ATLANTA - There are enough economic signals to proclaim that we are experiencing a recovery in income and production. However, unemployment levels are still high and until there is a significant increase in employment, we should not yet declare this recession over, says Dr. Rajeev Dhawan, Director of the Economic Forecasting Center at Georgia State University's Robinson College of Business.<br>
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"We will need to see a number of 100,000 plus job gains to really declare this recession over," says Dhawan. On the positive side, he notes that layoff announcements have declined sharply from their highs in January. However, according to Dhawan's forecast, the continued productivity gains imply that companies can use their current labor to increase output before they hire more people.<br>
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"Another problem is the lack of pricing power which has kept profits and revenues low across the board," continued Dhawan. "This has caused a so called `CEO Gloom' that is restraining business investment, and without business investment there is no employment growth, and consequently no `real' recovery."<br>
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So what will stop this cycle of pessimism? According to Dhawan, time is the cure.<br>
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"Consumer spending is strong and assuming we can avoid a fall out from the turmoil in the Middle East, we should see a growth in income and production capacity as well as the addition of more jobs by late fall when the unemployment rate will begin to drop," says Dhawan. "Meanwhile, look for the Federal Reserve to help by keeping rate hikes mild in August."<br>
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However, Dhawan warns that there may be a few bumps in the road before things improve.<br>
"High volatility in the equity and financing markets are creating credit problems for companies. Add the uncertainty of the Middle East and the ever present threat of terrorism and it all makes for a very reactionary environment to any economic news.<br>
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Highlights from the Economic Forecasting Center's report:<br>
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-- The boost from inventory correction is getting weaker, and the second quarter will show only a 2% GDP growth before increasing by 3.5% plus in the last two quarters. For the year, the real GDP growth will be 2.7%, followed by 3.9% growth in 2003. It will again post good growth in 2004 when the economy grows by 3%. <br>
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-- Inflation will average only 1.6% this year, but rise to 2.8% next year following a good recovery. Consequently, the Federal Reserve tightens the rates sharply in early 2003 in response to a solid GDP growth. The three month t-bill rate will average 1.8% in 2002 and rise to 3.7% in 2003. The 10-year bond rate will average 5.4% in 2002, then rise to 6% in 2003. <br>
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-- Fixed investment will grow 1.4% this quarter, followed by strong growth rates of 6.3% (Q3) and 8.2% (Q4). <br>
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-- The unemployment rate will remain at 6% before a slight decrease in the 4th quarter to 5.9%. It will, however, retreat to a 5.3% range by mid 2003 but it will not come back to the low 4% range in the near future. <br>
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Georgia Economic Recovery Slower Than National Average - Unemployment Will Rise Before Decreasing in 2003 <br>
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The damage to the state and local economy has been severe compared to the national picture. Georgia's economy has lost 125,000 jobs since last April and the damage is expected to continue for a while. Nationally, Georgia was ranked 4th in terms of absolute job loss with only New York, Illinois, and Florida registering more job losses.<br>
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Why was Georgia's damage so severe? According to Dhawan, while metro-Atlanta was able to endure the high-tech bust, it was impossible for the city to survive the hit to travel and tourism that came after the tragedy of September 11th.<br>
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"Of the 80,000 jobs lost in the metro region, almost three-fourths happened after the terrorist attack," said Dhawan. "In fact, this loss accounts for the 4.7% unemployment rate in the metro area which is higher than the entire state of Georgia, a pattern never seen before."<br>
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However, according to Dhawan's forecast, Georgia will begin to see signs of recovery and job growth in the fall and early winter.<br>
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"In the next nine months it should show a small gain of 30,000 jobs but given the job losses in the first three months this makes for a small gain of 5,000 for the calendar year," said Dhawan.<br>
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Highlights from the forecast:<br>
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-- In 2003 Georgia will add 100,000 jobs resulting in a 2.6% job growth rate that increases slightly to 2.8% in 2004. <br>
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-- Service sector jobs will decrease this year before recovering to a 4.1% growth in 2003. Within the services area, the biggest declines will be in engineering and management which will decrease to 4.5% this year before rebounding to 6.6% in 2003. Business services will decrease to 3.3% for the year but will bounce up to 5.2% in 2003. <br>
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-- Unemployment for the state will rise to 5% by late summer but will come down to 4.6% by 2003. The Atlanta metro-area unemployment rate will rise to 5.1% before it decreases to 4.7% in 2003. <br>
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-- The number of housing permits in Atlanta is expected to decline sharply by 15.3% in 2002 and drop again by 0.7% in 2003. <br>
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