Matt's Analysis:

Georgia’s economy performed reasonably well in 2006 and is poised for moderate growth in 2007. Despite the cooling of the real estate market and sustained high energy prices, consumers and businesses have continued to spend.

Most forecasters anticipate that real GDP growth will be in the 2 to 3 percent range although growth in the first quarter came in at less than 2%. This is down from 2005 and 2006 and is primarily due to the continued decline in residential real estate investment. The decline in housing starts led to a drag of about 1% on GDP during the second half of 2006.

Aside from housing, we can expect modest growth in other key sectors of the economy. Service sector job growth in Georgia exceeded the national average in 2006. The leisure and hospitality industry is a particular bright spot in Georgia, especially in metro Atlanta. The Georgia Aquarium, a renovated High Museum and an expanded World of Coca-Cola are all fueling increased tourism, which filters throughout the local economy.

Inflation increased during the first half of 2006 and then moderated. Overall, the CPI rate is clearly higher than the Fed’s target of 1 to 2 percent but has been manageable. Primary reasons for the inflation we have experienced include the eventual pass-throughs of higher energy costs to other goods and services. In addition, as demand for home ownership has declined, demand for rental housing has increased, leading to higher rents. Most forward-looking measures of inflation suggest that inflation expectations are stable and Fed Chairman Bernanke continues to emphasize that his #1 priority is to contain inflation.

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