What will be the “New Normal”
and
Are We There Yet?
Jeffrey H. Dorfman
The 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?
Georgia Housing Starts
12000
10000
8000
6000
4000
2000
0
Dec-99
Apr-01
Sep-02
Jan-04
May-05
Oct-06
Feb-08
Jul-09
Source: UGA Selig Center
Have We Hit Bottom?
GA Monthly Total Revenue
2500
1500
1000
500
2010
2009
2008
Dec
Nov
Oct
Sept
Aug
July
June
May
Apr
Mar
Feb
0
Jan
Million $
2000
2007
Source: GA Dept of Revenue
Have We Hit Bottom?
Source: GA Dept of Revenue
Have We Hit Bottom?
10
009
/20
1/1
09
09
/20
/1/
2
11
9/1
/20
7/1
09
09
/20
5/1
/20
3/1
09
008
/20
1/1
08
08
/20
/1/
2
11
9/1
/20
7/1
08
08
/20
5/1
/20
3/1
08
007
07
/20
1/1
/1/
2
11
07
/20
9/1
/20
7/1
07
07
/20
5/1
/20
3/1
07
006
06
/20
1/1
/1/
2
11
/20
9/1
06
06
/20
7/1
/20
5/1
06
06
/20
3/1
/20
1/1
Where Are We?
Consumer Confidence
120
100
80
60
40
20
0
Source: Conference Board
Where Are We?
Industrial Manufacturing Index
65
60
55
50
45
40
35
30
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
Source: Institute for Supply Management
11
/20
1/1
10
010
/1/
2
10
/20
7/1
10
10
/20
4/1
/20
1/1
09
009
/1/
2
10
/20
7/1
09
09
/20
4/1
/20
1/1
08
008
/1/
2
10
/20
7/1
08
08
/20
4/1
/20
1/1
07
007
/1/
2
10
/20
7/1
07
07
/20
4/1
/20
1/1
06
006
/1/
2
10
/20
7/1
06
06
/20
4/1
/20
1/1
When Will It Get Better?
Consumer Confidence
120
100
80
60
40
20
0
Source: Conference Board
When Will It Get Better?
When Will It Get Better?
When Will It Get Better?
This Has Happened Before
US Housing Starts
3,000
2,500
1,000s
2,000
1,500
1,000
500
0
Jun 1957
Dec 1962 Jun 1968
Dec 1973 May 1979 Nov 1984 May 1990 Oct 1995 Apr 2001
Oct 2006
Source: US Census Bureau
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 nonfarm 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
3,000
2,500
1,000s
2,000
1,500
1,000
500
0
Jun 1957
Dec 1962 Jun 1968
Dec 1973 May 1979 Nov 1984 May 1990 Oct 1995 Apr 2001
Oct 2006
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.