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2008-08-28  ALPHARETTA AND ROSWELL REVUE & NEWS | Atlanta to lose 20,600 jobs in '09
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| | by Hatcher Hurd | |  |
September 03, 2008
www.northfulton.com
ATLANTA -- By the end of the year, Atlanta will have lost 20,600 jobs, with more than 8,000 considered "premium jobs." In 2009, the region will post nearly 4,000 more jobs signaling the beginning of a turnaround, but premium jobs will have slumped another 4,100 in losses.
Atlanta's unemployment rate, which was 4.3 percent, will reach nearly 6 percent in 2010 before moderating to around 5.7 percent.
That is a lot of houses that don't get bought, cars that don't get sold and computers that stay on the shelf. In short, according to Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, the region is not out of the woods yet.
The main culprit remains the downturn in the housing market, although mercifully not as sharp as Florida, California or Arizona. New housing permits will finish the year 52 percent lower than 2007, which in itself was off nearly 35 percent the year before.
But there is good news. Job losses will begin to recover in the last half of 2009, and 2010 should show 44,000 new jobs of which nearly a quarter will be premium jobs.
Dhawan made his forecast at his third quarter economic forecast Aug. 26 in which he said banking's liquidity is still feeling aftershocks after "the big one" last August. That was after the crash of Bear Stearns hedge funds linked to the subprime mortgage and Mortgage Backed Securities (MBS) market. The collective gasp of the $2.6 trillion Collateralized Debt Obligations market suddenly forced everyone to look closely real value of the mortgages bundled and sold as AAA and AA securities.
The sad truth was, no one really knows what these securities are worth. As more large institutions find their losses mounting, they are closing the flow lending dollars to guard against massive charge-offs on the bad loans they already hold.
"It's these credit aftershocks that are damaging growth," Dhawan said. "When liquidity froze up, the willingness of institutions to lend did the same."
Bear Stearns was a stern lesson. Credit institutions have plenty of money, but they are not going to lend it today to make a profit when they may need all their cash next month just to survive , Dhawan said. So while the subprime market is stabilizing, the banking community will remain overly cautious.
"Bear Stearns was a classic bank failure. When people lost confidence in it, they were done," he said.
Now Fannie Mae and Freddie Mac are holding out only because of the U.S. Treasury's lifeline. So that instability and insecurity is in the mix.
Oil must come down
Among the vagaries of economic forecasting is trying to keep abreast of the imponderables. Dhawan says the price of oil will come down below $90 a barrel.
"If it does not, it's a whole different ballgame," he said. "It is the wild card."
Meanwhile, many markets are changing how they do business to guard against the abrupt change in fuel costs. For instance food contracts are much shorter so haulers can be more responsive to transportation costs, or they require an option to renegotiate.
We are seeing food manufacturers changing ingredients or going to smaller portions to cut costs. Spending across the board for energy is up from 3 percent to 5 percent. That is outstripping income growth.
Dhawan said when oil prices began to climb, people did not react quickly or with much enthusiasm to curb consumption.
"Conservation was only about 1 percent. The price of oil went up 100 percent. One percent is not enough. There needs to be a 10 percent reduction," he said.
The good news here is that demand is tailing off, China has cut consumption with the end of the Olympics, and prices are falling.
Interest rates up
While a rise in interest rates is usually a sign of economic recovery and growth back to normal, Dhawan says that likely won't be the case. The Fed is anxious to start heading off inflation, and if the price of oil is not under the $100 benchmark for a significant period beginning in October, it may mean the Fed will raise interest rates sooner.
"But all of the economic indicators are weak. The numbers may not quite be there to say we are in a recession, but that is what it is," Dhawan said. "And there are not going to be any more stimulus checks coming in."
Georgia Banking Indicators show housing permits have fallen grievously since mid-2006, bankruptcy filings continue to climb and the percentage of unprofitable institutions has gone from 5 percent in2000 to 25 percent through the first quarter of '08.
Sales Tax Tanks
Georgia sales tax collections have plummeted from a healthy 7.8 percent growth in consumer spending at the end of 2007 and an additional 4.2 percent in the first half of this year. The second half has shown a 5.8 percent drop for a turnaround of 10 percent.
Such a dramatic turnaround only happens in the middle of a recession corporate job shedding is also at a peak. Small businesses are especially hurting, Dhawan said.
Much of the information is still bleak. Foreclosures will only begin to drop after the recession, not before. It is what is known as a lagging indicator. Other indicators simply aren't clear. There is the uncertainty before a presidential election and the uncertainty of when and how much the government bailouts of the financial institutions will be.
Still Atlanta and Georgia have not suffered the effects of the economic downturn as badly as many parts of the country. Dhawan still predicts the turnaround to start in mid-'09 and begin to show in 2010. That is of course if the banking industry can manage the subprime losses and the price of oil does continue to fall.
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Highlights from the Economic Forecasting Center's Local Report
• Atlanta's employment growth will remain negative for the remainder of 2008 for a total loss of 20,600 jobs (8,000 premium job losses). For calendar year 2009, Atlanta will post 3,900 job gains, but 4,100 premium job losses. The recovery will strengthen in 2010 when 44,200 jobs are created (10,200 premium job gains).
• For calendar year 2008, Georgia will experience 35,300 net losses (14,600 premium jobs). In 2009, 13,900 job losses are expected in the first half of the year, followed by 11,300 job gains in the second half, making for 2,600 job losses (11,000 premium jobs losses). The recovery will strengthen in 2010 when 61,700 jobs will be created (12,000 premium jobs).
• Atlanta's total housing permits will plummet by posting a 52.1% drop in 2008 after a 34.6% decline in 2007. Permit activity will again decrease at a slower rate of 5.0% in 2009 but will inch up in 2010, posting an 18.4% increase.
• Most MSAs in Georgia will exhibit slower employment growth in 2008, with Albany, Columbus, Dalton and Macon observing job losses. Only Savannah, Gainesville and Warner Robins will see any increase in employment in 2008, though increases will average below 1.0 percent. | |
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