ATLANTA, Aug. 26, 2026 (GLOBE NEWSWIRE) — Worldwide increases in defense expenditures and the data-center building boom means fewer funds are available to service the ever-burgeoning U.S. fiscal deficit. As a result, long-bond rates will remain elevated despite anticipated Federal Reserve rate cuts in early 2027, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“The long-bond yield, especially the 10-year rate, is up at least 80 basis points since the U.S. and Israel launched the first airstrikes against Iran on Feb. 28, and this continues to impact mortgage and corporate borrowing rates,” Dhawan said today (Aug. 26) during his second Economic Forecasting Webinar of 2026.
The forecaster expects long-bond yield rates to remain elevated for two reasons.
“Hostilities in the Middle East and the ongoing Russia-Ukraine war have every major country in the world ramping up defense spending, meaning there is less available money for the U.S. to borrow for funding the deficit,” Dhawan said. “Plus, the data center building boom has the government competing with technology companies that are financing AI-related capex (capital expenditures) spending by borrowing from the capital markets as their free cashflows turn negative.”
Although the data center building boom has spurred a construction multiplier of potent force in local economies — ranging from enhanced sales tax collections to increased demand for industrial space — hiring for entry-level white-collar jobs in the corporate sector, business-to-business arena, and information technology has been nonexistent on a net basis for the past two years. This critical part of the labor market has lost almost 600,000 jobs since Jan. 2023.
“The bulk of job growth has been produced in hospitality and healthcare, where earnings that determine spending power are much lower than with corporate jobs,” Dhawan said, adding that “the one-two punch of economic uncertainty caused by fluctuating tariff rates and fuel prices (especially diesel for transportation of goods and materials) keeps the already skittish corporate sector from undertaking the inherently risky activity of expansion by adding net new jobs.”
Although gyrating oil prices have spiked inflation prices in the last few months, concerns about a potential economic crisis like the 1973 oil price shock (caused by an Arab oil embargo against nations supporting Israel during the Yom Kippur War) have not materialized, because the U.S. is no longer energy dependent on the Middle East.
“But Asia is heavily energy dependent on the Middle East and, to a large extent, Europe is too when it comes to jet fuel,” Dhawan said. “So, we could experience a second-round effect due to our trade relationships and blockages in the Strait of Hormuz.”
Why, Dhawan asked, is consumer sentiment so negative when the stock market has posted double-digit gains over the past six months? “The answer is simple,” he said. “It’s the lack of creation of new, entry-level, white-collar jobs over the last two years. Even if your 401(k) is looking like a 601(k), you can’t help but worry about your kids’ prospects if they are living in the basement or depending on the bank of mom and dad to pay rent.”
Dhawan anticipates that a string of Federal Reserve rate cuts in early 2027 will boost confidence in the small business sector, particularly for hiring, as it is heavily dependent on banks for working capital, and this cost falls one-to-one with Fed rate cuts, unlike in the corporate bond market.
- In the first half of 2026, real GDP grew at a 1.8 percent rate, almost close to potential, but this pace will dip in the second half of 2026 to only 1.3 percent. Combine this with a sharply weakening labor market where job additions will turn negative by year-end makes the case for Federal Reserve rate cuts totaling 100 basis points in early 2027. The 30-year mortgage rate will stay above 6.3 percent in coming years as fiscal deficit pressures negate the downdraft of Fed rate cuts. Thus, housing starts will average 1.346 million in 2026, 1.307 million in 2027, and 1.347 million in 2028.
- Real GDP growth on a 4th-quarter-to-4th-quarter basis is expected to be 1.8 percent in 2027, rising to 2.3 percent in 2028. CPI inflation, which averaged 4.6 percent in the first half of 2026, will moderate sharply to 1.7 percent in the second half of 2026, as oil prices that averaged $92.7 per barrel (2026 q2) stabilize below the $80-per-barrel mark. For the full year of 2026, inflation will average 3.3 percent, then moderate sharply to 1.9 percent in 2027. After averaging 2.6 percent in 2026, core inflation will drop to 2.0 percent in 2027.
Turning to Georgia and Atlanta, just like the national economy, the Peach State experienced a job-growth swoon in the second half of 2025, losing almost 11,000 jobs. Then in the next five months (Jan.-May 2026) Georgia gained 16,000 jobs.
