Economic Recovery

INTRODUCTION
Elected officials in the nation’s capital are acting like zombies taking bites out of the national economic recovery, and infecting Florida in the process.
In his final state economic forecast for 2013, University of Central Florida economist Sean Snaith, revised the positive economic growth trend for the Sunshine State because of the “antics in D.C.”
“The situation in Washington, D.C. is looking more and more like a movie that is a hybrid of Night of the Living Dead and Groundhog Day,” thanks to putting off the debt-ceiling decision until January 2014, Snaith said. “If the federal government could function as a living entity instead of a collection of the undead we could address the serious short- and long-term fiscal and economic challenges we face.”
From the sequester to the government shutdown to the debt-ceiling impasse to the calamitous and piecemeal rollout of the Affordable Care Act, policy action and inaction are draining momentum from the economic and labor-market recoveries by usurping stimulus and prolonging and intensifying a fog of policy-related uncertainty that is as thick and chilling as any you might find in a George Romero movie, Snaith added. “Florida’s economy does not operate in a vacuum and it is impacted by the weakening economic environment unleashed by the undead in D.C.,” Snaith said. “The path of Florida’s economic and labor-market recovery have been revised downward in this quarter’s forecast not in response to anything that is happening in the state, but by the state of the national economy, which has floundered in the second half of 2013.”
Snaith says dangers still lurk for the economy, such as the uncertainty of how the Affordable Care Act will be implemented and how the debt-ceiling crisis will be resolved in the New Year. But despite a downward revision in his forecast, Snaith said the economic recovery is continuing in Florida with several bright spots.
EVALUATION OF TOPIC
Highlights from report include:
Housing finance remains constrained. As of September, 41.8 percent of single-family transactions are cash sales. A normalized housing market would have that percentage at around 10 percent.
Payroll job growth year-over-year should average 2 percent in 2013, 2.2 percent in 2014, 2 percent in 2015, and 1.9 percent in 2016. It will be the 4th quarter of 2016 before payrolls recover to their pre-recession levels.
The sectors expected to have the strongest average growth during 2013-2016 are construction (9.2 percent); professional and business services (3.4 percent); trade, transportation and utilities (2.6 percent); education and health services (2.1 percent); and leisure and hospitality (1.8 percent).
Real personal-income growth for 2012 slowed to 1.4 percent. From 2013-2016, real personal-income growth will average 3.1 percent, with 2013 growth of 1.7 percent that will accelerate to 3.8 percent in 2014.
Unemployment rates have fallen from their peaks, in part due to a low labor force participation rate (59.8 percent in August 2013), and they will continue to decline through 2016. The pace of decline will moderate as labor force growth picks up; despite this headwind the unemployment rate should hit 6.4 percent in the second half of 2016.
Snaith is the director of UCF’s Institute for Economic Competitiveness. He is a national expert in economics, forecasting, market sizing and economic analysis who authors quarterly reports about the state of the economy. Bloomberg News has named Snaith as one of the country’s most accurate forecasters for his predictions about the Federal Reserve’s benchmark interest rate, the Federal Funds rate.
Snaith also is a member of several national forecasting panels, including The Wall Street Journal Economic Forecasting Survey, CNNMoney.com’s survey of leading economists, the Associated Press Economy Survey, the National Association of Business Economics Quarterly Outlook Survey Panel, the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters, the Livingston Survey, Bloomberg U.S. Economic Indicator Survey, Reuters U.S. Economy Survey and USA Today Economic Survey Panel.
The Institute for Economic Competitiveness strives to provide complete, accurate and timely national, state and regional forecasts and economic analyses. Through these analyses, the institute provides valuable resources to the public and private sectors for informed decision-making.
Housing finance remains constrained. As of September, 41.8% of single-family transactions are cash sales. A normalized housing market would have that percentage at around 10%.
Payroll job growth year-over-year should average 2.0% in 2013, 2.2% in 2014,
2.0% in 2015, and 1.9% in 2016.
It will be the 4 quarter of 2016 before payrolls recover to their pre-recession levels.
Labor force growth in Florida will average 1.5% from 2014-2016. This will slow the pace of decline for the unemployment rate (U-3) in the state. Labor force growth will have averaged just 0.9% during 2010-2013 and is in part responsible for the rapid pace of the decline in the unemployment rate during that time period.
Unemployment rates have fallen from their peaks, in part due to a low labor force participation rate (59.8% in August 2013), and they will continue to decline through 2016. The pace of decline will moderate as labor force growth picks up. Despite this headwind, the unemployment rate should hit 6.4% in the second half of 2016. Underemployment (U-6) in Florida, a broader measure of labor market weakness than headline unemployment (U-3), came in at 15.1% for the year ending 2 quarter 2013.The sectors expected to have the strongest average growth during 2013-2016 are Construction (9.2%); Professional and Business Services (3.4%); Trade,
Transportation & Utilities (2.6%); Education & Health Services (2.1%); and Leisure & Hospitality (1.8%).
