Georgia Economic Outlook By Vitner July2010


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by Mark Vitner Managing Director Senior Economist Wells Fargo Securities, LLC

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Georgia Economic Outlook By Vitner July2010

  1. 1. July 22, 2010 Economics Group Special Commentary Mark Vitner, Senior Economist ● 704-383-5635 Georgia Economic Outlook: July 2010 Economic Recovery May Finally Be Taking Hold in the Peach State Georgia’s economy finally saw some good news during the first half of 2010, as hiring now appears to be picking up and the unemployment rate has dropped a few notches. Nonfarm employment has risen during two of the past three months, with a total of 15,500 jobs added since employment appeared to have bottomed in March. Georgia’s unemployment rate has declined for three months in a row, falling half a percentage point to 10.0 percent in June. Georgia is still dealing with the effects of its worst recession since the early 1970s. Residential Georgia is still construction and building-related industries were particularly impacted, and many firms in these dealing with the sectors continue to struggle. Atlanta’s commercial real estate market has also taken a huge hit, effects of its worst with vacancy rates spiking higher and rents falling. However, there are a few bright spots. Trade recession since the through Georgia’s ports is recovering solidly, and the state continues to attract scores of new early 1970s. businesses and new residents. The military is also expanding in the state, with huge investments under way at Fort Benning in Columbus and Fort Gordon outside Augusta. In addition, Kia opened its new vehicle assembly plant in LaGrange earlier this year, and vehicle demand has been exceptionally strong, leading to a faster-than-expected ramp-up of that operation. While it is comforting to see improvement, the pace of economic recovery remains exceptionally sluggish, and even this growth has taken a long time to take shape. The weakness of the recovery is particularly disappointing coming after such a deep recession. Georgia lost a total of 347,800 jobs since employment peaked in February 2008 and when it appears to have bottomed out in March 2010. The unemployment rate more than doubled over this period, peaking at 10.5 percent. Moreover, the persistence of high unemployment and the large number of foreclosures have put a great deal of strain on state and local finances, leading to severe budget cuts and a large number of layoffs at municipal governments around the state. Georgia’s economic recovery is likely to drag out for the next few years. We expect the modest Georgia’s economic improvement in employment conditions that has occurred over the past three or four months to recovery is likely to gain momentum over the next couple of years, but employment will not likely return to its drag out for the prerecession level until 2014 at the earliest. One sign of how big a hole Georgia’s economy is in is next few years. that even with the recent improvement, payrolls remain 1.5 percent below their year ago level. The year-to-year loss of 56,600 jobs is the second largest in the nation, behind California’s. The sluggish pace of economic recovery means the unemployment rate will remain high and the excesses built up in residential and commercial construction will take longer to heal. Persistently high unemployment also means credit quality for households, and businesses will take longer to improve, which will make it even harder for Georgia’s growth engine to fire back up. Georgia’s Fundamental Growth Model Remains Intact While the recession has been deep and prolonged, Georgia’s fundamental growth model remains intact. Georgia is a relatively inexpensive place to do business, with low land costs, low taxes, a host of pro-business local governments, a strong transportation infrastructure and relatively inexpensive power. All of this combines to produce an enviable quality of life that has drawn This report is available on and on Bloomberg WFEC
  2. 2. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP swarms of new businesses and new residents over the past four decades. Georgia, and particularly the Atlanta metropolitan area, has been a magnet for young, college-educated job seekers as well as retirees. Many are increasingly following their children to the state or simply finding comfortable accommodations in the Atlanta area, the mountains and the coast. Georgia’s population swelled to nearly 10 million at the end of the decade, more than doubling from where it was 40 years ago. This influx of new residents has helped encourage a wave of corporate relocations to the area, reinforcing the state’s strong growth dynamics. Georgia’s Georgia’s remarkable growth run has not come without costs. Traffic congestion around the population swelled Atlanta area has become legendary, and Atlantans face some of the longest commutes of workers to nearly 10 million anywhere. Rapid population growth has also put strains on vital infrastructure, including most at the end of the importantly, the water supply and its distribution system. Secondary and higher education also decade. face immense challenges from the state’s burgeoning population. In addition, there is a significant pool of low-skilled workers displaced from textiles and apparel, agriculture and construction that will be difficult to retrain and employ. Solving these issues in a way that does not put Georgia’s status as a low-cost place to live and do business at risk will be one of the state’s key challenges over the new few years. While Georgia faces plenty of challenges, there are also plenty of opportunities. The rapid growth in higher education has fueled gains in the parts of the state that are home to major universities and colleges, including Atlanta, Athens, Augusta, Statesboro and Valdosta. A recent study by the University of Georgia found the 35 institutions making up the state’s