NORTH FULTON, Ga. – The 2013 Bank of North Georgia Economic Forecast reported a tepid recovery means 2013 will look a lot like 2012, but a long, slow recovery is underway. But even that small ray of sunshine is predicated on Congress and the president solving what must be called “the crisis” over the fiscal cliff.
Economist Albert W. Niemi Jr., dean of the Edwin L. School of Business at Southern Methodist University, made his annual economic forecast Nov. 28 at the Atlanta Athletic Club for BNG. There, he said the United States is still embroiled in a protracted recession that will not reach full employment (by his measure 5 percent unemployment rate) until 2025.
“And that presupposes Congress will not send the economy over the fiscal cliff. If that happens, all bets are off,” Niemi said. “My entire forecast is predicated on Congress avoiding the fiscal cliff. If the spending cuts are allowed to go through coupled with raising taxes, it would send the country back into a deep recession.”
If the fiscal cliff is not avoided, Niemi said to throw his forecast out the window.
The federal spending cuts coupled with the sunset of tax cuts would take $500 billion to $600 billion out of the economy right away. That would send unemployment spiraling.
“It would hit the middle class worst of all. The greatest effect would be on a married couple making $75,000 a year,” he said. “Even the Bozos in Washington know this.”
But even with the settlement of the fiscal cliff, the country remains in the grip of the longest recession recovery since the Great Depression. Already 57 months into the recession, there are six million fewer employed than just before the fall in 2007.
Gross Domestic Product has grown only 2 percent since ’07, the slowest GDP recovery after a recession in our time, Niemi said.
The unemployment rate of 7.9 percent is marginally improving, but that does not take into account those who have stopped looking for work or are underemployed. Factor in the “discouraged” and underemployed workers and the true unemployment picture is more than 15 percent, double the accepted figure.
The country needs 125,000 new jobs a month just to meet the demand of those new workers entering the market. The current rate of new jobs is 155,000 per month, only a little more than meeting the demand for graduates looking for work.
“And the baby boomers can’t retire early because their 401(k)’s have taken such a hit,” he said.
That is why Niemi says full employment (5 percent unemployment) is 13 years away. The country needs to be creating 225,000 to 250,000 jobs a month to reach full recovery.
Put another way, the country lost 8.4 million jobs in the recession. It has regained 2.1 million jobs, so it needs another 6.3 million jobs created to reach 2007 employment.
“Best case scenario [for full employment] is 2020 to 2022,” he said.
Housing is an important precursor to the recovery because it is an industry that drives dozens of others – from lumber and building materials to appliances, furniture, HVAC, carpets, flooring and all of the people who are employed in those industries.
“That is why the recession hit Alpharetta and Norcross so hard. They were at the epicenter of the recession. So much of the growth in North Georgia was uniquely tied to the housing industry,” Niemi said.
Households lost 23 percent of their net worth after 2007. That was $14 trillion that disappeared into the recession’s maw.
Housing starts were around 1.5 million annually in the 1980s. By 2001-07, they were at 1.8 million a year. In 2010-11, it was less than 600,000 a year. They will close in 2012 at 750,000 home starts and reach 850,000 in ’13.
But since 1955, the U.S. had never had fewer than one million home starts. Priming that pump would go a long way to recovery, but the issue becomes debt.
Consumer spending also holds back the recovery. The debt-to-disposable-income ratio has risen steadily since the 1980s – and dangerously so in the 2000s. In ’92, it was 60 percent. At the time of the 2007 recession, it was an incredible 130 percent – that’s Greece debt territory, Niemi said.
In 2012, it is a more manageable 90 percent, but not a sustainable environment to spark a building boom.
Public policy also fuels the recession, Niemi said.
Raising taxes at the $250,000 threshold is a job killer, according to the economist. He cites the fact that 60 percent of that tax group are small businesses. Add planned payroll tax increases, and it puts a big hole in the recovery.
Cutting spending at the same time taxes are raised doesn’t make for a recovery, he said.
The good news is Georgia is among the top four states in the nation experiencing positive population migration. Texas leads the way by a huge margin – it has 52 percent of all new jobs created.
Niemi says there are a several reasons for Texas’ pre-eminence in jobs: Tops is it has no state personal or corporate income tax thanks to taxes on energy, the state’s major industry.
But of those trailing behind in net population growth, North Carolina, Georgia and Florida (with Tennessee and South Carolina in the top seven) are doing well. Niemi says the have tremendous quality of life appeal (four of the five Deep South states have blue water shorelines).
As right-to-work states, i.e. non-union labor, they attract employers, and their state governments are debt-free, inspiring stability and a business-friendly environment.
Georgia’s outlook for the future is brighter than most states and should be one of the top places for business growth, Niemi said.