ATLANTA ‒ Economic growth in 2023 was robust when measured by gross domestic product (GDP), but business investment had turned anemic. As a result, 2024 will be a year of growth reset and, then with the help of “practical” rate cuts by the Federal Reserve, will lead to growth resurgence in 2025, according to Economic Forecasting Center Director Rajeev Dhawan of Georgia State University’s J. Mack Robinson College of Business.
Rajeev Dhawan
“2023 ended robustly by the GDP metric. However, business investment, the predictor of future economic activity, was getting weaker every quarter, setting the stage for below-trend growth in the second half of 2024,” Dhawan said today (Feb. 28) during his semi-annual Economic Forecasting Webinar for the nation.
Another key factor the forecaster said will contribute to a growth reset in 2024 is the quality of the jobs created last year that are suppressing consumers’ income growth due to:
- Ongoing job market compression (corporate layoffs and postponed hiring) among well-paying, white-collar, middle-management jobs, worsening by mid-year.
- “Unbalanced” job gains, with two-thirds of last year’s job additions occurring in lower-paying wage sectors (e.g. hospitality, retail, social assistance, gig economy, and most of healthcare) that also produce part-time jobs, making for low consumer purchasing power.
Dhawan characterized the prospect for future corporate job additions as “iffy, because the mood in the C-suite is cautious. But labor hoarding of frontline employees will continue in the human-contact-heavy service sectors of hospitality and healthcare.”
“The banking sector, particularly midsize banks holding large commercial real estate portfolios mostly in the office market, is now having to keep a sizable equity cushion for loans that may sour in the future,” Dhawan said. “These banks will continue to be constrained in making new business loans, especially to smaller-sized firms that rely primarily upon banks for trade finance.”
“Inflation has already moderated two-thirds from its high of 9 percent in mid-2022 to 3.1 percent in Jan. 2024 (year-over-year change),” Dhawan said. “Inflation is always sticky, meaning it declines much more slowly than output. It would be a policy mistake for the Fed to experience a pronounced growth slowdown before starting their rate-cutting regime.”
The Federal Reserve’s Dec. 13 “dot plot” (a graphic indicating where each official sees interest rates rising or falling) shows three rate cuts in 2024 totaling 75 basis points. Dhawan posits that rate cuts will be "practical" to ensure conditions are conducive to a soft landing instead of a stall.
“The Fed is itching to cut rates but is delayed by ‘data noise.’ Look for much more aggressive rate cuts than their dot plot implies, beginning in June and totaling 175 basis points by next spring. The Fed will start with a rate cut of 25 basis points, a baby step of sorts, then ramp up the amount of basis points cut with each subsequent reduction. These rate cuts will help produce trend GDP growth in 2025 with job gains in every sector,” Dhawan said.
U.S. GDP growth on a Q4/Q4 basis will slow from 3.1 percent growth in the fourth quarter of 2023 to 1.4 percent in the last quarter of 2024. As sharp Fed rate cuts make their impact by late summer 2025, the economy will rebound to an above-trend rate of 2.0 percent in the fourth quarter of 2025.
Rate cuts will offer some relief to the housing market by bringing down mortgage rates, primarily for sales of newly built homes, Dhawan said. “Even with aggressive rate cuts, 70 percent of existing mortgages will still be at a lower rate than will prevail in the market even after the Fed cuts rates. But there will be a mini refinance boom among people who bought houses in the past year.”
One caveat to Dhawan’s growth resurgence forecast for 2025 is the price of oil. Russia’s invasion of Ukraine in 2022 initially led to a sharp spike in gasoline prices that eased in 2023 (more domestic oil output plus sustained releases from strategic petroleum reserves), putting some money back in consumers’ pockets and helping retail sales.
“Fortunately, the volatile situation in Middle East hasn’t produced a lasting oil-price spike,” Dhawan said. “Any deterioration or expansion of hostilities in that region could cause a world oil supply shock, raising prices at home too. Such an inflation shock would derail any rate cut plans by the Fed this year, putting next year’s growth prospects in jeopardy.”
Highlights from Rajeev Dhawan’s National Economic Forecast
- U.S. real GDP growth on an annual average basis will be 2.3 percent in 2024, 1.5 percent in 2025, and 2.2 percent in 2026.
- National job growth will weaken sharply to only 35,000 monthly gains in the second half of 2024, rebounding to 115,000 job gains by late 2025 as aggressive Fed rate cuts spur investment spending. Job growth will be a better 137,000 monthly rate in 2026.
- CPI inflation will come down from its 4.1 percent rate in 2023 to 2.4 percent in 2024, moderate further to 1.6 percent in 2025, and 2.2 percent in 2026. After averaging 4.8 percent in 2023, core inflation will drop to 2.9 percent in 2024, and then moderate to 2.2 percent in 2025.
- The 30-year mortgage rate after averaging 6.8 percent in 2024, will moderate sharply to 5.8 percent in 2025, and further decrease to 5.7 percent in 2026.
- Housing starts will average 1.413 million in 2024, 1.455 million in 2025, and 1.450 million in 2026.
