An improving economic year is likely for Florida in 2013, unless the D.C. political machine crashes the economic party with a sudden and huge increase in taxes and across-the-board spending cuts starting in January. The uncertainty surrounding next year’s fiscal policy has already slowed growth of holiday retail sales and has created uncertainty in private sector business plans.
Assuming a benign outcome on taxes and fiscal spending, the economic fundamentals of the state suggest an accelerating economic recovery from the so-called “Great Recession” of 2008-2009. Various factors suggest it will be a better year for Florida residents and businesses, especially economically diversified regions like South Florida. Among them:
• The all important real estate markets will continue to improve at a steady pace. Single-family home prices are attracting buyers, especially with historically low-mortgage interest rates. The multi-family residential markets, in key areas of Miami-Dade County such as Brickell, Key Biscayne, Sunny Isles and Coral Gables, were strong in 2012, with large projects planned for those areas as inventory dries up in 2013.
• The macroeconomic environment continues to improve, especially for globally oriented regions such as South Florida. Unless elected leaders allow the nation to dive into a deep “cliff” that lasts for several months in early 2013, the U.S. economy is expected to grow a moderate 2-3 percent. This is positive for Florida’s tourism and real estate sectors, and for our ability to produce and export other goods and services to the rest of the nation.
At the global level, the Latin America region, Canada and Asia are likely to expand at a solid clip, allowing South Florida to export products and services such as information technologies, tourism, real estate and healthcare services. Even Eurozone residents will continue to invest in Florida as they flee economic turmoil in the southern part of Europe.
• A third positive factor is what some economists term “Helicopter Ben,” which is the propensity of Federal Reserve Chairman Ben Bernanke and the Fed to continue injecting liquidity into the economy by purchasing Treasury bonds and mortgage-backed securities at record levels. The Fed is telling us that mortgage and other debt instruments’ rates will remain historically low for the foreseeable future. This is the first time in my 30-plus year career as a business economist that the Fed is targeting a specific sector (real estate) and telegraphing to the public historically low-interest rates.
As a former Fed chairman used to say, “The role of the Fed is to take the punchbowl away when the economic party gets too loud” Well, it does not look too loud for 2013, but watch out for the potential of a “hangover” in future years as inflation starts and interest rates rise sharply.
In 2013, South Florida should perform better than the rest of the state’s regions, given its growing global links. Miami now enjoys a “global brand” for entertainment, business, healthcare and the arts.
The principal risk for 2013 is U.S. fiscal policy. An ideologically divided Washington has the potential to derail a national economic recovery that has just started to take hold, and that is still repairing the social and economic damage created by the “Great Recession.” Florida requires a growing U.S. economy to continue accelerating its economic recovery.
A new U.S. recession, caused by fiscal policy mistakes, would disrupt the nascent real estate recovery and hurt economic growth with key trade partners such as Canada, Brazil, Mexico and Colombia. Let us hope that a clearer fiscal policy path emerges in D.C. early into the New Year.
J. Antonio “Tony” Villamil, founder of The Washington Economics Group, is dean at the School of Business of St. Thomas University.