U.S. & Florida Economic Update Sarasota, FL July 11th, 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  Depleted Housing Wealth  Still Weak Labor Market  A continuing ballast on consumer spending

U.S. Household Wealth (Trillions of $) Q1* 2013 Q1 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

A Slippery Subject  What is the Fate of the Euro?  Bailouts, haircuts, ECB bond purchases  Ongoing concerns (CPIIGS?)  Euro still facing greatest threat since inception  Two possible outcomes for the Euro zone in the long run.  Does the political will to implement the necessary changes exist in Europe?

The Euro and the Tacoma Narrows Bridge A Slippery Subject

U.S. Forecast

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

Florida Housing Market

May 2013May 2012 Percent change Closed Sales22,37518, % Median Sale Price $171,000$147, % Median Days on Market % Inventory ( Months Supply ) % Florida Housing Market

Closed Sales Percent change Year ago Median Sales Price Percent change Year ago Traditional15, %$205, % Foreclosure/REO3, %$100,0009.7% Short Sale3, %$125, % Florida Housing Market Distressed Market Share of Total Market Declining

Florida Housing Market  Housing market recovery continues to unfold  Prices have gained traction  Can the momentum be maintained?  The growing investor role  Housing finance still problematic

Florida Forecast

Florida Housing Market  Investors are back in Florida residential real estate  Evidenced by high share of cash transactions  Private equity & hedge funds  Is this a good thing or a bad thing?

Florida Housing Market  Housing Finance  Unsustainably high share of cash transactions  Mortgage availability has been restricted by  Dodd Frank  Capital Standards  Underwriting Standards  Limited Private Securitization  Demise of Mortgage Brokering  Shell shock  Is this a good thing or a bad thing?

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

Averages; Q Forecast Florida Sector % Average Annual Growth Construction7.3 Professional & Business Services 4.0 Trade, Transportation & Utilities 3.2 Education-Health Services2.2 Leisure & Hospitality2.0 Information1.1 Manufacturing0.9 Financial0.7 State & Local Government0.3 Federal Government

Existing Single-family May 2013May 2012 Percent change Closed Sales % Median Sale Price $189,950$163, % Median Days on Market % Inventory ( Months Supply ) % Sarasota Housing Market

Sarasota Forecast

Averages; Sarasota Forecast Sarasota Sector % Average Annual Growth Construction9.2 Professional & Business Services 4.7 Education-Health Services2.0 Trade, Transportation & Utilities 1.3 Information1.3 Leisure & Hospitality1.0 Manufacturing1.0 Financial0.6 State & Local Government0.6 Federal Government-1.4

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