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Friday, October 21, 2016



Last week's column touched on what may be a downward trend in state revenues reflecting the issues that are developing in the national economy. While there are still positives about Georgia's economy - job growth, robust port activity, film production and tourism - the underlying factors that are showing in the national economy cannot help but be reflected in the state's economy and subsequently revenue growth. I have touched on these issues in speaking engagements and briefly in this column, over the past month, but here, in my opinion, are eight reasons we may be seeing a decline in revenues.

1. Slow growth in the economy recovering from the recession. Economic growth for the second quarter of 2016 grew only 1.2%...the third consecutive quarter of low GDP growth. The Wall Street Journal reported in July that the recovery in the U.S. was the weakest recovery since 1949. Today, October 21, 2016, the New York Federal Reserve lowered the third and fourth quarter GDP outlook to 2.22% and 1.40% respectively.

2. Dr. Rajeev Dhawan, head of the Forecasting Project at Georgia State, said in his last quarterly report that Georgia's growth would decline in 2017 due to the deceleration of growth in the first half of 2016 and said Georgia would follow the national economic trend downwards. He predicted job growth would slip from 99,000 jobs created in Georgia in 2016 to 75,000 in 2017 and economic growth would follow downward as well in both 2017 and 2018.

3. China's slowing economic growth has effects not only worldwide but here at home as well. Exports to China, which have followed the growth of that country's economy, are naturally being reduced with the economic slowdown. Heavy investment in the U.S., by both private industry in China and by its government, has led to reactions here, when radical changes have occurred there. The first 6 months of 2016 alone, China invested some $29 billion in the U.S., topping the previous investment high in 2014 of $18 billion.

When China devalued the yuan last year, pension funds in states like New York and California were affected since the value of their investments owned by China fell. In Georgia, China ranks third in exports totaling $2.65 billion in 2015, a reduction of -14.1% as listed in Dr. Dhawan's report.

4. The dramatic decline in world oil prices has had possibly more negative effects on the U.S. economy than the positive effects of lower energy costs. The oil production industry has declined dramatically, as witnessed by the precipitous drop in state revenues in states like Texas, Louisiana and Oklahoma. Texas is entering its second consecutive year of declining revenue growth and so far this year is showing a minus 13% revenue decline.

The Texas Governor has asked state agencies to present 4% budget reductions for the coming year's budget. Texas has lost 91,000 jobs in the oil and gas extraction and mining support industry since 2014.

5. Declining farm commodity prices have affected exports, dropped farm income over 25 % for the fourth year in a row and affected the manufacture and sale of farm, industrial and mining equipment in the U.S. and internationally which is leading to job reductions. There is a worldwide glut in some commodities with no relief in sight. Tractor and equipment shipments in the U.S. are down almost 25% in the first half of 2016. Deere and Company, of John Deere fame, has had sales revenue decline by 11% in 2016.

6. Retail businesses nationwide, with few exceptions, have shown declines in sales in recent months and enter the holiday season with an eye on reduced inventories which can affect imports. In August, U.S. retail sales declined 0.3%, three times the forecasted decline of 0.1%. And for the first time since the start of 2015, even internet sales and mail-order companies' sales declined. Retail sales were back up in September by 0.7%, but consumer spending had been one of the bright spots in the U.S economy so the August decline is significant. Of the thirteen categories, there were declines even in the positive month of September. Declines included electronics and appliance stores, health and personal care stores and general merchandise stores while sales were flat in clothing and clothing accessories stores.

7. Automobile sales, having shown healthy increases for several years, have apparently topped out and the present trend is flat. August sales slipped -0.9% and -0.8% in September... and predictions are that sales in 2016 will not top 2015 totals. This week, J.D. Power and Associates, Inc. predicted U.S. auto sales will decline 7% in October, the sixth monthly decrease in 2016.

8. In August, the restaurant industry showed a third straight month of declining same-store sales. While restaurant sales might rise and fall, this trend is worrisome because of the belief of many in the industry that, in the past, restaurants have provided a leading indicator of the direction of the nation's economy. Business Insider reports that in the last three recessions, in 1990, 2000-2001 and 2007, the decline in sales and traffic in the restaurant industry was followed by a national recessionary period. They believe that consumer confidence drives restaurant sales and that a decline demonstrates loss of confidence by consumers.


The above reasons are not presented in any particular order of importance nor is that list complete of factors pulling the economy in the wrong direction. Others factors like the strong dollar have repercussions in exports and other trade activities. The "sluggish" demand for single occupant homes and the belief that apartment construction is peaking also enter into the equation. One thing Dr. Dhawan is convinced of is that Georgia is not insulated from the swings and ills of the international nor national economy.


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