Economics Group. Special Commentary. September 20, 2017

Transcription

1 Economics Group Special Commentary Mark Vitner, Senior Economist (704) Jamie Feik, Economist (704) Georgia Economic Outlook: September 2017 Georgia s Economy Continues to Roll Georgia s economy has been on a roll in recent years, with employment growth significantly outpacing the nation and the unemployment rate falling to its lowest level in 10 years. Real GDP has outpaced the nation, although year-over-year growth slowed in Q1 which was up against an unusually strong year-ago comparison. The state s economic development efforts continue to pay off handsomely, as Georgia is rapidly becoming a leading player in several emerging fields, including payment processing, cyber security, health management software, the industrial internet and life sciences. Real GDP, the broadest measure of Georgia s economic growth, grew 3.0 percent in 2016, compared to 1.5 percent growth for the nation as a whole. Georgia s recovery from the Great Recession has been one of the strongest, but the state suffered more during the downturn than many other states. The recession hit homebuilding particularly hard. Not only was Georgia one of the top states for homebuilding prior to the recession but it also hosts a significant building products industry and is home to the bulk of the nation s carpet industry. Real median household income in Georgia tumbled 17 percent from its peak in 2006 to its trough in Since bottoming out, real median income has rebounded 10.4 percent. Deep recessions like the United States and Georgia experienced from often serve as transformative events. The Georgia economy that emerged from the recession is very different from the economy that went into it. Georgia has refocused economic development efforts on broadening its economic base and increasing connectivity to the global economy. International investment has played a major role, including major investments from Kia, which opened its assembly plant in LaGrange back in 2010; Pinewood Studios, which opened in Fayette County in 2014; and Mercedes-Benz, which relocated its North American headquarters to Sandy Springs. Economic growth is coalescing around key transportation and education hubs, such as the Port of Savannah, MARTA and Tech Square, which has brought a torrent of new firms into Midtown. The Georgia economy that emerged from the recession is very different from the economy that went into it Figure 1 Figure 2 Gross State Product & U.S. GDP Year-over-Year Percent Change Georgia Nonfarm Employment 3-Month Moving Averages 0% 0% 0% 0% Georgia: 1.5% United States: 1.9% -8% -8% United States: 1.5% - Nonfarm: Yr/Yr Pct. Change: 2. QCEW: Yr/Yr Pct. Change: 2. -8% % Source: U.S. Department of Commerce, U.S. Department of Labor and Wells Fargo Securities This report is available on wellsfargo.com/economics and on Bloomberg WFRE.

2 More Georgians are working today than ever before Although most major industry categories added jobs yearto-year, hiring has cooled off slightly in some areas Employment Conditions Are Improving Throughout the State Georgia s economy continues to add jobs at a pace well ahead of the nation and most other states. Nonfarm employment has risen 2.7 percent over the past year, marking the third consecutive year job growth topped 2.5 percent. Only Florida, Nevada and Utah can make a similar claim. Not only has employment risen solidly but gains have been exceptionally broad based. The 118,800 net new jobs added over the past year were spread across nearly every major industry category. Moreover, the persistent improvement is finally drawing job seekers back into the labor market and more Georgians are working today than ever before. Georgia s labor force participation rate rose to 63.1 percent in August 2017 from a low of 61.5 percent in July 2015 besting the 62.9 percent national rate. This improvement is particularly impressive given the state s strong population growth, which is driven in part by an influx of job seekers from other states. Professional & business services added the largest number of new jobs in Georgia during the past year. The category captures hiring at technology firms, administrative and support positions, and jobs at the numerous corporate and regional headquarters located in the state. The sector added 36,600 jobs over the past year nearly twice as many jobs as the prior year. Administration & support services accounted for 25,000 of these new positions its largest gain ever. Professional & tech services employment added 10,500 new positions. The information sector, which includes software firms, internet service providers, data hosting services as well as the motion picture industry added 2,900 positions, which is a welcome contrast from 2016 when payrolls in the sector declined modestly. Hiring has also picked up in the finance and insurance sector, which added 10,500 jobs over the year, marking the largest gain since In addition, private education employed 4,600 more workers on average from January to August 2017 than the same period a