Outlook 2021: Georgia’s Winding Path to Stability

With the manufacture and distribution of a viable COVID-19 vaccine, is Georgia’s economic relief on the immediate horizon or further down the road? To answer that question, look to the nature of the 2020 recession.

This is not your “Great Recession” recession!

The 2020 recession was a different beast entirely than the 2008 downturn, and the differences bode well for Georgia’s economic recovery. Unlike 2008, the Federal government’s 2020 response consisted of a very quick, broad-based effort on both the monetary and fiscal policy fronts. Regulatory relief for banks allowed for loan deferrals on impacted customers and rates were cut to zero, ensuring that credit markets continued to flow. This was due, in part, to much stronger capital positions of financial institutions driven by ten years of regulatory restructuring, which was certainly not the case in 2008. In 2020, lending initiatives like the Paycheck Protection Program, SBA Economic Injury Disaster loans and grants, and the Main Street Lending Program allowed for additional liquidity which served as a lifeline for small businesses. Citizens found relief via Economic Impact Payments and the augmented unemployment benefits granted by the CARES Act.

Unlike 2008, there was no housing crisis, unless you consider a workforce housing shortage (an opportunity for the development community) and rapidly escalating home prices a problem. There weren’t hundreds of foreclosed subdivisions scattered across the state this time around, and there hasn’t been an erosion of Georgian’s home values, a primary asset. In fact, state home values have increased 23% higher than the peak values seen just before the Great Recession, though appreciation varies widely amongst the state’s metro areas.
Technology has exponentially progressed compared to 2008. Consider the iPhone, which was less than one year old in 2008. A non-factor in the Great Recession, handheld digital devices have become a mainstay for Georgians. Apps have been a lifeline for restaurants and other providers of goods and services severely impacted by COVID-19. It’s safe to say that without the breadth of digital alternatives available in 2020, many more businesses would have failed.

Medical technology has also quickened. In just eight months, messenger RNA (mRNA) vaccine development, never before used on humans, has enabled the creation of multiple vaccines with an efficacy rate of over 90%. The development of mRNA technology underscores the fundamental difference in the 2008 and 2020 recessions: one stemmed from a financial crisis and the other is rooted in a health crisis. Assuming efficient production and distribution of the COVID-19 vaccines, Georgia should outperform the nation and place among the leading states in economic output and recovery.

How does Georgia’s employment rate compare to the rest of the nation’s?

Between March and April 2020, 10.8% of non-farm jobs were lost — representing approximately one-half million U.S. employees. These losses were mainly concentrated in the leisure and hospitality segments, including hotels and food service, and were almost immediately executed with an outsized impact on lower-earning workers. Not all job losses were directly due to the onset of the pandemic, however, as industries that were performing poorly in 2019 also shed jobs. This unfortunate effect was seen in the apparel industry at all levels, from textile manufacturing to clothing retailers.

Georgia Metropolitan Statistical Areas (MSA) reflect these general loss trends, with the highest concentration of losses in Atlanta and Savannah. It is no coincidence that these markets have high levels of employment tied to travel and tourism employment. Georgia metros, with eight percent to 11% job losses, fared better than that of the nation with a loss of 14.5%.

Georgia’s recovery, as seen in the table below, was considerable through November 2020. The initial 10.8% of peak employment jobs that were lost shrunk to 2.5%. In other words, out of the 499,700 job losses incurred during March and April, 384,000 have been recaptured. You may find additional commentary on individual Georgia MSAs in the newly published Georgia Economic Outlook from the Terry College of Business at the University of Georgia.

Why has Georgia fared well?

Though Georgia’s business re-openings on April 24th caused considerable debate across the country, there is little doubt that simply being able to open allowed some businesses to survive. Armed with the proceeds from Paycheck Protection Program loans (most of which would become grants), businesses could keep the doors open, maintain a workforce, and welcome customers, even if it meant doing so at much lower volumes. Companies were forced to adapt and innovate, utilize digital channels, and cut costs to the bone, but maintaining momentum, however slight that may be, was the best insurance against business closures. Supportive financial institutions, spending among the upper-income demographic, and a government-induced increase in take-home pay for lower-income and unemployed workers lent support to a budding summer recovery. Pay increases for the lower-income and unemployed workers are a short-term fix, potentially leaving this group in dire straits through mid-2021.

