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Florida's New Normal Economy

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  • 1. Growing Florida and Houston Economic Perspectives: South your South Florida Business in the “New Normal” for Banking Opportunities Implications Economy Dr. J. Antonio VillamilDean, School of Business and Research Professor of Economics St. Thomas University The Cuban American CPAs Association, Inc Fall Seminar November 9, 2011
  • 2. The 2011-2012 Business Environment: Managing your Firm in the“New Normal” Economy A prolonged period of below potential economic growth in US and industrial countries Growing business opportunities in selected emerging markets of Asia and Latin America – positive for South Florida businesses Low ―pricing power‖ for most products and services (e.g., low and stable inflation), which suggests a prolonged period of relatively low- real interest rates Consumers and businesses ―reliquifying‖ balance sheets Emphasis on productivity, smart expense management and credit quality of receivables to improve profitability of your business
  • 3. South Florida Financial and Economic Drivers Becoming MorePositive Since 2009, but Downside Risks Remain in 2011-2012 South Florida’s Economy Starting to Recover Slowly from a Deep Recession Economic Drivers Outlook 2011-2012 Moderate growth in 2011 and into 2012 (below  US Economy potential) Top trade and investment partners of South Florida expanding, fueling demand for South  Global Economy Florida’s goods and services (trade finance, exports, tourism, investments in real estate) Credit availability is improving, but still tight for small businesses and real estate (two key  Financial Markets sectors of South Florida) – “Take your banker to lunch”
  • 4. US Economic Growth Driver of South Florida: Below PotentialEconomic Growth Through 2012Indicator 2009 2010 2011E 2012FEconomic Growth ( % Real GDP) -3.5 3.0 2.0 2.5Inflation ( % Core CPI/U) 1.7 1.0 1.5 2.0Personal Income Growth ( %) -4.3 3.7 3.0 3.5Fed Funds Rate (Average) 0.16 0.18 0.25 0.25Unemployment Rate (%) 9.3 9.6 9.0 8.0Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve and UCF. Estimates (E) andForecasts (F) by The Washington Economics Group (WEG).
  • 5. Global Economic Driver of South Florida: Stronger EconomicGrowth in Selected Emerging Markets, but Sluggish in ManyIndustrial Countries ∆ % from Previous Period Region/Country 2009 2010E 2011E 2012F World Output (GDP), of which -0.7 5.1 3.5 3.8 Japan -6.3 4.0 1.0 2.3 United Kingdom -4.9 1.4 1.1 1.6 Canada -2.8 3.2 2.1 2.0 FDI Flows to Florida Euro Area, of which -4.3 1.8 Flat 1.5 Germany -5.1 3.6 2.0 1.5 France -2.6 1.4 Flat 1.0 Spain -3.7 -0.1 -1.0 Flat Italy -5.2 1.3 -1.0 Flat Developing Asia, of which 7.2 9.5 8.2 8.0 China 9.2 10.3 9.5 9.0 India 6.8 10.1 7.8 7.0 Source: International Monetary Fund, World Economic Outlook, Update September 2011 and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).
  • 6. Global Economic Activity: Latin America Region Expanding atModerate Pace – Positive for South Florida Exports, Tourism,InvestmentRegion/Country 2009E 2010 2011E 2012FLatin America & the Caribbean, of which -2.1 5.9 4.7 4.1 Brazil -0.6 7.5 4.0 4.0 Mexico -6.1 5.4 4.0 3.5 Colombia 1.5 4.3 5.3 5.0 Dominican Republic 3.5 7.8 5.0 4.5 Chile -1.7 5.2 6.3 4.5 Peru 0.9 8.8 7.1 4.0 Argentina 0.9 9.2 8.3 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).
  • 7. External Drivers Impacts on South Florida: Moderate Recoverywith Real Estate Markets Improving, Growing Global Business,VisitorsIndicators 2009 2010 2011E 2012FReal Gross Domestic Product (Δ%) -3.1 2.0 2.5 3.0Personal Income (Δ%) -3.3 2.0 3.5 4.0Population (Δ%) 2.0 2.1 1.5 1.0Total Non-Ag Employment (Δ%) -6.2 -1.0 1.5 2.0Exports Growth (Δ%) -9.1 18.0 19.0 15.0 UpSingle-Family Home Median Price (Δ%) -24.0 -4.1 Stable SlightlySources: 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).
