The Building Industry Association Of Okaloosa-Walton Counties Economic Update and Outlook Rick Harper, PhD February 1, 2018
The Economic Outlook 3rd longest postwar expansion for U.S., marked 103 months as Jan ended Full employment reached at 4.1%, labor market growth rate is slowing Household and business balance sheets are healthy, gov t not so much Consumer spending continues to be the major driver Housing is healthy, inventories are low, even in Florida Federal government deficit will rise due to demographics and tax reform GDP growth is tepid, but 2nd half of 2017 was better than first half Tax reform will provide modest stimulus to GDP, drive stock market higher Recession risk is still low, but will not go lower 3 rate increases in 2018, same in 2019? VIX at historic lows Inflation is below target, and the market expects it to remain modest Decent global growth, weakest in South America
Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 170% Total Nonfarm Employment as % of 1990 Average, Jan90 - Oct17 160% 150% 140% 130% 120% 110% 100% 4 MSAs Northwest FL Florida Nation 90%
Jan-00 Sep-00 May-01 Jan-02 Sep-02 May-03 Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 8.0% Growth in Total Nonfarm Employment, Jan00 - Oct17 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 4 MSAs Northwest FL Florida Nation -8.0%
Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 180% Construction Employment as % of 1990 Average, Jan90 - Nov17 170% 160% 150% 140% 130% Florida Nation 120% 110% 100% 90% 80%
Predicted growth rate 6 months in the future Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 4 Leading Index for Florida and the Nation, Nov07 - Nov17 3 2 1 Florida Nation 0-1 -2-3
Jan-80 May-81 Sep-82 Jan-84 May-85 Sep-86 Jan-88 May-89 Sep-90 Jan-92 May-93 Sep-94 Jan-96 May-97 Sep-98 Jan-00 May-01 Sep-02 Jan-04 May-05 Sep-06 Jan-08 May-09 Sep-10 Jan-12 May-13 Sep-14 Jan-16 May-17 Percent 16 Core Inflation (CPI excluding food and energy), SAAR, Jan80 - Dec17 14 12 10 8 6 4 2 0
Jan-00 Sep-00 May-01 Jan-02 Sep-02 May-03 Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Percent of January 2000 value 240 CPI: Education, Medical Services, Overall, Jan00 - Dec17, Jan00=100% 220 200 180 Education Medical Services Overall 160 140 120 100
Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 83 Percent of Population Employed Aged 25-54 Years, Jan90 - Oct17 82 81 80 79 78 77 76 75 74
Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 US GDP: Actual and Potential, in Billions of Constant 2009 Dollars, Q1/90-Q2/17 18000 16000 14000 Potential Actual 12000 10000 8000 6000
Jan-48 May-50 Sep-52 Jan-55 May-57 Sep-59 Jan-62 May-64 Sep-66 Jan-69 May-71 Sep-73 Jan-76 May-78 Sep-80 Jan-83 May-85 Sep-87 Jan-90 May-92 Sep-94 Jan-97 May-99 Sep-01 Jan-04 May-06 Sep-08 Jan-11 May-13 Sep-15 14 Inflation-adjusted GDP, % Change from Previous Year, Q1/48-Q2/17 12 10 8 6 4 2 0-2 -4
60000 58000 56000 54000 52000 50000 48000 46000 44000 42000 40000 Median Household Income, 1984-2016, in Constant 2016 $ U.S. Florida 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 52 Wages and Salaries as Share of Gross Domestic Income, 1948-2016 51 50 49 48 47 46 45 44 43 42
The 21 st century jobs market: It s a great time to own a productive capital asset, not such a good time to sell your labor for wages, particularly if you do things that industrial robots or software could do.
