Dr. Rajeev DhawanDirector
Office: 404-651-3291Office: 404-651-3291email: [email protected]: [email protected]://www.robinson.gsu.edu/efchttp://www.robinson.gsu.edu/efc
ECONOMIC FORECASTING CENTER
Presented at theAtlanta Economics Club Luncheon
MeetingSeptember 20th, 2005
GLOBAL ECONOMIC OUTLOOKGLOBAL ECONOMIC OUTLOOK
Anonymous VentorAnonymous Ventor
My girlfriend demanded that Itake her to someplace expensive,
Source: AJC, April 21st, 2005
so I took her to a gas station
KATRINA
Source: The Atlanta Journal-Constitution, September 4 th, 2005
Impact of Past Hurricanes
Name Date States Impacted Personal Income Growth
Before
Q2
After
Q3 Q4
Hugo 1989 Sept South Carolina
North Carolina
3.2
5.3
-19.3
-1.0
40.6
10.8
Andrew 1992 Aug Florida
Louisiana
5.1
7.6
-12.7
0.3
37.8
12.2
Floyd 1999 Sept North Carolina 4.2 -1.1 12.5
Charley Frances Jeanne
2004 Aug-Sept
Florida 9.1 2.5 14.8
Ivan 2004 Sep Alabama 7.9 2.2 10.3
Areas Affected by Hurricane KatrinaAreas Affected by Hurricane Katrina
City Population EmploymentPersonal Income
Wages & Salaries
In Thousands (2004) In Billions $
New Orleans 1,315.8 615.6 39.6 21.1
Mobile 399.9 170.8 9.3 5.5
Gulfport-Biloxi 249.7 113.5 6.5 3.8
Pascagoula 154.3 53.6 3.8 1.8
Houma 197.6 81.9 5.0 2.7
Hattiesburg 128.3 54.8 3.0 1.5
Total 2,445.6 1,090.2 67.1 36.4
% of US 0.8% 0.8% 0.7% 0.7%
Source: Bureau of Labor Statistics, Bureau of Economic Analysis
Calculating the Impact of Hurricane Katrina
1. Refinery damage affects gasoline supply until mid September, prices fall only a few weeks after that; $3.00+ per gallon price remains for the next one month; High gas price affect discretionary consumer spending
2. Consumer confidence slips in September and October (refugee crisis + high gas) but recovers by early January as rebuilding begin in New Orleans
3. Ports, refineries, oil and gas pipelines fully operational by January
4. FED keeps on its “measured” hike path to combat inflation caused by Katrina.
5. 10-Year Bond remains low as flight to quality persists giving a break to consumers
IVIIIIIIIVIIIIIIIVIII200720062005
75
70
65
60
55
50
45
40
($/bbl)Impact of Katrina on Oil Price
Baseline Katrina
Gas Prices Remain in the $3 Range
IIIIVIIIIIIIVIIIIIIIVIIIIII2005200420032002
280260240220200180160140120
10.0
8.0
6.0
4.0
2.0
0.0
(Bil.$) (%)Gas Spending Dings Discretionary Expenses
Spending on Gasoline (Left)Growth in Food, Clothing & Shoe Spending (Right)
But Tax Cuts Have Eased the Oil Price Shock this Time
Average Effective Income Tax RatesFederal, State and Local Combined
20%
22%
24%
26%
28%
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
98
19
99
20
00
20
01
20
02
20
03
20
04
Past Oil Price Shock came when tax rates were rising rapidly
Bush Tax cuts have absorbed energy price shocks
Source: Prof. Larry J. Kimbell, Nov. 2004
IVIIIIIIIVIIIIIIIVIII200720062005
96
94
92
90
88
86
84
(Index 2000=100)Impact of Katrina on Consumer Sentiment
Baseline Katrina
Confidence Drops by 10% in Coming MonthsIt Recovers as New Orleans Gets Dry by 06q1
IVIIIIIIIVIIIIIIIVIII200720062005
1.95
1.90
1.85
1.80
1.75
1.70
1.65
1.60
(Mil.)Impact of Katrina on Housing Starts
Baseline Katrina
IVIIIIIIIVIIIIIIIVIII200720062005
18.5
18.0
17.5
17.0
16.5
16.0
(Mil.)Impact of Katrina on Auto Sales
Baseline Katrina
IVIIIIIIIVIIIIIIIVIII200720062005
5.7
4.7
3.8
2.8
1.9
0.9
0.0
(% Ch.)Impact of Katrina on CPI Inflation
Baseline Katrina
IVIIIIIIIVIIIIIIIVIII200720062005
5.6
5.4
5.2
5.0
4.8
4.6
4.4
4.2
4.0
(%)Impact of Katrina on 10-Year Rate
Baseline Katrina
Minor Drop!
