Economic Stakes are high as Georgia enters 2011

By Michael E. Kanell

The Atlanta Journal-Constitution




Like an engine hooked to a run-down battery, economic growth in 2008 just couldn’t seem to get started. Instead, it sputtered, slowed and nearly quit as millions of jobs disappeared.

Three years later, with the calendar turned to 2011, we are about to find out if that battery will take a charge.

“I think 2011 is really, really important,” said economist Adrian Cronje, chief investment officer at Balentine, an Atlanta wealth management firm. “The big story will be the hand-off of government stimulus to the private sector.”

The stakes for metro Atlanta are high. The area has suffered more than most because it’s been financially dependent on the very things that took the economy down three years ago: construction, housing and debt.

Yet Georgia’s economy — for the first time in seven years — will not perform worse than the national average, according to the University of Georgia’s Terry College of Business.

Metro Atlanta will add a modest 45,000 jobs this year, predicted Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State.

Three of the hires will be this month at Atlanta’s Everspark Interactive. The company is adding to its seven-person staff, said Jeff Holyoak, chief operating officer of the Atlanta-based company. By year’s end, Everspark, which advises companies on how to get more Web presence, should have 25 on staff, he said.

The hiring comes in anticipation of a boom, he said. “Otherwise, you will be playing catch-up. It is risky, but I think the markets rebuild much quicker than they used to.”

Cronje, however, is more cautious: The economy is still dragging the housing industry, rather than the other way around. So growth is threatened by anything that makes housing a heavier burden, he said. “We in Atlanta are more vulnerable than most areas to a relapse.”

The biggest threat would be rising mortgage rates, Cronje said.

That’s why Dan Forsman, president of Prudential Georgia Realty, which has lost 25 percent of its realtors since the housing market slumped, expects strong home buying early in the year. “I think you will see a 2 to 4 percent increase in transactions. That’s not much of a stretch.”

Real estate woes

Atlanta, for more than a decade, was among a handful of metro areas that led the nation in homebuilding. Prices rose steadily.

Now, the average home price in Atlanta has lost a decade of gains.

“There is an awful lot of (housing) on the market,” said Lou Brown of Trust Properties, a long-time real estate investor.

A number of still-to-be-completed foreclosures will swell the pool even more, he said.

Anna Mackowiak of Atlanta Legal Aid Society said foreclosures have meant hardship for thousands of Atlanta homeowners. “I just don’t see an end to that,” Mackowiak said. “Unless the unemployment situation gets better, we expect foreclosure situation to continue or more probably increase.”

While housing is crucial, the roughly $275 billion-a-year metro Atlanta economy has other drivers too.

For starters, there is the world’s busiest airport, the ports to the east, the interstate highways passing through. All benefit from expansion in national and global trade while they are also enablers for growth in metro Atlanta businesses.

And leaving aside real estate, Georgia does not have a badly bleeding industrial center.

Corporate icons like Home Depot, Coca-Cola and UPS are not suffering, said economist Tom Smith of the Goizueta School at Emory University. “There’s nothing in Atlanta that is abnormally bad. Our core hasn’t suffered like they have in Detroit or Los Angeles.”

“People are still a little skittish,” he said. “But companies are profitable.”

Atlanta probably doesn’t have the potent mix of creativity and cash to spin out the Next Big Thing, “the next Groupon or YouTube,” said Fred Sturgis, managing director at HIG Growth Partners, which has $8 billion under its management.

Instead, the area’s corporate strength is in solid companies that move into market openings and know how to solve problems, he said. “This is a very strong software town. And we see a lot of opportunities in health care — in health-care technology and services and billing.

“We think it’s going to be a growth year,” Sturgis said.

Good news

Technology has not been much of a growth engine in Atlanta since the tech bubble burst in 2000, but that is changing, said Stuart Johnson, managing partner of Barnes & Thornburg’s Atlanta office, who handles mergers and acquisitions. Tech companies can exploit growth in health care.

The overall economic picture is improved, said Ed Flowers, Atlanta-based executive vice president of DHR International, an executive search firm. “I see Atlanta’s economy as being good, not great. Better than in 2010.”

