which lost 2 percent and the Great Depression, which lost 26 percent of GDP.
Unemployment was 25 percent in the 1930's. Currently, Georgia is at 10.2 percent and predicting 10.5 percent. There is a chance unemployment could go up to 11 percent by the spring of 2010.
There is the possibility of a "double dip" recession caused primarily by three factors:
"Stimulus" dollars gone in 2011
Bush tax cuts expire
Possible increase in interest rates driving up inflation due to federal government spending.
When recovery comes it will be sluggish at best. It will be a "jobless" recovery, keeping unemployment high, resulting in a lack of consumer spending to spur economy.
Public policy is making problems worse:
Stimulus dollars did not address the jobs issue; the dollars went primarily to pork barrel politics. Only $120 billion of $700 billion went to jobs. The rest went to states to address their issues.
The current healthcare proposal is a huge problem resulting in no hiring by businesses because of fears of increased costs of providing insurance.
Housing is 20 percent of the United States economy:
From 2000 to 2007, two million homes were built each year.
In 2008, 800,000 homes were built. Approximately 550,000 were built in 2009, and 700,000 will be built in 2010.
This downsizing of the housing industry is felt throughout all sectors of the economy.
Consumer spending is 70 percent of the economy:
Households lost 22 percent of their net worth in the past two years. People are replenishing their savings – not spending. The savings rate is up 4 percent from virtually zero the past few years. Auto/truck purchases are down 30 percent from 2000 to 2007 levels.
Bush tax cuts will expire in one year. The marginal tax rate will increase 5 percent.
This impacts spending and hiring.
When the Bush tax cuts expire, 50 percent of taxpayers will be paying 99.6 percent of all federal income taxes. This is an untenable situation.
The federal government is set to increase taxes next year. Raising taxes on people in higher brackets will hurt people at the bottom. Workers suffer as people don't purchase second homes. The hospitality industry suffers with less eating out, less travel, etc. Workers and job creation suffer.
Taxes will be raised on interest and dividends. Medicare taxes will increase.
Forecast for 2010:
Growth from 2.5 percent to 2.7 percent. Real estate will be at bargain prices in north Georgia.
Unemployment will still be at 10.5 percent by the end of 2010.
Inflation will be less than 2 percent. Interest rates will have no large changes.
Georgia will have an underperforming GDP compared to the national average. Georgia GDP will be down 3.8 percent compared to the 2.7 percent growth of national GDP. There is a large glut of property in Georgia, comprised of both residential and commercial properties. It will take a while to recover and absorb this inventory.
In 2007, 110,000 new homes were built in Georgia. In 2009, fewer than 18,000 were built, while in 2010 the number is estimated between 32,000 and 33,000.
Macro Economic/International Issues to consider:
Globalization of business models will be critical in coming years. China and India are the main players. China has 400 million middle class citizens. (The United States has only 310 million total in population.) That's huge purchasing power. This is the largest future market for electronics and automobiles. Nineteen million students are in Chinese colleges today, which will double to 40 million in 20 years. China will become the education leader. China and India are becoming the largest market for businesses that understand the possibilities and exploit the opportunities.
From 1998 to 2007, China's GDP grew by 9 percent, India's by 6.5 percent and the United States' by 3.7 percent. China and India's economic expansion will dominate global economic activity for the next 20 years. It is critical for United States businesses to figure out how to engage these expanding markets.
The long term forecast is excellent with positive population growth. Georgia will exceed national growth rate by 50 percent or more. Georgia is only one of 11 states that will show strong economic growth. (GA, FL, NC, TX, AZ, NV, UT, ID, OR, WA, AK)
Georgia's competitive advantages: good weather, natural resources, pro-business climate, varied population, skilled workforce, low costs of labor and land, and good infrastructure.
Georgia will add 1 million people by the end of 2015. It will become one of the top five or six states in terms of economic growth by 2030.
With the opening of the Kia plant and the plans for NCR, Georgia is being favorably positioned for manufacturing.
Hartsfield/Jackson International Airport is a big plus in Georgia's future.
In summary, Dr. Niemi is predicting another 12 to 18 months of difficult economic times. Federal policies are a wild card that could exacerbate the problems of a positive economic recovery.
For more information regarding this article, please contact Ben Mathis at 770.818.1402 or by email at [email protected].