U.S. & Florida Economic Update Orlando, FL March 14 th, 2013.

U.S. & Florida Economic Update

Orlando, FLMarch 14th, 2013

U.S. Forecast

U.S. Forecast A Pall of Uncertainty Hangs Over

the Economy

Health Care Reform Impact on labor market

Dodd-Frank Financial Regulatory Reform Impact on credit flows

Fiscal Cliff

Tax cuts Sequester

Euro

U.S. Forecast A recent paper has created an

index that quantifies economic policy uncertainty and analyzes its economic impact:

Measuring Economic Policy Uncertainty

By Scott R. Baker Nicholas Bloom, and Steven J. Davis

U.S. Forecast The index has three components:

1. Newspaper coverage of policy-related economic uncertainty.

2. Number of federal tax code provisions set to expire in future years

3. Disagreement among economic forecasters

(Survey of Professional Forecasters)

U.S. Forecast The economic impact of economic

policy uncertainty

The results of the statistical analysis in the paper show that higher policy uncertainty causes:

1. Lower private investment2. Lower industrial production3. Much lower employment

Economic Policy Uncertainty Index

U.S. Forecast

Sky Mall™ Policy:

An Expensive Policy that Fails to Achieve its Desired Outcome

U.S. ForecastSky Mall™ Policies:

American Reinvestment and Recovery Act of 2009

Aka Stimulus Act

Why Didn’t the Stimulus Act Work?

The Nun

The Nobel Prize Winner

Non-starter Stimulus

Why Didn’t the Stimulus Act Work?

U.S. Forecast

Depleted Housing Wealth

Still Weak Labor Market

A continuing ballast on consumer spending

U.S. Household Wealth(Trillions of $)

2005 2006 2007 20082009 Q1*

2012 Q3

Total Assets 71.3 78.6 79.5 66.6 62.8 78.2

Financial Assets

42.9 49.0 51.4 42.2 39.6 53.6

Home Equity 13.2 12.8 10.3 7.0 6.1 7.7

Net Worth 59.1 65.1 65.1 52.4 48.7 64.8

U.S. Forecast

161514131211100908070605040302010099

11.0

10.0

9.0

8.0

7.0

6.0

5.0

4.0

Automobile and Light Truck Sales(Millions Vehicles)

Auto SalesLight Truck Sales

U.S. Forecast

161514131211100908070605040302010099

145.0

140.0

135.0

130.0

125.0

Total Nonfarm Payroll Employment(Millions)

Total Nonfarm Employment

U.S. Forecast

161514131211100908070605040302010099

10.0

9.0

8.0

7.0

6.0

5.0

4.0

3.0

Civilian Unemployment Rate(%)

Unemployment Rate

U.S. Economic Outlook

2012Q3

2012Q4

2013Q1

2013Q2

2013 2014

GDP% Change, Annual Rate 3.1 0.1 1.3 2.0 1.9 2.5

Consumer Price Index% Change, Annual Rate 2.1 0.2 0.4 1.3 1.5 1.8

Consumer Sentiment 75.0 79.4 77.8 81.1 80.1 83.1

Consumption% Change, Annual Rate 1.6 2.1 1.6 2.0 1.8 2.5

Monetary Policy

Fed Funds rate unchanged until unemployment rate hits 6.5%

QE III

Open ended purchase of mortgage backed securities

Is inflation a worry?

U.S. Forecast

Will Monetary Policy Lead to Inflation?

• Equation of Exchange:

• M*V = P*Y

• M = total amount of money in circulation

• V = the velocity of money, that is the average frequency with which a unit of money is spent.

• P is the price level • Y is real GDP (P*Y = Nominal GDP)

Will Monetary Policy Lead to Inflation?

• Equation of Exchange:

• M*V = P*Y

• If Velocity (money demand) is constantand• Y is at full potential

• Change in M = Change in P

• “Inflation is always and everywhere a monetary phenomenon”

Money Supply Process

Federal Reserve Balance Sheet

Key Liabilities:

Money in Circulation Bank Reserves

The sum of the two = monetary base

(aka high powered money)

U.S. Forecast

Money Supply Process

Money Supply = mm*MB

Where:

MB = Monetary Base

mm = Money Multiplier

U.S. Forecast

U.S. Forecast

U.S. Forecast

U.S. Forecast

161514131211100908070605040302010099

40.0

30.0

20.0

10.0

0.0

-10.0

Money Supply(Annual Growth Rate %)

Annual Growth Rate of M2Annual Growth Rate of M1

U.S. Forecast

161514131211100908070605040302010099

6.0

4.0

2.0

0.0

-2.0

Consumer Prices(% Change Year Ago)

Consumer Price IndexCore Consumer Price Index

A Slippery Subject

Greece and the Euro

Greek bailouts, haircut & the election stays of execution and not pardons

Contagion concerns (PIIGS)

Euro still facing greatest threat since inception

Two possible outcomes for the Euro zone in the long run.