University System had a $12.7 billion impact on the state this past year.1 Several major expansions are currently under way throughout the University System, including the construction of a new medical school at the University of Georgia in Athens in conjunction with the Medical College of Georgia and Georgia State University’s ongoing expansion in downtown Atlanta. Capitalizing on Georgia’s International Connections Georgia Georgia’s international connections provide another unique opportunity for growth. Georgia consistently ranks consistently ranks among the nation’s leading states for direct foreign investment, particularly among the nation’s from Asia. The state’s strong international position is the result of persistent calling efforts by leading states for business and political leaders, as well as Atlanta’s emergence as a key international gateway. direct foreign Atlanta is highly visible on the international stage, hosting the world’s busiest airport and investment. corporate headquarters for the nation’s fourth-largest contingent of Fortune 500 companies. Of course, hosting the Olympics back in 1996 and being the headquarters of CNN and the bulk of its operations also bolster the region’s notoriety on the world stage. The global connections are likely to become even more important as global economic growth is driven much more by developing economies in Asia and Latin America. There several key initiatives currently under way to strengthen Georgia’s international ties. Atlanta’s Hartsfield-Jackson International Airport is in the latter stages of a $6 billion capital improvement campaign that has resulted in the construction of a fifth runway, a new control tower, and a new consolidated rental car facility connected to the terminal with a new people mover system. Construction is also well under way for a new international terminal. The more than $1.3-billion project is slated for completion in 2012 and is expected to add 1.2 million square feet of space, hosting federal inspection services, baggage handling, flight services and 12 new gates geared toward international travel. The new international terminal is located just east of Concourse E, which serves as the current international concourse, and would be connected via the underground people mover. Georgia’s ports provide another great link to the global economy, and the massive growth during the past few years is helping fuel a number of significant projects. The Georgia General Assembly recently approved $64.4 million in bond funding and $200 million in transportation funding for the Savannah Harbor Expansion Project. The plans call for deepening the Savannah River 1Humphreys, Jeffrey M. The Economic Impact of University System of Georgia Institutions on their Regional Economies in FY 2009. Selig Center for Economic Growth. Terry College of Business. University of Georgia. April 2010. 2
  3. 3. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP channel to a depth of 48 feet so that it can accommodate larger ships that are expected to call on the port following the expansion of the Panama Canal in 2014. The port has grown rapidly over the past few years and now ranks as the nation’s fourth-largest container port. The harbor deepening still awaits approval from the Army Corps of Engineers, which is expected early next year. Capital improvements to the Port of Savannah during the past year included the purchase of four additional post-Panamax cranes, 11 new rubber-tired gantry cranes, and additional container storage space and 10 new electrified container racks. In addition, a new intermodal container rail facility was opened at the Garden City Terminal. The additional funding approved by the Georgia legislature will also allow for key road improvements that will greatly ease truck traffic and container shipments to I-95. Port facilities are also being expanded in Brunswick, including new grain handling equipment on Colonel Island and improvements to highway, rail and terminal infrastructure. The Port of Savannah provides huge economic benefits to the state of Georgia and the Southeast. The Port of A recent study by the University of Georgia showed that the state’s deepwater ports helped Savannah provides support $26.8 billion in economic activity and just over 295,000 jobs in fiscal 2009.2 The growth huge economic of the state’s ports has led to extensive development of warehouse and distribution in Savannah benefits to the and southeast Georgia, as well as the Atlanta area. In addition, the port has helped fuel export state. growth for a number of key Georgia industries, including industrial machinery, chemicals, kaolin, foodstuffs and a whole host of agricultural and forest products. Expanding the reach of Georgia’s ports is one of the key opportunities for the state. One promising endeavor is the construction of an inland port in Cordele, which is located along I-75 midway between Macon and Valdosta. When the first phase is completed later this year, the inland port will consolidate shipments from a 350-mile radius south, west and northwest of Cordele and load them on railcars for overnight shipments to the Port of Savannah. Returning containers would be loaded on trucks for final shipment to their destinations. Inland ports have worked successfully in other parts of the country and have often sparked new industrial development in the surrounding area, particularly distribution and warehouse facilities. Growth Will Be Slower, but More Balanced The improvements at the Port of Savannah and construction of an inland port in Cordele highlight an emerging shift in the Georgia economy. The Peach State will depend more on the communities outside of Atlanta to fuel economic growth in coming years and will be less dependent upon Atlanta. The shift results from two factors: slower growth in Atlanta and improved prospects for some of Georgia’s smaller metro areas. Atlanta is enduring an unusually slow economic recovery as it struggles with previous