ON THE GLOBAL, REGIONAL & LOCAL ECONOMIC CLIMATE

ON THE GLOBAL, REGIONAL & LOCAL ECONOMIC CLIMATE ARC Regional Leadership Institute Roger Tutterow, Ph.D. Professor of Economics Mercer University Tutterow_RC@Mercer.edu Saint Simons Island, GA September 15, 2011

Recession: In, Out or Headed for a Double Dip

1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08 1Q-09 2Q-09 3Q-09 4Q-09 1Q-10 2Q-10 3Q-10 4Q-10 1Q-11 2Q-11 GDP vs. Final Sales 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% GDP Final Sales

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Institute of Supply Management s PMI 65 60 55 50 45 40 35 30 25

Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Consumer Sentiment 115 110 105 100 95 90 85 80 75 70 65 60 55

Jan-93 Nov-93 Sep-94 Jul-95 May-96 Mar-97 Jan-98 Nov-98 Sep-99 Jul-00 May-01 Mar-02 Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 12% Retail Sales 9% 6% 3% 0% -3% -6% -9% RS RS ex-auto -12%

Where Have All the Jobs Gone? or Brother, Can You Spare a Job?

Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Change in Employment (non-farm payrolls) 600 500 400 300 200 100 0-100 -200-300 -400-500 -600-700 -800

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Change in Employment: The Tale of Two Sectors (Change from Peak) 0% -5% -10% -15% -20% TOTAL CONST MANUF -25% -30%

Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Change in Employment: US & Georgia 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7% US GA

North Dakota DC Alaska Texas Indiana Massachusetts Vermont West Virginia Kentucky Pennsylvania New York Arkansas South Dakota Michigan Tennessee Rhode Island Maryland Virginia Montana South Carolina Nebraska New Hampshire Mississippi Wisconsin Maine Utah Iowa Minnesota Oregon Hawaii Illinois Ohio Louisiana Alabama Delaware Oklahoma New Jersey Florida Colorado Connecticut Idaho North Carolina Wyoming New Mexico California Missouri Georgia Kansas Washington Arizona Nevada Employment By State (2009 to 2010) 3% 2% 1% 0% -1% -2% -3%

North Dakota Texas Utah Wyoming Oklahoma Massachusetts Hawaii Alaska Oregon Kentucky Michigan New Hampshire Rhode Island Ohio Nebraska Louisiana Washington California Pennsylvania New York Iowa Montana South Dakota Wisconsin South Carolina Arizona Illinois Colorado Vermont Arkansas Maine Connecticut Tennessee Idaho Florida New Jersey Minnesota New Mexico Virginia Missouri West Virginia DC Mississippi Maryland North Carolina Nevada Alabama Kansas Georgia Delaware Indiana State Employment (7/10 to 7/11) 6% 5% 4% 3% 2% 1% 0% -1% -2%

Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Atlanta & Georgia Employment 6% 4% 2% GA ATL 0% -2% -4% -6% -8%

Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 8% A Tale of Two Cities: Warner Robins 6% 4% 2% 0% -2% -4% -6% Georgia Warner Robins -8%

Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 8% A Tale of Two Cities: Dalton 6% 4% 2% 0% -2% -4% -6% -8% -10% Georgia Dalton -12%

GA Albany Athens Atlanta Augusta Brunswick Columbus Dalton Gainesville Hinesville Macon Rome Savannah Valdosta Warner Robbins 9% Georgia Job Loss in Recession 6% 3% 0% -3% -6% -9% -12% -15%

Recession Driver #1: Energy Prices Cause Pain

Jan-99 Aug-99 Mar-00 Oct-00 May-01 Dec-01 Jul-02 Feb-03 Sep-03 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Core CPI 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%

Who Gets Hurt By Higher Energy Prices? Positive Small Negative Avg Negative Large Negative

Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Foreign Exchange: $ vs. Major Currencies 150 140 130 120 110 100 90 80 70 60

Recession Driver #2: The Credit Crunch: Its About Pricing and Access

Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Federal Funds Rate 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

