Florida and the "New Normal Economy"

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Florida and the "New Normal Economy"

  1. 1. Dr. J. Antonio VillamilPrincipal Economic Advisor
  2. 2. External Drivers of Florida’s Economic Activity:Slow Recovery Through 2012 Recessionary Conditions in E.U. Global Debt Burden of Economic “Periphery” Conditions Growing Emerging Markets 2011-2012 Below Potential Economic National Growth “Easy” Economic Monetary Activity Housing Policy “Overhang” Slowly Mending
  3. 3. Overview: The 2011-2012 Economic Environment, “May you Live inInteresting Times” A prolonged period of below-potential economic growth in the Nation, EU economies and US states/regions Highly constrained fiscal situation: “Doing More with Less” “Tax Revolt” in many states such as Florida: Just analyze recent Florida and local election results Consumers and businesses “reliquifying” balance sheets, fiscal sector-spending reductions Emphasis on productivity, cost controls and debt “deleveraging”
  4. 4. The “New Normal” Economy - Four Key Areas to Monitor atNational Level: Implications for Economic Activity in Florida 1 US HOUSEHOLD NET WORTH 2 FLOW OF FUNDS 3 MONETARY BASE 4 INTEREST RATES
  5. 5. US Household Net Worth: Consumers Paying Down Debt, SpendingCautiously and in a “Bad Mood” $70 $65 $59 $60 $60 $60 $57 $58 $55 $56 $55 $56 $52 $50 $40 $ Trillion $30 $20 $10 $0 2007 2008 2009 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 Source: Federal Reserve, Flow of Funds, Q4-2011, March 8, 2012
  6. 6. Flow of Funds US Non-Financial Debt: Consumers and Businesses “Deleveraging,” Federal Debt Growing Rapidly, End of “Stimulus” for State & Local Governments State & Local Years Households Business Federal Governments Financing and Housing “Bubbles” 2005 11.1 9.0 5.5 7.0 2006 9.9 11.1 3.7 3.9 2007 6.7 13.6 5.4 4.9 The “Great Recession” and the Aftermath 2008 0.1 6.2 0.7 24.2 2009 -1.7 -2.4 3.9 22.7 2010 -2.1 0.7 2.2 20.2 2011 -0.9 4.2 -1.9 11.4Source: Federal Reserve, Flow of Funds, Q4-2011, March 8, 2012
  7. 7. “Helicopter Ben!”: Monetary Base at Record Levels Monetary Base (Excess Reserves of Banking System) $2,800 $2.7 Trillion $2,400 $2,000US$ Billions $1,600 $1,200 $800 $400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Federal Reserve Bank of St. Louis, Economic Research. Latest observations based from April 4, 2000 to April 2012 . Shaded areas indicate US recessions. 8
  8. 8. How Low Can Short-Term Rates Go : Likely to Remain Close toZero Through 2012 Federal Funds Rate 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Federal Reserve Bank of St. Louis, Economic Research. Latest observations based from January 2001 to April 2012 . Shaded areas indicate US recessions.
  9. 9. Economic drivers overall more positive: Florida’s economy starting to recoverslowly from a deep recession, but a return to strong economic growth unlikelynext 2 Years Economic Drivers Outlook 2011-2012  US Economy Modest growth in 2011 and into 2012 Top trade and investment partners of Florida  Global Economy expanding, fueling demand for Florida’s goods and services (trade finance, exports, tourism) Stability returning, but still fragile, credit availability is improving, but still tight for small  Financial Markets businesses and real estate (two key sectors of Florida)
  10. 10. The U.S. and Global Economies under the “New Normal” 11
  11. 11. US Economic Growth Driver of Florida: Below PotentialEconomic Growth Through 2012Indicator 2009 2010 2011 2012FEconomic Growth (∆% Real GDP) -3.5 3.0 2.0 3.0Inflation (∆% Core CPI/U) 1.7 1.0 1.7 1.6Personal Income Growth (∆%) -4.3 3.7 5.1 5.5Fed Funds Rate (Average) 0.16 0.18 0.1 0.25Unemployment Rate (%) 9.3 9.6 9.0 8.0Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve and UCF. Forecasts (F) by TheWashington Economics Group (WEG).
