U.S. Stock Market, Business Investment Hold Keys to Future Fed Hikes

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The first Federal Reserve rate hike since June 2006 is highly likely to occur in December provided certain conditions prevail, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

The first Federal Reserve rate hike since June 2006 is highly likely to occur in December provided certain conditions prevail, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

“Barring any setback in the domestic stock market, the October jobs report almost seals the deal for a December hike,” Dhawan wrote in his quarterly “Forecast of the Nation,” released today (November 18).

The puncturing of the Chinese stock market in June and the following correction led to a rate hike delay, but the spectacular rebound of the U.S. stock market in October led to a change in tone by the Federal Reserve. The performance of the domestic stock market ultimately will determine how aggressively the Fed will move in the coming years, Dhawan said.

“Rate hikes are intended to slow, not stall, the economy,” Dhawan said. “With a potential GDP growth rate of 2.0 percent, there is little margin for error.”

The forecaster expects 2.4 percent GDP growth in 2015 and slightly better 2.6 percent growth in 2016 despite the anticipated December rate hike and a second hike he expects in March 2016. Due to the small margin of error, combined with presidential election campaigning, the Fed will not hike rates again until post-election.

“How aggressive the Fed is and how high it will go depends on private fixed investment performance in coming quarters,” Dhawan said. He expects “decent” investment growth of 5-6 percent in 2016, buoyed by strong tech investment. He noted that Congressional resolution of the debt ceiling and budget has relaxed corporate angst about D.C. politics, which will aid investment growth.

“Tech investment today results in jobs tomorrow and that is exactly what the Fed will watch in the quarters after its first hike to see how the economy is responding,” Dhawan said.

Another benefit of rate hikes, Dhawan said, “is that they bring fence-sitting, first-time home buyers into the market.” He expects housing starts to rise to 1.287 million units by 2017.

Highlights from the Economic Forecasting Center’s National Report

  • After growing only 1.5 percent in the third quarter of 2015, real GDP is expected to grow 2.7 percent in the fourth, for an annual rate of 2.4 percent. It will expand at 2.6 percent in 2016 and 2.4 percent in 2017.
  • Business investment will grow by 3.2 percent in 2015, rebound to 5.2 percent in 2016 and 4.4 percent in 2017. Expect jobs to grow by a monthly rate of 214,000 in 2015, 182,000 in 2016 and 155,000 in 2017.
  • Housing starts will average 1.112 million units in 2015, rise to 1.212 in 2016 and 1.287 in 2017. Expect auto sales of 17.3 million units in 2015, 17.0 in 2016 and 16.5 in 2017.
  • The 10-year bond rate will rise to 2.32 percent in 2015 and should rise to 3.57 percent before the end of 2017.

Georgia Job Growth Appears Weak, but Income Metrics Say Otherwise

ATLANTA--The year 2014 saw steady employment growth in the U.S. and in Georgia, but 2015 has seen a sharper deceleration of job growth in the Peach State than for the nation, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

Dhawan described the contrast in his quarterly “Forecast of Georgia and Atlanta,” released today (Nov. 18).

“In the first nine months of 2015, Georgia added only 46,500 new positions for a growth rate of 2.3 percent, compared to a gain of 103,900 and a growth rate of 3.1 percent in the same period last year,” Dhawan said. “Is Georgia the only state that has put on the brakes? Texas has, because of falling oil prices; but other leading GDP states, namely California and Florida, have not seen this kind of deceleration.”

Job growth in manufacturing, a catalyst sector, has declined more than the national level. Some states such as Michigan have benefitted from the rocket rise of domestic vehicle sales; but Georgia has suffered due to export-related business woes caused by a strong dollar and the stalled economies of Canada, the Eurozone and China, as evidenced by a slowdown of goods at the Port of Savannah.

Manufacturing in three of the state’s metropolitan statistical areas (MSAs) – Dalton, Savannah and Gainesville – have experienced slower employment growth as well. Columbus bucked the trend, however, because of its connection to the auto industry.

In the Atlanta metro area, the hospitality sector saw a 5.0 percent growth in jobs up from 4.8 percent over the same period last year, mostly due to a 22.3 percent increase in large meetings and conventions.

Georgia’s premier catalyst sector, professional and business services, is trying to overcome weak global demand and currency struggles mainly at large corporations such as Delta and Coca-Cola.

However, a multitude of announcements of small business headquarters moves in the technology and healthcare sectors will help counter economic hits taken because of a global malaise. Healthcare has added 11,400 new jobs in the first nine months of the year and is expected to maintain its momentum in coming years to bolster overall job growth in the state.

Despite the mixed signals from the sectoral job analysis, the multitude of announcements of relocations and expansions of companies to Midtown Atlanta has led to 25 planned projects which are going to add about 4,800 units within two to three years.

“The construction sector is beginning to close in on a saturation point not because of lack of demand but due to availability of viable lots,” Dhawan said.

“Net-net: domestic positives are countering the negative global factors and that reality is evident in Georgia’s income tax revenue collections that have grown nicely by 8.8 percent in the last nine months even as job numbers were decelerating.”

Dhawan forecasts a mild pickup in Atlanta housing permits despite the mixed signals on the job front.

Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta

  • Georgia employment will gain 75,100 jobs (16,900 premium jobs) in calendar year 2015, 74,000 jobs (15,800 premium) in 2016 and 80,800 (17,500 premium) in 2017.
  • Nominal personal income will increase 5.0 percent in 2015, 4.6 percent in 2016 and 5.3 percent in 2017.
  • Atlanta will add 61,700 jobs (14,700 premium jobs) in calendar year 2015, 59,800 jobs (13,400 premium) in 2016 and 62,600 jobs (15,900 premium) in 2017.
  • Atlanta permitting activity in 2015 will increase 9.6 percent, grow 6.1 percent in 2016 and by 7.4 percent in 2017.

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Leah Seupersad
Georgia State University
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