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Economists Advise Chamber Gathering to Prepare for 3Q Economic Rebound

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By Ted Carter
SBJ Staff Report

1/14/2010 - A leading local economist, and a distinguished university dean were on hand for the Savannah Area Chamber’s Economic Outlook luncheon Thursday. They both predicted a third quarter upswing for Savannah’s economy, with residential construction and increased home values providing the boost.

Robert T. Sumichrast, dean of UGA’s Terry College of Business presented the economic outlook report on behalf of the University of Georgia, and Armstrong Atlantic State University’s Dr. Michael Toma did not disappoint several hundred business people and civic leaders who were hoping to witness some optimism after a seemingly endless string of quarters filled with grim news and predictions.

But Savannah and the rest of Georgia still have some stubborn weaknesses that add uncertainty to the forecast, chiefly commercial development and real estate, they said.

“I told last year’s Outlook luncheon audience to look for the economies of Savannah and the rest of Georgia to begin a recovery by the third quarter of 2010, “We hope you’ve made plans to take advantage of it,” Sumichrast said Thursday, making the apple pie dessert served to luncheon guests all the much sweeter.

He conceded that it doesn’t “feel like we’re in a recovery” and went on to cite the reasons: jobless rate increases that will continue in 2010 in Georgia, a banking system still in possession of many of the bad assets it acquired before the banking crisis of fall 2008, and tight credit.

“Despite this, we’re looking for the recovery to be sustained,” the Terry College dean said. While a sustained rebound is near, Georgia’s recovery will lag the rest of the nation rather significantly in 2010 because the state will continue to experience a real estate recession, not only in the residential and commercial sectors but in the manufacturing of construction supplies, according to Sumichrast.

Georgia’s financial services sector is still on the ropes as well, he said, noting that the state’s job losses in the sector have been 30 percent deeper than those in the rest of the nation.

By the end of this deep recession, Georgia will have lost about 9.5 percent of its jobs. In comparison, the nation will have lost about 5 percent, he said. Savannah’s loss percentage will be much closer to the national average, at slightly more than 5 percent, Sumichrast added.

Look for anemic job growth in the spring in Savannah and throughout Georgia, he advised, and predicted the state’s unemployment rate could top 11 percent at some point this year.

The good news?

“Job creation will continue to accelerate in 2011” when construction recovers and manufacturing ramps back up, Sumichrast said, because he sees 2011 bringing increases in new house sales and a thawing of frozen credit.

That prediction is seen as having great importance when the state’s 14 consecutive quarters of declining home sales is taken into account.

Sumichrast said the gradual increase in housing sales have helped residential prices to stabilize. But those drops in values will continue to some degree, and actually bring sales benefits, according to the Terry College dean. “In 2010 we can expect more depreciation which will bring in more buyers.”

To this point, noted Sumichrast, “substaintial price declines have made homes more affordable.” And in 2010, “home sales will help propel Georgia’s economy forward, he added.

But on the way to 2011, construction spending will decrease and spending by state and local governments will decline as well, the economist predicted.

The business school dean nonetheless sees 2010 as the year consumers begin shifting from a savings mode to a willingness to spend on services and durable goods. Further, he said, businesses will start to spend on equipment and software.

Georgia will also be the beneficiary of corporate relocations attributable to the state’s low cost of doing business, Sumichrast said.

Growth in military spending will another boon to the Peach State’s economy, especially in the Columbus area where base realignment and personnel shifts have created 11,000 new military and civilian jobs at Fort Benning.

Dr. Michael Toma, an economist and director of Armstrong’s Center for Regional Analysis, said Savannah’s economic diversity has limited its recession-related job losses to the 3 percent range while the rest of Georgia saw losses of about 5 percent. He said he sees the third quarter as the period when things “flatten out.”

The should mean the green economic shoots that are sprouting at the Port of Savannah and within the region’s hospitality sector should begin to grow more vigorously, Toma said.

Locally unemployment will reach 9 percent this year, he predicted, “but should come down at the end of the year.” He expects Savannah to close 2010 with a jobless rate in the “high 8’s.”

Editor's Note: Expanded coverage on Toma's remarks will appear in the January 25 edition of the Savannah Business Journal.

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