1998 Spring Quarter Economic Forecast
By Dr. Donald Ratajczak
(ATLANTA)--June 1998---According to Georgia State University's latest quarterly economic forecast, the large growth experienced in the U.S. economy may be too much of a good thing. Following the 3.8 percent rate of growth in GDP during 1997, the economy should sustain a blistering gain of 3.4 percent in 1998, before moderating to a more sustainable 2.5 percent gain in 1999.
Although industrial capacity is growing sufficiently to meet this strong growth rate, the labor markets are not. Despite feelings that the recently reported unemployment rate of 4.3 percent may be a seasonal aberration, unemployment rates below 4.5 percent are likely to occur during the next two years. Already, wages paid new college graduates and hourly workers are rising sharply. Low levels of unemployment should intensify general wage inflation during the next two years.
The Economic Forecasting Center's inflation indicators have turned positive, meaning that stronger gains in the consumer price index are likely in the next three to six months. Inflation, as measured by the consumer price index, is expected to rise 1.7 percent during 1998 and 2.8 percent during 1999. The Federal Reserve's response to this increasing inflationary threat will be to raise short-term interest rate targets by a quarter percentage point during 1998 and an additional half point during 1999. However, the federal government's revenue surplus of more than $100 billion should prevent any meaningful rise in mortgage or long-term interest rates.
Asia's economic problems will cause much of the predicted $85 billion loss in U.S. trade balances during the next two years. Agricultural incomes should fall because of reduced purchases from Asia. Despite this increasing trade imbalance, no recession is likely during the next two years. Early conditions that could lead to recession are expected to develop early in 2000.
Georgia's employment rate should expand by 3.4 percent in 1998 before being constrained to only a 2.3 percent gain in 1999, due to low unemployment. Atlanta's employment gains should be 3.8 percent in 1998 and 2.6 percent in 1999. Unemployment rates in Atlanta will dip below 3 percent while population growth rates should slow because of widespread economic strength throughout the nation.
Georgia's per capita incomes are expected to remain at 94 percent of the national average. However, Atlanta's per capita incomes should grow to 112 percent of the nation. No other metro area in the state will perform as well as Atlanta, but gains will be above national rates in Athens, Macon, and Savannah. By contrast, unemployment in Albany could reach 8 percent in 1999.
A 4 percent jump in sales tax collections should aid the state in exceeding the 5.7 percent gains in total revenue projected for the current fiscal year. Despite nearly a billion dollars in tax cuts initiated in the past three legislatures, revenue should be sufficient to meet budgetary needs during the next two fiscal years.
Housing permits issued in Georgia are 9000 above 1997 levels, mostly because of strong gains in apartment construction activity. Rising rent concessions and stalled occupancy rates suggest that apartments are currently being over-built. By contrast, double-digit price gains for older single family properties have generated a strong move-up market for new home construction that should support strong single family home activity during the next two years.
The most important issue influencing the rate of continued economic growth is the tight labor markets being experienced in the nation, Georgia, and Atlanta. Not enough talent is available in the new graduate and current unemployment pools to maintain the current pace of economic activity. Thus, slower growth is expected in 1999.
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FOR MORE INFORMATION:
The Georgia State University, Economic Forecasting Center, at 404/651-3282
or
The College of Business Administration's Office of External Affairs and Marketing at 404/651-2645
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