  • 8. Where are the Business Opportunities in South Florida under the“New Normal”? (2011-2012) Mergers and acquisitions (M&A activity) Exports to selected emerging markets Trade-related finance ―Knowledge‖ services (accounting, legal, health) Foreign companies investing in South Florida Selective income producing properties (rentals, warehouses) Wealth management (―boomers‖ and ―high net worth‖ foreign individuals Mortgage refinancing products
  • 9. Sectors/Industries with Growing Employment Levels in SouthFlorida Professional and business services (accounting, legal, IT, management, engineering and others) Health-related manufacturing and services Private education providers International trade-related companies Tourism and hospitality-related industries and companies Wholesale Trade
  • 10. Concluding Perspectives A much-changed economic environment for business through 2012  A ―New Normal‖: Slower economic growth than in prior cycles with ample financial liquidity  Consumers, corporations and businesses repairing balance sheets  Risk shifting from private to public sector (public finance a key issue)  Low and stable real short-term interest rates through 2012 continued
  • 11. Concluding Perspectives (continuation) 2010 was a transition year to a moderate acceleration in the economic recovery of South Florida in 2011-2012 There is significant statistical dispersion around average levels of industry performance in Florida Large and diversified Florida counties and regions will outperform real estate and population-driven ones Where in Florida? Stronger Economic Outlook Weaker Economic Outlook• Miami-Dade, Broward, Palm Beach • Southwest Florida (Collier to Sarasota Counties)• I-4 Technology Corridor (Orlando Region to Tampa Bay) • Brevard County (Space Coast)• Jacksonville (Duval County) • Leon County (State Gov.)• Alachua County (Gainesville) • Rural, agricultural-dependent counties
  • 12. To Finalize: Four Macroeconomic Indicators to Track in the “NewNormal” Economy 1 US HOUSEHOLD NET WORTH 2 FLOW OF FUNDS 3 MONETARY BASE 4 INTEREST RATES
  • 13. US Household Net Worth: Consumers Paying Down Debt,Spending Cautiously and in a “Bad Mood” Household Net Worth $70 $64 $58 $59 $60 $57 $54 $55 $55 $54 $52 $50 $40 $ Trillion $30 $20 $10 $0 2007 2008 2009 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 Source: Federal Reserve Bank of St. Louis, Economic Research - Flow of Funds, 2Q-2011, September 16, 2011
  • 14. Flow of Funds US Non-Financial Debt: Consumers and Businesses “Deleveraging,” Federal Debt Growing Rapidly, End of “Stimulus” for State & Local Governments (∆%; Quarterly Data are Seasonally Adjusted at Annual Rates) State & Local Years Households Business Federal Governments Financing and Housing “Bubbles” 2005 11.1% 8.6% 10.2% 7.0% 2006 10.0% 10.6% 8.3% 3.9% 2007 6.7% 13.1% 9.5% 4.9% The “Great Recession” and the Aftermath 2008 0.2% 5.8% 2.3% 24.2% 2009 -1.7% -2.7 % 4.8% 22.7% 2010 -2.0% 0.4% 4.5% 20.2% 2010-Q1 -3.1% 0.5 % 4.5% 20.6 % 2010-Q2 -2.2% -1.3% -1.4% 24.4% 2010-Q3 -2.0% 1.1% 5.4% 16.0% 2010-Q4 -0.6% 1.9% 7.9% 14.6% 2011-Q1 -2.0% 2.8% -4.2% 7.9% 2011-Q2 -0.6% 4.0% -3.2% 8.6%Source: Federal Reserve, Flow of Funds, Q2-2011, September 16, 2011.
  • 15. “Helicopter Ben!”: Monetary Base at Record Levels Monetary Base (Excess Reserves of Banking System) $2,800 $2.7 Trillion $2,400 $2,000 US$ Billions $1,600 $1,200 $800 $400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Federal Reserve Bank of St. Louis Economic Research. January 2000-October 2011. Shaded areas indicate U.S. Recessions.16
  • 16. How Low Can Short-Term Rates Go : Likely to Remain Close toZero Through 2012 Federal Funds Rate 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Federal Reserve Bank of St. Louis, Economic Research. Latest observations based from January 2000—October 2011. Shaded areas indicate US recessions.