Four analysts deliver the 2013 Economic Forecast to the Central Pinellas Chamber of Commerce Jan. 22: top left, Frank Torres, political analyst; top right, Sean Snaith, director of University of Central Florida’s Institute for Economic Competitiveness; bottom left, Richard Moody, chief economist for Regions Financial Corporation and bottom right, J. Jason Cutliffe, director of asset management for Progress Energy Florida.
CLEARWATER – The analysts who spoke at the Central Pinellas Chamber of Commerce’s Economic Forecast Jan. 22 predicted slow, if steady, growth in the 2013 year.
“It’s going to continue to be a slow slog toward economic improvement,” said political analyst Frank Torres.
The chamber, formerly known as the Largo/Mid-Pinellas Chamber of Commerce, invited four industry leaders to offer some perspective to the local business community during a breakfast at the Sheraton Sand Key Resort. The annual event is in its seventh year.
The effect of politics
Torres began the morning forecasts with an analysis of how the political environment might affect businesses in the coming year.
The Republicans leaders at the helm of state politics are working to make Florida a more business-friendly environment to lure growing companies to the region, Torres explained. The goal was to reduce taxes, red tape and startup fees to “expedite the profit process for them as fast as possible,” he said.
The state faced four challenges in reaching that goal. The first was competition with other states – including the state’s biggest rival for a business-friendly environment, Texas. The state also must retain local talent by encouraging recent Florida graduates to find jobs closer to home. Another challenge lay in keeping the tourism industry thriving.
Of course, the state also had the challenge of adapting to changing national policies, Torres said. Politicians in Washington, D.C., remain in conflict over an increase to the debt ceiling and how to avoid automatic spending cuts and tax increases. In addition, the implementation of health care reform remains largely up in the air.
“The long term effects of those policies are debatable, but when we’re frightened at the current policies for changes, we freeze,”Torres said. “We stop hiring to wait and see what happens to the survival of our business.”
Torres used a clip from the movie Groundhog Day to answer what he predicted from lawmakers in the coming year.
“I thought we were going to see similar policies that lean toward smaller batches of jobs created,” he said.
He reminded local business leaders that politically, 2013 would be about getting ready for the 2014 election cycle.
A financial perspective
Richard Moody, senior vice president and chief economist for Regions Financial Corporation, said a positive upswing in the fourth quarter of last year meant that 2013 was starting with “a lot of momentum.” Unfortunately, a faster job growth rate in the Tampa Bay region as compared to the national growth rate had not mitigated the fact that the area was hit harder during the recession.
“The good news is, we’re on the way back. We’re building some momentum, but there’s still a way to go yet before we get back to work prior to the Great Recession,” Moody said.
Recently, the nation has seen a 2 percent increase in real gross domestic product, a growth in the country’s economic output that is slower than most people would like, but an increase nonetheless, Moody explained.
“I’ve been telling people for the last couple of years, we’re living in a 2 percent world,” he said. “I think in 2013, we’ll move into a 3 percent world.”
While that might not be as fast as 4 percent growth, it would be an improvement, he added.
A faster recovery was being held back by a number of factors, Moody said, including a slow housing market recovery. Progress has been made in cleaning out a backlog of distressed homes. However, despite the expansion of new multifamily housing, construction of new single-family homes hasn’t picked up yet. Construction on a single-family home creates six to seven new construction jobs, while multifamily housing only 2.5 new jobs, Moody said.
Another factor in the recovering of the construction industry is the depressed rate in “household formation,” Moody said. Young adults, who are struggling financially and thus remaining under their parents’ roof, are not helping to create a need for more single-family homes. That will only start to turn around with continued job growth.
“We have a lot of consolidation in the government sector, particularly now in the federal government sector. To me, that’s going to weigh on the economy for the next several years,” he said. “(In the) private sector, we’re still not out of the woods. We’re making progress. We’re not all the way there yet.”
In Tampa, three types of new jobs make up for 80 percent of the recent growth: business services, education and health services and leisure and hospitality, he said.
The role of energy
Representing Progress Energy Florida, J. Jason Cutliffe, director of asset management, spoke on issues affecting the energy industry. And of course, a change directly affecting the local energy consumer is the recent merger between Progress Energy and Duke Energy.
“It creates the largest electric utility in the United States,” Cutliffe said. “The combination of these two companies is a compelling one.”
2013 will bring a rate decrease amounting to about 6 percent for residential customers and between 5 and 10 percent for commercial customers, he said.
Cutliffe also emphasized the need for Progress Energy to pursue power generated from a diversity of fuels. Since 1980, the company has greatly reduced its dependence on oil, which is now only a small fraction of its power generation. Instead, the company relies heavily on natural gas, a trend that would likely continue in the future, Cutliffe said. Despite the price volatility of natural gas, Florida in general has been relying more and more on the natural gas, in large part because of its low up-front cost in production.
Environmentally-friendly alternatives like solar are not yet reliable energy sources, even in the Sunshine State. Still, the company would continue to pursue renewable energy as part of its “balanced portfolio,” Cutliffe said.
“Diversity is the key to creating sustainability,” he said.
The pall of uncertainty
Sean Snaith, director of University of Central Florida’s Institute for Economic Competitiveness, said he had been studying the link between uncertainty within the business community and the country’s economic output.
“The recovery has not been what many economists were anticipating when the Great Recession came to an end. At the time, a lot of folks were expecting a very short rebound,” Snaith said.
In the 3.5 years since the recession, Snaith found himself talking about how uncertainty made the recovery a lot weaker than other factors would indicate. He decided to look into the correlation. He found a study that charted uncertainty by three factors: newspaper coverage of policy-related economic uncertainty, the number of federal tax code provisions set to expire and disagreement among economic forecasters.
An increase in those factors caused lower private investment, lower industrial production and much lower employment, he said.
Snaith pointed to health care reform, financial regulatory reform and a delay in a conclusion about the fiscal cliff as national issues that created uncertainty. The status of the euro also was a big factor. Snaith said Greece still had a 70 percent chance of leaving the eurozone.
Snaith said he did see some “good signs” in the national and state housing market.
“I’ve talked to builders lately, I’ve talked to title insurance attorneys lately – they’re as happy as I’ve seen these folks in years. So something good must be happening there,” he said.