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Economic outlook for 2013 not yet ‘rosy,’ UNF report says

by Mark Basch, Contributing Writer

An improvement in the housing markets, both locally and nationally, is helping the economy.

However, spending cuts from the federal government as it wrestles with the high national debt continue to hold back growth, according to the University of North Florida's Local Economic Indicators Project's quarterly newsletter, LEIPLINE.

"The outlook for 2013 cannot be viewed at this point as being rosy, with pending federal government spending declines adding to the weakness at the state and local levels and continuing reluctance by corporations to do much more than hold cash," the newsletter said.

"You can't deny that the unemployment rate has come down at the national and local levels," said UNF economist Paul Mason, who runs LEIP.

However, "there's still this perception out there that the economy is weak," he said.

Economic indicators from the end of 2012 still show the economy has a long way to go.

Real gross domestic product grew by just 0.1 percent in the fourth quarter.

"In a moderate to strong economy, real GDP growth should be between 2.5 percent and 3 percent quarterly on an annualized basis. Clearly, the fourth quarter of 2012 was very weak," LEIPLINE said.

The national unemployment rate was 7.9 percent in January. "We should not forget that full employment, prior to the great recession, was around 4 percent and we are virtually at double that amount," LEIPLINE said.

Mason reminded that the official unemployment rate doesn't count discouraged workers who have stopped looking for work and are not counted among the jobless.

"We have a lot of slack in the labor market," he said.

Jacksonville's unemployment rate was at or below the national level in late 2012.

"The outlook for the first quarter of 2013 for unemployment is consistent with what we expected for the previous two quarters. The no new tax stance of the legislature and the governor implies that municipalities and state employers will continue to bleed jobs without much outlook for private sector hiring," LEIPLINE said.

"Continued expansion at the Port and the development at Cecil Field (finally) will help quell the tide of worsening employment, but the picture is not rosy despite the improving housing market. This is particularly true for college graduates and teenagers," it said.

There are positive signs in the economy.

"The brightest light in the current economic circumstances is the corner that appears to have been turned in residential real estate," LEIPLINE said.

"Naturally, prices are well below 2005 or 2006 peaks in most places in the country, but they are on the rise, providing consumers some recovery of some of their forfeited wealth. However, obtaining real estate loans continues to be difficult without substantial down payments and considerable bureaucratic procedures," it said.

LEIPLINE said the Jacksonville area's consumer price index has been impacted by a local rebound in housing prices. The national CPI was flat in December and January but Jacksonville's CPI was modestly higher.

"The data seem to suggest that housing prices for both single family homes and condos have risen more locally than the average nationally. Gasoline prices have also risen more locally than the national numbers imply," the newsletter said.

"The (inflation) outlook for the first quarter of 2013 will very much depend on whether consumers will continue to be optimistic about recovery even though businesses do not appear to concur," it said.

"Our expectations are that inflation will be closer to 3 percent than 2 percent in the early part of 2013 and potentially escalate from there as housing continues to recover and gasoline prices grow despite increased oil production domestically," it said.

Stocks of Jacksonville area companies were a bright spot in the fourth quarter, outperforming the Dow Jones industrial average for the third straight quarter, LEIPLINE said.

"Our local stocks underperformed the entire market for the three years preceding the second quarter, so it was a welcome change that revealed itself from April through January," it said.

While we are not optimistic of a strong recovery in the next few months in any facet of the data we collect, the improvement in local stocks likely suggests that at least Jacksonville is outperforming the rest of the country," it said.

LEIP's index of leading indicators for the Jacksonville area fell by 1.2 points in the fourth quarter and it doesn't anticipate a "major improvement" in the first quarter this year, particularly with the impact of federal budget cuts.

"Federal government spending has to fall, so we will pay for the excesses of the last two presidential administrations either soon, or eventually later," LEIPLINE said.

Overall, despite some positive signs, LEIP has a very cautionary outlook.

"The local economy outperforming the national averages in housing, unemployment and stock prices is a good sign, but the uncertainties that persist in health care, taxes, and business investment curtail the optimism," the newsletter said.

"If steady housing price growth combined with improved climate for new construction continues, the economy may surprise us and grow at more desirable levels. However, higher rates of unemployment will persist and growth will lag well below full employment norms until the federal government can make itself smaller and less burdensome on private sector performance," it said.

"This is a viable prescription for both national and local expansion, but the next boom period in macroeconomic growth is still a long way off."

mbasch@baileypub.com

(904) 356-2466

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