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Georgia State economist predicts 2011 turnaround
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ATLANTA – The metro Atlanta area has some encouraging signs that the recession has bottomed out, but the beginning of the recovery is a year away. That was the prediction Nov. 18 from Georgia State University's Rajeev Dhawan, director of the school's Economic Forecasting Center, in his quarterly forecast.
One of the best markers of economic turnaround is job creation, and that does not come on the horizon until 2011 (see chart, right). But it is a lagging indicator — i.e., a signal after the event, in this case economic recovery, has taken place — and Dhawan says the recession will start to recover in late 2010.
Since September 2007, the state has lost around 310,000 jobs (7.5 percent of job base), and more job losses are contemplated for 2010.
"In other words, the recession remains a severe one and is not over yet," Dhawan said. "Recovery will be long and slow."
In all non-farm job classifications, the state and metro areas show only negative changes. The exception is healthcare, which continues to be the only job growth area.
Speaking at the GSU Economic Forecast, Federal Reserve Bank of Atlanta Senior Vice President and Director Dave Altig echoed the bad news. He noted job disappearances are at historic highs. Even as the economy improves and business picks up, they won't result in many jobs coming back, he said.
"Businesses will have the capacity to expand without new hires," Altig said. "So permanent job loss will continue to be a feature of the economy."
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Hardest hit, Altig said, are firms with less than 50 employees. They have been the ones most affected by the recession, accounting for 45 percent of all job losses.
The biggest impediment to recovery, both nationally and locally, has been the lack of credit. And again, small businesses are hurt most.
"Small businesses are using credit cards and home equity to [keep afloat]. These are not good signs," Altig said.
Dhawan said the big culprits in lack of credit are what he calls the "zombie banks." These are banks that have received stimulus funds from the government but, instead of making loans and circulating the money through the economy, are holding onto the cash.
That's because these banks are still holding so many toxic assets from the real estate bubble-burst. They need to keep as much cash on hand as possible in case of more foreclosures. Their doors are open, they cash checks and take deposits, but for all intents and purposes, these banks are dead.
"Zombie banks hold up [development] town loans. And you have good banks holding onto cash to buy the bad ones. So the money ends up staying in the federal depository. I think it will end up being used to buy the toxic debt," Dhawan said.
Georgia has had more than two dozen banks fail, and another 40-plus are under cease-and-desist orders on making new loans. Georgia has acquired the sobriquet as "the Chernobyl of the banking system," Dhawan said.
Bad construction and "souring" commercial real estate loans mean Georgia banks will be hard-pressed to make business loans of any kind, further tightening the credit squeeze.
Vast inventories of empty office space ensures there will be no new construction, which means the construction industry and ancillary businesses – from architects to carpenters, electricians and plumbers – will not see new work.
There are some bright spots on the still-bleak horizon.
Consider this: Metro housing permits will free-fall 71.4 percent by the end of 2009, Dhawan says. This follows on the coattails of a 57 percent decline in 2008. But the good news is the housing permits should show 6.6 percent positive growth in 2010 and a more robust growth of 15.4 percent in 2011. But do not expect new permits to approach anywhere near pre-recession levels.
Jobs disappearance will itself vanish in 2011, and new job growth will be reported for the first time in three years.
How fast and how far the recovery will go depends on cleaning up the zombie banks and the toxic debt. Dhawan does not see a willingness to form a Resolution Trust Corporation similar to the savings and loan bailout of the late 1980s. So credit and toxic assets will remain the elephant in the parlor.
"Zombie banks are the biggest shadow on the horizon," he said.
Another plus for the region are positive numbers showing people moving into the area, but Dhawan cautions against counting too much on that.
"I never use population growth as a driver for economic growth," he said.
So what good news can we take from this forecast?
"The free-fall is over," said Dhawan.
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