September 3, 2003

Georgia and Atlanta suffered an unusually long and severe recession.  However, once the recovery began last fall, jobs have begun to grow much more strongly than in the U.S.  In the past twelve months Georgia created almost 52,000 jobs while the nation was losing more than 400,000 positions. 

Despite this better job growth, tax collections continue to lag previous year levels, at least in July.  As a result of this apparent disconnect between job growth and gains in other economic measures in Georgia, Rajeev Dhawan of Georgia State University has called the Georgia recovery an "optical illusion." 

His argument is that high wage jobs have been lost and they are being replaced by jobs that have much lower purchasing power.  Certainly, the 24,500 job gains in employment agencies are not getting the same wages as the 23,300 lost manufacturing jobs were generating in the past year.  Those lost computer programming jobs paid more than the growing jobs in food service are earning. 

Growing purchasing power is what drives a recovery.  If high wage jobs are lost and are being replaced by low wages and temporary positions, then even the relatively rapid job growth in Georgia compared to the nation may not be enough to sustain economic expansion here. 

Dr. Dhawan may eventually be proved correct in his analysis.  But we do not yet have enough information to reach that conclusion. 

Those weak sales tax receipts for July reflect consumer spending in May (and some other months where resolved tax disputes are added to the normal monthly totals).  Nationwide, spending was still sluggish in May.  Activity then accelerated in June and skyrocketed in July. 

If Georgia experienced a similar change in sales patterns (auto incentives and the change in withholding tables suggest that similar incentives for spending were increasing here at the same time they were growing elsewhere), then collections should turn positive in August and show significant positive growth from previous year levels in September. 

I am not saying that the 6.4 percent revenue estimates used for the current state budget will materialize.  I think we probably will fall more than a percentage point short of that mark.  However, we will not suffer a third consecutive year of shrinking revenues at the state and local level according to my forecast. 

I am concerned about how sustainable those job gains are, but not because spending will not surface.  Construction jobs in Georgia are still 8.3 percent above previous year levels.  A housing boom certainly is aiding this, but such gains are not sustainable in the current economic climate. 

More than 10,000 jobs were created in what the Labor Department calls remediation in the past year.  These jobs are to handle the mortgage refinancing that surged when interest rates were falling.  Now that refinance applications have fallen from cyclical highs to the lowest level in more than eighteen months in a span of only two months, many of those jobs could disappear. 

Perhaps some of the 7400 new jobs in arts, entertainment and recreation in the past year could disappear if consumers back away from supporting such endeavors. 

On the other hand, the government payroll gains are in education, where 100,000 new migrants per year into Georgia are placing growing burdens on the education payrolls.  Furthermore, I believe many of those "leased" workers from temporary agencies are receiving solid wages.  They are temporary because employers are not yet willing to add permanent staff after suffering the wrenching decision to cut jobs during the recession.  Those "leased" airline mechanics are earning about as much as those currently unemployed programmers were making.

And the distribution system of trade, transportation, and utilities has yet to create any meaningful jobs.  A typical recovery normally sees sharp gains in hours worked in those areas before new positions are created.  The higher paychecks offset the lower number of workers receiving them when a recovery begins in earnest.  Once the recovery progresses, those jobs begin growing as well. 

When I add up the possible job losses in construction and remediation with the likely job gains in trade and distribution as the recovery progresses, I see state employment growth rising to well over 80,000 by the end of this year.  Job growth of more than 100,000, which would absorb those new Georgians and begin the process of re-employment, is on the horizon for 2004. 

However, the state does have a serious problem.  Virtually all the job growth is in Atlanta.  Excluding Atlanta, job gains are only 4400.  Rural Georgia continues to struggle to replace those lost mill jobs.  While some urban areas have added distribution and expanded financial services, there is minimal job growth beyond metro Atlanta, and virtually none outside the other metro areas in the state. 

Of course I am not happy with the employment picture in this state.  And there is a possibility to Dr. Dhawan has put his finger on a major problem in talking about the absence of growing purchasing power. 

If Georgia lags behind the nation in personal income growth for the second and third quarters (data that is not yet available) then Dr. Dhawan will have identified a serious problem.  I do not think that will happen.  I believe that Georgia will be among the top five states in growing personal income in those quarters, just as it is in the top five in creating jobs. 

The stigma of losing jobs twice as fast as the national average during the recession cannot be erased by such income gains alone, but it surely helps. 


mbar.jpg (9380 bytes)