2Q 1990 1Q 1991 4Q 1991 3Q 1992 2Q 1993 1Q 1994 4Q 1994 3Q 1995 2Q 1996 1Q 1997 4Q 1997 3Q 1998 2Q 1999 1Q 2000 4Q 2000 3Q 2001 2Q 2002 1Q 2003 4Q 2003 3Q 2004 2Q 2005 1Q 2006 4Q 2006 3Q 2007 2Q 2008 1Q 2009 4Q 2009 3Q 2010 C&I Lending Starting to Ease? (Net % Tightening Standards for C&I Loans) 100 80 60 Large & Med Small 40 20 0-20 -40

Apr-90 Oct-90 Apr-91 Oct-91 Apr-92 Oct-92 Apr-93 Oct-93 Apr-94 Oct-94 Apr-95 Oct-95 Apr-96 Oct-96 Apr-97 Oct-97 Apr-98 Oct-98 Apr-99 Oct-99 Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Net Charge Offs Peaking? 3.3 3.0 2.8 2.5 2.3 2.0 1.8 1.5 1.3 1.0 0.8 0.5 0.3 0.0

Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Consumer Credit (% change in balances) 25 20 15 Revolving Non-Revolving 10 5 0-5 -10-15 -20

Mortgage Delinquency Rates

Recession Driver #3: The Never-Ending Real Estate Correction

Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 New Home Sales (Single Family, SSAR in thousands) 1500 1400 1300 1200 1100 1000 900 800 700 600 500 400 300

Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 250 225 200 175 Home Prices verses CPI CPI Case-Shiller 150 125 100 75 50

Dallas Denver Boston Cleveland Charlotte New York Atlanta Washington Portland Seattle Composite-20 Composite-10 Chicago Minneapolis Los Angeles San Diego San Francisco Tampa Detroit Miami Phoenix Las Vegas CS/S&P Home Price Index (FROM PEAK TO MAY 2011) 0% -10% -20% -30% -40% -50% -60%

1991 Q1 1991 Q4 1992 Q3 1993 Q2 1994 Q1 1994 Q4 1995 Q3 1996 Q2 1997 Q1 1997 Q4 1998 Q3 1999 Q2 2000 Q1 2000 Q4 2001 Q3 2002 Q2 2003 Q1 2003 Q4 2004 Q3 2005 Q2 2006 Q1 2006 Q4 2007 Q3 2008 Q2 2009 Q1 2009 Q4 Prices: US/GA/ATL 250 225 200 US GA ATL 175 150 125 100

Athens Albany Athens Atlanta Augusta Brunswick Columbus Dalton Gainesville Hinesville Macon Rome Savannah Valdosta Warner Robins MEDIAN EXISTING HOME PRICES 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Boom Bust

Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Commercial Vacancy Rates 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Office Industrial

Some Thoughts on Regions & Growth

Do Clusters Matter? Spillovers to surrounding areas Workforce specialization Spinoffs remain in location Some Areas Identified with Clusters RTI Austin Silicon Valley Wichita Huntsville Charlotte

How Have We Done as a Region? Strengths & Weakness Relative Importance Have They Changed?

Thinking about the factors which make a location desirable for conducting business, what do you consider to be Georgia's three greatest assets as a place to do business? 70% 60% 50% 40% 30% 20% 10% 0% Overall clim ate Transportation Workforce Educ (K-12) Educ (vo-tech) Educ (college) Taxes Econ Incentives Regional hub Reg climate Labor cost Airport/port Govt services Crime Weather Other

70% 60% 50% 40% 30% 20% 10% 0% What are Georgia's three greatest weaknesses as a place to do business? Overall clim ate Transportation Workforce Educ (K-12) Educ (vo-tech) Educ (college) Taxes Econ Incentives Regional hub Reg climate Labor cost Airport/port Govt services Crime Weather Other

On the Political Front

Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Federal Budget Surplus (source: US Department of Treasury) 400 300 200 100 0-100 -200-300 -400-500

Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Federal Budget Surplus (source: US Department of Treasury) 400 200 0-200 -400-600 -800-1000 -1200-1400

Currents Issues in Fiscal Affairs Bush Cuts extended, but what about after 2012 Government shutdown & default avoided. S&P downgrades debt Sensitivity of federal & state tax revenues to economic activity. Local fiscal picture: RE valuation and revenues

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 GA: Nominal versus Real Tax Revenues 20000000 18000000 16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 Nominal Real

Election 2012