Atlanta is enduring overbuilding of residential and commercial real estate. Atlanta led the nation in new single-family an unusually slow home construction every year between 1995 and 2005, so it only makes sense that it got hit hard economic recovery when housing turned down during the second half of the decade. Housing prices rose only as it struggles modestly during the boom years, but lending was overly aggressive and many homebuyers had with the previous little equity in their homes to begin with. A high proportion of mortgage loans made during the overbuilding of housing boom were either subprime or Alt-A. The net result has been a surge in mortgage residential and delinquencies and foreclosures, and the problem is likely to linger for some time to come. commercial real According to Corelogic, more than 31 percent of Atlanta area homes with a home mortgage estate. currently owe more than the home is worth. Commercial real estate is also in oversupply, with rising vacancy rates and lower rent seen in the office and retail markets. Much of the rest of the state was less affected by the real estate boom and has less of a hangover from the bust. Using the Corelogic data, the share of Georgia’s homeowners living outside the Atlanta area owing more on their mortgage than their home is worth is only about half as high as it is in the Atlanta area, at around 16 percent. Moreover, recent economic development efforts 2 Humphreys, Jeffrey M. The Economic Impact of Georgia’s Deepwater Ports on Georgia’s in FY 2009. Selig Center for Economic Growth. Terry College of Business. University of Georgia. April 2010. 3
  4. 4. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP have landed some huge prizes for Georgia’s outlying areas. Notable projects include the new Kia assembly plant in LaGrange, which has spawned a whole host of suppliers, and the relocation of NCR Corporation, which moved its headquarters from Dayton, Ohio, to the Atlanta suburb of Duluth and also opened a new ATM machine factory in Columbus. Some of the fastest growth in the university system has also occurred outside of Atlanta, where many two-year colleges have been transformed into four-year institutions. Other significant projects include preparations for the relocation of the U.S. Army’s Armor Center and School to Fort Benning in Columbus and the construction of two new nuclear reactors at Southern Company’s Plant Vogtle outside of Augusta. Employment Nonfarm Nonfarm employment finally turned positive this spring, with overall payrolls adding 11,600 jobs employment in April and 6,000 jobs in May. Temporary hires for the decennial Census accounted for about finally turned half of the increase, and we saw a bit of a payback in June. The federal government eliminated positive this 5,400 jobs in June, and we expect another 8,000 jobs to be eliminated over the next few months. spring. Private-sector payrolls have shown some tentative signs of bottoming. The gains are evident across a number of industries, including construction, wholesale trade and the leisure and hospitality sector. Modest improvement is also evident in professional and business services, with administrative and support services accounting for the bulk of job gains. Nonfarm employment is up at a 1.2 percent annual rate over the past three months. The modest rise in nonfarm payrolls is similar to the improvement seen near the start of prior economic expansions and follows two years of declines. Close to 350,000 jobs were lost during this period, as employment fell to its lowest level since the late 1990s. Figure 1 Figure 2 Georgia Nonfarm Employment Georgia Unemployment Rate 3-Month Moving Averages Seasonally Adjusted 8% 8% 12% 12% Unemployment Rate: Jun @ 10.0% 6% 6% 12-Month Moving Average: Jun @ 10.2% 10% 10% 4% 4% 2% 2% 8% 8% 0% 0% 6% 6% -2% -2% -4% -4% 4% 4% 3-Month Annual Rate: Jun @ 1.2% -6% -6% Year-over-Year Percent Change: Jun @ -1.9% Household: Year-over-Year Percent Change: Jun @ -2.7% -8% -8% 2% 2% 90 92 94 96 98 00 02 04 06 08 10 90 92 94 96 98 00 02 04 06 08 10 Source: U.S. Department of Labor and Wells Fargo Securities, LLC Most of Georgia’s Most of Georgia’s major metropolitan areas have also seen a turnaround in nonfarm payrolls. major metro areas While temporary Census hiring lifted overall employment in just about every metro area, private- have also seen a sector payrolls show consistent improvement in Atlanta, Augusta, Columbus and Savannah. Most turnaround . other metro areas either show small job gains or a marked deceleration in the pace of private- sector job losses. In addition, Georgia’s smaller metropolitan area data are more volatile and tend to be subject to larger revisions. We expect the recent improvement in private-sector payrolls to continue over the balance of the year. The headline numbers will likely see declines, however, as Census jobs are eliminated. Georgia’s unemployment has declined in each of the past three months, giving further credence to the notion that the labor market has bottomed. Layoffs have clearly slowed across the state. First- time unemployment claims have fallen 27 percent over the past year and are down 40.1 percent from their peak in March of 2009. Mass layoff announcements tallied by the Georgia Department of Labor under the Worker Adjustment and Retraining Notification act totaled 5,147 jobs this year, which is less than one-third of the 17,096 job cuts announced during the same period last year. 4
