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Five reasons to stay economically optimistic

Remember last spring? And the one before that?

The economy is chugging along after the holidays when suddenly a springtime slump strikes. Job growth turns tepid, companies tighten their belts, and that climb out of the enormous financial crater left by the Great Recession looks a little steeper.

A few troubling headwinds surfaced this past week with manufacturing slowing and more companies cutting back hours, even if they're not laying off workers.

Will it be enough to push us into another spring swoon?

Fear not, say several leading economists who remain convinced the slow but persistent recovery still has legs. Their consensus: Neither looming federal budget cuts nor higher payroll taxes nor even the perpetual European debt crisis will be enough to derail the upbeat economic narrative for 2013.

"I think it's going to be an uncomfortable six months, but I don't think the recovery is in jeopardy," says Mark Zandi, chief economist of Moody's Analytics.

After all, housing hasn't looked this rosy in years, unemployment continues to fall and Wall Street is on a tear with the stock market reaching new highs.

The future still points to a slow crawl, with the economy growing by roughly 2 percent this year. But perennial talk of a double-dip recession has waned.

In fact, Stuart Hoffman, chief economist with the PNC Financial Services Group, predicts growth will continue over the next three or four years, with Florida among the better-performing states.

"The job picture this spring is starting out a bit weaker and this may go on a month or two," he said, "but I don't think we'll see as sharp a degree of a slowdown as the past two years."

Here's a closer look at five reasons to remain optimistic — especially about Florida.

 

REALTORS ARE SMILING AGAIN

In some ways, it looks like the time machine has sent us back to 2006. Home prices are rising by the double digits in some areas; home builders are scrounging for workers to replenish depleted inventory; and there are even some old-fashioned bidding wars again.

Home prices statewide have been rising 15 straight months. Last month, the median Florida home price rose to $160,000, up 15 percent from a year ago. The number of homes sold was up 9 percent, with nearly half of the closings paid in cash.

Among the big drivers of the buying spree are institutional investors eager to buy and rent out homes before prices escalate further.

Scott Brown, chief economist with Raymond James Financial in St. Petersburg, draws an anecdote close to home to illustrate how much the housing market is heating up.

One of his neighbors was solicited by a Realtor going door-to-door. They agreed to a listing.

"By the end of the week, it was sold," Brown said, "and it was never really on the market."

 

WE'RE STILL ADDING JOBS

We're not adding jobs quick enough to get back to low unemployment soon, but we're still headed the right direction.

In April, unemployment fell to 7.5 percent on better-than-expected job growth, the Labor Department reported.

On the other hand, discouraged workers who have stopped looking may re-enter the job market at some point. And it's hard to erase some of the negative hallmarks of this recession: long-term joblessness, older workers forced into early retirement and college graduates unable to find work that meshes with their degrees.

Moreover, many of the newly minted jobs last month were clustered in lower-paying retail, leisure and hospitality and temporary help services.

So the labor market is still a mixed bag.

"Contrary to the worst fears, the labor market is still standing but a high degree of labor market slack remains," said Richard Moody, chief economist with Regions Financial Corp. "We expect further progress to be made over the remainder of 2013, but expect this process to come at an uneven pace."

The April figures for Florida won't be released until May 17. Based on trends so far this year, it appears the closer to home, the better the data looks:

• Florida created 32,700 jobs in March, more than any other state.

• Tampa Bay led the state in job creation in March. As a result, the bay area's unemployment rate has plummeted to 6.9 percent, down from 7.5 percent a month ago and down more than a full percentage point in just two months.

 

LESS PAIN AT THE PUMP

Gas prices peaked in February and have been falling since.

In Florida, unleaded gas was selling for $3.44 a gallon toward the end of last week. That's down 18 cents a gallon over the past month and down 33 cents compared with year-ago prices.

The drop is even more noteworthy because there's often a run-up in gas prices as Memorial Day weekend approaches.

Part of the lower price is tied to a weakened U.S. dollar; part is tied to the natural gas revolution. A boom in natural gas production is helping the United States on a generations-old mission to become energy independent.

Cheaper commutes are putting more money in people's pockets and helping offset the impact of higher payroll taxes that took effect in January.

 

STOKED ABOUT STOCKS

Incomes may not have recovered yet, but the stock market has rocketed back to pre-recession levels. And then some.

After a stellar first quarter, some were bracing for a disappointing April. Instead, the markets keep surging along, with the Standard & Poor's 500 Index hitting new highs, the Dow Jones Industrial Average breaching 15,000 for the first time, and Nasdaq reaching heights not seen in more than a decade.

The Federal Reserve's monetary policies have undoubtedly helped prop up the markets. But there is no sign the Fed is about to switch gears from its near-zero interest rate program as long as it remains convinced that inflation is still in check.

Hoffman of PNC Financial acknowledges the markets may be due for a correction. That doesn't, however, mean an impending bear market.

"If the market goes down 5 or 10 percent, that's a normal ebb and flow and nothing to overreact to," he said.

For now, more people are feeling better about their 401(k)s at the same time they're feeling better about the return of home equity and lower gas prices.

That's a combination that means …

 

CONSUMERS ARE HAPPY

A happy consumer is a spending consumer. And since consumer spending accounts for 70 percent of the economy, few things bode as well for the future than upwardly trending consumer confidence indices.

The Conference Board last week reported a better-than-expected rise in national consumer confidence with the share of households predicting their incomes will rise this year climbing to a five-month high.

Meanwhile, the University of Florida's snapshot of consumer confidence has risen two months in a row to a new high this year. Out of five components used to measure confidence, the single biggest jump came when survey participants were asked if they expected to be better off financially a year from now.

Despite signs that credit demand has slackened, household spending was up 3.2 percent at an annualized rate in the first quarter, the biggest gain since the fourth quarter of 2010.

One sign consumers are still driven to spend: Auto sales just posted their biggest April in seven years.

Jeff Harrington can be reached at jharrington@tampabay.com or (727) 893-8242.

"I don't see the dangers of slowing in the spring that we had the last couple of years."

Stuart Hoffman, chief economist at PNC Financial Services Group

"We expect to see the pace of hiring pick up as the year progresses and fiscal drag fades."

Richard Moody, chief economist at Regions Financial Corp.

"We have to navigate through the next six months … but I don't think the recovery is in jeopardy."

Mark Zandi, chief economist at Moody's Analytics

"I don't think the forces are there that are really going to plunge you into a recession."

Scott Brown, chief economist at Raymond James Financial

"We'll continue to move forward, but it's like trying to walk through a swamp."

Sean Snaith, director of the University of Central Florida's Institute for Economic Competitiveness

Five reasons to stay economically optimistic 05/04/13 [Last modified: Saturday, May 4, 2013 8:36am]

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