A couple of weeks ago, this column explored the message of the Economic Forecast as presented by Dr. Rajeev Dhawan of Georgia State University that was titled “Is the Recovery Running on Empty?”
If you read this column, it related Dr. Dhawan’s discussion of the general mood of consumers and explored the lack of confidence that both consumers and business decision-makers have about the foreseeable future. He discussed how this lack of confidence affects buying by consumers and investment by businesses. In these uncertain times, the tendency to postpone buying decisions keeps down the initiative that results in additional hiring and the creation of jobs by businesses.
There are a number of indexes and indicators that Dr. Dhawan referred to that demonstrate how this is being played. But there are other indicators as well. I ran across a release by the trade association of credit unions back at the end of June that gives us some strong indicators of this lack of confidence by consumers. This is a report entitled “Paying Attention,” www.georgiacreditunions.org/legislators.php. This data comes from credit unions in Georgia outlining savings statistics and the results of a consumer survey of over 4,000 credit union members.
This information reveals that credit union savings accounts grew more than 4.6 percent and that credit card debt decreased 4.2 percent in the first three months of 2011 before showing an increase the second quarter. These numbers confirm the results of the consumer survey which revealed that :
• 77.1 percent say they are keeping their vehicles longer
• Only 13.3 percent plan to buy a vehicle in 2011 but only 16.4 percent of those planning to buy, say they will be buying a new vehicle
• Only 20.9 percent planned to travel more in 2011 and 37.8 percent planned on spending less if they traveled.
But there are other elements that play into the make-up of the marketplace and cause ripple effects that decrease confidence and inhibit investment. Of course, housing, construction and sales, is a huge player in Georgia’s economy.
The implications of low housing prices
Lack of confidence might be a cause of the problem, but Georgia is still in a very precarious position. Jobs nationwide are expanding at about 2 percent, but in Georgia, this figure is closer to -.6 percent. Not only are jobs necessary to pump money into the economy but also to stop the slide of housing prices. If you remember, the recession of a decade ago was overcome by the construction industry. Construction commenced even without known tenants because people would always show up.
Georgia’s status as a leader in foreclosures and bank failures show that this was not a smart or sustainable decision.
Banks are the key to distributing capital. Foreclosures tie up needed cash that otherwise would be loaned out.
Another interesting observation by Dr. Dhawan is the impact of housing prices on the amount of capital available.
Assuming banks have sufficient resources to make loans, many small businesses are not able to attain needed amounts due to the lack of collateral. Small businesses rely on bank loans to fund expansion or daily operating needs. As housing prices fall (and consequently the amount of collateral that can be used to backup a loan), so does the amount banks are comfortable loaning. Without this source of capital, it will be especially difficult for startups to enter the market and hire staff.
Also impacted by housing prices are the revenues of local cities and counties. These governments represent 15 percent of the state employment base. Declining property collections will result in more people joining the unemployment line.
Manufacturing and exports
Another interesting observation was the assertion that the recovery of our manufacturing jobs will depend on the world’s emerging economies. The main products Georgia exports are:
1. Aircraft and Spacecraft Products (2010 Exports equaled $6 billion)
2. Industrial Machines and Components ($3.6 billion)
3. Vehicles and Parts ($3 billion)
4. Electric Machinery ($3.5 billion) and
5. Wood and Pulp Products ($2.4 billion)
These industries account for 50 percent of total exports.
From 2009 to 2010, Georgia’s exports grew 21 percent. The first quarter of this year saw 26 percent growth. Canada is our number one trading partner. But also in the top 10 are emerging markets such as China (No. 2), Mexico (No. 3), Brazil (No. 9), and Turkey (No. 10). Purchases by other South American and Asian countries are increasing while European purchases are declining.
Emerging markets are riskier than developed markets but there might not be another choice. It was, however, encouraging this week to hear President Obama stress the importance of increasing exports.
Upcoming columns will expand on how federal and state actions will influence the state economy.
I may be reached at
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E-mail at Jack.Hill@senate.ga.gov
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