  5. 5. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP While layoffs have slowed, unemployment remains unusually high across most of the state. The Unemployment largest concentration of high unemployment areas are in central and southern Georgia. Areas remains unusually surrounding Douglas and Milledgeville are two notable weak spots. Douglas has been struggling high across most of with the fallout from the shutdown of the Pilgrim’s Pride chicken processing plant early last year. the state. The loss of the plant has hurt several area farms and suppliers. Milledgeville has also seen a spate of layoffs, the largest of which was the closure of Rheem’s 1,200-worker air conditioning factory. Pockets of high unemployment are also evident in northwest Georgia, where layoffs in the carpet industry are the primary culprit. By contrast, the lowest unemployment rates can be found in some of the counties ringing the northern boundary of the Atlanta area, the greater Athens area and the Savannah area. Unemployment rates have also fallen slightly in Augusta, Columbus and Valdosta. We expect jobless rates to improve modestly in the coming months. There has been a smattering of good economic news recently in a number of high-unemployment-rate areas, reflecting the modest improvement in overall growth. For starters, Pilgrim’s Pride recently announced it will reopen its Douglas plant, putting 1,400 people back to work early next year. Another promising venture is MAGE Solar, which announced it would locate its North American headquarters to Dublin and build a solar panel factory there. The Ravensburg, Germany-based firm said it would invest $30 million in Dublin and is expected to create 350 jobs over the next five years. In northwest Georgia, FP-Pigments Inc. announced it would build a $20 million factory in Rome to produce specialty pigments. The project marks the first U.S. venture for the Finland-based firm. Unemployment Rate May 2010 Grea ter than 12.2% 9.2% to 10.2% 11.2% to 12.2% Less than 9.2% 10.2% to 11.2% Source: U.S. Department of Labor and Wells Fargo Securities, LLC 5
  6. 6. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP Housing Residential construction received a modest boost from the second incarnation of homebuyer tax credits. Permits for new single-family homes are currently about 11 percent above the lows hit late last year but are likely to give back some of those gains now that the tax incentives have expired. Even with the recent improvement, single-family permits remain 83 percent below their recent peak hit in the middle of the decade. While most of that decline has been in the greater Atlanta area, several other parts of the state, most notably Savannah, the Golden Isles, Athens and Gainesville, all fully participated in Georgia’s housing boom and all have suffered to varying degrees during the ensuing bust. Housing remains Housing remains oversupplied in much of the state, but the biggest problems are clearly in the oversupplied in Atlanta area. There are currently 89,000 homes for sale in the Atlanta metro area, which much of the state. represents a 14-month supply. In addition, there are reportedly close to 150,000 vacant developed lots in the greater Atlanta area, which is enough to keep builders supplied for at least the next four years. Most problematic, however, is the high proportion of loans that are either seriously delinquent or in foreclosure. According to First American Corelogic, 10.51 percent of mortgage loans in the Atlanta area are currently 90 days or more past due and 3.18 percent of the loans are in foreclosure. Foreclosures will Foreclosures will likely remain a problem for some time to come. Corelogic estimates 31.1 percent likely remain a of the Atlanta area homes with a mortgage currently owe more on that home than it is worth. The problem for some statistic is particularly troubling because Atlanta did not see much price appreciate during the time to come. boom years. Home prices, as measured by the S&P/Case-Shiller Home Price Index, rose at just a 5.0 percent annual rate from the middle of 1995 to the middle of 2006. Even the best year saw price appreciation of just 7.5 percent. The combination of a high proportion of underwater mortgages and modest price appreciation suggests shoddy underwriting and fraud played a bigger role in Atlanta’s real estate boom, which means prices will likely overcorrect to the downside. Some of that overcorrection may already be evident. The FHFA home price index for Georgia has plummeted 9.9 percent from its peak. Most of that decline is likely in the Atlanta area, where prices are 11.6 percent below their peak. The more inclusive S&P/Case-Shiller home price data, which include data for subprime, Atl-A and other forms of nonconforming mortgages, show a much more dramatic price decline, with home prices falling 21.1 percent from their peak. The National Association of Realtors shows median home prices tumbling 34.4 percent from their peak three years ago to just $116,000 in the first quarter of this year. As bad as these data are, the decline in home prices has actually moderated in recent months, as the homebuyer tax credits helped boost demand. The pickup in sales has also helped reduce the number of vacant homes on the market. With the tax credits behind us, we expect sales to fall back off and we look for a renewed slide in home prices. With the exception of Savannah and Dalton, price declines have generally not been as severe outside of Atlanta. Home prices in the Savannah area fell 10.5 percent from their peak, and the pace of decline has accelerated recently. The large drop reflects an increase in foreclosure sales and distressed transactions. Dalton’s housing market has also been under considerable stress due to that area’s persistent high unemployment. Price declines have also accelerated in the Columbus area, although prices are down a more modest 8.0 percent from their peak. Prices have held best in Augusta, where they are down just 4.5 percent from their peak one year ago. 6
