Housing slump, energy prices hurting Georgia economy

ATLANTA - Georgia is caught up in a nationwide housing slump, and the state is vulnerable to a recession triggered by high energy prices, according to an economic report released Tuesday by the University of Georgia.

But that negative news didn't stop Gov. Sonny Perdue from pronouncing Georgia's economy healthy.

"Our state is in great shape," the governor said during the annual Georgia Economic Outlook Luncheon sponsored by UGA's Terry School of Business, citing the state's $1.4 billion budget surplus and solid bond rating.

"It doesn't mean we need to put our heads in the sand. We need again to be prudent in our budgeting and spending decisions."

The report, presented to about 1,000 business, academic and political leaders at the Georgia World Congress Center, contained the combination of good news and bad news typically found in economic forecasts.

Terry College Dean Robert Sumichrast said Georgia's economy overall is "dangerously close" to recession, with the housing, manufacturing, information and agricultural sectors already there.

He said the economy will be most at risk during the first and second quarters of next year.

"For the next six months, we will be living on the edge," he said.

Sumichrast said the housing slump is a key drag on the economy that could trigger recession, as both housing permits and home prices plummet.

He said sales of new homes aren't likely to pick up until the second quarter of next year, followed by sales of existing homes in the third quarter. He said new home construction probably won't rebound until late next year or early in 2009.

Sumichrast said that while home affordability is helping Georgia weather the housing slump better than other states, Georgia's economy is more affected by rising energy prices.

He said that's because Georgia - and particularly metro Atlanta - are centers for transportation and distribution businesses that are fuel intensive.

On the positive side, Sumichrast said, Georgia is expected to outpace the nation next year in both job creation and population growth. He said that should help generate an increase in the gross state product of 2.4 percent, down only slightly from this year's 2.6 percent.

Sumichrast said the nation's third fastest growing state is seeing an in-migration of residents of all ages, from college students to retirees.

"That sort of diversity is good for the economy," he said. "It means an adequate supply of workers and a good consumer base."

Both Perdue and Sumichrast expressed concern for the growing effects the drought is having on the state's economy.

The governor used his speech to urge the General Assembly to adopt the long-range plan for managing Georgia water's resources that will be presented to lawmakers when they convene at the Capitol next month.

"The time for passing a statewide water management plan is now," he said.

The 28-county Atlanta region is expected to add 26,800 jobs next year, a 1.1 percent increase that is about on par with the forecast statewide, according to the report.

The metro area's high concentration of service industries and the low number of manufacturing jobs should help the region's economy, while the housing recession will be the most significant negative influence.