Economists predict 2023 recession, but Georgia could escape worst effects
Georgians have been pinching pennies to get by during a rough economy, and the hard times are likely to continue next year.
Economists at the University of Georgia’s annual Georgia Economic Outlook say odds are high the nation will experience a recession in 2023.
“We are expecting that Georgia’s economy in 2023 will end its post-pandemic expansion in the second quarter, and we are predicting a mild recession that will begin at that point,” said Benjamin Ayres, dean of the university’s Terry College of Business. “Now, we do expect a recession only to last about six months, and that is short. On average, the length of a post-World War II recession is about 10 months.”
Ayres added that a recession is not inevitable, but he said it would take perfect maneuvering by the federal government plus some good luck to avoid one.
The economy is usually always getting bigger, but when it shrinks, that’s called a recession. As a rule of thumb, economists often define a recession as two consecutive quarters of economic shrinkage. For the average working person, that means it can be harder to find or keep a job and prices on most things go up.
The current rising prices are seen as one sign of a pending recession. The inflation rate was just over 9% in June over the previous year, but those who make less than the median income are hit harder, said Mark Vitner, founder of Piedmont Crescent Capital and former senior economist at Wells Fargo. That’s because the less income you earn, the greater the proportion you need to spend on essentials like food, housing and energy, which are seeing major increases.
“For half of the country, the inflation rate has essentially been doubled, if you add up what’s happened to food costs, energy costs, and rents, their inflation rate has essentially been around 18 to 20%,” he said. “And that’s four to five times faster than incomes have grown. So over the past year, you’ve seen that real purchasing power has been wiped out for middle income Americans, and all that savings that has been built up, it’s been whittled away, and credit card use has gone up, and that’s one of the reasons that we feel so certain that we’re likely to dip into recession early next year. Inflation is the big problem.”
But Ayres’ forecast calls for Georgia to fare better than the rest of the nation next year, facing an inflation-adjusted GDP drop of .2%, smaller than the predicted .7% drop for the nation.
“That’s not great,” he said. “But it is far better than our experience in recent recessions. If you go back to 2020, we experienced a 4% decline in GDP. And if you go back to the great recession, we actually had back-to-back years of declines, 2% in 2007, followed by 4% in 2008.”
Ayres predicted another silver lining – Georgia could see a tiny rise in job growth, a predicted .1% gain, which looks better when compared with a .5% decline projected for the U.S. as a whole. The unemployment rate is expected to rise to 3.8%. It was 2.9% in October, and 4% unemployment is typically considered full employment.
Ayres said job losses at the beginning and end of the year could offset losses during the middle months, with losses expected in industries including construction, financial activities, mining and logging but growth in health care, tourism, transportation and government.
Job gain will not be spread proportionately across the state, Ayres said. Cities including Savannah, Athens, Brunswick, Columbus, Warner Robins and Gainesville are projected to see their employment growth rates rise thanks to tourism and economic development projects, while Dalton, Valdosta, Rome and Albany could see their numbers go down.
Housing prices are expected to drop 12%, but Ayres said the forecast does not call for a housing bust, and prices will continue to increase in the following years as demand for new homes grows.
Gov. Brian Kemp said the state is prepared for an economic downturn should it come.
“We know a possible recession is just over the horizon,” he said. “That’s why we will continue to budget conservatively and use one-time funds for strategic investments that will strengthen our economic and workforce assets to make sure that every Georgian has a good paying job. I’ve also instructed state agencies to limit their budget requests, and I’m committed to holding the line when it comes to keeping the state government streamlined, but also at the same time making it more efficient.”
In a speech at the Capitol Thursday, Kemp said countering inflation will be a top priority for his administration during the state’s Legislative session due to start Jan. 9, which is a commitment he made on the campaign trail during his successful reelection bid.
Kemp has pledged a repeat of this year’s extra tax refund, which he said will send an additional $1 billion to taxpayers. He has also proposed using another $1 billion to offset local property taxes, which he said will save the average homeowner about $500. These initiatives will be funded through last year’s massive $6.6 billion budget surplus.
The governor also signed an executive order last week continuing the state’s gas tax exemption through Jan. 10 but signaled that the tax of 29.1 cents per gallon for gasoline and 32.6 cents per gallon for diesel will be restored after that.
The fuel tax suspension cost the state $172 million last month, according to a state revenue report released Friday. Even so, state revenues were only down slightly in November – a marginal 0.1% – and the first five months of collections are still 6.2% – or $741.7 million – above this time last year.
Kemp placed the blame for the nation’s economic pain on the shoulders of President Joe Biden, as he did throughout his re-election campaign. Democrats prefer to point at corporations jacking up prices while enjoying record profits.
Economists say a number of factors are contributing to higher prices, including supply chain shortages continuing from the pandemic, the war in Ukraine and federal policies.
The governor will unveil his budget proposal next month when lawmakers reconvene for the 2023 legislative session. When he does, he will hand his spending plan off to a new House Appropriations Committee leader following the departure of longtime chair Rep. Terry England.
Speaker Jan Jones, who became the chamber’s leader after Speaker David Ralston died last month, last week named state Rep. Matt Hatchett, a Dublin Republican, as the chamber’s new top budget writer. Georgia’s government is currently running on a $30.2 billion budget.
“The House takes very seriously our stewardship role in working with both the Governor and the State Senate to produce a conservative budget that invests wisely for Georgia’s future. I know Chairman Hatchett will ably lead the members of the Appropriations Committee in their important work,” Jones said in a statement.
This story was provided by WABE content partner Georgia Recorder.