- Vehicle sales after averaging 15.5 million in 2023 will be lower at 15.1 million in 2024. They will then rise to 16.3 million in 2025, and further to 17.0 million in 2026.
Georgia Benefiting from Tailwinds of Domestic Migration, EV, and Manufacturing Investment, Offset by National Headwinds of Corporate Job Compression and Weak Global Growth
Georgia’s economy is benefiting from the tailwinds of people moving to the state from the rest of the nation (domestic net migration), electric vehicle (EV) and supplier-related construction, and general manufacturing investments, while also being buffeted by the headwinds of national job market compression and global growth woes, Dhawan said.
“Georgia created 162,500 jobs in calendar year 2022 (Q4 to Q4), but job growth slowed to 100,200 in calendar year 2023, with 80 percent of the job gains in lower-wage-paying sectors (e.g. hospitality, retail, social assistance, gig economy, and most of healthcare) that also produce part-time jobs with low consumer purchasing power,” Dhawan said today (Feb. 28) during his semi-annual Economic Forecasting Webinar for Atlanta and Georgia.
“By contrast, high paying catalyst sector jobs ‒ professional and business services (corporate), wholesale (business-to-business), information technology, and finance ‒ which are the trigger point for the growth multiplier process, underperformed in 2023. These four sectors together produced 40 percent of the job growth the state saw in 2021 and 2022. But in 2023 their combined contribution was less than 5 percent,” Dhawan said. “It’s not just the absolute number of new jobs created that matter, but also the quality of jobs – driving everything from income growth to consumer spending and ending with tax collections. For example, net sales tax collections were up by just 0.2 percent (year-over-year) in January 2024 compared to double digit growth in late 2022.”
“The drumbeat of layoff announcements at big companies in the last three months – UPS, Delta Air Lines, Truist, Newell Brands, Norfolk Southern, The Home Depot and Block Inc. among them – doesn’t augur well for the job prospects in the corporate sector, which will have a ripple effect on the rest of the economy.”
The anticipated layoffs by big technology firms also will be felt in the Atlanta metro area. Although it may be more of a problem for West coast metro areas where these firms are headquartered (from San Diego to Seattle), the companies have satellite offices here concentrated in the core counties of Fulton, Cobb, DeKalb and Gwinnett. The ripple effect on non-tech businesses is also expected here: Many large corporations with global reach that are headquartered in the metro area will deal with the pain of anemic revenue growth by paring headcount.
Although Georgia’s hospitality sector has continued to boom, overall caution in the corporate sector could slow spending for meetings and conventions in the Peach State, Dhawan warns.
“Two trends are helping Georgia’s economy weather the economic slowdown better than the nation: Large, positive domestic migration numbers, and EV/manufacturing buildup. More people coming to the state are boosting spending over and above what job growth numbers imply,” Dhawan said. “Georgia gained 58,000 people in 2023. By contrast, California lost 338,000. That said, migration numbers moderated almost 30 percent from 81,000 people in 2022.”
“The state’s EV manufacturing boom, currently in its building stage, will benefit areas throughout the state, particularly on the periphery of metro Atlanta and Savannah,” said Dhawan. “This is also good news for the construction industry, which provides workers and construction materials, especially cement and lumber among others. Once the EV plants are online, it will lead to hiring in the manufacturing arena in the 2025-2026 time period.”
“Myriad global factors are clouding growth prospects,” Dhawan said. “The German economic machine is not firing on all cylinders, which, when combined with the Russia-Ukraine situation, makes European growth prospects less than rosy in coming years. China has been unable to jumpstart its economy since getting rid of its zero Covid policy last year, and the bursting of the nation’s massive property bubble will have its own repercussions on their growth, and the growth of surrounding countries who are our trading partners, including Japan, Korea, Malaysia, and Indonesia. Then, there’s the Middle East turmoil. The current geopolitical mess could cloud my projections for normalcy in 2025.”
Highlights from Rajeev Dhawan’s Economic Forecast for Atlanta and Georgia
- Georgia jobs: The state added 100,200 jobs (12,200 premium jobs) in calendar year 2023, but this rate will moderate sharply to 37,400 jobs in 2024 (6,800 premium). In 2025, the state will add a better 79,100 jobs (20,100 premium) and 101,300 jobs (29,100 premium) in 2026.
- Georgia’s nominal personal income will grow 5.2 percent in 2024, a higher 5.7 percent in 2025, and again by 5.8 percent in 2026.
- Atlanta jobs: The metro area added 61,700 jobs (6,800 premium) in 2023, but will add an anemic 26,100 jobs (4,300 premium) in 2024. As recovery takes hold in 2025, the metro area will add a respectable 56,700 jobs (14,500 premium), and 73,900 jobs (21,800 premium) in 2026.
- Atlanta housing permitting activity decreased by 18.7 percent in 2023; single-family permits dropped by 7.8 percent, and multifamily permits even sharper by 31.2 percent. Total permit numbers will fall by 5.4 percent in 2024 as multifamily permits drop again by double digits. In 2025, total permit numbers rise by a miniscule 0.5 percent but multifamily permits drop by 3.0 percent. Normalcy will return in 2026 when permit activity grows by 10.8 percent.
