Georgia State: Despite Recent Signs Of Strength, Forecaster Says U.S. Economy Is On Course For A Sharp Moderation

Staff Report

Friday, March 3rd, 2023

Strong retail sales in January and a 10 percent rise in the stock market over the past three months may seem to signal a recovering economy. But bellwether activity, primarily on the West Coast, indicates a sharp and broad-based sector-diffused moderation is on the horizon, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

In his economic forecast, released today (March 1), Dhawan said that “existing home sales are down almost 40 percent from a year ago, and home price appreciation has stalled everywhere, but more so on the West Coast, where job cuts by tech titans indicate that both the sectors are in a clear recession.”


“Although January retail sales were far better than expected after two bad months, much of that can be attributed to 70 million seniors receiving a considerable cost-of-living increase in their Social Security payments, triggering a month of growth. But that will not translate into sustained sales growth month after month,” Dhawan said, adding that “car sales also were good because finally there was no longer a chip shortage. But this sector is highly interest-rate-sensitive. Car sales will moderate as the impact of past Federal Reserve rate hikes is felt in coming quarters.”

Dhawan noted that the Fed, which has worked to curb inflation by raising rates by 400 basis points over the past nine months, “is not about to back off instituting more rate hikes in the next few Federal Open Market Committee meetings while it waits to see the desired impact on taming inflation.”

“Real moderation will arrive in terms of lack of job growth, which will first appear in the corporate sector, due to cautious CEOs and chief financial officers (CFOs) who do not anticipate runaway consumer spending prospects in the next 12 months.”

An early indicator of negative job growth is already in play: Hiring of workers in the temporary help sector has ceased. In the past, when this number has gone negative the economy ended up in trouble very soon,” Dhawan said.

Two sectors Dhawan said will be “less” impacted are hospitality and other person-to-person contact service occupations, such as healthcare. “There is still a scarcity of workers because some personnel who were let go did not return when the economy reopened after Covid lockdowns. Expect to see ‘labor hoarding’ in the sense that businesses will hold onto these workers for as long as possible before making cuts in the face of revenue declines.”

Layoffs have undergone a paradigm shift in the post-Covid era, according to Dhawan. “Before, workers in hospitality and blue-collar manufacturing positions were the first to be let go during a downturn. Not anymore. These will be the very last sectors to see job cuts. In a reversal, white-collar middle-management jobs will be on the chopping block first. Work adjustments made during lockdowns showed that one need not return to a physical office every day, thus reducing the need for prying eyes.”

The forecaster noted that layoffs in technology companies such as Amazon, Redfin, and Shopify so far have focused primarily on back-office operations (supervision and accounting) as well as sales and recruiting teams.

“Capital expenditures (capex) have been abysmal for the past nine months, which is a sign of negative CFO confidence. We know that when capex spending goes down, job cuts will follow six to nine months later. The impending moderation is baked in.”

The forecaster said to expect job losses starting in the second quarter of 2023, then intensifying in the third and fourth quarters.

“This will be a cue for the Fed to start cutting rates aggressively, likely beginning by the end of 2023 and intensifying sharply in 2024, for a total of 200 basis points,” Dhawan said.

Turning to Georgia, Dhawan noted that “the Peach State has experienced a better and faster job recovery than the nation, recouping all lost jobs and gaining more on top of those.”

Dhawan attributed the state’s superior performance to the strong recovery of the hospitality industry and the manufacturing sector, despite the headwinds of a strong dollar and elevated energy prices. High global energy prices in 2022 made Georgia’s exports a cheaper option despite a strong dollar.

Looking at the Atlanta metro area, Dhawan asserted that “the old model where we bring everyone to the center of town to work is under serious reconsideration. Pre-Covid norms no longer apply. People want to live closer to where they work to avoid commuting hassles.”

One area in which Georgia has not recovered its lost jobs is a sector comprising one-eighth of the economy: State and local government workers, either due to a shortage of workers or competition for job candidates by other sectors.

Fortune 500 companies headquartered here are beginning to sound the alarms on revenue growth, and corporate job growth in the state turned negative in the fourth quarter of 2022.

“Georgia is not immune to what’s happening globally to revenue growth and job losses at U.S. technology companies on the West Coast and in the Northeast. Will we be able to skirt job losses in Georgia? No. Will they be as severe as elsewhere in the nation? No.”

According to Dhawan, three factors will lessen the impact of economic moderation in Georgia. “One, net domestic migration will help Georgia quickly fill jobs created after slowdown factors reverse. Two, although Port of Savannah tonnage will decline as the global economy weakens further, it has benefited from ships rerouted from the Ports of Los Angeles and Long Beach. And three, the arrival of electric vehicle and battery manufacturers will be a boon to the economy in years to come.”

Highlights from Rajeev Dhawan’s Economic Forecast for the U.S., Georgia, and Metro Atlanta

  • U.S. GDP growth will moderate sharply from 2.1 percent in 2022 to 0.8 percent in 2023, and 0.9 percent in 2024. As Fed rate cuts take hold in 2024, GDP growth will jump to 2.6 percent in 2025.

  • National job growth will turn negative in the second half of 2023 at 221,000 monthly losses, rebounding to 97,000 job gains by late 2024 as Fed rate cuts spur back investment spending. Job growth will be a better 150,000 monthly rate by late 2025.

  • CPI inflation will come down from its 8.0 percent rate seen in 2022 to 4.1 percent in 2023, and further moderate to 2.6 percent in 2024.

  • The 30-year mortgage rate will average 6.3 percent in 2023, moderate sharply to 5.8 percent in 2024, and further decrease to 5.2 percent in 2025.

  • Georgia jobs: The state added 182,100 jobs (42,500 premium jobs) in calendar year 2022, but will lose 7,500 jobs in 2023. In 2024, as the recovery takes hold, the state will add 74,600 jobs (14,700 premium) and 87,600 jobs (21,200 premium) in 2025.

  • Georgia’s nominal personal income will grow 3.4 percent in 2023, a better 4.9 percent in 2024, and an even greater 5.4 percent in 2025.

  • Atlanta jobs: The metro area added 136,900 jobs (33,000 premium) in 2022, but will shed 4,300 jobs in 2023. As recovery takes hold in 2024, the metro area will add a respectable 55,300 jobs (11,700 premium), and another 63,700 jobs (15,100 premium) in 2025.

  • Atlanta housing permitting activity increased by 18.0 percent in 2022; single-family permits dropped by 20.3 percent, but multi-family permits rose sharply by 165.4 percent. Permit numbers will fall by double digits in both categories in 2023 for an overall decline of 26.7 percent and then drop again by 7.2 percent in 2024. Normalcy will return somewhat in 2025 when permit activity grows by a meager 2.5 percent.