year ago. A large portion of that increase was at Georgia s private colleges & universities. Although most major industry categories added jobs year-to-year, hiring has cooled off slightly in some areas. Health & social assistance has seen job growth moderate to 2.8 percent, after rising 4.0 percent in Transportation & warehousing added 5,400 jobs, compared to a gain of 9,000 jobs in The gains reflect the continued influx of e-commerce and logistics operations. Recent examples include online retailer ASOS, which announced a new fulfillment center in Fulton County in August that will employ 1,600 over the next five years. Construction employment growth has come back to earth after spiking a few years earlier, as construction ramped up for new stadiums for the Braves and Falcons. With those mega projects completed, construction payrolls are now up against some tougher year-ago comparisons. There is still plenty of work available, however. Homebuilding is gaining momentum and commercial construction is also strengthening. Manufacturing employment pulled back slightly during the first half of the year. We expect activity to ramp back up in the second half of 2017, as manufacturers benefit from a weaker dollar and stronger growth overseas. Figure 3 Figure 4 Georgia Employment Growth By Industry Year-over-Year Percent Change, 3-MMA Total Nonfarm Trade, Trans. & Utilities 11% 10% Georgia vs. U.S. Unemployment Rate Seasonally Adjusted Unemployment Rate: 4.7% United States: 4. 11% 10% Government More 9% 9% Prof. & Bus. Svcs. Educ. & Health Services Leisure and Hospitality Number of Employees 8% 7% 8% 7% Manufacturing Less Financial Activities 5% 5% Other Services Construction August 2017 Information - 0% 8% 3% % Source: U.S. Department of Labor and Wells Fargo Securities 2

3 Georgia s Workforce on the Mend Georgia posted one of the largest drops in labor force participation of any state during the Great Recession and its aftermath. Georgia s labor force participation rate fell from its 68.8 percent peak in August 2008 to 61.5 percent in July Compared to other states, Georgia s labor force participation rate fell from 18 th highest to 35 th. Since July 2015, Georgia s labor force participation rate has partially rebounded, rising to 63.1 percent in August 2017 and now ranks 31 st in the nation. The story is similar for Georgia s employment-population ratio. By comparison, only Nevada s workforce participation took a larger hit during the recession and its aftermath, and that state s labor force participation rate is still declining. The dramatic drop in Georgia s workforce during the Great Recession is illustrated in Figure 6, as is the equally noteworthy decline in the employed-population ratio, or the employed share of the state s population. Attempting to draw conclusions from one data source can be perilous, particularly at the state level. We dug a little deeper to quantify the degree to which Georgia s improving job market is providing opportunity for its residents. We also question whether workforce disengagement truly was more pronounced in Georgia than nearly every other state, even after taking into account how hard the state was affected by the Great Recession. The employment situation for Georgia residents is measured by the Bureau of Labor Statistics through the Local Area Unemployment Statistics (LAUS). The LAUS is derived from the Current Population Survey (CPS) of 60,000 households across the country. More specifically, estimates of Georgia s labor force, unemployed and employed are derived from Georgia s share of the South Atlantic Division s respondents to the CPS. The sum of employed and unemployed equals the labor force. There are numerous quirks in the data. The LAUS reports that 157,000 workers dropped out of Georgia s labor force in one month - September Not surprisingly, that was the month in which the South Atlantic Division labor force declined by 168,000. This strikes us as suspect, given that Georgia accounts for just 15 percent of the South Atlantic labor force, but accounted for 93 percent of the loss that month. While we question the accuracy of that drop in Georgia s workforce, it does not exclude the possibility that Georgia really endured a profound shift in labor force participation after the financial crisis intensified. Georgia employers cut 17,000 jobs in September, which was 21.5 percent of the jobs lost in the South Atlantic region that month, but that was one of the smaller monthly losses Georgia posted in Figure 5 Figure % 8% Georgia Unemployment & Labor Force Percent, Thousands of Workers, Seasonally Adjusted Unemployed: (Right Axis) Employed: 4,811.3 (Right Axis) Unemployment Rate: 4.7% (Left Axis) 7,000 6,000 5,000 4,000 3,000 75% 70% 65% 60% Working Share of the Georgia Population Percent of Civilian Population, Seasonally Adjusted Labor Force Participation Rate: 63.1% Employed-Population Ratio: 60.1% Nonfarm Payrolls to Population (CES): % 70% 65% 60% Georgia posted one of the largest drops in labor force participation of any state during the Great Recession and its