Housing starts jumped in 2013. Total starts will be over 117,000 in 2014, just over 151,000 in 2015, and then hit 167,400 in 2016. Average annual growth in housing starts will be 30.3% during 2013-2016.
Real Gross State Product (RGSP) will expand 2.4% in 2013, then accelerate to 2.6% in 2014, and 3.3% in 2015 before easing to 3.0% in 2016. Average growth will be 2.8% during 2013-2016.
Real personal income growth for 2012 slowed to 1.4%. From 2013-2016 real personal income growth will average 3.1%, with 2013 growth at 1.7% that will accelerate to 3.8% in 2014.
Low inventories and rising house prices have triggered a surge in home construction. Housing starts will average 30.3% growth during 2013-2016.
Retail sales will grow at an average pace of 4.1% during 2013-2016.
Investor Activity Slowing
Data recently released by Florida Realtors depicts a housing market that is getting hotter, if not overheating. Median sales price for single-family homes increased $23,500 in September year-over-year and now stands at $170,000. The townhome/condominium market is also showing significant gains as the median sales price increased $24,750 year-over-year and registered $130,000 in September.
Month’s supply of inventory in September rose from May levels and is at 5.3 months, which is down from 6.4 months a year ago. Distressed sales of single-family homes in the form of short sales are continuing to contract year-over-year (-31.8%), but foreclosure/REO sales are up sharply versus September 2012 (20.2%) and traditional sales were up 37.8% over the same time period. The percentage of closed sales of single-family homes that were cash transactions stood at 41.8% in September and for condos that figure was even higher as 67.4% of all closings were cash. Both of these percentage rates of cash transactions have fallen over the course of 2013, suggestive of a lessening role of investors in Florida’s housing market. Increased investor participation around the state has been driving these high percentages of cash transactions with hedge funds and private equity seeking both the high yields that the current rental market provides (rents have steadily risen over the past few years) and the likely capital gain when they sell these properties down the road at a price above the purchase price. But the role of investors is starting to wane as evidenced by a falling share of cash transactions. As we have discussed for much of this year, at some point the housing market baton has to be passed from institutional buyers paying cash for homes to traditional home buyers that rely on financing to make their purchase. Even the most polished relay team can stumble when it comes to this passing of the baton and if housing finance does not help fill the gap left by exiting investors, then the housing market in Florida will lose momentum. The Mortgage Bankers Association’s Credit Availability
Index declined in both August and September where it stands at 110.7. The index is benchmarked to 100 in March 2012 and to get a sense how far the housing finance pendulum has swung, if the index had been tracked in 2007 it would have stood at around 800!New regulations on qualified mortgages, part of the massive Dodd-Frank financial regulation law, are set to kick in early 2014. This may be a roadblock for expanded mortgage availability as some estimates suggest that 20% of existing mortgages would not have qualified under the new regulations.
Instead of designing policies and taking action to address the waning recovery in the U.S. economy, Washington DC is seemingly incapable of moving with a sense of purpose and instead looks like a zombie infested no-man’s land. Politicians lumbering from one self-inflicted crisis to another have played a large role in not only failing to bolster economic and job growth, but undermining the weak economy.
SUMMARY
In 2010 Governor Rick Scott was elected on a campaign platform consisting of seven steps that he pledged would lead to the creation of 700,000 jobs in seven years. There was some confusion about whether or not these 700,000 jobs would be in addition to the projected job growth expected to happen in Florida irrespective of the Governor’s seven-step plan. Early on the governor made an impromptu statement to the media that the 700,000 jobs would be in addition to the expected growth, but subsequently refined the goal to 700,000 payroll jobs, period.
The refined goal is something that can be easily gauged by looking at the overall change in payroll employment in Florida. The earlier goal is nearly impossible to assess. First, whose forecast should be used as the baseline, no seven-step projection? State economics forecasts put out by Tallahassee? Are those projections truly made without any consideration to economic policy making them “clean” and thus an appropriate measuring stick? Every economic forecaster, in making their forecasts, must also forecast the path that economic policy, at both the state and national level, will take over the forecast horizon. Second, even if the forecasts were untainted by any policy assumptions, were those 2010 forecasts 100% accurate? On both the policy and accuracy questions we can safely state the answer is no and thus the only measurable litmus test is the actual number of payroll jobs created. So how is the governor’s jobs promise holding up at this point in the seven-year time frame? In January 2010, Florida payroll employment was 7,143,900 and in August 2013 payroll employment was 7,543,700 for a gain in payroll employment of 399,800 jobs. The governor has reached 57.1% of the 700,000 job target 52.4% through. Robust economic growth is necessary to quickly bring down the unemployment rate, and labor force shrinkage notwithstanding, we have not as yet experienced the type of growth that can do more than reduce the unemployment rate gradually. The unemployment rate in Florida stood at 7.0% in August 2013, a 4.4 point decline from the peak level of unemployment in 2010.