Georgia’s Economic Conditions and Outlook

1. Georgia’s Economic Conditions and Outlook Fiscal Management Council Sept. 23, 2018 Ken Heaghney

2. Agenda • Georgia’s Financial Condition • Georgia’s Economic Outlook

3. FY 2018 General Fund Revenues Totaled Over $24 Billion

4. FY 2018 Revenue Growth Exceeded Plan 2.3% Revenue Growth Required in FY 2019 to Reach Budget Target – YTD growth equals 5.2%

5. RSR Balance Right at $2.5 Billion Before Adding Agency Lapse – A Record High

6. Withholding Revenue Growth has Accelerated

7. Sales Tax Revenue Growth Has Also Picked Up

8. Georgia’s Strategy for Adjusting to Federal Tax Reform – HB 918

9. Agenda • Georgia’s Financial Condition • Georgia’s Economic Outlook

10. Economic Trends – Key Global Factors #1 – Synchronized Global Growth of 2016 and 2017 is Ending

11. Economic Trends – Key Global Factors #2 – Consumer Price Inflation Is Ramping Up

12. Economic Trends – Key Global Factors #3 – Global Interest Rates have Decoupled in Response to Local Conditions

13. Economic Trends – Key Global Factors #4 – Trouble in Emerging Markets

14. Economic Trends – Key Global Factors #5 – US Fiscal Policy will Boost GDP Growth in the Near Term Discretionary fiscal policy contribution to real GDP growth, % Source: Moody’s Analytics

15. One More Thing - The Current Business Cycle is Old

16. US and Georgia – Key Trends • Labor markets are tight but where is the wage growth? • Strong consumer spending is supported by underlying fundamentals • Business sector is humming • Housing is still in recovery mode with relatively moderate growth • Financial conditions are tightening

17. Georgia Job Growth Outpaces that of US

18. Monthly US Job Additions Still Robust

19. Georgia’s Job Growth Still Strong

20. Georgia Job Growth Reasonably Well Diversified Across Sectors

21. And Across Metro Areas

22. Unemployment is Extremely Low

23. Initial Claims Below 1973 Levels

24. Broader Measure of Unemployment Also Show Market is Tight

25. Job Market Dynamics Point to Very Tight Job Market

26. Wage Growth is Picking Up But Below Pre-Recession Rate

27. Alternative Measure - Similar Story

28. Real Household Incomes Are Growing

29. Real Consumer Spending Growth has Picked Up

30. Real Disposable Income Growth is Steady

31. Credit Card Balances are Growing

32. But Debt Burdens are Still Low

33. New Vehicle Sales Are Off Their Peak

34. Business Investment has Been Good

35. ISM Indices Point to Strong Business Activity

36. Manufacturing Ramp Up Illustrated by Orders and Shipments

37. And Shows Up In Georgia’s Port of Savannah Activity

38. Housing Sales are Trending Flat

39. Housing Starts Have Also Fallen Off in Recent Months

40. Home Prices are Still Increasing at a Steady Rate

41. Inflation has Ramped Up But is Still Below the Policy Guideline

42. Improving Economy Has Caused FOMC to Raise Interest Rates

43. Yield Spread Flashes Caution Light

44. US Fiscal Outlook

45. Summary • Georgia’s financial position is strong with record reserves and good revenue growth. • US economic growth cycle is almost ten years old and still going strong; federal fiscal policy is likely to help sustain momentum. • Overall, US and Georgia economies are stellar: • Tight labor markets, • Consumer spending growth with solid finances, • Business sector expanding rapidly. • Risks to the outlook are primarily medium term – interest rates / yield spread, trade policy.