UGA economists are bearish on 2022

Economists in the University of Georgia’s Terry College of Business offered their annual economic outlook for the state in a Monday session at the Georgia Aquarium in Atlanta, saying the economy for 2022 appears to be poised for a return to normalcy after two years of the coronavirus pandemic.

From J. Merritt Melancon, UGA Today…

The Georgia economy is on track to exceed its pre-pandemic peak and make a full recovery by the end of 2022, recovering faster than the national economy.

“I am pleased to report that by late 2022, Georgia’s economy will fully recover from the COVID-19 recession,” said Benjamin C. Ayers, dean of the Terry College of Business, at the University of Georgia’s 39th annual Georgia Economic Outlook.

“Despite waves of infection, shortages of workers, and other supply constraints we’ve made tremendous progress in terms of getting back to normal.”

The state should see an overall growth of its gross domestic product of about 4.3%. Despite risks posed by supply chain and labor shortages, inflation and the prospect of higher interest rates, the overall risk of recession in 2022 is very low — only about 20 percent.

After last year’s virtual Georgia Economic Outlook event, UGA returned to its annual in-person forecast at the Georgia Aquarium in Atlanta.  The forecast is based on the Georgia Economic Outlook report, produced by UGA’s Selig Center for Economic Growth.

This year’s forecast is positive with steady growth projected throughout the year; albeit slower than the initial recovery seen in 2021. Georgia’s GDP recovered fully in 2021, but the labor market did not. In 2022 the state is expected to surpass its pre-pandemic jobs count, signaling full recovery.

“At that time, Georgia’s economy can be considered fully healed in terms of jobs,” Ayers said. “In contrast, the U.S. job count is unlikely to surpass its pre-pandemic peak until the second quarter of 2023.”

While the state’s economic recovery in 2021 was sparked and buoyed by federal economic supports, the private sector will fuel growth in 2022.

“That’s quite a change from 2020 and 2021 when the federal government was the main — and at times only — economic driver,” Ayers said.

Georgia’s unemployment rate will fall below pre-pandemic levels during 2022, averaging about 3.2% or about 1% lower than the national unemployment rate.

There will be sharp increases in hiring by the industries hardest hit by COVID-19 — hospitality, transportation and personal services. In addition, Georgia will see solid growth in local government hiring as well as hiring in logistics, business services, construction, information and fintech.

Manufacturing will see growth in hiring, but it will be somewhat restricted until supply chain problems are resolved.

Personal income will grow by 1.9%, exceeding the projected national increase of 0.6%.

Consumer spending, business spending and housing

Georgia’s recovery will be bolstered by three major economic drivers: consumer spending, business spending and housing.

Job growth and higher wages will propel consumer spending.  In addition, consumers will draw upon savings accumulated during the pandemic. U.S. households accumulated $2.5 trillion, or 12% of GDP, in extra savings during the pandemic.

Georgians are expected to spend about 4.5% more in 2022.

“Unlike 2020 and 2021, consumers spending for services will increase faster than the spending for goods,” Ayers said.

Businesses are expected to increase spending on new technology and equipment by 6%, as they continue to invest in new ways of doing business that emerged during the pandemic. They will also spend more on new types of structures — data centers, research and development centers, warehouses and distributions centers.

Thanks to the shift toward teleworking and popularity of online shopping, businesses will have less need for retail space and office space. However, there will be a strong interest in repurposing some of the unused retail and office space, spurring more business investment.

The pandemic’s long-term impact on the way people work, shop and live is also impacting the housing market. During months of working and learning at home, many families reassessed their need for space and amenities. That desire for bigger homes and more private spaces is still fueling home prices and homebuilding.

“Put it all together and people are willing to pay more for a single-family home than prior to the pandemic,” Ayers said. “In addition, low yields on other types of assets mean that investors will be active in residential real estate markets.”

Home prices now are 37% higher than they were in 2008, and the Selig Center forecast calls for new home construction to increase 8% in 2022.

Despite many promising indicators, Georgia and the United States will still face supply-side challenges throughout 2022, ranging from shortages of raw materials and finished goods to shortages of workers.

On the plus side, most of the unmet demand for goods and workers is simply delayed, which raises the prospects for growth once labor shortages and supply chain issues are resolved.

The main risk to the economy from labor shortages and supply constraints is that inflation could run hotter for longer than expected.

“We’ve already seen some of that,” Ayers said.

“A quick, aggressive pivot from easy money to tight money could trigger a recession, because the economy is not well positioned to absorb substantially higher interest rates.”

Companies are holding historically high rates of debt, and a sudden increase in interest rates could trigger a recession through a corporate debt crisis or a sudden stock market correction.

A third, relatively low risk to the economy is the pandemic itself.

“Our expectation is that each succeeding wave of cases will do less damage to the economy, but mutations of the virus that are more deadly could develop,” Ayers said.

For the complete details of the 2022 Georgia Economic Outlook, including regional economic forecasts, visit www.terry.uga.edu/about/selig/publicatio

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