aftermath We question whether workforce disengagement truly was more pronounced in Georgia than nearly every other state 2,000 55% 55% 1,000 0% % % Source: U.S. Department of Commerce and Wells Fargo Securities The labor force participation rate and employment-population ratio are derived from LAUS data. We computed a ratio similar to the employment-population from the establishment data, which measures the number of nonfarm jobs in the state by surveying businesses rather than households. Georgia s population increased every year from , and is now 10 percent larger than it was prior to the recession. By contrast, the number of jobs in Georgia rose more slowly and is currently 7 percent higher than it was in The ratio of nonfarm jobs to population looks similar to the labor force participation rate and employed-population ratio. This 3

4 Our measure of payroll jobs to population ranks Georgia in the middle of the pack in terms of net change from its prerecession peak Georgia s institutions of higher education are a considerable resource in improving workforce outcomes The state s renowned higher education institutions can hardly churn out tech talent fast enough for the regions tech firms seems to confirm that Georgia s labor market indeed got walloped by the Great Recession, even if it did not necessarily happen in one particular month. But Georgia s labor market did not get hit all that much worse than most other states. Our measure of payroll jobs to population ranks Georgia in the middle of the pack in terms of net change from its prerecession peak. The discussion on Georgia s labor market is important because the severe drop in workforce engagement by Georgians calls into question the efficacy of the state s workforce development efforts, which by most measures appear to be remarkably successful. Georgia consistently ranks as one of the best states to do business in by respected surveys, such as the CNBC s America s Top States for Business 1 ; Site Selection Magazine s annual Governor s Cup 2, which tallies major corporate expansions and relocations; and Area Development Magazine s Top State for Doing Business, which it won once again in The state s HOPE Scholarship program, which provides significant financial assistance to all Georgia high school graduates that have a 3.0 grade point average or better to attend one of the state s public or private universities, has led to significant improvements in the quality of the students attending these schools as well as bolstering the growth in higher education. Several two-year colleges have been elevated to full university status and science, engineering, medicine and life sciences have grown rapidly. Georgia s institutions of higher education are a considerable resource in improving workforce outcomes as the economy becomes more knowledge-driven. Higher education is also a powerful economic engine in its own right. The University System of Georgia, which comprises 28 institutions, employs 150,000 workers, has an economic effect of $15.5 billion in the state. 3 Emory University, a private university in Atlanta, recently published a study estimating an economic effect of $9.1 billion and 63,680 jobs supported. 4 Georgia Tech received$765.4 million in research and development funding from governments, nonprofits and private sources in 2015, which ranks among the top 25 institutions in the nation, according to the National Science Foundation. Emory ranked 36 th by the same metric, with research funding totaling $585.2 million, and the University of Georgia came in at 61 st with $374.3 million. All three schools saw an increase in R&D funding over the past year. On the Scene in Georgia Georgia was the world s top location for feature film production in Georgia was the set for 17 of the top domestic feature films, topping the United Kingdom, Canada and California in an annual study by FilmLA. 5 The film industry directly spent $2.7 billion in Georgia in fiscal year 2017, according to the state economic development office, and the 320 film and television productions last year indirectly generated $6.8 billion, bringing the industry s economic impact to $9.5 billion. The industry s growth has been astounding, with direct spending rising from just $67.7 million in 2007 to $2.7 billion this past year. Disney has been one of the more prolific studios, with several Marvel movies and the Star Wars franchise being shot and produced in the state. Universal Pictures, 20 th Century Fox, Columbia Pictures and AMC are also active in the state. Major productions include Guardians of the Galaxy, The Fate of the Furious, Hidden Figures, Spider Man: Homecoming and The Walking Dead. Atlanta s tech scene is also thriving. The state s renowned higher education institutions are constantly challenged to train workers fast enough for the region s growing tech sector. CBRE s recent Tech Talent analysis showed that although schools in the Atlanta region issued the fourth largest number of tech degrees of any MSA from ; Atlanta also had the fourth largest Brain Gain, meaning it added nearly twice as many tech jobs than the number of tech degrees conferred at area colleges and universities. In order to fill these positions, Atlanta gained 20,546 tech workers who earned their degrees outside of Atlanta. Engineering and technology are a high priority at the state s universities and programs at the University of Georgia, Georgia Tech and Georgia State have all grown rapidly

