by Max Marbut
Staff Writer
“I believe the worst is already behind us and the lull in the economy will end soon.”
That was how Wachovia Director and Senior Economist Mark Vitner described the future of America’s, Florida’s and Jacksonville’s financial situations at Monday’s Downtown Rotary Club meeting.
He pointed out while some models this week will predict a “more than 50 percent probability of a recession,” Vitner said the key economic indicators remain strong.
“Non-farm employment is not growing quickly, but it’s not declining,” he said. “Personal income adjusted for inflation is growing very solidly as are government tax receipts. First-time claims for unemployment insurance are less than 400,000 nationwide.
“The last time the economic models told us there was a greater than 50 percent chance of a recession was back in 1998, and then it only lasted for two weeks,” he added. “I expect that will be the case this time as well.”
Vitner also pointed out that while holiday retail sales have been described as poor, “they were actually up — not as much as the businesses were hoping, but holiday sales were up for 2007.”
It’s not all good news, though.
“We’re going to have some relatively tough times. I see economic growth at only about one percent for 2008,” said Vitner, who attributed the slow growth primarily to what he called the “unwinding” of the housing boom.
He also predicted improvement in the housing market when almost all of the sub-prime loans written in the past few years are fully refinanced and said residential construction will begin to rebound this year.
“In the last quarter of 2007, residential construction was down 26 percent. I expect first quarter 2008 will improve to 18 percent and by second quarter the decline should be about 12 percent,” said Vitner.
“The American way is to focus on what’s wrong, so the focus right now is on housing.”
The trend of the federal reserve to lower interest rates that began several years ago is another thing Vitner said he believes will change in 2008.
“I believe by the end of the year the economy will be strong enough that the federal reserve will actually raise interest rates,” he predicted.
Vitner also said the 70 percent drop in single-family residential construction in Florida since 2005 was the result of a “perfect storm.”
“After the Federal Reserve reduced interest rates after 9/11, the demand for housing came back faster than anticipated, which led to a shortage in the market,” he said. “In Florida, especially in south Florida, there was more (real estate) speculation than in any other state. Florida is not just over-priced, it’s over-bought.
“In a sense, people were day-trading houses like they do stocks,” he said.
Those factors, plus the state’s high cost of insurance and property taxes, have combined to produce Florida’s slowest rate of population growth in almost 40 years.
“Last year, the population growth was slower than it was in 1970,” said Vitner. “Atlanta added more new residents in 2007 than Florida did.”
He also said he believes home prices statewide will decline by as much as 30 percent in the next couple of years, but it won’t be felt as much in Jacksonville as in other areas.
“Prices aren’t going to fall that much in North Florida and Jacksonville is still the most affordable major metropolitan area on the East Coast. Many people who have been priced out of other parts of Florida are moving to Jacksonville,” said Vitner.
On a global scale, he predicted 2008 will see the dollar “begin to turn around against the Euro” but doesn’t believe that effect will peak until just before the Presidential election.
Vitner was also optimistic about the impact rising oil prices will have on the national economy and again pointed to history as his evidence.
“In 1983, Americans spent 9 cents of every dollar on energy, but in 2007 we spent 6.5 cents of every dollar (on energy). Adjusted for inflation, oil prices were higher in 1983 than they are today.
“I won’t be worried unless crude oil goes to $140 a barrel in a short time,” he said.