The Euro and the Tacoma Narrows Bridge

A Slippery Subject

U.S. Forecast

151311090705030199979593918987858381

4%

0%

-4%

-8%

-12%

-16%

U.S. Deficit to GDP RatioNot quite Greece

Greek Budget Defict to GDP Ratio: -15%

U.S. Deficit to GDP Ratio

U.S. Forecast

151311090705030199979593918987858381

180%

160%

140%

120%

100%

80%

60%

40%

20%

U.S. Debt to GDP RatioNot Quite Greece...yet.

Greek Debt to GDP = 160%

U.S. National Debt to GDP Ratio

National Housing Market

Foreclosure Moratorium Delayed Recovery

Housing market bounced of a bottom prices

Housing Market is a key battle in recovery

Policy has NOT been battlefield triage.

U.S. Forecast

161514131211100908070605040302010099

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.5

2.0

1.5

1.0

0.5

0.0

30-Year Mortgage Rates and Housing Starts(Mortgage rates - Left axis, %)

30-Year Fixed Mortgage RateHousing Starts - Millions

Florida’s Housing Market

Housing market showing signs of life

Has housing market found a solid bottom for prices?

A Tale of Two Markets

Distressed vs. TraditionalInvestor role in distressed market

Florida Forecast

Florida Forecast

15141312111009080706050403020100

300.0

250.0

200.0

150.0

100.0

50.0

0.0

9%

8%

7%

6%

5%

4%

3%

Florida Housing Starts(thousands)

Total Private Housing Starts30 year Mortgage Rates

Florida Forecast

Florida Forecast

In 2010 the economic recovery began

• Real GSP growth 1.4% that year

• In 2011 the economy limped further along• 1.3% Real GSP growth

In 2012 we expect 1.6% growth

Job growth has limped alongside but only starting late in 2010.

Florida Forecast

Economic and job growth doesn’t gain significant altitude until 2014 and 2015

Real GSP growth:

2014 = 3.3% 2015 = 4.0%

Florida Forecast

15141312111009080706050403020100

8%

6%

4%

2%

0%

-2%

-4%

-6%

-8%

Florida Real Gross State Product(% change year ago)

Florida Forecast

15141312111009080706050403020100

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

Florida & U.S. Unemployment Rate(%)

FL Unemployment RateU.S. Unemployment Rate

Florida Forecast

15141312111009080706050403020100

8200.0

8000.0

7800.0

7600.0

7400.0

7200.0

7000.0

6800.0

Florida Employment(Thousands)

Wage & Salary Employment

Florida Forecast

15141312111009080706050403020100

1400.0

1300.0

1200.0

1100.0

1000.0

900.0

800.0

Florida Professional & Business Services Employment

(Thousands)

Florida Forecast

15141312111009080706050403020100

700.0

600.0

500.0

400.0

300.0

200.0

Florida Construction Employment(Thousands)

Florida Forecast

15141312111009080706050403020100

1050.0

1000.0

950.0

900.0

850.0

Florida State & Local Government Employment

(Thousands)

Florida Forecast

15141312111009080706050403020100

1050.0

1000.0

950.0

900.0

850.0

800.0

Florida Leisure & Hospitality Employment

(Thousands)

RegionPopulation Growth

Average % Chg Rank

Florida 1.6 ---Deltona 1.4 7

Gainesville 0.9 12Jacksonville 1.5 6

Lakeland 1.3 8Miami 1.5 5Naples 2.4 1Ocala 1.9 3

Orlando 2.1 2Palm Bay 1.3 9Pensacola 0.9 11

Tallahassee 1.2 10Tampa 1.6 4

2013-2016 Averages;Q4 2012 Forecast

RegionEmployment Growth

Average % Chg Rank

Florida 2.4 ---Deltona 2.3 6

Gainesville 1.2 12Jacksonville 2.4 4

Lakeland 2.2 8Miami 2.2 7Naples 3.1 1Ocala 2.9 2

Orlando 2.7 3Palm Bay 2.2 9Pensacola 1.8 10

Tallahassee 1.4 11Tampa 2.4 5

2013-2016 Averages;Q4 2012 Forecast

2013-2016 Averages;Q4 2012 Forecast

Florida

Sector% Average Annual

Growth

Construction 6.1Professional & Business Services 5.6

Trade, Transportation & Utilities 3.0

Education-Health Services 2.4

Information 1.7Manufacturing 1.2Financial 0.8Leisure & Hospitality 0.8State & Local Government 0.5Federal Government -1.9

Sean M. Snaith, Ph.D.

Director

Institute for Economic Competitiveness

(407) 823-1453

[email protected]

WWW.IEC.UCF.EDU

www.facebook.com/seansnaith

Twitter: @seansnaith

Thank you