After growing slowly over the first half of 2010, the economy strengthened in the third and fourth quarters. Export sales grew and the manufacturing and service sectors of the economy moved firmly into expansion territory. Consumer spending increased modestly, but was limited as consumers repaid debt, unemployment was stubbornly high, and housing prices continued to decline in some markets, including metropolitan Atlanta.
The economic outlook for 2011 is brighter than it has been at any time since we began this business in mid 2007, but is still expected to fall short of rates of growth seen in most post World War II recoveries. Forecasts for US GDP growth range from a conservative 2.5% to an optimistic 4.0% as we begin the year. New tax and stimulus legislation and the Federal Reserve’s new round of monetary accommodation should provide added lift to the economy.
Private sector employment growth and new investment appear concentrated among larger companies, particularly those with a significant international component to their business. While the confidence level of small to midsized company owners and executives is improving, revenue growth, profit improvement, staff additions, and new capital spending are lagging that of larger concerns.
The Atlanta region has been hit particularly hard by the recession and is struggling to recover. Unemployment remains persistently above national averages and population growth has slowed to rates not seen for 50 or 60 years. Speculative building in residential and commercial sectors has resulted in substantial over-capacity in houses, residential lots, and commercial facilities. It will take several years to absorb this capacity at current employment and population growth rates and for property values and lease rates to recover to pre-recession levels.
With modest improvement expected in the US economy, global growth will continue to be paced by the rapidly expanding economies in Asia, particularly China and India, where favorable demographic trends and infrastructure development are driving consumption and investment.
While vulnerabilities from potential European sovereign debt defaults, competitive currency devaluations, geopolitical tensions, and US federal, state, and local government fiscal challenges could derail the recovery, we expect healthier economic conditions locally and nationally which should result in a generally improved business climate and better loan demand during 2011. Credit quality trends, however, will be mixed with improving performance in the corporate sector and lingering difficulties in commercial real estate.