  7. 7. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP Figure 3 Figure 4 Georgia Housing Permits Georgia Home Prices Thousands of Permits, Seasonally Adjusted Annual Rate FHFA Home Price Index 125 125 15% 15% Single-Family: May @ 13,524 Average Increase from 1982-1998: 3.9% Single-Family, 12-Month Moving Avg.: May @ 15,180 Multi-Family, 12-Month Moving Avg.: May @ 2,956 10% 10% 100 100 5% 5% 75 75 0% 0% 50 50 -5% -5% 25 25 -10% -10% Quarterly Change, Annual Rate: Q1 @ -7.9% Year-over-Year Percent Change: Q1 @ -8.9% 0 0 -15% -15% 90 92 94 96 98 00 02 04 06 08 10 90 92 94 96 98 00 02 04 06 08 10 Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Industrial Development Georgia continues to see a steady stream of industrial announcements across a broad assortment Georgia continues of industries. The largest individual project continues to be Kia’s new assembly plant in to see a steady LaGrange. The facility began assembling vehicles in November of last year. The plant began stream of production with around 1,400 workers and expects to double that over the course of this year as it industrial gears up production. The $1 billion dollar plus facility has also attracted and continues to attract announcements. numerous suppliers to the surrounding area. Recent announcements include Hanil E-Hwa, which announced it will invest $8.45 million to locate a production facility in an existing factory building closed by another firm earlier this year. The project is expected to create 173 new jobs over the next three years. Other suppliers drawn to the surrounding area include Johnson Controls, Mobis and Powertech America. In addition to all of the suppliers attracted to the new Kia plant, northwest Georgia also has a number of suppliers tied to a new Volkswagen assembly plant under construction just across the state line in Chattanooga. Industrial projects span a wide range of industries beyond the automotive sector, including aviation, miscellaneous industrial products, biotechnology and alternative energy. Some of the more prominent recent announcements include Dayton Superior, which is investing $15 million to build a factory and distribution center in Braselton, and Mitsubishi Heavy Industries, which is building a $350 million plant outside Savannah to manufacture gas turbines. The plant is expected to ultimately create 500 new jobs. In addition, ZF Group recently announced that it would invest $90 million to build a new facility in Gainesville to manufacture gear boxes for wind energy projects. The firm already operates a facility in Gainesville that produces drive trains for the automotive industry. The new plant is expected to open early next year and should create 215 jobs when it is fully operational. Alternative energy is increasingly becoming an important part of Georgia’s economy. GE Energy, Alternative energy which moved its headquarters in the mid-1990s to Marietta, located just northwest of Atlanta, is increasingly recently announced plans to invest $15 million to build a new smart grid technology center. The becoming an GE Smart Grid Technology Center of Excellence will manage the research and development of important part of new technologies to manage power plants and monitor electric grids. The facility is expected to Georgia’s economy. create 400 new jobs over the next three years. The presence of GE Energy has helped the state attract scores of next generation energy companies, including MAGE Solar, which is building its North American headquarters and a new solar panel manufacturing plant in Dublin, and HydroPhi Technology, which recently announced plans to locate its headquarters and an R&D facility in Doraville. Combined, these firms plan to create more than 650 jobs. Georgia also continues to attract scores of new corporate and regional headquarters. Recent arrivals include Novelis Inc., which recently relocated its North American headquarters from Cleveland to Buckhead. The move will bring 80 new jobs to Atlanta and boost local employment to 220 by year-end. Novelis recently signed a lease for 100,000 square feet of office space. The 7
  8. 8. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP firm had been leasing 40,000 square feet and will likely try to sublet that space. Another big headquarters pickup was the relocation of NCR Corporation from Dayton. The firm moved into its new corporate offices in Duluth and opened a new manufacturing plant and customer service center in Columbus. Other recent arrivals include Sony Ericsson Mobile Communications. The firm is consolidating its North American headquarters from Research Triangle Park and its Latin American headquarters from Miami into a new Americas headquarters in Atlanta. Figure 5 Figure 6 Georgia Manufacturing Exports Georgia Population Growth Millions of Dollars In Thousands $7,000 $7,000 250 250 $6,000 $6,000 200 200 $5,000 $5,000 150 150 $4,000 $4,000 $3,000 $3,000 100 100 $2,000 $2,000 50 50 $1,000 $1,000 Manufacturing Exports: Q1 @ $6,074 Year-over-Year Percent Change: Q1 @ 20.5% $0 $0 0 0 99 00 01 02 03 04 05 06 07 08 09 10 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Logistics Is Helping Get Georgia Back on Track The port of Georgia has long played an important role as a logistics and distribution point for the Southeast. Savannah has been The state’s ports, railroads, highways and airports provide key links to other parts of the region the fastest-growing and the world. One of the factors fueling growth at the Port of Savannah has been the addition of container port in millions of square feet of warehouse and distribution space in the greater Savannah area. Home the country over Depot, Target, Pier 1, IKEA and Wal-Mart have all opened huge distribution facilities near the the past five years. port and their growth has helped attract shipping lines and container traffic to the port. Hartsfield-Jackson airport has also seen tremendous growth in its air cargo business, which has driven development of several new projects near the airport. Growth in the warehouse and distribution sector slowed during the recession, as firms cut inventories and streamlined operations. Demand picked up this past year, however, particularly for consumer products. Several large projects were announced this year, including a huge new 1.5 million square foot facility for General Mills, a 750,000 square foot warehouse for Colgate- Palmolive and a 1.1 million square foot facility for Clorox. In