5 Thousands Thousands Georgia Economic Outlook: September 2017 While Atlanta s tech sector has been a key growth driver in recent years, the tech sector comprises a relatively small proportion of Atlanta s exceptionally diverse economy. Tech industries account for just 5.2 percent of nonfarm employment, which is roughly even with the nation as a whole but well below established tech hubs such as Silicon Valley, Seattle, Austin and the Raleigh-Durham area. While the tech sector is relatively small compared to other leading tech-centric cities, Atlanta is a leader in several key areas, such as payments processing, cyber security and health management software and is seeing strong growth in the industrial internet and biomedical research, particularly in regard to infectious diseases. Most of the state s tech sector is located in the greater Atlanta area, with a growing number of firms around Georgia Tech in Midtown, Buckhead and the northern reaches of the metro area along Georgia s highway 400. Tech Square opened in The roughly seven-block area located across the Downtown Connector interstate from Georgia Tech s main campus has rapidly become the epicenter of Atlanta s technology scene, with the University constructing facilities that are helping draw in firms developing big data applications and the industrial internet of things (IIOT). Georgia Tech is certainly a big draw and the University is partnering with Portman Associates in the development of the 750,000-square foot Coda building, which will house Georgia Tech s High Performance Computing Center (HPCC) when it opens in Firms locating or expanding in and around Tech Square include NCR, which is developing a headquarters campus that will employ 1,800 workers, and Honeywell, which recently leased 62,000 square feet of space at 715 Peachtree Street to house the global headquarters of its Home and Business Technologies unit. In addition, Amazon Transportation Services recently announced plans for a new technology development hub in nearby Atlantic Station that will focus on logistics technologies. While Midtown s gain has come partly at Gwinnett County s expense, Gwinnett continues to see strong growth within its own tech sector. The telecommunications sector has long maintained a large presence in the county, which is home to major facilities for ViaSat, OFS Brightwave Solutions, Level 3 Communications and Comcast. Technology is just one component of Gwinnett s diverse industry mix. Gwinnett County has long been a favorite location for corporate and regional headquarters and is particularly popular with international firms, due its long-held status as a major distribution hub, concerted economic development efforts and an abundance of lifestyle choices. Major corporate headquarters include Primerica, AGCO, Asbury Automotive, Crawford & Company, and Boehringer Ingelheim. Manufacturing and logistics have long been growth areas for Gwinnett. Recent announcements include German automotive-supplier Carcoustics, which is investing $6 million to open a plant in Buford that will create 200 jobs; and LiftMaster, which recently announced plans to build a 96,000 square foot distribution center in Gwinnett Village Community Improvement District. Gwinnett County has a large and growing presence in Atlanta s sports and entertainment sectors. While Atlanta s tech sector has been a key growth driver in recent years, it comprises a relatively small proportion of Atlanta s exceptionally diverse economy Gwinnett continues to see strong growth within its own tech sector Figure 5 Figure 6 Georgia High-Tech Employment Growth Year-over-Year Percent Change, 3-MMA, QCEW Data Processing Internet Publishing, Broadcasting & Search Portals Pharmaceuticals Manufacturing March 2017 Georgia High-Tech Employment Thousand Jobs, 3-MMA Scientific Research & Development Architectural & Engineering Services Computer & Peripheral Equip. Manuf. Software Publishers Computer Systems Design Georgia (Nonfarm) Other Device Manuf. Semiconductor & Electronic Component Manuf. Telecommunications Aerospace & Parts Manufacturing Communications Equip. Manuf. March % 0% 10% 20% 30% 40% Source: U.S. Department of Labor and Wells Fargo Securities 5