Jan-39 Oct-41 Jul-44 Apr-47 Jan-50 Oct-52 Jul-55 Apr-58 Jan-61 Oct-63 Jul-66 Apr-69 Jan-72 Oct-74 Jul-77 Apr-80 Jan-83 Oct-85 Jul-88 Apr-91 Jan-94 Oct-96 Jul-99 Apr-02 Jan-05 Oct-07 Jul-10 Apr-13 Jan-16 Employment Growth, Jan39 - Nov17, 1939 Average = 100% 700% 600% 500% 400% Total Employment excluding Manufacturing Manufacturing Employment 300% 200% 100% 0%
Job polarization: the disappearance of employment in occupations in the middle of the skill distribution Characteristics: since the 1980s Job polarization is not a gradual process; mostly occurring during economic downturns Jobless recoveries are associated with the disappearance of middle-skill occupations (most of which involve performing routine tasks) Technology is biased against routine tasks Based on research by Nir Jamiovich and Henry Siu (2012), Goldin and Katz, Acemoglu and Autor, presentation by Mike Chriszt of the Atlanta Federal Reserve Bank.
Consider 4 types of jobs: Non-routine cognitive: management, finance, legal, science, engineering, healthcare practitioner tend to be high-skill occupations Non-routine manual: healthcare support, food prep, janitorial, etc. tend to be low-skill occupations Routine cognitive: sales-related, office and admin support tend to be middle-skill occupations Routine manual: production, material moving, construction tend to be middle-skill occupations As presented by Mike Chriszt, Atlanta FRB, from Jamiovich and Siu 2012
From Chriszt, and Jamiovich and Siu
Will these changes become larger or smaller over the coming decades? The pace of technology growth is accelerating. The cost of shipping has fallen. Technology is biased against routine tasks, whether they involve cognitive skills or not. The cost to businesses of using labor is rising, especially with respect to nonwage costs (healthcare, other fringes). Businesses are increasingly able to hire specialty talent, giving rise to the gig, or the free agent economy. There is increasing divergence in the income distribution in the developed economies.
annual per capita personal income by county of residence Education vs. Income for all Counties in the U.S., 2012 data $140,000 $120,000 $100,000 $80,000 Williams, ND Sully, SD New York y = 637.8x + 25601 R² = 0.3112 Alexandria Arlington $60,000 McMullen, TX Los Alamos $40,000 $20,000 $0 0 10 20 30 40 50 60 70 80 percent of resident population (aged 25+) with bachelor's degree or higher
annual per capita personal income by county of residence Education vs. Income for Counties in Florida, 2012 data $70,000 $60,000 $50,000 Collier y = 856.31x + 17481 R² = 0.6661 $40,000 Okaloosa $30,000 Leon Alachua $20,000 $10,000 $0 0 5 10 15 20 25 30 35 40 45 50 percent of resident population (aged 25+) with bachelors degree or higher
What s the bottom line in terms of human skills? Social scientists say that high quality early learning programs offer high ROI typical estimates are in the 7 to 10x range. These programs have the highest ROI for children in poverty. Today s disadvantaged children are tomorrow s workforce, consumers, and neighbors. Technology is making routine, non-cognitive jobs obsolete. Growing divergence in U.S. income distribution makes investment in children essential.
Why does it work? According to Heckman: Investing in young children is a rare public policy initiative that promotes fairness and social justice and at the same time promotes productivity in the economy and society at large. Early interventions targeted towards disadvantaged children have much higher returns than later interventions such as reduced pupil-teacher ratios, public job training, convict rehabilitation programs, tuition subsidies, or expenditures on police. At current levels of resources, society overinvests in remedial skill investments at later ages and underinvests in the early years.
What s the Bottom Line for economic development? Economic activity results from matching area resources (supply) with needs in the marketplace (demand). Improving the quality of local assets (labor, capital, natural resources, intellectual property, entrepreneurial ability) allows assets to earn a higher return in the marketplace. The high-wage, sustainable jobs of tomorrow will go to those with the skills to create and use new technologies. Routine, non-cognitive tasks will either be automated or off-shored. Safe streets and good schools are essential to healthy growth. Small and new businesses have been the net job generators, but that role has been changing over time.
Turning now to housing and real estate
Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 House Price Index as Percent of Q1 1990 Value, Q1/90 - Q2/17 340 290 240 190 Pensacola MSA Ft. Walton MSA Panama City MSA Tallahassee MSA 140 90
Jan-90 Mar-91 May-92 Jul-93 Sep-94 Nov-95 Jan-97 House Price Index: Jan90 - Apr17, Jan90 = 100 Mar-98 May-99 Jul-00 Sep-01 Nov-02 Jan-04 Mar-05 May-06 Jul-07 Sep-08 Nov-09 Jan-11 Mar-12 May-13 Jul-14 Sep-15 Nov-16 340 290 240 Pensacola Florida U.S. 190 140 90
Jan-88 Feb-89 Mar-90 Apr-91 May-92 Jun-93 Jul-94 Aug-95 Sep-96 Oct-97 Nov-98 Dec-99 Jan-01 Feb-02 Mar-03 Apr-04 May-05 Jun-06 Jul-07 Aug-08 Sep-09 Oct-10 Nov-11 Dec-12 Jan-14 Feb-15 Mar-16 Apr-17 250% Single Family Building Permits as % of 1988 Average, Jan88 - Nov17 200% 150% Florida Nation 100% 50% 0%
This ratio is calculated from Pensacola MSA data
Source: Metro Market Trends, author's calculations 2500 2000 1500 1000 500 New Homes: Number of Units Sold and Median Price, 1991-2016 Number of New Homes Median New Home Price 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 $200,000 $150,000 $100,000 $50,000
Vacant lots sold per new home built 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Metro Market Trends, FL Dept. of Revenue NAL file, author's calculations 2 1.8 1.6 1.4 1.2 1 0.8 0.6 Ratio of Vacant Lots Sold to New Homes Built, 1991-2016
4,000 3,000 2,000 1,000 0 Vacant Residential Lot Sales and Median Price, by Year, 1991-2016 Number of lots sold Median price per lot 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Metro Market Trends, author's calculations $40,000 $30,000 $20,000 $10,000 $0
So, the real estate market is healthy, without the overbuilding of 2003 2006, and affordability has been helped by the Fed s low interest rate policy. The job market is healthy, at least in terms of unemployment. But we need better education, training, and skills in order to get higher family incomes. The cruel discipline of the marketplace will eventually bring the cost of higher education and skills training down, but only after a painful divorce from the government funding structure. To finish up today s prepared remarks, and move to questions, let s have a brief look at what the change has been over time in the economic structure locally.
Employment Share by Sector, 2025, 2015, 1970 State and Local Government Federal Military Federal Civilian Other Services, except Public Admin Accomodation, Food Service Arts, Entertainment, Recreation Health Care and Social Assistance Educational Services Administrative and Waste Services Management of Companies Professional/Technical Services Real Estate, Rental and Leasing Finance and Insurance Information Transportation, Warehousing Retail Trade Wholesale Trade Manufacturing Construction Utilities Mining Forestry, Fishing, Other Farm Employment 2025 2015 1970 0% 5% 10% 15% 20% 25% Source: Woods & Poole Economics, CEDDS 2016
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 45 Median Age of Resident Population, 1970-2015 40 35 30 25 20 Santa Rosa Florida Nation Source: Woods & Poole Economics, CEDDS, 2016
Percent of personal income by source 1970 1972 1974 1976 1978 Source: Woods & Poole Economics, CEDDS 2016 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 60% 50% 40% 30% 20% 10% 0% Sources of Personal Income for SR Residents, 1970-2015 Income Earned in SR Dividends, Interest, Rent Government Transfer Payments Income Earned Outside SR
The Building Industry Association Of Okaloosa-Walton Counties Economic Update and Outlook Questions? Rick Harper, PhD February 1, 2018