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By Michael Kanell
Atlanta Journal-Constitution
Sunday, March 16, 2008
It's not really so bad.
Despite mounting worry that the nation has been slipping into recession, there isn't much evidence that the Georgia economy is shrinking.
Instead, the numbers sketch a picture of slowing growth.
That could be a warning, or it could be reassurance: After all, while the trend is down, the Georgia economy is still growing. So far.
Nationally the signals of late have been almost unremittingly gloomy: job losses, retail spending down, credit crunched, confidence crashing —- along with a slide in the price of homes and a spike in the price of oil.
(A majority of economists surveyed by The Wall Street Journal early this month said the U.S. had slipped into recession, although an official designation will not likely come for many months.)
But what about Georgia —- how will we know if the economic lights are dimming enough here to call it recession? Most economists say the lay of the local economy isn't as discouraging as the broader landscape.
"There is a very good chance at the national level that we are contracting, whether or not it is actually designated as a recession afterwards," said economist Roger Tutterow of Mercer University's Stetson School of Business. "I would say that locally we are more likely to avoid a recession."
A number of indicators are connected to economic health: How many companies are being created? How many cars are consumers buying? How much are people spending at the mall? How many banks are failing?
Others are as much cause as effect.
Credit markets are crucial to the economy and the level of interest rates is a signal about how easy it is to get money a business or consumer needs. The economy relies on the ability of borrowers to borrow and the willingness of lenders to lend.
"Don't look at the unemployment numbers —- that is literally yesterday's data," said Adrian Cronje, Atlanta-based director of asset allocation for Wilmington Trust, a wealth management firm. "Worry about what is happening in the credit market."
While the Federal Reserve has been slashing short-term rates, longer rates like mortgages have not fallen. If the long-term rates don't drop, the economy must stall, he said. "The single biggest risk and the biggest single signal to watch is the mortgage rate. The 30-year mortgage rate should go down."
But only a few are so tightly tied to the current economy that they offer anything like a real-time frame.
The semi-official arbiter of recessions, the National Bureau of Economic Research, applies the R-label when there's a broad-based slowdown in the economy, a weakness in production, employment, incomes and spending.
The same categories probably apply in Georgia, Tutterow said.
Since most people focus on their paycheck as a day-to-day measure of their financial health —- and since so much of the economy revolves around a healthy labor market —- the most critical is jobs, he said.
Still, there are different lenses for labor. New jobless claims are a measure of layoffs. On the other side of the equation, payroll surveys are a snapshot of hiring. And the unemployment rate is a picture from the perspective of workers —- how many are out of work, how many have given up searching for a job.
Few of the numbers are shouting recession. Hiring has weakened, but payrolls in the state are growing.
"Until we see employment dropping in the state of Georgia for five or six months —- say if we see a couple of quarters where employee numbers are dropping, then clearly we are in recession," Tutterow said.
In a recession, payrolls might shrink by about a half-percent, he said. But the past year has seen expansion of 0.7 percent nationally and 1 percent in Georgia.
Probably the most quoted indicator is the jobless rate. In Georgia, the official rate is 5.2 percent, compared to an equivalent rate of 5.4 percent for the nation.
"The unemployment rate —- although it gets a lot of buzz, it's not a good indicator of where we are going," Tutterow said. "If anything, it's a lagging indicator. It doesn't always tell us that much."
It can even be misleading. The rate doesn't count people who have given up on finding work. So when the economy improves and those people again start searching for a job, the unemployment rate often rises.
But when you know the labor market is weakening, the jobless rate can tell you something about how fast the decay is. "An increase from 5 percent to 7 percent —- that would be huge," said Emily Sanders, president and CEO of Sanders Financial in Norcross. "That would be worse than just a recession. If the unemployment rate rose even to 6 percent, I'd say that was a recession."
There is also shading behind those numbers, Sanders said. The worse the economy, the harder it is for laid-off people to find another job, she said. "I'd look at how long people are unemployed."
Laid-off workers average just under 17 weeks before they find a job, according to the most recent statistics from the Bureau of Labor Statistics. That is worse than the 13-week average of March 2001 as a recession was starting. It is better than the 18 weeks-plus that reigned during 2003 through 2005.
Layoffs, too, have apparently been on the rise, while still far shy of that earlier post-recession period. Nearly 41,000 Georgians filed for unemployment insurance last month —- 38 percent higher than the same month a year earlier, according to the Georgia Department of Labor.
That jump is more than high enough to set off alarms —- at least if it continues, Sanders said.
Whether or not layoffs are accelerating in Georgia depends partly on manufacturing —- a sector that is smaller than in past decades, but still critical.
News from manufacturing has been mixed. Exports have grown while U.S. demand has weakened. Unfortunately, the negatives have been winning, according to a Kennesaw State University survey of Georgia manufacturers.
The index includes a range of components, including production and employment. When it dips below 50, that means that more companies have reported a decrease than an increase.
A year ago, the overall Kennesaw State index was 57.9, compared to the most recent mark of 47.9.
"I don't see anything that makes me think that it will be higher soon," said Don Sabbarese, director of the Econometric Center at Kennesaw State.
No one will officially designate Georgia as being in recession. Still, for those who want to know, there will be clues, Sabbarese said.
"If you see the index dropping below 45 for three or four months —- that would gives us a strong signal."
UNEMPLOYMENT RATE
Most recent: 5.2 percent
Year earlier: 4.5 percent
Danger zone: 6 percent
NEW JOBS
Most recent quarter: 13,300
Year earlier: 16,300
Danger zone: Zero or below
JOBLESS CLAIMS
Most recent: 40,963
Year earlier: 29,738
Danger zone: We might be there.
PMI*
Most recent: 47.9
Year earlier: 57.9
Danger zone: 45
MORTGAGE RATES
Most recent national average: 6.37%
Year earlier: 6.03 percent
Danger zone: If it stays over 6%.
* PMI is a measure of Georgia's manufacturing economy compiled by the Econometrics Center at Kennesaw State University. Data is statewide, unless otherwise noted.
Sources: Georgia State Economic Forecasting Center, Georgia Department of Labor, Econometrics Center at Kennesaw State University, Northeast Midwest Institute
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