Stabilizing Economy or lingering recession?
By Elizabeth A. Dunn, CPA, CGMA, NAEPC / March 1, 2015
The economy seems to be perking up. Evidence of the economic turnaround is being shown by lower gas prices, lower unemployment rates, new construction and continued low interest rates. Florida currently has a very favorable economic climate entering 2015, with both low interest rates and lower than usual gas prices. Increased local spending amongst consumers is also evidence of a strong economic expansion.
Last year, Florida state tourism hit new highs in both the number of visitors and the number of hotel rooms being rented. As of January, there are strong signs that 2015 may continue to show the jobs market and corporate profits stabilizing. The construction industry in south Florida is showing continued strength, as high rises are being built, and more seniors are moving to Florida.
Across the US, it has also become apparent that consumer confidence has increased since the recession began, but there is more confidence in some Florida counties than in others. Local households in the southeast will definitely benefit from the lower gas prices, as most of their after-tax income is spent on fuel. The U.S. motor vehicle industry can also expect more robust auto sales thanks to the lower fuel prices.
The Broward County unemployment rate is now down to 4.8%. This level is back at year 2008 unemployment rates, an impressive decline after the 11.4% in 2009 at the height of the recession. As of today, unemployment claims have seen significant declines since 2010. At 5.6 %, the steadily declining Florida state unemployment rate is much closer to the prerecession rate, showing a 48% job growth rate since 2010.
In stark contrast, Florida residents are also feeling the strains of rising living expenses, higher medical and health related costs, and rising costs of housing and rental expenses. The Federal Reserve Bank believes the economy has strengthened enough to increase the interest rates. After the Federal Reserve January meeting, the Fed announced plans to raise interest rates in small increments starting in June 2015. This policy of holding interest rates low is a double-edged sword for all of us. Maintaining these low interest rates stimulates consumer buying for automobiles, houses and large ticket purchases, yet the federal debt hangover poses a threat of future inflation. The announcement that the Fed will wait until June to raise the interest rates in small increments comes due to mixed messages and a lackluster economic rebound.
Economists from Goldman Sachs and Morgan Stanley, respectively, reported that they forecast the rate change may take place in the fourth quarter of 2015 or even early 2016. Since December, the stock market has been gyrating and has had up to 600-point swings, up and down, daily in the Dow Jones average. We all have to get used to the new volatility. After enjoying the past six years of surging stock markets, investors are now worried about how long this growth will last. Recent falling oil prices and weak wage growth rates still cast the shadow of the lingering recession. Conversely, the stock market valuations of US companies (now used to almost 0% interest rates) will bounce around and add to your own stock portfolio volatility. Many people are unsure as to the likelihood of holding onto recent gains that they have seen in their stock and retirement accounts. Now is the opportune time to "stress test" your own portfolio and retirement account. It's time for a checkup in 2015.
Liz Dunn, CPA and CEO of Elizabeth A. Dunn, CPA, P.A., practices in Boca Raton.
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