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U.S. & Florida Economic Update
Orlando, FLMarch 14th, 2013
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U.S. Forecast
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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
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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
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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)
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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
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Economic Policy Uncertainty Index
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U.S. Forecast
Sky Mall™ Policy:
An Expensive Policy that Fails to Achieve its Desired Outcome
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U.S. ForecastSky Mall™ Policies:
American Reinvestment and Recovery Act of 2009
Aka Stimulus Act
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Why Didn’t the Stimulus Act Work?
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The Nun
The Nobel Prize Winner
Non-starter Stimulus
Why Didn’t the Stimulus Act Work?
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U.S. Forecast
Depleted Housing Wealth
Still Weak Labor Market
A continuing ballast on consumer spending
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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
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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
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U.S. Forecast
161514131211100908070605040302010099
145.0
140.0
135.0
130.0
125.0
Total Nonfarm Payroll Employment(Millions)
Total Nonfarm Employment
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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
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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
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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
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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)
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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”
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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
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Money Supply Process
Money Supply = mm*MB
Where:
MB = Monetary Base
mm = Money Multiplier
U.S. Forecast
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U.S. Forecast
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U.S. Forecast
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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
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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
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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.
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The Euro and the Tacoma Narrows Bridge
A Slippery Subject
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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
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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
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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.
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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
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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
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Florida Forecast
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Florida Forecast
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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
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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.
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Florida Forecast
Economic and job growth doesn’t gain significant altitude until 2014 and 2015
Real GSP growth:
2014 = 3.3% 2015 = 4.0%
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Florida Forecast
15141312111009080706050403020100
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
Florida Real Gross State Product(% change year ago)
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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
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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
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Florida Forecast
15141312111009080706050403020100
1400.0
1300.0
1200.0
1100.0
1000.0
900.0
800.0
Florida Professional & Business Services Employment
(Thousands)
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Florida Forecast
15141312111009080706050403020100
700.0
600.0
500.0
400.0
300.0
200.0
Florida Construction Employment(Thousands)
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Florida Forecast
15141312111009080706050403020100
1050.0
1000.0
950.0
900.0
850.0
Florida State & Local Government Employment
(Thousands)
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Florida Forecast
15141312111009080706050403020100
1050.0
1000.0
950.0
900.0
850.0
800.0
Florida Leisure & Hospitality Employment
(Thousands)
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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
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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
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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
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Sean M. Snaith, Ph.D.
Director
Institute for Economic Competitiveness
(407) 823-1453
WWW.IEC.UCF.EDU
www.facebook.com/seansnaith
Twitter: @seansnaith
Thank you