addition, Safelight Group opened a new distribution center in Braselton. From its 357,000 square foot facility located along I-85, the firm will supply windshields for the entire eastern United States. Review & Outlook Georgia’s recovery Georgia’s economy has finally begun to break free from the grasp of the worst recession since the faces formidable early 1970s. Private-sector job growth has improved and businesses are again expanding headwinds. operations throughout the state. The recovery faces formidable headwinds, however, as the overhang of overbuilding in residential and commercial real estate will continue to weigh on the credit quality of households and businesses. Continuing budget battles at the state and local levels will also result in higher taxes and user fees as well as layoffs in the public sector. Through all these challenges, we see Georgia’s economy eking out modest gains in 2010. We expect the state’s Gross Domestic Product to rise at a 0.2 percent annual rate and look for private-sector payrolls to grow modestly from year-end 2009 and to year-end 2010. Conditions should improve further in 2011, when we see the state’s economy growing at 2.8 percent pace and a net gain of 43,000 jobs. Atlanta’s recovery is lagging behind that of the rest of the state, reflecting the larger problems it faces with overbuilding in residential and commercial construction. The economy is growing again, however, and hiring has picked up in the private sector. Transportation and logistics are 8
  9. 9. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP growing again and Atlanta’s important convention business has improved. The pace of corporate relocations and expansions has also increased. The public sector remains a drag on the economy, however, as many municipalities are struggling with budget shortfalls. We expect Atlanta’s real Gross Domestic Product to rise just 0.1 percent this year but expect the pace of recovery to build momentum over the course of the year. Employment will rise from year-end 2009 to year-end 2010 and the unemployment rate should decline at least modestly by the end of this year. 9
  10. 10. 10 Georgia Economic Outlook Actual Forecast 2006 2007 2008 2009 2010 2011 2012 July 22, 2010 Real Gross Domestic Product by State, Millions 326,469 331,339 329,482 317,950 318,716 327,640 340,222 Annual Rate 1.2 1.5 (0.6) (3.5) 0.2 2.8 3.8 Nominal Personal Inc ome, Millions 311,927 329,983 337,961 330,889 337,510 353,375 374580 Percent Change 6.6 5.8 2.4 (1.7) 2.0 4.7 6.0 Population, Thousands 9,330 9,534 9,698 9,829 9,969 10,124 10,290 Change, Thousands 233 204 164 131 140 155 166 Households, Thousands 3,377 3,417 3,464 3,510 3,550 3,616 3,675 Change, Thousands 56 40 46 47 40 66 59 Nonfarm Employment, Thousands 4,089 4,145 4,102 3,878 3,822 3,865 3,940 Change, Thousands 88 56 (43) (224) (57) 43 75 Unemployment Rate, Annual Average 4.7 4.6 6.3 9.6 10.3 9.5 8.6 Georgia Economic Outlook: July 2010 Total Housing Permits 104,200 73,165 35,368 18,228 18,700 24,000 30,000 Single-Family Permits 86,106 55,210 24,879 14,674 16,700 20,500 25,000 Multi-Family Permits 18,094 17,955 10,489 3,554 2,000 3,500 5,000 Existing Single-Family Home Sales, Thousands 251 211 175 175 177 200 220 FHFA Home Pric e Index, Percent Change 5.0 3.5 (0.5) (3.2) (2.0) 1.6 1.7 Sources: Federal Housing Finance Agency, National Association of Realtors, U.S. Department of Commerce, U.S. Department of Labor & Wells Fargo Securities, LLC Atlanta Economic Outlook Actual Forecast 2006 2007 2008 2009 2010 2011 2012 Real Gross Domestic Product by Metro, Millions 255,382 267,295 269,799 260,083 260,390 267,520 277,960 Annual Rate 1.8 2.2 (1.2) (3.6) 0.1 2.7 4 Nominal Personal Inc ome, Millions 192,460 203,961 206,463 203,780 207,600 217,500 230,370 Percent Change 7.4 6.0 1.2 (1.3) 1.9 4.8 6 Population, Thousands 5,120 5,268 5,386 5,475 5,560 5,670 5,800 Change, Thousands 173 148 118 90 101 112 130 Nonfarm Employment, Thousands 2,403 2,452 2,426 2,291 2,260 2,300 2,350 Change, Thousands 67 50 (26) (136) (31) 40 50 Good Producing 318 317 297 249 230 238 252 Servic e Providing 2,085 2,136 2,129 2,042 2,030 2,062 2,098 Unemployment Rate, Annual Average 4.6 4.5 6.2 9.6 10.2 9.6 8.7 Total Housing Permits 68,664 43,814 18,797 6,577 8,380 12,420 17,250 Single-Family Permits 54,406 31,029 13,318 5,454 7,520 10,250 13,750 Multi-Family Permits 14,258 12,785 5,479 1,123 860 2,170 3,500 Office Vacancy Rate 16.1% 15.1% 16.6% 17.1% 20.4% 21.2% 21.0% Industrial Vacanc y Rate 14.7% 15.0% 15.9% 17.3% 18.6% 18.0% 17.5% S&P/Case-Shiller Home Price Index 133.1 134.0 122.6 108.4 110.0 107.1 109.2 Year-over-Year Percent Change 4.3 0.7 (8.5) (11.6) 1.5 (2.6) 2.0 Sources: FHFA, National Association of Realtors, PPR, Reis Inc, U.S. Department of Commerce, U.S. Department of Labor & Wells Fargo Securities, LLC ECONOMICS GROUP WELLS FARGO SECURITIES, LLC
  11. 11. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP Atlanta MSA Nonfarm Employment Atlanta 12% 3-Month Moving Averages 12% Atlanta is on pace to add 25,000 jobs over the 9% 9% course of 2010. Hiring has picked up in business and professional services, healthcare and retail 6% 6% trade. The pace of job gains, however, pales in comparison to the pace of job losses during the 3% 3% prior year, so the average level of nonfarm payrolls will still likely post a decline of 1.3 0% 0% percent. State and local government payrolls will likely contract over the course of the year. -3% -3% Georgia’s fiscal 2011 budget calls for spending to decline by $300 million, and more cuts may be -6% 3-Month Annual Rate: Jun @ 1.9% Year-over-Year Percent Change: Jun @ -1.7% -6% needed unless revenues improve. City and Household: Year/Year Percent Change: Jun @ -2.6% county budgets throughout the metro area are -9% 91 93 95 97 99 01 03 05 07 09 -9% being slashed, likely resulting in significant public-sector job losses. Atlanta MSA Unemployment Rate Atlanta’s unemployment rate has fallen 0.6 Seasonally Adjusted 11% 11% percentage point over the past three months yet Unemployment Rate: Jun @ 9.8% remains stubbornly high at 9.8 percent. The 10% 12-Month Moving Average: Jun @ 10.2% 10% jobless rate has fallen 0.6 percentage points 9% 9% over the past three months. The improvement reflects a decline in layoffs and a slight pickup in 8% 8% hiring. First-time unemployment claims have 7% 7% fallen 20.4 percent over the past year. Despite the improvement, there are some reasons to 6% 6% take pause. The labor force has declined 5% 5% substantially in recent months, as discouraged job seekers are leaving the workforce in larger 4% 4% numbers following the expiration of extended 3% 3% unemployment benefits. 