Photo by Brian Giandelone
CONYERS -- Expectations should remain low for significant improvement in the economy in 2011, economist and former University of Georgia dean Albert W. Niemi Jr. told a group of local business and government leaders recently.
Niemi spoke Thursday during the Economic Forecast 2011 Breakfast at the Renaissance Concourse Hotel near Atlanta Hartsfield-Jackson International Airport. The breakfast is an annual event hosted by the Bank of North Georgia, with several business and government officials from Newton and Rockdale counties attending.
Niemi is the dean of the Edwin L. Cox School of Business at Southern Methodist University in Dallas. Before that, he was the dean of the Terry College of Business at the University of Georgia from 1982-1996.
He told the crowd he expects few signs of positive movement from the economy in the coming year.
"If you made it through 2010, you're going to make it through 2011, but it's not going to be a robust recovery," he said.
He attributed that prediction to uncertainty due to high unemployment and a stagnant housing market that will continue into next year.
The unemployment rate for 2010 is expected to end at 9.6 percent. However, Niemi explained that the rate is closer to 17 percent when people under-employed or working part-time are included, making the job market the worst since the Great Depression.
Inflation is around 1.6 percent, but that can be attributed to real estate making up so much of the consumer price index used by many economists to calculate inflation. Niemi said he is concerned with inflation due to an increase he has seen in basic commodities such as copper and cotton.
"Since the end of August, that commodity index is up 22 percent. You see that if companies are paying 22 percent more than they were three or four months ago for copper, cotton, any major commodity, sooner or later that's going to be in the prices," he said. "As soon as housing prices hit bottom and start going back up, that's when you will see a dramatic run up in inflation, and I think that's somewhere in the 18- to 24-month cycle."
Niemi was critical of the federal government's policy focusing on health care reform first before addressing job creation. He believes the job stimulus plan passed by Congress was flawed and did not take real job creation into account.
"Our government is quite divided, and there's a lot of hostility across the aisles, and I think it was the best stimulus plan we could get, so I'm not being critical. I'm just saying it's a flawed plan," he said. "It was pork barrel politics. There was a lot of horse trading on both the Democrats and Republicans where they were saying 'I get this, you get that,' and nobody really looked at a positive jobs program."
Job creation will have to take precedence to help jumpstart the economy. Niemi noted that October was the best jobs month of the year when the economy created 150,000 new jobs, with November expected to come in at 200,000 new jobs. However, with the number of newly unemployed workers, 200,000 jobs created each month will only maintain the 9.6 percent unemployment. The economy will need to create 300,000 jobs each month through 2017 to get back to levels before 2008.
Niemi called health care reform a "banner mistake" on the government's part because it stopped business from considering expanding jobs due to expected increased costs for employee health care benefits.
"Business doesn't like uncertainty. It paralyzes labor markets. I talked to a lot of small businesses as I go around the country and they say the Obama health care plan raised their cost of health care somewhere between 24 and 27 percent," he said. "If the cost of benefits for your workers is going up 24 to 27 percent, that is a job killer. There is no incentive to create more jobs with that significant increase to the cost of labor."
One positive item Niemi mentioned was that he believes Georgia's economy will grow, mainly driven by new people moving to the state. However, he sees Georgia's economy growing at 1 percent, compared to the national 2.5 percent growth rate.
Niemi said Georgia should get back to the level of the rest of the country and real recovery should be realized by 2014.