“That said, the last two months have been especially negative for job growth in Georgia — more than the national economy — with the state losing 21,500 jobs,” Dhawan said, noting that 8,000 of the job losses were in state and local government employment, and another 7,300 jobs were lost in hospitality. “The bigger issue is what’s happening with IT, business-to-business, corporate, and entry-level, white-collar jobs, where — like the national economy — we have not seen any additions on a net basis since 2023.”
The state’s star growth sector, mirroring the national trend, has been healthcare, Dhawan said, which has continued to add jobs, even when overall data showed a swoon, with this sector adding almost 23,000 jobs. “But this pace has slowed somewhat in 2026, consistent with a slower national pace in healthcare spending.”
Billions of dollars in construction projects are planned in the Atlanta metro area over the next five years to address population growth and a health care desert on the South side — including Wellstar Health System’s redevelopment of the Atlanta Medical Center campus in the Old Fourth Ward, a Grady campus in Union City, and a general teaching hospital announced by Morehouse School of Medicine and Atrium Health in Adair Park.
“Keep in mind, though, that healthcare job additions from those projects are in the future, when those facilities open. But right now we have to cope with the negative consequences of reduced consumer spending on healthcare,” Dhawan said.
A growth area in the Georgia economy the forecaster points to is data-center construction, which has picked up in the past two years. Dhawan referenced the impact on state sales tax collections, which grew an anemic 1.3 percent in 2024, then picked up to a growth rate of 3.5 percent in 2025 and then doubled to 6.5 percent in the past six months as the pace of construction has increased. “This rise in state sales tax receipts is the effect of the construction multiplier, starting with hiring crews, spending on warehousing, materials, and more.”
As in the rest of the country, home prices have continued to rise in Georgia, a phenomenon Dhawan describes as the “Californization” of housing, meaning “everything is getting a bit unaffordable. Places like Atlanta, Charlotte, and Tampa used to bring people to the area due to affordability. Now we’re more expensive than Chicago — especially in core counties like Fulton and Cobb. Homebuilder activity has moved out to Cherokee and Forsyth counties, a trend known in the industry as ‘drive ′til you qualify.’”
Even with Federal Reserve rate cuts, long-bond yields are expected to stay high, meaning mortgage rates will remain in the 6.5 percent range and as a consequence building permit activity will remain subdued in coming years.
“Georgia’s ports are an important part of the state’s economic engine, and there is a healthy rivalry between the Port of Savannah and California’s Ports of Long Beach and Los Angeles. Depending on the cost of shipping, traffic may go to the West Coast or come to Georgia.”
A critical factor affecting shipping in 2026 is the formation of El Niño in June, the periodical climate event that causes the surface of the Pacific Ocean near the equator to become warmer than usual. This year, El Niño has increased the cost of transiting the Panama Canal due to causing drought conditions, which tilts traffic from Asia to the West Coast.
“As for the Strait of Hormuz, its closing disproportionately affects Asian countries. After Mexico, our top trading partners are Korea and China. A prolonged closure of traffic in the Strait of Hormuz will adversely impact the energy supply of our Asian trading partners, thereby impacting their capability to manufacture goods that we will import and reducing their ability to buy our exports. This negative impact on our trade relations will hinder the functioning of our ports,” Dhawan cautioned.
- Georgia jobs: The state added 45,800 jobs in calendar year 2024. That pace morphed into job losses of 5,400 in calendar year 2025. Job growth will be positive this year at 23,400 job additions in calendar 2026 (3,500 premium). In 2027, the state will add a better number of 62,700 jobs (14,900 premium) and then 80,500 jobs in 2028 (19,400 premium).
- Georgia’s nominal personal income will grow 3.3 percent in 2026, a better rate of 5.9 percent in 2027, and 6.4 percent in 2028.
- Atlanta jobs: The metro area will add 17,300 jobs in 2026 (2,600 premium). As recovery takes hold in 2027, the metro area will add a respectable 43,800 jobs (10,800 premium), and 58,500 jobs (14,100 premium) in 2028.
- Atlanta housing permitting activity dropped by 18.9 percent in 2025; single-family permits decreased by 15.5 percent, and multifamily permits decreased by 24.3 percent. Total permit numbers will fall again by 4.8 percent in 2026 as multifamily permits experience a sharp drop again of 11.3 percent, and single-family permits decrease by only 1.0 percent. In 2027, total permit numbers will grow a bit by 1.2 percent as multifamily permits drop again by 9.0 percent. Normalcy will return in 2028 when permit activity grows by 11.7 percent.
Contact:
Holly Frew
Robinson College of Business
O: (404) 413-7076
hfrew@gsu.edu
Media gallery
