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

Agenda Georgia’s Financial Condition Georgia’s Economic Outlook

FY 2018 General Fund Revenues Totaled Over $24 Billion

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

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

Withholding Revenue Growth has Accelerated

Sales Tax Revenue Growth Has Also Picked Up

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

Agenda Georgia’s Financial Condition Georgia’s Economic Outlook

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

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

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

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

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

One More Thing - The Current Business Cycle is Old

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

Georgia Job Growth Outpaces that of US

Monthly US Job Additions Still Robust

Georgia’s Job Growth Still Strong

Georgia Job Growth Reasonably Well Diversified Across Sectors

And Across Metro Areas

Unemployment is Extremely Low

Initial Claims Below 1973 Levels

Broader Measure of Unemployment Also Show Market is Tight

Job Market Dynamics Point to Very Tight Job Market

Wage Growth is Picking Up But Below Pre-Recession Rate

Alternative Measure - Similar Story

Real Household Incomes Are Growing

Real Consumer Spending Growth has Picked Up

Real Disposable Income Growth is Steady

Credit Card Balances are Growing

But Debt Burdens are Still Low

New Vehicle Sales Are Off Their Peak

Business Investment has Been Good

ISM Indices Point to Strong Business Activity

Manufacturing Ramp Up Illustrated by Orders and Shipments

And Shows Up In Georgia’s Port of Savannah Activity

Housing Sales are Trending Flat

Housing Starts Have Also Fallen Off in Recent Months

Home Prices are Still Increasing at a Steady Rate

Inflation has Ramped Up But is Still Below the Policy Guideline

Improving Economy Has Caused FOMC to Raise Interest Rates

Yield Spread Flashes Caution Light

US Fiscal Outlook

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.