Alex Griffin | Investment Associate | Beman Group
“If we avoid another lockdown of the population and broad shutdown of the economy, the Covid-19 recession is over.” Talk about a major IF statement. These were the first words spoken by Benjamin Ayers, Dean of the Terry College of Business at the University of Georgia, at Thursday’s 2021 Economic Forecast virtual event (going virtual for the first time in the event’s 38-year history because of Covid-19). Dean Ayers’ outlook presented a rosy picture of the national and Georgian economy heading into 2021, but was predicated on two major items: 1) the development and adoption of an effective Covid-19 vaccine by mid-2021, and 2) additional fiscal stimulus passed by Congress. As of today, both of those items seem likely to occur, but nothing is guaranteed at this point. Moderna, Pfizer, and others have shown their vaccines to be effective and area awaiting FDA approval to begin administering the vaccine by the end of December. Congress is caught in a gridlock on how much of a stimulus bill to pass, and seems set on using the stimulus as a campaign piece in the two Senate runoffs in Georgia. I think both items will succeed, but all of the Forecast is predicated on those two items occurring (just a disclaimer before you read any further).
Earlier this year, I wrote that “US economic growth would slow substantially in 2020.” The risk of recession was to be 50%; GDP growth forecasted at 1.2%; Fed Funds rate to be 1.25% at the end of 2020; national unemployment to rise to 4.1%. All of this predicated on the risk of trade wars, election outcomes, war in the Middle East, and impeachment effects. Then, Covid-19 hit and our economy was forced to shut down in order to “flatten the curve” of the pandemic to prevent overburdening the healthcare system. Lives were saved, but jobs were lost. Since spring 2020, the recovery, like the recession, has been sharp, and occurred in three phases: 1) the Bounce, 2) the Slog, and 3) the New Normal.
The Bounce occurred once businesses reopened and pent-up demand was released, creating a sharp rebound in consumer spending. We’re living in the Slog now were the recovery has slowed sharply as harsh realities of permanent job and income losses have set in. The V-shape recovery for most industries is open and the New Normal will begin once the vaccines become widespread and Congress passes stimulus. All in all, Covid-19 brought GDP growth of -4.2% in 2020, a Fed Funds rate of practically 0%, and national unemployment to rise to 8.6%. IF the previously mentioned conditions are satisfied, 2021 is expected to bring GDP growth of 3.5%, inflation of 1.9%, and an unemployment rate of 8.0%. The risk of a recession in 2021 is forecasted at 40%.
Consistent with most recent years, the annual forecast for the Georgia economy exceeds that of the national economy. In 2020, that was no different, but instead of larger growth, Georgia experienced a smaller recession than the nation as a whole. Similarly, the recovery in 2021 is expected to outpace that nation. GDP growth is forecasted at 4.0%; Employment growth at 1.5%; Unemployment rate to drop to 5.1%; all of these figures are better than the US forecasts. The reasons for Georgia outpacing the national economy in 2021 are: 1) the buildout of many projects in Georgia’s economic development pipeline, 2) competitive state-level economic development incentives that help refill that pipeline, 3) good prospects for Georgia’s military bases, and 4) growth-supportive demographic trends, such as larger population growth for Georgia than the nation as a whole.
Like most cities, Augusta was hit hard during the pandemic, losing 10.2% of its jobs during the recession. Since the end of the recession, 45% of those jobs lost have been recovered, which is on par with the rebound posted by the nation as a whole. In 2021, Augusta’s employment is projected to increase by 2,800 jobs, or 1.2%, slightly less than the state, but more than the nation. Similar with recent years, Augusta’s economy will continue to be supported by the buildout of the US Army Cyber Command, the Georgia Cyber Training and Innovation Center, healthcare industries, and Plant Vogtle.
2020, in many aspects, was a difficult, unexpected year. 2021 figures to be much brighter for the majority of our economy, assuming the distribution of the Covid-19 vaccine occurs early in the year without any hiccups. One fear is that our recovery takes a K-shape, meaning that for the majority of Americans in middle to high income jobs, the recovery is swift, but for lower-income Americans, whose jobs are primarily service based (think restaurants, theaters, hospitality, etc.) the recovery is not immediate, and in some cases nonexistent. Expect the Biden administration to make fiscal packages for lower-income Americans a priority in 2021. 2020 has shown us that anything can happen, but as we approach the new year, we are in a strong position.