Florida: Long-Range Financial Outlook September 12, 2012 Presented by: The Florida Legislature Office of Economic and Demographic Research 850.487.1402 http://edr.state.fl.us
Economy Remained Positive in 2011 In 2011, Florida‘s economic growth remained in positive territory for the second year after declining two years in a row. State Gross Domestic Product (GDP) ranked us 37 th in the nation in real growth with a gain of 0.5%. While the state‘s ranking improved, the growth slowed from a downwardly revised 0.9% for 2010. 1
FL Personal Income Grows in Q1:2012 Florida‘s personal income grew 0.7 percent in the first quarter of 2012, ranking the state 38 th in the country with respect to state growth. This was only slightly behind Texas which was ranked 36 th . The national average was 0.8 percent. Health Care and Social Assistance and Professional, Scientific and Technical Services were the strongest industry contributors to the state‘s growth. Compared to the US as a whole, Construction continues to be a drag. 2
20 of Florida‘s 67 counties had Current Employment Conditions double-digit unemployment rates; at the highest, this number was 52 July Nonfarm Jobs (YOY) US 1.4% FL 1.0% YR: 69,900 jobs Peak: -743,400 jobs July Unemployment Rate US 8.3% FL 8.8% (816,000 people) Eleven states had a higher unemployment rate than Florida. Highest Monthly Rate January & February 2010 11.4% 3
Labor Force Reduction Accounts for Most of Rate Drop July 2012: Labor Force: 9,269,459 Peaked December 2011: 9,303,297 Participation Rate: 60.0 Lowest Since February 1986: 59.9 25-Year Average: 62.5 4
Population Growth Recovering Population growth is the state‘s primary engine of economic growth, fueling both employment and income growth. Population growth is forecast to continue strengthening, showing increasing rates of growth over the next few years. In the near-term, growth is expected to average 1.2% between 2012 and 2015 – and then continue its recovery in the future, averaging 1.4% between 2020 and 2025. Most of Florida‘s population growth through 2030 will be from net migration (85%). Nationally, average annual growth will be about 0.9% between 2012 and 2030. The future will be different than the past; Florida‘s long -term growth rate between 1970 and 1995 was over 3%. Florida is on track to break the 20 million mark during 2016, becoming the third most populous state sometime before then – surpassing New York. 5
Population Growth by Age Group April 1, 2010 to April 1, 2030 Between 2010 and 2030, Florida‘s population is forecast to grow by almost 4.8 million. Florida‘s older population (age 60 and older) will account for most of Florida‘s population growth, representing 56.6 percent of the gains. Population aged 65 and over is forecast to represent 24.1 percent of the population in 2030. Florida‘s younger population (age 0-17) will account for 14.8 percent of the gains. 6
Florida Housing is Generally Improving Building permit activity, an indicator of new construction, is back in positive territory, showing strong year-over-year growth for the first six months of the calendar year. 7
Foreclosure Filings Remain Daunting ― Optimists point to declining home inventories in relation to sales, but they are looking at an illusion. Those supposed inventories do not include about 5m housing units with delinquent mortgages or those in foreclosure, which will soon be added to the pile. Nor do they include approximately 3m housing units that stand vacant – foreclosed upon but not yet listed for sale, or vacant homes that owners have pulled off the market because they can‘t get a decent price for them.‖ Financial Times Foreclosure Process (once begun) • 861 Days – 2.5 yrs – in Florida (3rd Longest Period in Nation) • National Average – 378 days • At the beginning of 2007, FL was at 169 days or less than 6 months. July 2012, compared to US: • Florida foreclosure activity increased 20% from one year ago. • 2nd Highest # of Filings • 3rd Highest Foreclosure Rate • Among US Metro Area rates: Palm Bay-Melbourne-Titusville #5 Five other areas were in the top 20 Data from RealtyTrac 8
Foreclosures & Shadow Inventory Slightly less than half of all residential loans in Florida are for homes that are underwater. (LPS Data for April and May) 9
Credit Conditions Remain Tight Question to Senior Loan Officers: Over the past three months, how have your bank's credit standards for approving applications from individuals for prime residential mortgage loans to purchase homes changed? All Respondents July ‗12 % Apr ‘12 % Jan ‘12 % Oct ‗11 % July ‘11 % Apr ‘11 % Jan ‗11 % Oct ‗10 % July ‗10 % Tightened 1.6% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 considerably Tightened somewhat 1.6% 5.6 0.0 4.2 5.7 3.8 3.7 13.0 3.6 Remained basically 93.4 90.7 94.3 91.7 86.8 92.5 94.4 83.3 87.3 unchanged Eased somewhat 3.3 3.7 5.7 4.2 7.5 1.9 3.7 9.1 2.0 Eased considerably 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 July 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices (Federal Reserve Board) Banks reported that they were less likely than in 2006, to varying degrees, to originate mortgages to any borrowers apart from those with the strongest credit profiles. Downpayments of 20% also a strong requirement. 10
Perceptions Recover After 8/2011 Dive University of Michigan: Consumer Sentiment (UMSCENT) 120 110 100 90 80 70 60 50 1978-01-01 1978-09-01 1979-05-01 1980-01-01 1980-09-01 1981-05-01 1982-01-01 1982-09-01 1983-05-01 1984-01-01 1984-09-01 1985-05-01 1986-01-01 1986-09-01 1987-05-01 1988-01-01 1988-09-01 1989-05-01 1990-01-01 1990-09-01 1991-05-01 1992-01-01 1992-09-01 1993-05-01 1994-01-01 1994-09-01 1995-05-01 1996-01-01 1996-09-01 1997-05-01 1998-01-01 1998-09-01 1999-05-01 2000-01-01 2000-09-01 2001-05-01 2002-01-01 2002-09-01 2003-05-01 2004-01-01 2004-09-01 2005-05-01 2006-01-01 2006-09-01 2007-05-01 2008-01-01 2008-09-01 2009-05-01 2010-01-01 2010-09-01 2011-05-01 2012-01-01 Consumer sentiment can be a leading indicator of recession, but not always: nationally, it had been improving, but fell in August 2011 to near the lowest level of the Great Recession and not far from the lowest level ever posted. The index reading is now back to the levels expected before the August dive (72.3 in July). Florida‘s consumer confidence (July: 76) is roughly mirroring the national trend. 11
Economy Slowly Recovering Florida growth rates are gradually returning to more typical levels. But, drags are more persistent than past events, and it will take a few more years to climb completely out of the hole left by the recession. Overall... The national economy is still in recovery. While most areas of commercial and consumer credit are strengthening – residential credit still remains sluggish and difficult for consumers to access. So far, the recovery has been roughly half as strong as the average gain of 9.8% over the same period during the past seven recoveries. The subsequent turnaround in Florida housing will be led by: Low home prices that begin to attract buyers and clear the inventory. Long-run sustainable demand caused by continued population growth and household formation. Florida‘s unique demographics and the aging of the baby -boom generation (2011 marks the first wave of boomers hitting retirement). 12
The Problem for FY 2012-13 Closing the Budget Gap for 2012-13 Comparing to 2011 Long-Range Financial Outlook (LRFO) NOTE: Component parts may not sum to the total due to rounding. (millions) Pre-Session... REC N/R TOTAL L Funds Available - LRFO 2011 25271.5 1545.5 26817.0 R F O 2012-13 Base Budget + Annualizations 22784.3 0.0 22784.3 Critical Needs - LRFO 2011 1623.9 33.5 1657.4 2 Other High Priorities - LRFO 2011 625.1 261.8 886.9 0 1 Transfer to Budget Stabilization Fund 0.0 214.5 214.5 1 Planned Reserve (Unallocated General Revenue) 0.0 1000.0 1000.0 ORIGINAL BUDGET GAP - LRFO 2011 238.2 35.6 273.8 O Changes to 2011-12 Revenue and Funds Available 0.0 -406.6 -406.6 c Changes to 2011-12 Budget and Projected Deficits 0.0 63.0 63.0 t Conference Adjustments to 2012-13 Revenue -964.2 9.4 -954.8 2 0 Conference Adjustments to 2012-13 Expenditures 45.3 0.0 45.3 1 1 ADJUSTED BUDGET GAP - OCTOBER 2011 -771.3 -424.6 -1195.9 Changes to 2011-12 Revenue and Funds Available 0.0 46.0 46.0 J a Changes to 2011-12 Budget and Projected Deficits 0.0 2.4 2.4 n Conference Adjustments to 2012-13 Revenue -54.7 34.8 -19.9 2 0 Conference Adjustments to 2012-13 Expenditures -163.0 0.0 -163.0 1 2 -1009.1 FINAL BUDGET GAP - January 2012 -663.0 -346.1 13
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