Savannah Chamber

18 Manufacturers' contribution to Georgia's GDP will rise in 2018, but the incoming employment data imply that manufacturing jobs are not coming back too quickly. The state added 9,100 jobs in 2016, and an estimated 2,300 jobs in 2017; approximately 4,300 jobs will be added in 2018. In terms of factory jobs, the talk of a manufacturing renaissance in Georgia is overdone, but the sector's output is growing much faster than its employment. Also, many of the jobs that were once done inside the factory are now outsourced to service providers, which therefore are not counted as manufacturing jobs, but nonetheless are jobs that would not otherwise exist. Many of Georgia's manufacturers also provide relatively high paying jobs partially because many low-wage ones have either been offshored or displaced by automation. Another factor that contributes to the importance of Georgia's manufacturing base is that R&D jobs often locate near clusters of related manufacturers, especially in highly advanced industries that pay well and have the best potential for long-term growth. Unfortunately, Georgia's relatively weak culture for innovation limits prospects in many areas of the state. State and Local Government Georgia's state government has adjusted spending and staffing to reflect available revenue, but several long-term fiscal challenges loom. The biggest challenge for state government financing is uncertainty about federal funding for mandated programs, especially Medicaid. Mandatory spending on Medicaid is already crowding out spending on education and infrastructure, two spending areas that tend to boost Georgia's competitiveness and productivity. The second biggest challenge is an antiquated tax structure that increasingly does not line up with the state's shifting economic structure. Consequently, when Georgia's economy expands. Taxes do not generate as much revenue as they did before. This systemic slowdown in revenue growth is unlikely to disappear without comprehensive tax reform. For example, the sales and use tax depends very heavily on the sales of goods and exempts many services. That is a problem because consumer spending is strongly trending away from taxable goods and towards tax-exempt services. In addition, goods-price inflation is, and will continue to be, much weaker than service-price inflation. Over time, legislated exemptions have also eroded the sales and use tax base. Pension liabilities and state retiree healthcare costs are the third and fourth biggest challenges to state government financing. These long-term fiscal challenges will exacerbate the effects of the next recession on the state's ability to sustain core deliverables ranging from public safety, to education, and infrastructure. In 2018, local governments will be in a better fiscal position to help to power Georgia's economic growth. Local government employment and programs will expand faster than in 2017, but local officials will struggle with reductions in federal funding, pension liabilities, and retiree healthcare costs. Due to the recovery of the property markets, most local governments have fully reconciled their ability to generate revenue with their spending and staffing levels. In 2018, most will have the financial resources needed to expand programs and hiring. Real estate prices will continue to outpace the overall rate of inflation, which bodes well for future increases in assessed property values. New home construction also will be on the upswing, so property tax bases—and revenues—will expand. Federal Reserve Policy Federal Reserve actions to increase short-term policy interest rates and decrease the size of its balance sheet will be a slightly stronger headwind for Georgia than for the nation as a whole. The shift in Federal Reserve policy from an accommodative to a neutral—or slightly restrictive—stance will create slightly more economic drag here than in many other states because Georgians carry relatively more debt and have relatively less savings. In addition, interest-sensitive economic sectors (e.g. real estate development, home building, nonresidential construction, building materials manufacturing, and forestry) have a greater impact on Georgia's overall growth than on the nation's overall growth.

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