U.S. & Florida Economic Update Orlando, FL March 14 th, 2013

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 investment 2.Lower industrial production 3.Much lower employment

Economic Policy Uncertainty Index

U.S. Forecast  Sky Mall™ Policy:  An Expensive Policy that Fails to Achieve its Desired Outcome

U.S. Forecast  Sky Mall™ Policies:  American Reinvestment and Recovery Act of 2009  Aka Stimulus Act

Why Didn’t the Stimulus Act Work?

 The Nun  The Nobel Prize Winner  Non-starter Stimulus Why Didn’t the Stimulus Act Work?

U.S. Forecast  Depleted Housing Wealth  Still Weak Labor Market  A continuing ballast on consumer spending

U.S. Household Wealth (Trillions of $) Q1* 2012 Q3 Total Assets Financial Assets Home Equity Net Worth

U.S. Forecast

U.S. Economic Outlook 2012 Q Q Q Q GDP % Change, Annual Rate Consumer Price Index % Change, Annual Rate Consumer Sentiment Consumption % Change, Annual Rate

 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

Will Monetary Policy Lead to Inflation? Equation of Exchange: M*V = P*Y M = total amount of money in circulation V = the velocity of money, that is the average frequency with which a unit of money is spent. P is the price level Y is real GDP (P*Y = Nominal GDP)

Will Monetary Policy Lead to Inflation? Equation of Exchange: M*V = P*Y If Velocity (money demand) is constant and Y is at full potential Change in M = Change in P “Inflation is always and everywhere a monetary phenomenon”

 Money Supply Process  Federal Reserve Balance Sheet  Key Liabilities:  Money in Circulation  Bank Reserves The sum of the two = monetary base (aka high powered money) U.S. Forecast

 Money Supply Process  Money Supply = mm*MB Where: MB = Monetary Base mm = Money Multiplier U.S. Forecast

A Slippery Subject  Greece and the Euro  Greek bailouts, haircut & the election stays of execution and not pardons  Contagion concerns (PIIGS)  Euro still facing greatest threat since inception  Two possible outcomes for the Euro zone in the long run.

The Euro and the Tacoma Narrows Bridge A Slippery Subject

U.S. Forecast

National Housing Market  Foreclosure Moratorium Delayed Recovery  Housing market bounced of a bottom prices  Housing Market is a key battle in recovery  Policy has NOT been battlefield triage.

U.S. Forecast

Florida’s Housing Market  Housing market showing signs of life  Has housing market found a solid bottom for prices?  A Tale of Two Markets  Distressed vs. Traditional  Investor role in distressed market

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

Region Population Growth Average % ChgRank Florida Deltona 1.47 Gainesville Jacksonville 1.56 Lakeland 1.38 Miami 1.55 Naples 2.41 Ocala 1.93 Orlando 2.12 Palm Bay 1.39 Pensacola Tallahassee Tampa Averages; Q Forecast

Region Employment Growth Average % ChgRank Florida Deltona 2.36 Gainesville Jacksonville 2.44 Lakeland 2.28 Miami 2.27 Naples 3.11 Ocala 2.92 Orlando 2.73 Palm Bay 2.29 Pensacola Tallahassee Tampa Averages; Q Forecast

Florida Sector % Average Annual Growth Construction6.1 Professional & Business Services 5.6 Trade, Transportation & Utilities 3.0 Education-Health Services2.4 Information1.7 Manufacturing1.2 Financial0.8 Leisure & Hospitality0.8 State & Local Government0.5 Federal Government-1.9

Sean M. Snaith Sean M. Snaith, Ph.D.Director Institute for Economic Competitiveness (407) Thank you