by Karen Brune Mathis
Managing Editor
Jacksonville’s economy might have turned the corner.
An uptick in inflation and a decline in unemployment suggest that the local economy is gaining strength, according to the LEIPLINE newsletter of the University of North Florida Local Economic Indicator Project.
“The acceleration of inflation combined with improved employment may finally signal local businesses to become more bullish on their future sales,” said the newsletter.
The strength of the local indicators during the first quarter of 2011 indicates further improvement throughout the year, it said, although there’s a catch.
“Optimism needs to be tempered by the European debt crisis, high oil and gasoline prices, continued unemployment well above full employment, and political unrest throughout the developing world,” cautions the newsletter, prepared under the direction of UNF economics professor Paul Mason.
Mason is professor and chair of the UNF Coggin College of Business Department of Economics and Geography.
LEIPLINE focuses each quarter on four variables in the Jacksonville area: inflation, unemployment, the leading indicator and stock prices. The project covers Baker, Clay, Duval, Nassau and St. Johns counties.
LEIPLINE summarized:
• Inflation. Local consumer prices rose a little more than 1 percent at the end of the first quarter, January-March, from the comparable period in 2010. That translates into a 4.45 percent annual rate of inflation, which is higher than during any full year since LEIP began in 2002. April’s increase reinforced the rate. The national annual rate based on the first quarter was 4.8 percent.
“Inflation has returned,” wrote LEIPLINE. “Naturally, much of the reason for the local inflation is food and energy prices, particularly gasoline. However, the inflationary influences have transferred over to apparel, automobiles, airfares, some food products and other consumer commodities and services.”
Inflation would be running higher if residential real estate markets were strong. “Housing prices are not growing much, if at all, and sales are inconsistent month to month,” said the newsletter.
The outlook for the second quarter, April-June, suggests that prices will continue to rise, although there is potential for inflationary pressures to moderate as the Federal Reserve considers raising interest rates. “There is still considerable concern over the slow growth and the impact that higher interest rates would have on investment and housing,” said the newsletter.
“If we had to make a guess, an annualized rate of inflation of about 3 percent seems likely” for the second quarter, it said.
• Unemployment. The Jacksonville area posted a December unemployment rate of 11.42 percent. Last year, there was just one month, June, with an adjusted rate below 11 percent. Since the beginning of 2011, the unemployment rate has consistently declined, which the newsletter said is positive news for the area economy.
In April, the metropolitan area posted a seasonally adjusted rate of 9.85 percent, breaking the double-digit barrier. The news is even more positive “if you investigate the employment numbers because the work force remained very steady from March to April with the number of workers unemployed falling by about 3,000 and the number of employed rising by virtually the same amount,” said the newsletter.
LEIP does not calculate the unemployment rate. It adjusts the numbers reported by the state.
The outlook for the second quarter “is hopefully more of the same,” it said. However, there’s caution concerning federal, state, and local government workers because of declining revenues.
The newsletter said local, state, and federal government workers make up a substantial portion of the local work force, about 13 percent, “and reduced government budgets combined with changes in retirement structures will reduce spending by these workers and thus motivations by private sector firms to produce more output and hire more workers.”
• Leading indicator. The LEIP leading indicator measures consumer confidence, building permits and other factors. The LEIP leading indicator was up 1.5 points since the end of 2010, and up 1 point from December until the end of April. “This, too, is a reason for cautious optimism,” said the newsletter.
The leading economic indicator locally has risen during six of the past eight months and it rose almost 2 full points in the first quarter of 2011. Further, for the first time in a while, the local indicator was stronger than the national leading economic indicator measurement.
The performance suggests continued economic strength, at least through the summer. The newsletter said that while building permits continue to lag and initial claims for unemployment insurance are falling very slowly, help-wanted ads were “way up” in the first quarter. However, consumer confidence has taken a dip lately.
The newsletter said a continued rise in the indicator during the second quarter suggests a stronger fall and Christmas season.
“However, if we have learned anything about the LEI over the last 10 years it is that it is fickle and dependent on swings that can be substantial from one month to the next,” it said.
While the newsletter usually collects information about a fourth variable, the local stock index, it said it experienced data collection issues in the first quarter that it hopes to fix during the current quarter.
As for the national economy, the newsletter summarized that the U.S. economy and many economies in Western Europe remain relatively weak and the U.S. recovery continues to be very slow.
“The drags associated with the residential and commercial real estate markets are generating negative wealth effects that are counteracting the income growth that is small, but accelerating,” it said.
It said that if the Middle East turmoil ends shortly, and the Greek and other financial problems dissipate, “the U.S. and Western world countries are poised for acceleration in positive growth, but the continued uncertainty in the business and political climates are frustrating investment and substantial growth motivations.”
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