6 Georgia s ability to continually outperform national growth hinges on businesses and workers choosing Georgia for expansion While prices have recovered, new singlefamily construction remains a shadow of its previous norm The tech sector is also providing a huge boost to Augusta. Construction of the Army s Cyber Command broke ground this past fall and the first facility is expected to open in spring The new Army facility will build on the emerging hub of cyber security operations in the Augusta area, which includes a National Security Agency facility that employs 4,000 workers and other facilities at Fort Gordon. In addition, several defense contractors have set up shop in Augusta to service the growing military and government presence, including Unisys, Booz Allen Hamilton and MacAulay-Brown. Construction is also well underway for the Georgia Cyber Innovation and Training Center. The new facility, located in downtown Augusta, will train students to work in the cyber security occupation and the cyber-crime unit for the Georgia Bureau of Investigation. The project is a joint venture between the Georgia Technology Authority, the City of Augusta, Augusta University and Augusta Technical College and is envisioned to be a catalyst for a larger technology and cyber security district in downtown Augusta. Investments in higher education are also paving the way for a larger tech sector in Athens. The University of Georgia seized on the opportunity presented to it when the Navy closed its supply school and formed a College of Engineering that has become one of the fastest growing engineering schools in the country and includes three interdisciplinary schools: the School of Chemical, Material and Biomedical Engineering; the School of Environmental, Civil, Agricultural and Mechanical Engineering, and the School of Electrical and Computer Engineering. Since it was formed in 2012, the UGA College of Engineering has grown to more than 2,000 students and continues to add partnerships with major Georgia employers. Georgia s Housing Market: Best Supporting Role Georgia s ability to continually outperform the nation hinges on businesses and workers choosing Georgia for expansion or relocation over other areas. The state s relative affordability puts a heavy thumb on the decision scale for potential relocations. The median home sold in Georgia sold at just $210,000 in June, which is well below the national median price of $263,800. While prices are lower than the national average, demand is strong and homes are selling quickly, particularly in Atlanta s burgeoning northern ring. The typical home sold was on the market for two months, which is fairly short relative to past housing cycles, but slightly longer than homes are remaining on the market nationwide. The absence of bidding wars is a rare exception among the nation s faster growing states. Georgia s housing market is not nearly as overheated as markets in other rapidly growing areas, such as Florida, Colorado, and North Texas. The price of a median home sold in Georgia rose 5.9 percent over the year, slightly below the 6.7 percent pace nationwide, according to CoreLogic. Brunswick posted the largest gain, with prices rising 9.1 percent, followed closely by Gainesville. Home price appreciation in Atlanta was in line with the nation but the metro area s median price of $213,000 remains well below that of competing areas, such as Dallas, Denver, and South Florida. Georgia s other metro areas have all seen home prices rise over the year, though not as rapidly as the state. Home prices outside Atlanta are also quite affordable compared to the nation as a whole and homes outside the dominant metro areas in most other rapidly growing states. Georgia s home prices fully recovered from the housing downturn in October 2016, at least in nominal terms, as measured by the CoreLogic home price index. Georgia s housing market recovered faster than the nation s comparable measure, which remains slightly below its previous peak. Granted, home prices in Georgia did not have as much ground to recover, as home prices did not fall as much as they did nationwide. Only a few areas in Georgia saw their home price index contract further than the nation: Brunswick, Gainesville, Dalton and Hinesville. Brunswick s home values declined 40 percent during the housing slump and have since recovered to 90 percent of their previous peak. The HPI for Gainesville and Dalton recovered in recent months, although Hinesville s HPI remains just 75 percent of its former peak. The downsizing at Fort Stewart is likely putting some strain on Hinesville s housing market. The base is by far the region s dominant employer and has seen the number of troops based there decline. Home prices have completely recovered in Athens, Atlanta, Rome and Warner Robins. 6

