The recent volatility in the stock market may be making people jittery about the state of the economy but signals are pointing up in Northeast Florida, according to the University of North Florida’s Local Economic Indicators Project, or LEIP.
“We are generally optimistic as we move into the 2015-16 school year and start the holiday season,” the organization said in its quarterly newsletter, LEIPLINE.
In fact, UNF economist Paul Mason, who runs LEIP, said the outlook for Northeast Florida is better than the rest of the nation.
“I just see things are still improving and better than a lot of the country,” Mason said.
One indicator of the improving local economy is an increase in inflation this year.
“Inflation is up which, while painful for purchasing power, generally signals increased consumer demand and willingness by sellers to pass on costs through price increases,” LEIPLINE said.
Based on LEIP’s consumer price index for the Jacksonville metropolitan area through the first seven months of this year, the annual inflation rate has been high at 3.75 percent.
LEIPLINE said the index increased significantly in June, because of a rise in housing prices and sales. However, the inflation rate declined slightly in July as housing growth slowed, and there also were lower prices for used cars and trucks and some food categories.
“Overall, the outlook is for more inflation than Jacksonville has experienced since before the Great Recession, an indicator of improving economic conditions,” LEIPLINE said.
The unemployment rate in the Jacksonville area “is still somewhat higher than most desirable, but moving in the right direction, albeit slowly,” the newsletter said.
“The summer so far has revealed an escalation in the size of the local labor force compared to prior summers with greater employment percentages as well,” LEIPLINE said. “We are not back to full employment but we are moving in the correct direction with improved employment not just in lower skilled jobs but better paying jobs as well.”
LEIP’s index of Jacksonville area stocks has lagged behind the national indexes this year.
“Because our local companies are generally smaller than those in the Dow, it perhaps is not surprising that in a climate whereby bigger is viewed to be better, local stocks are being outperformed,” LEIPLINE said.
The newsletter said while the outlook in China has impacted the stock market, the recent volatility may be tied more to uncertainty about the Federal Reserve Board’s intentions on interest rates.
However, LEIPLINE said investors should not fear an interest rate increase.
“Contrary to what appears to be conventional wisdom based on historical precedent, we believe that higher interest rates will generate market improvement as banks increase lending and firms find their confidence again resulting from increased consumer demand,” it said.
“Eventually policy-makers will discover that the 2010s are not the 1970s or the 1930s and let markets find their own levels without disruptive discretionary policy interruptions,” the newsletter said.
LEIP’s index of leading economic indicators for the Jacksonville area has been up in eight of the last 10 months, another sign that conditions keep improving.
While signs are looking up in Northeast Florida, “the U.S. and world economies are still not growing anywhere close to the desirable levels associated with business cycle expansion. Consumer expectations are better than business ones and this is a fundamental driver of pervasive weakness,” LEIPLINE said.
“As long as consumers are uncertain about employment and continuation of non-pecuniary benefits, as long as corporate dominance makes markets anti-competitive, and as long as governments spend billions in currency and tax dollars on ineffectual policy initiatives, the climate that will generate true expansionary pressures will be a long way off,” it said.
“There is no denying that macroeconomic conditions in many countries in the world are better than six years ago, but robust expansion is still eluding us.”