2% 2% Atlanta continues to attract scores of new 90 92 94 96 98 00 02 04 06 08 10 corporate and regional headquarters. NCR opened its new corporate headquarters in Atlanta MSA Housing Permits Duluth in April, and Sony Ericsson is setting up Thousands of Permits, Seasonally Adjusted Annual Rate 80 80 its new Americas headquarters in Buckhead. Single-Family: May @ 5,772 The payments processing sector also remains 70 Single-Family, 12-Month Mov. Avg.: May @ 6,420 Multi-Family, 12-Month Mov. Avg.: May @ 1,151 70 vitally important. One new arrival is TASQ Technology, which is consolidating operations 60 60 from the West Coast with its offices in 50 50 Kennesaw. The new operation will be housed a new 270,000 square foot office in Marietta and 40 40 is expected to employ 350 workers. 30 30 The recent pickup in relocation activity is good news for Atlanta’s office market. Vacancy rates 20 20 soared in recent years, as a number of new 10 10 buildings were completed in Buckhead and Midtown. Atlanta has a large number of 0 0 nonperforming commercial real estate loans, 90 92 94 96 98 00 02 04 06 08 10 and the sector continues to weigh on the region’s important financial sector. Source: U.S. Department of Commerce, U.S. Department of Labor and Wells Fargo Securities, LLC 11
  12. 12. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP Augusta MSA Nonfarm Employment Augusta-Aiken 12% 3-Month Moving Averages 12% Augusta’s economy has proven to be 8% 8% surprisingly resilient throughout the recession and subsequent recovery. While the region suffered significant layoffs and saw its 4% 4% unemployment rate surge, Augusta held up better than much of the rest of the state and has 0% 0% recovered at a slightly faster pace. Nonfarm employment bottomed out last fall, a full six -4% -4% months earlier than the state and is expected to increase 1.7 percent this year. Recent months -8% -8% have seen some volatility due to temporary 3-Month Annual Rate: Jun @ -0.6% Year-over-Year Percent Change: Jun @ 0.5% Census hiring. But even after the Census jobs -12% Household: Yr/Yr Percent Change: Jun @ -0.7% -12% are gone, employment will still likely be well 90 92 94 96 98 00 02 04 06 08 10 above the lows hit last fall. Two big stabilizing influences on the Augusta Augusta MSA Unemployment Rate economy are the Medical College of Georgia and Seasonally Adjusted 10% 10% the annual Master’s golf tournament. In Unemployment Rate: Jun @ 8.8% addition, the region has won a host of federal 12-Month Moving Average: Jun @ 9.4% 9% 9% and state projects over the past few years. The Brookings Institution’s MetroMonitor 8% 8% cited the Augusta area as the seventh most resilient metro economy in the country. There 7% 7% have been several positive developments this year, including Convergent, which is opening a 6% 6% 400-worker customer care center. Another new arrival is Caraustar International, which is 5% 5% opening a distribution center and creating 15 4% 4% jobs. In addition, work is well under way for two new nuclear reactors at Southern Company 3% 3% Plant Vogtle in nearby Waynesboro. The project 90 92 94 96 98 00 02 04 06 08 10 recently lined up $8.3 billion in loans from the federal government, and site work is well under Augusta MSA Housing Permits way. Approximately 1,400 workers are currently Thousands of Permits, Seasonally Adjusted Annual Rate employed on site, and employment is slated to 6 Single-Family, 12-Month Mov. Avg.: May @ 2,068 6 rise to 3,500 workers. Multi-Family, 12-Month Mov. Avg.: May @ 107 5 Single-Family: May @ 2,136 5 Augusta’s unemployment rate has fallen more than half a percentage point since peaking in March. The drop reflects fewer layoffs and 4 4 modest job growth. First-time claims for unemployment insurance have fallen more than 3 3 25 percent over the past year. Home sales and new home construction got a 2 2 slight boost from the homebuyer tax credit program. Tax credits go a long way in Augusta, 1 1 where the median home costs just $149,900. Sales will likely fall off a bit this summer. 0 0 90 92 94 96 98 00 02 04 06 08 10 Augusta’s low costs make it attractive to businesses looking to control costs. In a slow growing national economic environment, this Source: U.S. Department of Commerce, U.S. Department of Labor and Wells Fargo Securities, LLC attribute becomes much more valuable. 12
  13. 13. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP Columbus, GA MSA Nonfarm Employment Columbus 12% 3-Month Moving Averages 12% 3-Month Annual Rate: Jun @ 0.7% Employment growth turned up late last year in Year-over-Year Percent Change: Jun @ -0.3% Household: Yr/Yr Percent Change: Jun @ -1.3% Columbus and the unemployment rate is finally 8% 8% showing signs of topping out. The local economy was dragged down by layoffs in its key financial 4% 4% services sector, which was a victim of the collapse in residential and commercial real estate. Banking and specialized financial 0% 0% services remain challenged and new financial regulations will tend to slow the recovery. Fortunately, a bevy of new industrial projects -4% -4% has found its way to the region, giving manufacturing employment a much need lift. -8% -8% The Columbus area is benefiting from the 91 93 95 97 99 01 03 05 07 09 opening of the Kia assembly plant in LaGrange. A handful of suppliers have located in Harris Columbus, GA MSA Unemployment Rate County, which is located just north of the city. Seasonally Adjusted 12% 12% One of the newest arrivals is Johnson Controls, Unemployment Rate: Jun @ 9.3% which built a 127,000 square foot factory in the 12-Month Moving Average: Jun @ 9.7% North Harris Industrial Park to supply seats and 10% 10% door panels for the Kia Sorrento. In addition, NCR Corporation opened an ATM manufacturing plant in Columbus this past year, 8% 8% creating 900 jobs. The factory has been extremely successful and will also produce self- 6% 6% service customer checkout machines. The firm also recently announced plans to relocate a customer service center to Columbus. 