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U.S. & Florida Economic Update Sarasota, FL July 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 policyrelated 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 investment 2. Lower industrial production 3. 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 2008 2009 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 Total Nonfarm Payroll Employment (Millions) 145.0 140.0 135.0 130.0 125.0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Total Nonfarm Employment U.S. Forecast Civilian Unemployment Rate (%) 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Unemployment Rate U.S. Economic Outlook 2012 Q4 2011 Q1 2013 Q2 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 Consumption % Change, Annual Rate 2013 Q3 2013 2014 79.4 76.4 79.8 80.1 80.1 83.1 1.8 2.6 1.8 1.9 1.8 2.5 U.S. Forecast 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 Money Supply (Annual Growth Rate %) 40.0 30.0 20.0 10.0 0.0 -10.0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Annual Growth Rate of M2 Annual Growth Rate of M1 U.S. Forecast Consumer Prices (% Change Year Ago) 6.0 4.0 2.0 0.0 -2.0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Consumer Price Index Core 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? A Slippery Subject The Euro and the Tacoma Narrows Bridge U.S. Forecast 30-Year Mortgage Rates and Housing Starts (Mortgage rates - Left axis, %) 9.0 2.5 8.0 2.0 7.0 1.5 6.0 1.0 5.0 0.5 4.0 3.0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 30-Year Fixed Mortgage Rate Housing Starts - Millions 0.0 Florida’s Housing Market Housing market finally showing signs of life Has housing market found a solid bottom for prices? Distressed vs. Traditional Investor role in distressed market Housing finance problematic Florida Housing Market Florida Housing Market Florida Housing Market May 2013 May 2012 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% 5.0 7.5 -32.7% Inventory (Months Supply) Percent change Florida Housing Market Distressed Market Share of Total Market Declining Closed Sales 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% Median Sales Price Percent change Year ago Florida Housing Market Housing market recovery continues to unfold Prices have gained traction Can 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 Market Housing Finance Unsustainably high share of cash transactions Mortgage availability has been restricted by Dodd Frank Capital Standards Underwriting Standards Limited Private Securitization Demise of Mortgage Brokering Shell shock 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 Florida Real Gross State Product (% change year ago) 8% 6% 4% 2% 0% -2% -4% -6% -8% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Florida Forecast Florida & U.S. Unemployment Rate (%) 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 FL Unemployment Rate U.S. Unemployment Rate Florida Forecast Florida Employment (Thousands) 8200.0 8000.0 7800.0 7600.0 7400.0 7200.0 7000.0 6800.0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Wage & Salary Employment 2013-2016 Averages; Q2 2013 Forecast Florida Sector % Average Annual Growth Construction Professional & Business Services Trade, Transportation & Utilities Education-Health Services 7.3 Leisure & Hospitality Information Manufacturing Financial State & Local Government 2.0 1.1 0.9 0.7 0.3 4.0 3.2 2.2 Sarasota Housing Market May 2013 May 2012 Closed Sales 731 669 9.3% Median Sale Price $189,950 $163,445 16.2% Median Days on Market 44 50 -12.0% 4.4 5.8 -25.1% Existing Single-family Inventory (Months Supply) Percent change Sarasota Forecast Sarasota Forecast Sarasota Forecast 2013-2016 Averages; Sarasota Forecast Sarasota Sector % Average Annual Growth Construction Professional & Business Services 9.2 Education-Health Services 2.0 Trade, Transportation & Utilities Information Leisure & Hospitality Manufacturing Financial State & Local Government 4.7 1.3 1.3 1.0 1.0 0.6 0.6 Thank you 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