  12. 12. Global Economic Activity 2009-2012: Advantage to Florida ofEmerging Markets ExpansionRegion/Country 2009 2010 2011 2012FWorld Output (GDP), of which -0.6 5.3 4.0 3.5 Japan -5.5 4.4 -0.7 0.4 United Kingdom -4.9 2.1 0.7 0.8 Canada -2.8 3.2 2.5 2.1 FDI FlowsEuro Area, of which -4.3 1.9 1.4 -0.3 to Florida Germany -4.7 3.6 3.1 0.6 France -2.6 1.4 1.7 0.5 Spain -3.7 -0.1 0.7 -1.8 Italy -5.2 1.8 0.4 -1.9Developing Asia, of which 7.0 9.7 7.8 7.3 China 9.2 10.4 9.2 8.0 India 6.8 10.6 7.2 7.0Source: International Monetary Fund, World Economic Outlook, Update July, 2011 and TheWashington Economics Group (WEG) for Forecasts (F).
  13. 13. Global Economic Activity 2009-2012: Florida Trade ActivityExpanding StronglyRegion/Country 2009E 2010 2011E 2012FLatin America & the Caribbean, of which -2.0 6.1 4.6 5.0 Brazil -0.3 7.5 2.9 3.5 Mexico -6.3 5.6 4.0 3.5 Colombia 1.5 4.3 5.5 4.5 Dominican Republic 3.5 7.8 5.0 4.5 Chile -1.7 5.2 6.3 4.2 Peru 0.9 8.8 7.1 5.0 Argentina 0.9 9.2 9.0 4.0Source: Economic Commission for Latin America and the Caribbean (ECLAC), Economic Survey of LatinAmerica and the Caribbean 2010 -2011 and The Washington Economics Group (WEG) for Estimates (E) andForecasts (F).
  14. 14. Florida - Slow Recovery from Recession: Real Estate MarketCorrection and Slow Population GrowthIndicators 2009 2010 2011 2012FReal Gross Domestic Product (Δ%) -2.0 2.0 2.5E 3.7Personal Income (Δ%) -2.7 2.2 3.0 3.5Population (Δ%) 1.1 1.4 1.0 1.3Total Non-Ag Employment (Δ%) -6.1 -1.1 1.4 1.8Exports Growth (Δ%) -18.0 22.0 20.0 18.0Single-Family Home Median Price (Δ%) -24.0 -7.0 -1.0 5.0Sources: BEA, Florida Agency for Workforce Innovation, Enterprise Florida, Inc. Florida Association of Realtors,UCF and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).
  15. 15. South Florida Moderate Recovery from Recession: Real EstateMarkets Improving, Growing Global Business, VisitorsIndicators 2009 2010 2011 2012FReal Gross Domestic Product (Δ%) -3.1 2.0 2.5E 3.0Personal Income (Δ%) -3.3 2.0 3.5E 4.0Population (Δ%) 2.0 2.1 2.0E 2.0Total Non-Ag Employment (Δ%) -6.2 -0.8 1.5 2.0Exports Growth (Δ%) -9.1 18.0 19.0 15.0 Smaller ModestSingle-Family Home Median Price (Δ%) -24.0 -4.1 Decline UpturnSources: Bureau of Economic Analysis, Florida Agency for Workforce Innovation, Enterprise Florida, Inc. FloridaAssociation of Realtors, UCF and The Washington Economics Group (WEG) for Estimates (E) and Forecasts(F).
  16. 16. Conclusions: What Keeps this Economist “Awake in Miami?”Downside Risks to a Cautiously Positive Outlook for 2011-2012 The need for a “soft landing” in the spending habits of the federal government: Nov 2012 elections − ”Political Noise”? “Helicopter Ben,” “QE-3?” and “exit strategy” of the FED Public budgets and finance at state, local levels and in EU Energy dependence and possible pick-up in inflationary expectations In Florida, counties with a diversified economic base will perform better than counties that depend on population-driven economic activity Advantage South Florida Region
  17. 17. Other-than-above risks, 2011-2012 likely to showa slowly improving business environment relativeto last 3 years. Implement your business plan,take advantage of growing businessopportunities, but monitor carefully the downsiderisks and keep business plans flexible under this”New Normal” economy of 2011-2012!

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