Georgia’s economy also received some noteworthy assistance from a much-maligned sector during the Great Recession, the housing market. A very potent sales and renovation environment, fueled by record-low mortgage rates, is pushing home prices up around the state. This activity is driving record profits among home builders, materials suppliers, home and garden stores, realtors, and other segments in the housing market. Also, small businesses in construction, electrical, plumbing, HVAC, etc., find themselves with too many orders to fill and demand at an all-time high. The housing industry and its related subsectors should continue to fuel growth through 2021.

Georgia’s economic development is fertile ground that continues to bear fruit despite the impact of the pandemic. Through July and August of fiscal 2021, the Georgia Department of Economic Development cites 87 new projects representing $3.71 billion in investment and 10,012 new jobs. Two months into the second quarter of the fiscal year, 14 new projects representing $589 million in investment and 2,549 new jobs have been announced (see Figure 2).

Georgia’s 2021 Economic Development Investments

For the eighth year in a row, Georgia was deemed #1 in the nation for business climate by Site Selection magazine, a trade journal devoted to economic development, corporate relocations, etc. The state continues to enjoy a reputation for excellent tax incentives, inexpensive and trainable labor, and a low cost of living that includes housing, a major factor in today’s environment. Georgia also continues to develop and leverage its port system, a vital ingredient for success in the e-commerce era. The Port of Savannah reported an all-time high in twenty-foot equivalent unit container handling for October, up almost nine percent (8.3) over 2019. The Mega Rail transit expansion is also in use and will allow for much greater rail lift capacity at the port. Inland port routes have been expanded and fortified in Chatsworth, Bainbridge, and Columbus, allowing for more efficient distribution from the deep-water ports of Savannah and Brunswick.

What does 2021 hold for Georgia?

Given its competitive advantages, federal aid received in the Spring, and the imminent arrival of a vaccine, is Georgia on the cusp of a full recovery in early 2021? The answer is highly dependent on additional rounds of Federal stimulus and the industries impacted. Though distribution of the vaccine has been slower than initially projected and the amount of total stimulus has yet to be determined, most viable iterations would include state funding, as well as relief for city governments and small businesses that can prove revenue loss. This would be a clear win for the state.

Industries that the state has invested a lot of time to attract and foster, such as fintech, cybersecurity, professional services and consulting, medical and scientific research, and logistics/distribution should continue to fare as well as they have since March 2020. Industries and retail outlets with surprising “wins” during the summer of 2020, like RVs, cars, boats, home and garden supply, and sporting goods, will take a step backwards, creating related job losses. On the flipside, businesses that were severely impacted by COVID-19 but survived, such as restaurants, gyms, salons, movie theatres and production studios, should roar back as pent-up consumer demand delivers a booster shot to the service segment.

Business travel will experience long-term side effects of the pandemic. As companies slash expenses to maintain profits, virtual meeting technology improves, and health fears linger, business demand for hotels will drop considerably. Leisure properties will fare well, however, particularly drivable destinations like Savannah. In real estate, housing sales will remain positive and commercial real estate development will slow (with the exception of warehouse properties) throughout 2021.

Georgia’s recovery will be a mixed bag in 2021, though there are several factors that make a positive outlook for 2021 likely:

• The nature of the COVID-19 recession is much different than that of the Great Recession and will allow for a quicker recovery.
• Second, the underlying strengths Georgia has relative to other states — its labor force and its commitment to continuing economic development via incentives and infrastructure — will fire the state’s economic engine to a pace that will exceed the national average.
• Another round of government stimulus could directly benefit state and city governments, as well as their business constituents who have borne the brunt of COVID-19’s wrath.

The recovery may be uneven and based upon a myriad of changing variables, but Georgia will see a return to stable growth in 2021.

Contact a Synovus Commercial Banker for more details.