Florida’s economic recovery must weather a “monetary policy hurricane” as the Federal Reserve raises interest rates and shrinks its balance sheet, writes Sean Snaith, nationally recognized economist and director of UCF’s Institute for Economic Forecasting, in his latest forecast for the Sunshine State.
With the Federal Reserve making its first interest rate hike in three years in March, the Institute for Economic Forecasting predicts the 0.25% increase will be the first of many.
“The Fed has not one, but two tightropes it must cross as it begins to tighten monetary policy: the raising of interest rates and the paring down of its now massive balance sheet,” Snaith writes. “Navigating both simultaneously is a daunting task, and the risk that the Fed moves too quickly, or not quickly enough, is a significant one. The consequence of a policy misstep will likely be the onset of a recession.”
Florida’s economy, as measured by real gross state product, will expand at an average annual rate of 3.1%. After contracting by 2.8% in 2020, real gross state product rose by 6.9% in 2021.
Payroll job growth in Florida will continue to outpace national job growth. After year-over-year growth of -5.2% in 2020, the labor market rebounded by 2.6% in 2021. Average job growth is expected to be 0.9 percentage points faster than the national economy, according to the forecast. Labor force growth in Florida will average 1.9% from 2022-2025, and strong payroll job creation will boost Florida’s labor market recovery.
Real personal income growth will average 2.4% during 2022-2025, and Florida’s average growth will be 0.6 percentage points higher than the national rate over that span.
The efforts to lower the state’s unemployment rate will continue, and Florida’s accelerating job creation will help. The unemployment rate, which fell from 7.9% in 2020 to 4.8% in 2021, will drop to 3.8% in 2022 and 3.5% in 2023 before rising to 3.9% in 2025.
The sectors expected to have the strongest average job growth during 2022-2025 include leisure and hospitality (7.6%), professional and business services (3.8%), and information (2.1%).Housing starts will pick up but not fast enough to offset the shortage of single-family housing in the short run, according to Snaith. The 190,061 total starts in 2021 will ease to 182,663 in 2022, 162,425 in 2023 and 156,911 in 2024 before rising to 157,178 in 2025. House price appreciation will decelerate over this period as supply catches up with demand tempered by rising mortgage rates and decreasing affordability.
For the complete Florida & Metro Forecast, now including all of Florida’s 22 metropolitan areas, from the Institute for Economic Forecasting, visit business.ucf.edu/centers-institutes/institute-economic-forecasting/.
The Institute for Economic Forecasting strives to provide complete, accurate and timely national, state and regional forecasts and economic analyses.
Snaith is a national expert in economics, forecasting, market sizing and economic analysis who authors quarterly reports about the state of the economy. Bloomberg News has named Snaith as one of the country’s most accurate forecasters for his predictions about the Federal Reserve’s benchmark interest rate, the Federal Funds rate.