7 While prices have recovered, new single-family construction remains a shadow of its previous norm. Single-family home construction has been slow to recover, as population growth has generally lagged behind previous expansions and net migration has been more skewed toward younger households bent on living closer into the city. The mix seems to be shifting back toward its previous norm, with the suburbs growing more rapidly in recent years, particularly Atlanta s northern reaches. Single-family permits in the Atlanta metro area through July are running 8.9 percent ahead of their prior year s pace, while multi-family permits, which are mostly apartments, have fallen 35.6 percent. New home construction is also picking up in Savannah, Valdosta, Augusta and Rome. Columbus housing market remains largely stalled. Figure 7 Figure CoreLogic HPI: GA vs. U.S. Index, 2000=, Not Seasonally Adjusted United States: Georgia: Georgia Housing Permits Thousands of Permits, Annual Rate Single-Family: 37,656 Single-Family, 12-MMA: 38,903 Multifamily, 12-MMA: 11,421 Single-Family Average ( ): 71, Georgia s peach crop did not fare as well in Source: U.S. Department of Commerce, CoreLogic and Wells Fargo Securities Wacky Weather Messed With Georgia s Peaches Georgia s agriculture sector has done well in recent years. The value of Georgia peaches rose 20 percent in 2016 and its pecans, which account for 41 percent of the nation s crop, rose 36 percent in value. Georgia s peanut crop is slated to be the largest ever in 2017, thanks to excellent yields and record planting. The bumper crop is expected to meet strong demand, as domestic use of peanuts is projected to rise 6 percent in 2017/2018. Georgia s peach crop did not fare as well in The unusually warm weather in the early months of 2017 took a toll as peach trees did not get enough chill hours when they were dormant. Cold weather eventually arrived but at precisely the worst time, freezing the blooming fruit in March. The resulting crop was one of the worst in years. Blueberries suffered a similar fate. On the bright side, peaches account for less than 1 percent of Georgia s annual farm cash receipts. Poultry, cotton and peanuts are far more vital to the sector, which puts farmers in Georgia in better position than many other states. Although state-level data are not yet available, national cash receipts were up in 2017 for those three products, while revenue continued to decline for wheat, corn, oats and cattle products. The extent of damage to Georgia s agricultural sector from Hurricane Irma is difficult to gauge at this time, but we know it is considerable. Cotton and pecans appear to be most affected. The USDA reported on crop progress for the week ending Sept. 10, the day Irma made it to Georgia as a tropical storm after battering nearly the entire state of Florida. While all of Georgia s cotton crop was still in the ground, only half had already made it to the bolls opening stage, which is when the cotton is most susceptible to wind damage. Pecan farmers were set for a bumper crop as Irma approached, meaning a lot of pecans were on the branch when the storm hit. Early estimates suggest that at least 30 percent of this year s pecan crop was lost. Moreover, the loss of thousands of maturing pecan trees means future harvests will also be reduced. Damaged pecan trees have a long recovery time, as some groves had only recently recovered from Hurricane Frances in Peanuts were also still in the ground as Irma hit, although some reports suggested the timing would have been worse for the record-breaking crop two-three weeks later. The rains might The extent of damage to Georgia s agricultural sector from Hurricane Irma is difficult to gauge at this time 7

8 The availability of skilled workers is an increasingly important selling point that Georgia has in its favor We expect 2018 to look very much like this past year and for Georgia s real GDP to expand 3.3 percent actually boost the crop. Although a final assessment of the damage to Georgia s agriculture sector from Hurricane Irma will take some time, the initial assessment is that it could have been significantly worse. Summary and Outlook Georgia s economy continued to thrive through much of the first half of this year and we are looking for further improvement. Nonfarm employment has risen 2.6 percent over the past year and the unemployment rate has fallen to 4.7 percent, reaching its lowest level since August Housing and commercial development are also gaining strength, with single-family building permits through July running 12.9 percent ahead of their year-ago pace. Construction of office and industrial space has also picked up, while apartment construction has cooled off a bit after several years of exceptionally strong growth. We suspect the unusually large decline in Georgia s labor force participation rate following the Great Recession was driven by the same forces that have pulled down labor force participation throughout most of the country, namely a skills mismatch between workers and employers for jobs that require more education than a high school diploma but less than a college degree. Georgia continues to do an excellent job of developing its workforce through education and training. The Hope Scholarship, which was originally funded through lottery proceeds, has helped keep more of Georgia s talented high school graduates in the state and led to substantial growth at the state s public and private universities. Community colleges and technical schools have also expanded and Georgia is moving rapidly to train more workers in information technology, cyber security, life sciences and the entertainment industry all of which are growing rapidly. Georgia continues to win accolades for its economic development prowess. Area Development Magazine