Inflation Kicks up InitiallyWhich Keeps the FED Aggressive
Liquidity Motive Drops 10-Year Bond Rate
Bigger ImpactOn Housing
IVIIIIIIIVIIIIIIIVIII200720062005
4.5
4.0
3.5
3.0
2.5
2.0
1.5
(% Ch.)Impact of Katrina on GDP Growth
Baseline Katrina
Initial Drop in Growth: 0.6% in 2nd Half of ‘05Strong Recovery in 2nd Half of ’06
Almost Makes up for Prior Losses!
Change In 2005Q3 2005Q4 2006Q1 2005 2006
GDP Growth -0.7% -0.9% -0.5% -0.2% -0.2%
Cons. Growth -0.5% -0.5% -0.8% -0.1% -0.3%
Employment -51K -310K -499K -90K -363K
10-Year Bond -0.3 -0.3 -0.3 -0.2 -0.1
Housing Starts
-4.8% -10.9% -6.0% -3.8% -3.9%
Auto Sales -0.6% -1.2% -2.4% -0.6% -1.8%
National Impact of Hurricane KatrinaChange from Base Forecast
Source: EFC Calculations
US Sector or Area Grade
Construction A++
Tax Collections A+
Real Dividend Growth A+
Bank Loan Activity A+
Corporate Revenue Growth A
Health/Finance/Insurance Jobs A
Weak Dollar (Earnings) B+
Overall Job Growth B+
Euro Zone Malaise C
Oil Prices D
Benefit/Health Costs D
Manufacturing Jobs D
Auto Over-Capacity F
Iraq/Terrorism F
The Good, the Bad, and the Ugly
Overall US Economy A-
654321
100
90
80
70
60
50
40
30
Bursting BubblesDow (2000-2005) vs. Nikkei (1990-2005)
Dow Jones
Nikkei
High Trade Deficit Numbers Keep US Long Term Bond Rates Low!
Countries 1996 2003
Industrial 46.2 -342.3
United States -120.2 -530.7
Japan 65.4 138.2
Euro Area 88.5 24.9
France 20.8 4.5
Germany -13.4 55.1
Italy 39.6 -20.7
Spain 0.4 -23.6
Other 12.5 25.3
Australia -15.8 -30.4
Canada 3.4 17.1
Switzerland 21.3 42.2
United Kingdom -10.9 -30.5
Countries 1996 2003
Developing -87.5 205.0
Asia -40.8 148.3
China 7.2 45.9
Hong Kong -2.6 17.0
Korea -23.1 11.9
Taiwan 10.9 29.3
Thailand -14.4 8.0
Latin America -39.1 3.8
Argentina -6.8 7.4
Brazil -23.2 4.0
Mexico -2.5 -8.7
Middle East and Africa 5.9 47.8
E. Europe and ex-USSR -13.5 5.1
Global Current Account Balances Global Current Account Balances (Billions of U.S. Dollars)(Billions of U.S. Dollars)
Source: Remarks by Governor Ben S. Bernanke, March 10, 2005
Trade in Goods and Services U.S. Treasury Securities Holdings Currency
As of 2004 Change As of 2004 Change Appreciation
Japan -75.2 -9.3 702 353.7 4.3
China -162 -38.1 196 49.4 0.0
South Korea -19.8 -6.9 67.1 8.6 13.4
Taiwan -12.9 1.2 59.1 18.2 6.7
Hong Kong 6.5 1.8 52.9 22.7 0.0
Singapore 4.3 2.9 26.9 4.1 4.1
Germany -45.8 -6.6 59.5 19.5 8.0
UK -10.4 -1.7 171 124.0 7.1
* All numbers are in billions of U.S. dollars
Trade and Holding of US TreasuriesTrade and Holding of US Treasuries by Central Banksby Central Banks
Source: BEA (Trade) and US Treasury Department
Japan -75.2 -9.3 702 353.7 4.3
South Korea -19.8 -6.9 67.1 8.6 13.4
UK -10.4 -1.7 171 124.0 7.1
In one year Japanese Bought $350+ Bil. worth of Treasuries to
Keep their Currency from Appreciating
2004 US Balance in International Trade2004 US Balance in International TradeWhat What TheyThey Buy From Buy From Us*Us*
Airplanes 13.2
Chemicals (Plastic) 10.9
Airplane parts 10.5
Soybeans 6.6
Corn 6.0
Wheat 5.0
Scientific Instruments 4.5
Cotton 4.2
Metal ores 3.2
Animal Feeds 3.0
What What WeWe Buy From Buy From ThemThem
Crude Oil -135.7
Vehicles -123.2
Clothing -67.9
Home Electronics -67.8
Office Electronics -65.6
Petroleum Preparations -28.3
Furniture and Bedding -23.7
Natural Gas -21.1
Electrical Machinery -20.2
Toys, Sporting good -19.1
* Billions of Dollars
Source: US Bureau of Economic Analysis
2002 Passenger Car Production and Sales
Country Production Sales Deficit/Surplus
Japan 8,117,563 4,289,683 3,827,880
Germany 5,301,189 3,341,718 1,959,471
U.S. 4,879,119 8,422,625 -3,543,506
France 3,181,549 2,254,732 926,817
S. Korea 2,471,444 1,065,161 1,406,283
Spain 2,211,172 1,437,192 773,980
Brazil 1,495,622 1,295,119 200,503
U.K. 1,492,365 2,458,769 -966,404
Canada 1,274,853 868,188 406,665
Mexico 1,000,715 667,565 333,150
China 703,521 780,604 -77,083
India 573,808 601,321 -27,513
Sweden 251,035 246,581 4,454
Source: Ward’s World Motor Vehicle Data
Is GM Just in Business to Is GM Just in Business to Service Their Workers’ Pension Plans? Service Their Workers’ Pension Plans?
Source: Dhawan and Lieberman (2002), forthcoming in Management Science
What’s the Solution? What’s the Solution? 1. Dhawan & Lieberman (2002) Study
– Increase Volume/Plant by Adopting Toyota’s JIT Practices
2. Negotiate with Unions
3. Bring Back Some Creative Designing
4. Issue to Top Management & Workers 30-Year Company Bonds as Part of their Compensation (with Restrictions on Re-sales)
10-Year Bond Rate and Trade Deficit
CPI Inflation 2.7 3.5 3.0 1.8
10-Year Bond Rate 4.3 4.3 4.9 5.5
Core 1.8 2.3 2.2 2.0
Source: May 2005, Forecast of the Nation
10-Year Bond Regression10-Year Bond Regression
Greenspan’s DilemmaFundamental Pressures Handicaps
Incipient Inflation
Productivity Worries
Faster Job Growth
Super Hot Housing
Financial Fragilities
Wild Card
Source: Business Week, July 5, 2004
MSA 1-Year 1-Qtr 5-Year
1. Las Vegas, NV 36.23 1.67 84.09
2. Bakersfield, CA 30.46 5.15 92.41
3. Reno-Sparks, NV 30.09 4.52 79.48
4. Riverside-San Bernardino-Ontario, CA 29.58 3.83 112.14
5. Visalia-Porterville, CA 27.23 3.97 67.44
6. Palm Bay-Melbourne -Titusville, FL 26.25 3.79 85.86
7. Salinas, CA 25.71 3.28 116.19
8. Los Angeles - Long Beach - Glendale, CA 25.19 2.73 102.73
9. Fresno, CA 25.10 3.99 103.49
10. Santa Barbara - Santa Maria-Goleta, CA 24.98 3.21 121.06
11. Santa Ana-Anaheim-Irvine, CA 24.56 1.88 106.48
12. Merced, CA 24.45 5.12 115.10
13. San Diego-Carlsbad - San Marcos, CA 24.41 1.99 119.40
14. Oxnard-Thousand Oaks - Ventura, CA 23.90 1.65 105.53
15. Yuba City, CA 23.80 5.54 111.57
16. West Palm Beach-Boca Raton-Boynton Beach, FL 23.36 2.90 94.38
17. Sacramento-Arden-Arcade-Roseville, CA 23.19 2.80 111.79
18. Stockton, CA 23.16 4.32 104.98
19. Port St. Lucie-Fort Pierce, FL 22.87 3.00 97.29
20. Punta Gorda, FL 22.87 4.31 92.18
TOP 20 MSAs with HIGHEST House Price AppreciationTOP 20 MSAs with HIGHEST House Price Appreciation
Source: OFHEO Report, 4th quarter 2004
But Statistically One Can’t Prove That There is a Home Price Bubble!
Home Price Appreciation and Aggregate Income Growth by State(1991:1 - 2004:4)
NY
CA
DC
NVFL
MN
PA
VA
AZ
WA
TXTN
GA
NCOH
1
3
5
7
9
11
13
15
17
3 3.5 4 4.5 5 5.5 6 6.5 7 7.5
Annualized aggregate income grow th (%)
Ann
ualiz
ed h
ome
pric
e ap
prec
iatio
n (%
)
Median = 4.97
Median = 7.74
Red Zone
Safe Zone
Cash-Out Refinancing is Used For…Cash-Out Refinancing is Used For…
Paying down other expensive debt
Start a new business
Consumption of Durable Goods
Take a vacation in Bahamas
Send your kid to Harvard
Tiny BubblesTiny BubblesCelebrity Reality TV ShowsCelebrity Reality TV Shows
The Simple Life 4, Being Bobby Brown, Hogan Knows Best… the list goes on.
Source: Fortune, August 8th, 2005
When Courtney Love reportedly turns down a reality show, you know the market has reached saturation!
Owned Leased Total AGE
Delta’s Current Fleet
500 345 845 15+
AirTran’s Current
Fleet
10 77 87 2.5
Can AirTran Fill Delta’s Shoes?
Hartsfield-Jackson Expansion Doldrums
Airport Development Program Projected Spending - $6 Billion
Includes Seven Major Projects
Firing of Architects HAS DELAYED $1 B New Intl Terminal
Source: Inside Hartsfield-Jackson (2005 press kit)
Project Cost Project
Start Date
Opening Date
Fifth Runway $1.25 Billion In Progress May 2006
New Car Rental Facility $500 Million 2006 2008
International Terminal $1 Billion ??? ????
South Passenger Complex $1.8 Billion ??? 2010-2012
Complex Upgrades $400 Million In Progress By 2009
Other Facilities Upgrades $1.2 Billion In Progress By 2011
Local Economy Suffers a Sectoral
Growth Pause
Healthcare Blip
• Healthcare Usually a Leading Growth Sector
• 1st Half 2005 created Only 14,000 Jobs, Last Year Added 40,000 Jobs in 1st Half
JUNAPRFEBDECOCTAUGJUNAPRFEB20052004
342
340
338
336
334
(Thous.)Georgia Healthcare Jobs
1st Half 2005 was Flat Compared to 2004
Commercial Construction is Drying Up
IIIIVIIIIIIIVIIIIIIIVIIIIII2005200420032002
202
200
198
196
194
192
(Thous.)Georgia Construction Jobs
6,000 Jobs From2003q2-2004q2
but FLAT Since
Georgia 2005 Q1 Export Performance
Top Export Destination Bought GA Equipment – Singapore +$110 more than before – UK +$70M more than before– Italy +$70M more than before
Main Products:– Transport Equipment increased 50% over 2004 Q1
– $400 million more sold– Includes Turbojets and Airplane Parts (Savannah Manufacturer Gulfstream)
Source: www.Wisertrade.org
Georgia’s Report Card: B-
Indicator
Most Recent Quarter
(2005Q2)
Last 12 Months
Grade
Jobs AddedSelf & Small Business
(Household Survey)19,000 58,000 A+
Hospitality Jobs 3,400 5,700 A
Finance Jobs 30 3,000 B+
Healthcare Jobs 600 5,400 B-
Business Service Jobs -1,900 11,000 C
Total Non-Farm Jobs 7,000 20,000 C
Technology Jobs -300 -1,900 D
Manufacturing Jobs -500 -7,500 F
Blame Flat Sales Tax Revenues on Oil?
JULAPRJANOCTJULAPRJANOCTJULAPRJAN200520042003
20
15
10
5
0
-5
-10
60
55
50
45
40
35
30
25
(% Ch. Yr. Ago; Smoothed) ($)Georgia SalesTax Revenue & Oil Prices
Sales Tax Revenue (L) Oil Price (R)
As Oil $$ Go Up, Sales Tax Revenues Go Down
2005 2006 2007
Total Jobs Added (000’s) *
40.8 70.2 74.3
** High Paying Jobs are in Manufacturing, Information, Air Transport, Management of Companies, Accounting, Scientific, Computers, Finance & Insurance
High Paying Jobs (000’s) ** 2.8 4.4 10.3
% Total 7% 7% 14%
May 05 Report 6.4 8.4 12.6
Personal Income Growth 6.1% 5.5% 6.0%
Housing Permits (Atlanta) -6.5% -7.0% -2.0%
*Calendar Year Calculations (January to December)
Georgia September 2005 ForecastJobs, Income & Housing
Change from August Forecast, Down 5,000 Jobs
Please Send Your Comments and Questions to