State's economic health hurting

That longtime Southern financial luster has — for the moment — dimmed.

After decades of leading the nation in growth, Georgia and the Southeast have stumbled. And the fall has been harder than for most of the rest of the country.

The region surged through good times with faster growth and had slipped the rigors of recessions with lighter penalties than most areas of the nation.

Now, unemployment rates here are higher and job loss more painful.

What happened? Ironically, it was some of the region's signs of success — primarily the housing boom, with its aggressive borrowing by consumers — that made it vulnerable.

Riding that boom, the region was actually slower to enter recession. But when it did, it did so with a vengeance.

"I would have expected our local economy to be affected," said Adrian Cronje, Atlanta-based chief investment strategist for Wilmington Trust Investment Management. "But it is surprising to me that it is worse than the national average. The measures of employment weakness have been decidedly worse."

The unemployment rate in Georgia last month was 9.3 percent, compared to the U.S. rate of 8.9 percent. Georgia's jobless rate has been tracking higher than the nation's for more than a year.

While some places have been hit harder — say, southern California or some manufacturing areas in the Midwest — the slide in the South has been dramatic. During the past year, the nation has shed 3.5 percent of its jobs. But Georgia payrolls have hemorrhaged 4.5 percent of their positions.

Unemployment rates reflect that much of the Southeast looks even worse than Georgia: Alabama (9 percent), Florida (9.6), Mississippi (9.1), North Carolina (10.8) and South Carolina (11.5).

Just two years ago, Georgia's employment picture was brighter than the nation's. In early 2007, when the overall economy was still expanding, the state was adding jobs 30 percent faster than the U.S. pace.

That superiority had been a function of habit.

"You can go all the way back to 1945," said Mike Chriszt, assistant vice president for research at the Federal Reserve Bank of Atlanta. "That is pretty much when the South started to grow."

Besides warmer weather, Georgia and the region held some key growth advantages: land was available and cheap; regulations were less restrictive; and workers were mostly non-union and lower-paid.

"That's why you would locate your business here as opposed to somewhere else," Chriszt said. "It cost you less to set up shop and it cost you less to pay your employees."

Success only bred success. As companies moved South, so did many thousands of workers — which drew more businesses.

For instance, the eastern division of the Beck Group, a design and building company, has been in Atlanta for seven decades, drawn here and kept here by the work needed in a growing area, said Brad Phillips, managing director.

The network of colleges and universities acts as an accelerant for the growth of both region and company, he said.

"The educational system puts people into the work force that we want to hire" Phillips said. "Employers come here because there is talent already here looking for work."

Just after World War II, Georgia payrolls represented about 1.8 percent of the nation's jobs. At the end of 2007, Georgia's share was 3 percent — a 67 percent expansion in the state's share.

Personal income in Georgia rose an average of 6.1 percent a year in the six decades after 1948, according to the Bureau of Economic Analysis. That compares to a national average of 5.7 percent a year.

Those changes add up. In 1948, per capita income in Georgia was 68 percent of per capita income in the United States. Before recession hit, Georgia's per capita income had climbed to 90 percent of the U.S. level.

Throughout the recessions of 1980, 1981-82, 1990-91 and even 2001 — when Georgia's hospitality and telecom sectors were pounded — the state's unemployment rate never rose as high as the national average.

Coming out of the 2001 recession, job growth in Georgia reclaimed its place in front of the tepid national pace. In March 2006, Georgia payrolls were expanding at a 3 percent clip — 40 percent faster than the nation.

Housing tells the story. In 1959, the South represented one-third of the housing starts in America. By mid-1980, the South accounted for fully half the new building.

But that percentage dipped. A decade ago, the South was building new houses at a 672,000-a-year pace, around 40 percent of the national total.

Then in 2001, with the economy sputtering, the Federal Reserve shoved interest rates down. Housing starts jumped, in spite of a recession. Mortgage rates were at near-record lows, and "teaser" loans made the starting payments even lower.

Four years later, the rate of monthly starts in the South for the first time rose above 1 million, once again accounting for half the nation's new home building.

But those good times led to trouble.

"We were just overbuilt," Chriszt said. "The thing that is different this time around is that the very large increase in construction in 2004, 2005 and 2006 was taking place faster than the pace of people moving to the area.

"When the music stopped, it was a big shock."

Credit was easily available to first-time home buyers, often with no money down. Many move-up buyers also took low-rate, low-down payment loans to buy larger houses.

In short order, many home buyers found themselves unable to make monthly payments when their loans adjusted upward. As the mortgage bubble burst and home prices started dropping, many others suddenly owed more than their homes were worth.

To those unable to sell their homes in the chilly market, debt — leverage — was an albatross.

"Perhaps we in the Southeast became more over-leveraged," Cronje said. "Perhaps we have been particularly vulnerable to this current dynamic. It is a fundamentally different dynamic than at any time since the 1930s."

By October 2007, the pace of job gains in Georgia had slipped below the national rate. And when the job losses started, the contraction was faster in Georgia than nationally.

Neverthelesss, even with Georgia and the South deep in recession, some companies still want to expand here.

NCR last week announced plans to shift its corporate headquarters from Ohio to Duluth, promising to bring the area 1,250 jobs, along with 850 more to Columbus. The state put up more than $60 million in various incentives but presumes a much bigger payoff for Georgia down the road.

Most of the economy is made up of low-key companies whose decisions don't make headlines. And some of those businesses have moved here too.

Uncle Julio Corp. opened its first Atlanta Tex-Mex restaurant in 1998 and plans a second, said Todd Conger, president and CEO of the Dallas-based company.

"We have grown every year we've been in Atlanta," he said. "And I think Atlanta's economic platform is varied enough to get through this."

That kind of hope is taking hold, even as the nation is struggling to find the recession's bottom. Because after the bottom — maybe sooner, maybe later — will come a turn toward growth.

And as that happens, the historical advantages of Georgia and the South will again arise, Chriszt said.

"I don't know if the immediate aftermath will be any better for Georgia than the U.S.," he said. "But once the recession fades, those drawing cards are still going to be there."