recently recognized Georgia as the Top State for Doing Business for the fourth consecutive year. 6 Georgia receives high marks for the cooperative relationship between state and local governments and businesses, the state s sound finances and its award-winning workforce training program Quick Start. The availability of skilled workers, workforce training programs, a relative abundance of affordable housing options and superb access to rapidly growing markets around the country and around the world are all increasingly important selling points for Georgia and are a big reason why so many businesses have expanded or relocated to the state. With half of the year in the books, we feel confident that employers will add 112,000 jobs across Georgia in 2018, as real GDP expands 3.3 percent. The resurgence in job growth has fueled stronger gains in real median household income and is also pulling more job seekers into the labor market. Atlanta has been one of the top destinations for millennials, many of which have settled in Buckhead, Midtown, Virginia-Highland and other close-in neighborhoods. These areas largely led Atlanta s recovery. While all are still growing solidly, the leadership is now shifting back toward the suburbs. With that shift, single-family homebuilding is once again growing solidly and commercial construction is gaining strength in these areas as well. Georgia has plenty of bright spots outside Atlanta. Savannah is enjoying one of its strongest and longest economic expansions ever, led by growth at the port and the supporting logistics and warehousing sector. Tourism remains incredibly strong and continues to fuel new hotel construction. Augusta is another bright spot, with growth being driven by the build out of the Army Cyber Command at Fort Gordon and related public and private investments drawn by the federal government s growing cyber security presence. We expect 2018 to look very much like this past year and for Georgia s real GDP to expand 3.3 percent, with just over,000 net new jobs to be created across the state. Georgia is fortunate in that it does not face the limits to growth that other rapidly growing states are running up against. Housing remains relatively affordable and the state s diverse economy should continue to attract new industry, job seekers and retirees from other parts of the country

9 Georgia Economic Outlook Real Gross Domestic Product by State, $ Millions 413, , , , , , , , ,300 Annual Rate Nominal Personal Income, $ Millions 359, , , , , , , , ,890 Nominal Personal Income, Percent Change Real Median Household Income, $ 49,047 50,304 48,420 50,239 51,410 53,527 55,080 56,350 57,420 Population, Thousands 9,812 9,915 9,985 10,087 10,199 10,310 10,435 10,560 10,675 Change in thousands Percent Change Nonfarm Employment, Thousands 3,900 3,954 4,032 4,145 4,262 4,378 4,490 4,592 4,682 Change in thousands Percent Change Unemployment Rate, Annual Average Total Housing Permits 17,859 23,474 34,721 37,403 43,935 51,052 52,000 56,500 58,000 Single-Family Permits 13,640 16,896 23,741 26,058 31,857 36,081 40,800 44,500 46,500 Multi-Family Permits 4,219 6,578 10,980 11,345 12,078 14,971 11,200 12,000 11,500 FHFA Home Price Index, Percent Change (7.5) (3.6) Actual Forecast Sources: National Association of Realtors, Federal Housing Finance Authority, U.S. Department of Commerce, U.S. Department of Labor, Moody's Analytics & Wells Fargo Securities Forecast as of: 9

10 Wells Fargo Securities Economics Group Diane Schumaker-Krieg Global Head of Research, Economics & Strategy (704) (212) John E. Silvia, Ph.D. Chief Economist (704) Mark Vitner Senior Economist (704) Jay H. Bryson, Ph.D. Global Economist (704) Sam Bullard Senior Economist (704) Nick Bennenbroek Currency Strategist (212) Eugenio J. Alemán, Ph.D. Senior Economist (704) Azhar Iqbal Econometrician (704) Tim Quinlan Senior Economist (704) Eric Viloria, CFA Currency Strategist (212) Sarah House Economist (704) Michael A. Brown Economist (704) Jamie Feik Economist (704) Erik Nelson Currency Analyst (212) Michael Pugliese Economic Analyst (704) E. Harry Pershing Economic Analyst (704) Hank Carmichael Economic Analyst (704) Ariana Vaisey Economic Analyst (704) Abigail Kinnaman Economic Analyst (704) Shannon Seery Economic Analyst (704) Donna LaFleur Executive Assistant (704) Dawne Howes Administrative Assistant (704) Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Clearing Services, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. ("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company 2017 Wells Fargo Securities, LLC. Important Information for Non-U.S. Recipients For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Conduct Authority. The content of this report has been approved by WFSIL a regulated person under the Act. For purposes of the U.K. Financial Conduct Authority s rules, this report constitutes impartial investment research. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive The FCA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposes only. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE