U.S. & Florida Economic Update

Sarasota, FLJuly 11th, 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

Depleted Housing Wealth

Still Weak Labor Market

A continuing ballast on consumer spending

U.S. Household Wealth(Trillions of $)

 

2005 2006 2007 20082009 Q1*

2013 Q1

Total Assets 71.3 78.6 79.5 66.6 62.8 83.7

Financial Assets

42.9 49.0 51.4 42.2 39.6 57.7

Home Equity 13.2 12.8 10.3 7.0 6.1 9.1

Net Worth 59.1 65.1 65.1 52.4 48.7 70.3

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

2012Q4

2011Q1

2013Q2

2013Q3

2013 2014

GDP% Change, Annual Rate 0.4 1.8 1.6 1.9 1.7 2.5

Consumer Price Index% Change, Annual Rate 2.2 0.2 0.4 1.3 1.5 1.8

Consumer Sentiment 79.4 76.4 79.8 80.1 80.1 83.1

Consumption% Change, Annual Rate 1.8 2.6 1.8 1.9 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

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

What is the Fate of the Euro?

Bailouts, haircuts, ECB bond purchases

Ongoing concerns (CPIIGS?)

Euro still facing greatest threat since inception

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

Does the political will to implement the necessary changes exist in Europe?

The Euro and the Tacoma Narrows Bridge

A Slippery Subject

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 finally showing signs of life

Has housing market found a solid bottom for prices?

Distressed vs. TraditionalInvestor role in distressed market

Housing finance problematic

Florida Housing Market

Florida Housing Market

May 2013 May 2012Percent change

Closed Sales 22,375 18,884 18.7%

Median Sale Price

$171,000 $147,500 15.9%

Median Days on Market

55 65 -15.4%

Inventory(Months Supply)

5.0 7.5 -32.7%

Florida Housing Market

Closed Sales

Percent change

Year ago

Median Sales Price

Percent change

Year ago

Traditional 15,768 34.8% $205,900 11.9%

Foreclosure/REO 3,342 -2.6% $100,000 9.7%

Short Sale 3,265 -13.1% $125,300 11.9%

Florida Housing Market

Distressed Market Share of Total Market Declining

Florida Housing Market

Housing market recovery continues to unfold

Prices have gained tractionCan the momentum be maintained?

The growing investor role

Housing finance still problematic

Florida Forecast

Florida Housing Market

Investors are back in Florida residential real estate

Evidenced by high share of cash transactions

Private equity & hedge funds

Is this a good thing or a bad thing?

Florida Housing MarketHousing Finance

Unsustainably high share of cash transactions

Mortgage availability has been restricted by

Dodd FrankCapital StandardsUnderwriting StandardsLimited Private SecuritizationDemise of Mortgage BrokeringShell shock

Is this a good thing or a bad thing?

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

2013-2016 Averages;Q2 2013 Forecast

Florida

Sector% Average Annual

Growth

Construction 7.3Professional & Business Services

4.0

Trade, Transportation & Utilities

3.2

Education-Health Services 2.2

Leisure & Hospitality 2.0

Information 1.1Manufacturing 0.9Financial 0.7State & Local Government 0.3Federal Government -1.0

Existing Single-family

May 2013 May 2012Percent change

Closed Sales 731 669 9.3%

Median Sale Price

$189,950 $163,445 16.2%

Median Days on Market

44 50 -12.0%

Inventory(Months Supply)

4.4 5.8 -25.1%

Sarasota Housing Market

Sarasota Forecast

Sarasota Forecast

Sarasota Forecast

2013-2016 Averages;Sarasota Forecast

Sarasota

Sector% Average Annual

Growth

Construction 9.2Professional & Business Services

4.7

Education-Health Services 2.0

Trade, Transportation & Utilities

1.3

Information 1.3

Leisure & Hospitality 1.0Manufacturing 1.0Financial 0.6State & Local Government 0.6Federal Government -1.4

Sean M. SnaithSean M. Snaith, Ph.D.

Director Director

Institute for Economic CompetitivenessInstitute for Economic Competitiveness

(407) 823-1453(407) 823-1453

Sean@SeanSnaith.comSean@SeanSnaith.com

WWW.IEC.UCF.EDUWWW.IEC.UCF.EDU

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