What will be the “New Normal” and Are We There Yet? Jeffrey H. Dorfman The University of Georgia March 11, 2010.

What will be the “New Normal” and

Are We There Yet?

Jeffrey H. DorfmanThe University of Georgia

March 11, 2010

Outline

Have We Hit Bottom? Where Are We? When Will It Get Better? Will It Ever Be Like It Was Before?

Have We Hit Bottom?

Source: UGA Selig Center

Georgia Housing Starts

0

2000

4000

6000

8000

10000

12000

Dec-99 Apr-01 Sep-02 Jan-04 May-05 Oct-06 Feb-08 Jul-09

Have We Hit Bottom?

Source: GA Dept of Revenue

GA Monthly Total Revenue

0

500

1000

1500

2000

2500Ja

n

Feb Mar

Apr

May

June

July

Aug

Sep

t

Oct

Nov

Dec

Mill

ion

$

2010 2009 2008 2007

Have We Hit Bottom?

Source: GA Dept of Revenue

GA Monthly Revenues (in millions)

$0

$500

$1,000

$1,500

$2,000

$2,500

Total Rev Income Tax Sales Tax Corp Tax Gas Tax

Have We Hit Bottom?

Where Are We?

Source: Conference Board

Consumer Confidence

0

20

40

60

80

100

120

1/1/

2006

3/1/

2006

5/1/

2006

7/1/

2006

9/1/

2006

11/1

/200

61/

1/20

073/

1/20

075/

1/20

077/

1/20

079/

1/20

0711

/1/2

007

1/1/

2008

3/1/

2008

5/1/

2008

7/1/

2008

9/1/

2008

11/1

/200

81/

1/20

093/

1/20

095/

1/20

097/

1/20

099/

1/20

0911

/1/2

009

1/1/

2010

Industrial Manufacturing Index

30

35

40

45

50

55

60

65

97.1 98.1 99.1 00.1 01.1 02.1 03.1 04.1 05.1 06.1 07.1 08.1 9.1 10.1

Where Are We?

Source: Institute for Supply Management

Consumer Confidence

0

20

40

60

80

100

120

1/1/

2006

4/1/

2006

7/1/

2006

10/1

/200

61/

1/20

074/

1/20

077/

1/20

0710

/1/2

007

1/1/

2008

4/1/

2008

7/1/

2008

10/1

/200

81/

1/20

094/

1/20

097/

1/20

0910

/1/2

009

1/1/

2010

4/1/

2010

7/1/

2010

10/1

/201

01/

1/20

11

When Will It Get Better?

Source: Conference Board

When Will It Get Better?

When Will It Get Better?

When Will It Get Better?

This Has Happened Before

Source: US Census Bureau

US Housing Starts

0

500

1,000

1,500

2,000

2,500

3,000

Jun 1957 Dec 1962 Jun 1968 Dec 1973 May 1979 Nov 1984 May 1990 Oct 1995 Apr 2001 Oct 2006

1,00

0s

Will It Be Like Before? Depends largely on the

savings rate.

We have lost $200B/yr in spending from real estate wealth.

Non-government economy contracted about 10%.

Will take 3-4 years to regain what was lost.

Will It Be Like Before? Exports appear to

be recovering sharply.

This is good for agriculture.

However, will probably take until 2011 to regain losses.

Will It Be Like Before? Farmer’s exposure to

the rest of the economy depends on the commodities grown.

Not only does non-farm income vary, but if you grow nursery plants, the real estate slowdown affects you.

Will It Be Like Before? So far, farmers have

managed to hang on.

However, the shift toward lower incomes will effect wealth eventually, which causes debt load issues.

Will It Be Like Before? Georgia economy was led by real

estate and financial sectors.

Those sectors will not return to peak levels for a long time, if ever.

Local governments needs new revenue streams or will shrink.

State government needs to be resized to the long-term trend and not to the best of times.

Ag should return to normal this year or next depending on export dependence and world recovery.

US Housing Starts

0

500

1,000

1,500

2,000

2,500

3,000

Jun 1957 Dec 1962 Jun 1968 Dec 1973 May 1979 Nov 1984 May 1990 Oct 1995 Apr 2001 Oct 2006

1,00

0s

What is the “New Normal” We need to plan for normal growth from the

current situation.

We should not expect to recover to earlier levels and then grow from there.

The new normal starts from here and now.