Though the recession is over, it doesn’t feel like it because it will take time for the economy to recover — and the road will be bumpy.
That was the message Tuesday at the 19th annual Georgia Economic Outlook Luncheon in Macon. About 250 business and government leaders attended the event at the Wilson Convention Center.
“The statistics you hear every day are confusing,” said Robert Sumichrast, dean of the Terry College of Business at the University of Georgia, who focused mostly on the state and national forecast. “Although the GDP (gross domestic product) grew by 2 percent in the first quarter last year, we don’t feel like we’re in a recovery. In fact, we feel awful. Employment is declining, non-residential property values have plummeted, consumer spending is restrained, capital needs reallocation, and on top of that, the banking system is not completely fixed. Too many banks are still holding onto assets that are clearly distressed.”
Even though the economy has bottomed out, the recovery will be “the most subdued recovery since World War II,” Sumichrast said. It may take about two years before the labor market replaces the jobs lost during the recession, he said.
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“Our recovery will be slow and bumpy,” he said. “You can expect Georgia’s economy to underperform the national economy until real estate and construction stabilizes sometime in 2011.”
Also, consumer spending is still weak and the economy can’t recover until people begin spending again, he said. Consumer spending is expected to increase only 1.5 percent this year. As consumer spending increases, business spending is expected to increase “and will be a powerful driver of Georgia’s recovery,” he said.
Midstate recession not as harsh
The Middle Georgia economic situation is similar to the state in some ways, but not as dramatic in some areas.
“Locally, we are working our way out of the most pronounced economic downturn since the Great Depression,” said Roger Tutterow, professor of economics in the Eugene W. Stetson School of Business and Economics at Mercer University. “I, too, believe the recession of 2008 and 2009 is over.” But it won’t feel like it until the job situation improves “and we are a couple of quarters away from that.”
“The pain you feel today isn’t because things are getting worse, it’s the fact that the current level we’re having is still so much lower than where we were prior to this recession,” Tutterow said.
For example, new real estate activity is down more than 90 percent in Macon, he said.
The downturn in the real estate market hasn’t just affected home builders, but it has hurt bankers, real estate agents, real estate attorneys and moving companies, he said.
“The good news here in central Georgia is we did not have the spectacularly upside growth in terms of development of residential properties, so we haven’t felt the pain on the way down quite as much,” he said.
Home prices have bottomed out, and some say prices rose slightly in the second half of 2009, Tutterow said.
Warner Robins homebuilder and developer Larry Warnock of Bry-Mel Homes Inc. said after the meeting he was encouraged by some of the comments, especially if consumer spending trends upward.
“People’s spending patterns have more to do with their mental attitude than it does many times with their financial aspect,” Warnock said.
Warnocks’s company builds houses that range from $115,000 to $135,000, he said.
“My decline did not occur until October of 2008,” he said. “We are probably off about 60 percent from our high of ’08. ... 2009 was my disastrous year. Mine started much later because of the market I was targeting: senior citizens.”
Some commercial real estate has taken a hit even though Middle Georgia does not have the accumulation of new office space seen in some other cities in the Southeast, Tutterow said. Commercial real estate values are coming down, rentals are down and the price to finance has risen, Tutterow said.
Credit remains a problem for everyone, from consumers to banks.
“The banking sector provides the capital that grows the vast majority of the businesses in our communities,” he said. “A lot of financial institutions are having to raise capital ... so they are cutting back on credit ... and you feel that pain. The good news is we are very close to the end of the tightening cycle for the banks and institutions.”
While 31 banks failed during 2008-09 in Georgia, the end is not in sight, Tutterow said.
“We will close as many banks this year — in 2010 — as we did in 2009,” he said. “We are not in the clear yet.”
Job losses remain an issue. During the past 12 months, Macon’s employment dropped from 102,200 to 96,300 — a loss of 5,900 jobs or 5.8 percent of employment, he said. For the same period in Warner Robins, employment fell from 58,600, to 57,000, a loss of 1,600 jobs or 2.7 percent of employment.
Chip Cherry, president of the Greater Macon Chamber of Commerce, said after the meeting the professors’ analysis was “pretty much on target.”
“We have done better than national and state averages on a number of things,” Cherry said. “The job-loss rate has not been as high. We’ve been successful at keeping companies here and recruiting some companies. ... We are starting to get some signals from some folks that they are feeling better about the market. They are not as apprehensive about what’s going on, but I don’t think anybody feels like they have a handle on the overall economy, nationally or in the state.”
Despite the downturn in the economy, “We have to celebrate the wins,” Tutterow said.
Recently Canada-based Bombardier Inc. announced it would subcontract airplane maintenance work from Atlantic Southeast Airlines in Macon and plans to add workers at the facility. Geico in Macon has continued to add workers and with about 4,000 employees is the third-largest employer in the midstate. And Monday, Boeing Co. in south Bibb County announced it obtained a new contract producing replacement wing sets for the Air Force’s A-10 Thunderbolt II.
“The good news is the recession is over,” Tutterrow said. “We are going to face what we think will be sustainable recovery nationwide, statewide and certainly in central Georgia.”
To contact writer Linda S. Morris, call 744-4223.