Strong job growth in Florida continues to boost overall economic activity and draw people into the state. The state’s payroll jobs increased by 3.5 percent in 2015, well above the overall U.S. pace of 2.1 percent. Momentum continued into 2016 as Florida added another 113,000 jobs in the first six months of the year. This helped to boost the state’s real gross domestic product by 2.1 percent in the first quarter of 2016, which was more than double that of the U.S. at 0.8 percent. The relatively stronger economic activity has helped to pull into the state, on average, an additional 270,000 people per year over the last four years. Strong labor growth, combined with improving income and more people, is a recipe for a positive outlook for the Florida economy over the next year.
The surge in jobs, and better income growth, have supported the ongoing recovery of Florida’s hard-hit housing markets. According to the Federal Housing Finance Agency’s purchase-only home price index, home prices have rebounded 54 percent from the 2011 lows. This has helped homeowners regain some of the lost equity from the recession. However, Core Logic Inc. estimates that 15 percent of Florida mortgages remain under-water as of the first quarter of 2016. There is upside potential for Florida’s housing markets beyond job-driven demand. Baby boomers are retiring and Florida remains a popular destination for retirees. Recovered investment portfolios, the ability to sell their homes and kids who are finally moving out will increase the mobility of baby boomers.
For a PDF version of the complete Florida Economic Outlook, click here: FL Outlook 082016.
The Arizona economy is expected to rebound in the second half of 2016. Real gross domestic product registered a relatively strong first quarter at 2.6 percent, but most likely took a leg down in the second quarter on weaker job growth. Questions regarding the strength of the U.S. consumer due to low U.S. economic performance and financial market volatility may have tapped the brakes on hiring from Arizona employers in the second quarter. The state’s professional and business services sector, linked to U.S. consumer spending, saw employment declines while the financial activities and information sectors saw a significant slowdown in hiring. The good news is that U.S. consumer spending is expected to improve for the remainder of the year. Therefore, we expect the Arizona economy to grow at a faster rate in the second half of 2016 on stronger employment growth.
Aiding in this growth is increased construction hiring, which has been on a tear over the past year. Construction employment was up 8.6 percent year-over-year in July, the fastest pace of growth since the economic downturn. This is consistent with gains in housing starts which also continue to trend upward. Improving incomes, increased credit availability and low mortgage rates will support demand for housing. Additionally, demand for Arizona housing will continue to improve as baby boomers continue to retire. The factors that dampened stronger demand from baby boomers such as a pushed back retirement age, support for an adult child living at home and the recovery of lost homeowner equity will begin to wane.
For a PDF version of the complete Arizona Economic Outlook, click here: AZ Outlook 082016.
The Texas economy is entering a critical period in the second half of 2016 as the downdraft from the energy sector reset continues to roll through the state. Fortunately, to date, the drag on the overall state economy from reduced oil-field activity has not been as bad as we first thought. In July, the state added 23,600 payroll jobs, still up 1.5 percent over the previous 12 months. The climb in oil prices from the February low of $27 per barrel for WTI, to above $50 by early June was a cause for optimism, but the oil market got ahead of itself, and WTI fell below $40 per barrel by early August. Recent gains, to near $48, are again invigorating the optimists. The drilling rig count for Texas has firmed from a low of 173 rigs in late May to 238 rigs through mid-August. Also we see that new orders for mining equipment increased through May and June, but this was up from April, which was the worst month in the history of that series, dating back to 1992. We still show a mild recession for Texas in our forecast for this year. We believe that by the end of this year, the Texas economy will stabilize and then expand consistently through 2017. This forecast is based on our assumption that oil prices are stabilizing, and will gradually increase through next year, supporting moderately stronger oil field activity. Houston is still struggling and the metro area accounts for a quarter of all jobs in Texas. Almost all economic metrics for Houston are still showing signs of stress. Job growth in June and July was modest, but positive, after a net loss in May. We expect Houston to struggle with weak net job growth through the remainder of this year.
For a PDF version of the complete Texas Economic Outlook, click here: TX Outlook 082016.
Job growth in Michigan has been steady after allowing for the occasional bump, as occurred in May. In that month, state employment dipped by 20,400 jobs, contributing to a weak month for overall U.S. job growth. Like the U.S. numbers, Michigan job growth bounced back in June and July. For the 12 months ending in July, state payroll employment was up by 2.5 percent, well ahead of the U.S. average of 1.7 percent growth over the year. A resurgent auto sector has been a big part of the “steady growth” story for Michigan. In July, manufacturing employment ticked up to 604,200, the highest level since August 2007, stoked by the resurgent auto industry. We believe that U.S. auto sales likely peaked for this business cycle last fall, when annualized sales averaged 18.1 million units for September, October and November. For this coming fall (2016Q4) we forecast auto sales to average close to a 17.2 million unit pace. The last four business cycles (roughly the 1970s, 1980s, 1990s and the 2000s) all ended with a different pattern for auto sales. The 70s saw a sharp deterioration in sales into early 1982. In the 80s, the drop in auto sales was less steep into 1991. After the 90s, there was no dip in auto sales through the Recession of 2001. The slide into 2009 was devastating. We are assuming that auto sales follow the middle path at the end of this business cycle, and so we are forecasting a moderate deterioration of auto sales into 2018. Regardless of the eventual downward slope, our assumptions are consistent with eventual job losses in manufacturing. We look for gains in service-sector jobs to keep Michigan’s expansion steady through 2017.
For a PDF version of the complete Michigan Economic Outlook, click here: MI Outlook 082016.
The California economy headed into the latter half of 2016 with some momentum, after weathering a volatile start to the year. Even as tech-stocks lost value early in the year, California real GDP still grew at 2.0 percent in the first quarter, almost twice that of the U.S. average of 0.8 percent. Since then, tech-stocks saw a stronger than expected spring and summer rebound as global financial market conditions improved. Domestically, U.S. consumers shopped with a vengeance this spring as personal consumption of goods and services increased at a 4.2 percent annual rate in the second quarter. This is a bullish signal for the U.S. economy and it supports the outlook for tech-based industries for the remainder of the year. Internationally, central bank policies are divergent. The Bank of Japan and the Bank of England continue to pursue easing policies, making the Federal Reserve’s current monetary stance look relatively stronger, supporting the dollar even as the Fed does nothing. The broad dollar index strengthened after the June 23 BREXIT vote, to the detriment of export-oriented businesses. The dollar value of California exports has declined for 18 of the last 20 months. Lower oil prices have had some impact on this trend. We expect the state economy to weather the international crosswinds through the remainder of this year, growing moderately and adding enough jobs to keep the unemployment rate on a declining trend. The previously hot Northern California real estate market will cool as the manic pace of home buying eases due to declining affordability.
For a PDF version of the complete California Economic Outlook, click here: CA Outlook 082016.