In most sectors, companies will still feel cautious enough to hire selectively, he said. “Hiring starts with people that can increase revenue and profitability.”

While Atlanta has not been a leader in energy efficiency, there are a smattering of spin-offs, companies like Suniva in Norcross, that can take advantage of the national trend toward alternatives.

Let the price of oil soar and those companies could go into overdrive.

“There is going to be a snowball effect pushing the whole thing forward,” said Allen Bradley, a Stites & Harbison attorney who works with companies getting deals done. “We are looking for 2011 to be a recovery year.”

Despite the struggles of the past several years, financial services this year should grow, said Scott Kriscovich, president of staffing company TrueBridge Resources. New technologies — especially wireless and mobile devices — will allow for mobile banking, he said.

Moreover, good news begets more good news, Kriscovich said. “Risk-taking is a multiplier. My hope is that, as we see a pickup in hiring, you’ll see more movement in the labor market.”

The recession officially ended in the summer of 2009, while layoffs continued until the following year. Since then, job gains have been weak. And some sectors — including government and retail — will continue to shrink this year, Dhawan said.

In the 1990s, 100,000-plus jobs a year were added in Georgia.

Companies have been reluctant to hire because they are not sure that recovery is here to stay, said Keith Ordan, partner at the Intersect Group.

Instead, they go to staffing companies for temporary workers. “We’ve seen a tremendous demand for contract labor and consulting services, and I expect that to continue into (this) year,” Ordan said.

Survival mode

What the labor market needs is for companies to hire, not just take on temps.

That is what Everspark Interactive is doing. But a wobbly economy would jeopardize Everspark’s mission. “If it all stopped tomorrow, we’d have to walk away from our goal, which is to create a whole new market space,” Holyoak said.

Smaller companies account for the majority of jobs, but their mortality rate is high: About 40 percent of the jobs created by startups are eliminated within five years, according to a recent paper for the National Bureau of Economic Research.

Yet the companies that do survive grow faster than older companies.

Two-year-old Equitable Payments in Decatur means to be one of those growth stories, said co-owner Darrah Brustein.

The company is a broker, helping merchants find the least costly arrangement for letting customers pay with credit cards. Business is good, she said. “What I see more than anything is e-commerce is booming.”

She predicts a better year, but says that depends on attitude as much as circumstance.

“I know we will be doing better in 2011,” she said. “There are ways to keep your business succeeding. There are ways to counteract the economy. I think it’s important for business owners to just keep pushing on.”

But all corporate growth depends on capital.

By most accounts, getting loans is easier than it was in 2009 — yet it is still a challenge. That is one reason that so many companies with plenty of cash choose not to spend it.

“Weaker companies still have very few financing options,” said Robert Barnett, managing director at Conway MacKenzie, which offers financial and strategic advice. “A lot of companies are still in survival mode. No one is sure what will come out of this.”

Making up ground

The vast majority of chief financial officers are optimistic about 2011, but the number expecting to add staff this year is just 5 percentage points higher than the number expecting to cut, according to a survey for the staffing company Robert Half.

And even optimists acknowledge that stretches of the road ahead could be rough.

Local government will make more painful cuts this year. Construction jobs will continue to be scarce. Banks will struggle to heal, said attorney John Gornall, who has specialized in economic development as a partner in Arnall Golden Gregory. “In 2011, the economy will begin to recover, really. But it is not going to be fast.”

But some of the sectors that suffered most in recession — including construction — will stabilize this year, said Peter Muoio, a senior principal at Maximus Advisors.

There’s a lot of ground to make up. Metro Atlanta lost 210,800 jobs between late 2007 and the start of job growth in 2010. The region is still nearly 200,000 short of the pre-recession level.

Ty Young, president of Ty J. Young Inc., a financial adviser firm, said he bases his advice these days on the expectation that the recovery will be bumpy and long.

Young recommends that clients put their money in investments that are immune from interest rate gyrations and cushioned against a herky-jerky economy.

With the real estate market struggling, with lending so constrained, with so much debt still being paid off and so few jobs being created, this will not likely be a boom year.

“We’ve got some things to work through, and it is going to take three to five years,” Young said.