Economist: Columbus economy could hinge on federal spending cuts

City’s job and housing market should grow, Humphreys says, although Fort Benning is wild card

tadams@ledger-enquirer.comDecember 3, 2012 

Columbus should add about 1,200 jobs and the metro area’s housing market should gain more traction in 2013, a University of Georgia economist said Monday.

But that could change significantly if looming federal spending cuts take a severe bite out of Fort Benning’s budget and personnel, said Jeff Humphreys, who also is director of UGA’s Selig Center for Economic Growth.

“I’m still especially worried about the bursting of the federal spending bubble and how that might impact defense spending here in Columbus,” he said. “I’m not going to try to predict what federal lawmakers or the (Department of Defense) are going to do with respect to absorbing cuts. But you are very dependent on federal jobs and you’re very dependent on DoD spending. So the business environment here is a little riskier than it has been in recent years.”

Humphreys delivered his sobering forecast at an annual Economic Outlook luncheon held by UGA’s Terry College of Business at the Columbus Convention and Trade Center, an event attended by a few hundred local business, community and city leaders.

On hand as well was Terry College Dean Robert Sumichrast, who issued his prognostication for the U.S. and Georgia economies heading into a year of steady, but less-than-meteoric growth on most fronts.

“I’ve got some good news about Georgia’s economy,” the dean said. “Our economy will grow in 2013. In fact, Georgia’s economy will grow faster than the country’s as a whole. That might sound like a bit of good news and a change from what you’ve been hearing from me for quite some time now.”

Of course, there were plenty of economic caveats sprinkled throughout the presentation, much of them hinged to what Sumichrast called a “key assumption” that U.S. lawmakers will act wisely and avoid the budget disaster that has been dubbed a “fiscal cliff” because of its potential to push the U.S. economy back into recession.

“It would be unconscionable to inflict that much pain on ourselves for nothing other than political purposes,” said the dean, who said the Selig Center’s projections are based on the Bush-era tax rates being extended, the Social Security payroll tax going back up, and the expiration of emergency unemployment benefits.

There also is the matter of “sequestration” — or automatic budget cuts — being averted. The cuts agreed upon by lawmakers last year as a way of forcing congressional negotiators to work out a long-term deal to get a grip on the nation’s $16 trillion budget deficit.

The $500 billion in automatic federal defense budget cuts will occur in January if President Obama and Congress can’t work out a compromise. They would occur over 10 years and are on top of an earlier $487 billion in defense cuts already agreed upon by both Democrats and Republicans.

“At this event last year, my optimism was a little more restrained than it had been in the couple of years before that. You were close to completing several large economic development projects,” said Humphreys of the Columbus area, pointing out that the Kia Motors project in nearby West Point, Ga., has matured somewhat, while the federal Base Realignment and Closure process that brought the U.S. Armor School from Fort Knox, Ky., to Fort Benning has been completed.

Earlier this year, Fort Benning’s Maneuver Center of Excellence said it was cutting its training load sharply in the fiscal year that ended Sept. 30. The number of troops receiving instruction on the post was sliced by 35,000 to 96,000. The post also identified 250 positions among its civilian workforce for elimination, with the possibility of more ahead if the automatic budget cuts become reality.

“While we still don’t really know the timing of those cuts — or exactly what will be cut — we all know that we must adjust federal spending so it is more aligned with our federal government’s ability to generate revenue,” Humphreys said.

All of that uncertainty aside, he noted the economic recovery for Columbus from the Great Recession is solid, although job growth this year did stall about mid-summer. That meant about 500 fewer jobs created in the city than the Selig Center’s previous prediction of 1,400 for 2012. Columbus likely will end this year with a workforce of just under 120,000, ranking it fourth in the state, behind Atlanta, Augusta and Savannah.

“If you look back to the Great Recession, you’ve lost about 6,000 jobs,” Humphreys said. “That’s about 5 percent of your workforce and that sounds horrific. But the state lost 8 percent. So the recession hit you about half as hard as it did the state.”

The Selig Center said Georgia’s housing market, and that of Columbus, hit bottom this year and should see growth in both single-family homebuilding and home prices in 2013.

“It’s still going to take a while to recover — at least three, four or five years — before your home prices are back to where they were prior to the Great Recession,” Humphreys said. “But that’s not too bad; it’s going to take a decade or more in many markets for home prices to recover.”

Zeroing in on the U.S. and global economies, Sumichrast said federal spending should drop by 3.5 percent next year, while the Selig Center predicts no financial panic within the European Union, although Greece likely will exit the coalition.

Oil prices should remain under $100 a barrel in 2013, he said, influenced by modest global economic growth and U.S. oil production rising and imports declining significantly. Georgia’s economy, dependent on the transportation and distribution industries, is very sensitive to oil price fluctuations.

“Even so, oil prices would have to exceed $140 a barrel before it would trigger a recession for us,” the dean said. “The only way I see that happening is if there’s a major supply disruption.”

On the employment front in Georgia, Sumichrast said the state’s job growth will be 1.4 percent in 2013, slightly better than this year. That’s good, because the state lost 340,000 jobs during the recession and has yet to recover two-thirds of those.

“However, at that faster rate it would still be 2016 before we would recover the rest of our lost jobs,” he said. “So the state’s unemployment rate will remain high in 2013. We think it will average about 9 percent over the course of the year and that’s only about half a percent lower than the average for this year.”

MORE ECONOMIC PREDICTIONS

Here are a few more observations from the presentation Monday by Sumichrast and Humphreys:

• Georgia’s gross domestic product — or total output of goods and services — will lead the nation by a small margin in 2013.

• Many existing businesses won’t have enough confidence to expand or relocate next year because of lingering uncertainty, which means more business startups will be needed in Georgia.

• Due to both job growth and a housing recovery, Georgia’s population will grow at a pace of about 1.3 percent next year. That should exceed the national average.

• In 2013, Georgia’s fastest job growth will occur in professional and business services. That will be followed by leisure and hospitality and manufacturing. The only major sector in the state that will lose jobs next year will be government.

• The housing market will gain momentum next year, with new home starts climbing nearly 20 percent and home prices rising 3 to 5 percent. Mortgage rates, meanwhile, should remain “very attractive” through 2015.

• Local governments will struggle with reductions in federal and state funding, as well as pension liabilities and retiree health-care costs. Property tax collections should decrease statewide for two more years.

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