4% 4% The biggest economic driver for Columbus is the expansion under way at Fort Benning. The U.S. 2% 2% Army is spending $3.5 billion to relocation its 90 92 94 96 98 00 02 04 06 08 10 Armor Center and School from Fort Knox, Ky., to Fort Benning. The move is expected to add Columbus, GA MSA Housing Permits 4,700 military personnel to the base, create Thousands of Permits, Seasonally Adjusted Annual Rate nearly 1,900 civilian jobs and another 4,800 3.0 Single-Family, 12-Month Moving Average: May @ 652 3.0 jobs at contractors. Ultimately, the region’s Multi-Family, 12-Month Moving Average: May @ 638 population is expected to increase by 30,000, a 2.5 Single-Family: May @ 768 2.5 huge bump for a metro area that currently has 290,000 residents. 2.0 2.0 The influx of new residents is fueling a construction boom that is expected to last for 1.5 1.5 the next few years. Most of the activity is confined to Fort Benning, but school 1.0 1.0 construction has also increased and residential construction has firmed a bit. 0.5 0.5 Columbus should continue to see modest economic gains over the next few years. Hiring 0.0 0.0 has picked up across a broad assortment of 90 92 94 96 98 00 02 04 06 08 10 industries, and businesses continue to relocate operations or expand facilities in the region. Source: U.S. Department of Commerce, U.S. Department of Labor and Wells Fargo Securities, LLC 13
  14. 14. Georgia Economic Outlook: July 2010 WELLS FARGO SECURITIES, LLC July 22, 2010 ECONOMICS GROUP Savannah MSA Nonfarm Employment Savannah 12% 3-Month Moving Averages 12% Savannah’s economy appears to have bottomed 8% 8% out late last year and is now seeing modest economic gains. Nonfarm employment has risen 4% 4% at a 2.1 percent annual rate over the past three months, although the gain has been bolstered slightly by temporary Census hiring. The 0% 0% unemployment rate has fallen from its recent peak, but remains relatively high at 8.4 percent. -4% -4% Wholesale trade and distribution are benefiting from increased international trade and general -8% 3-Month Annual Rate: Jun @ 2.1% -8% inventory restocking. The increase has also Year-over-Year Percent Change: Jun @ -0.2% Household: Yr/Yr Percent Change: Jun @ -1.2% helped boost activity at trucking firms and rail -12% -12% yards. The Port of Savannah is also bustling, 91 93 95 97 99 01 03 05 07 09 with container traffic surging 25 percent on a year-to-year basis through the first five months Savannah MSA Unemployment Rate of this year. In addition, there has been a bevy Seasonally Adjusted 10% 10% of new capital improvements at the port, which Unemployment Rate: Jun @ 8.4% has boosted throughput capacity. 12-Month Moving Average: Jun @ 8.6% 9% 9% Industrial development has held up well in recent years, and some major new projects have 8% 8% recently come on line. One promising venture is a new manufacturing plant for EFACEC. The 7% 7% Portuguese-based firm will manufacture key components for electric power plants in nearby 6% 6% Rincon and is expected to ultimately hire 700 workers. Construction is also well under way 5% 5% for Mitsubishi’s new gas turbine manufacturing 4% 4% plant near the intersection of I-95 and I-16. Savannah’s tourism industry has improved over 3% 3% the past year, boosting activity at hotels and 90 92 94 96 98 00 02 04 06 08 10 restaurants. Business travel is recovering more slowly, so much of the gain in the travel and Savannah MSA Housing Permits leisure sector has come through extensive 4 Thousands of Permits, Seasonally Adjusted Annual Rate 4 discounting. Passenger traffic through the Single-Family, 12-Month Mov. Avg.: May @ 976 Savannah/Hilton Head International Airport is Multi-Family, 12-Month Mov. Avg.: May @ 353 Single-Family: May @ 792 finally posting gains on a year-to-year basis, although rental car revenues are well below 3 3 their year-ago levels. Residential construction remains mired in a deep slump. Savannah saw considerable 2 2 overbuilding of single-family homes and condominiums. Although homebuyer tax credits provided a slight boost to sales earlier this year, 1 1 the demand for new homes remains lackluster and credit conditions remain relatively tight. Two community banks have been closed by 0 0 regulators during the past year and sold to other 90 92 94 96 98 00 02 04 06 08 10 organizations. Much of the problem is in construction and development loans for Source: U.S. Department of Commerce, U.S. Department of Labor residential projects. and Wells Fargo Securities, LLC 14
  15. 15. Wells Fargo Securities, LLC Economics Group Diane Schumaker-Krieg Global Head of Research (704) 715-8437 & Economics (212) 214-5070 John E. Silvia, Ph.D. Chief Economist (704) 374-7034 Mark Vitner Senior Economist (704) 383-5635 Jay Bryson, Ph.D. Global Economist (704) 383-3518 Scott Anderson, Ph.D. Senior Economist (612) 667-9281 Eugenio Aleman, Ph.D. Senior Economist (612) 667- 0168 Sam Bullard Senior Economist (704) 383-7372 Anika Khan Economist (704) 715-0575 Azhar Iqbal Econometrician (704) 383-6805 Ed Kashmarek Economist (612) 667-0479 Tim Quinlan Economist (704) 374-4407 Kim Whelan Economic Analyst (704) 715-8457 Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2010 Wells Fargo Securities, LLC. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE