December 25, 2002
A recent regional study suggested that Atlanta had the
highest probability of falling back into recession of any major metro area.
Such a prospect would create serious problems for economic develop in
Georgia and virtually assure that massive program cuts or tax increases be
enacted to balance state budgets.
Furthermore, some of Bush's policy advisors are suggesting
that a series of tax cuts be partially financed by further restraining the
growth of Medicaid and Medicare payments. With
doctors already dropping their service for government medical assistance,
retirees will find medical choice and care to be more difficult to find.
Moreover, some of the Medicaid program is mandated by
Washington but is under-funded. Further
restraint upon federal support for those programs could put state budgets in
very serious straits, including Georgia.
In short, Atlanta and Georgia are facing their worst
economic crisis since several banks were teetering and some investment companies
went bankrupt in the 1970s.
To determine the likelihood renewed recession for Atlanta,
several questions must be answered. First,
is the old recession over? Second,
is there structural damage, such as loss of credit capacity, that will intensify
the job weakness that is occurring. Third,
are there other imbalances that need to be removed before recovery can commence.
Fourth, is the economic competitiveness of Georgia declining because of
regulations, environmental deterioration, or costs.
In September, Atlanta employment was down slightly more
than 62,000 jobs from the previous year. In
October, the job loss remained near 62,000.
Most regional economists believe Atlanta was in recession a year ago.
Tracing the same job changes as in that recession suggests that the
recession is not yet over. We
cannot double dip until the first dip has ended.
However, there is some good news on this score.
19,000 of the lost jobs are in construction while another 34,000 are in
trade. Therefore, the vast majority of the job loss is in areas that respond to
weakness rather than cause. This is
the multiplier effect, not the initial shock.
As a result, the recession is ending in the absence of new centers of
weakness that are unrelated to this multiplier effect.
Second, both in Atlanta and nationwide, the capacity to
provide liquidity has not been damaged. Banks
are not about to fail, although they have created a crunch for companies with
low credit rats. The job loss may
be of the 1974 dimensions, but the structural damage to financial institutions
is very small. There should be no
further weakness was deterioration in lending capacity.
Although the massive additions to office space certainly
will take years to be absorbed, the rate of construction has slowed
dramatically. That is why Atlanta
has 19,000 fewer construction jobs
than a year ago. Construction
may provide another six months of falling job opportunities but continued
housing remodeling and construction and the turn in job growth will end the
downward drop in employment. By
midyear, construction employment should be approaching previous year levels and
then grow from there.
I still worry about two imbalances that could develop and
push the Atlanta economy downward. The
transportation hub might no longer be competitive and could costs jobs.
Also, the absence of entry jobs might slow he population growth to the
city. Housing permits should be
below 50,000 in this environment, not the 54,000 that currently is being issued.
Furthermore, a modest rebound in employment agency jobs might disappear
if Atlanta's ability to attract talent is tarnished by poor job opportunities.
So far, there is little evidence that Georgia is losing
competitiveness any more rapidly than other national producers.
Some of our regulations may have slowed internet development.
Certainly, the new lending protection
laws are seriously reducing the growth of lending capital in the state.
Some image tarnishing has occurred from the low employment gains.
The growth of congestion also has
not aided labor market flows to our state.
However, the hub airport concept is struggling while
manufacturing really does not want to pay the high land costs for development
within the Atlanta economic spheres. Distribution
and warehousing also is finding land costs to be too high in Atlanta.
Clearly, the metro area is susceptible to further weakness,
but retail trade already may be at extreme levels (though the 13% drop in
employment at grocery stores makes not economic sense).
Employment at temporary agencies is beginning to grow while the glut of
programmers and keyboard operators may have stabilized as a 9500 pool of excess
The current job loss has been as severe and may last as
long as the worst of the recessions in the past fifty years.
Furthermore, the recession is not yet over in Atlanta.
On the other hand, the
apparent loss in competitiveness has been minor.
In 1976, I wrote that Atlanta had at least on more boom as
the city grew regional providers to the south into national players.
A little international growth also has developed .
For Atlanta to have another strong boom, it will need to forestall
further deterioration of basic activities, such as regional distribution, and
begin to exploit the gains from our efficiency in gathering and leasing labor
servides and in rebuilding our technology base.
Some of those changes have occurred, but the next drivers
fo strong economic growth for Atlanta are not now apparent.
Indeed, a budget crisis could lead to lost confidence for teachers at all
levels of education.
I am not sure that there is another boom for Atlanta in the next few decades, but I also don't believe renewed recession is approaching rapidly. I expect job growth next year, about 25,000, followed by more than twice that in 2004. These gains will not restore Atlanta to the head of the pack, but it will preserve the image that Atlanta remains a city of opportunity. That is a thought up which we can grow.