In this week’s Economic Report, Dr. Rick Harper discusses the aftermath of the Brexit vote and the first-quarter revision of the GDP. Also, Northwest Florida’s economy is booming with Fourth of July on the horizon.
If you’re in the UK, the economic temperature is cooling, Harper said.
“There is a lot of discussion now about the future for the economy. There are strong linkages between Great Britain and the rest of Europe, and if you look at what sectors can stay in what will inevitably be England after Scotland votes to secede over the next several years, then what we’ll see is that many of the financial-sector jobs will probably migrate to Frankfurt (Germany). I cannot imagine that the Europeans will let the Brits leave painlessly because they have to set an example for everybody else that might come after them.”
The reverberations around the globe as a result of Brexit have started to settle down a bit. The pound dropped, and oil prices have recovered.
“Oil prices have recovered, but there are countervailing forces there that as the initial uncertainty starts to wane, which drove oil prices up, you’ve got the force on the opposite side, which is that the expectation of a slower world economy – particularly headlined by Great Britain – that that drives oil prices down because lower world demand would lead to lower prices, whereas the higher volatility, initially, would have sent oil prices up.
“I expect the pound to stay low,” Harper said.
“Since we last talked, it’s been down a total of about 10 percent from where it started. It had been running at $1.45 to the pound and dropped about 10 percent. It will continue to stay low. I think British goods and services have to get cheaper. If they are not going to sell them to Europe, how are they going to get people to come and vacation whether its playing golf in Scotland or whether it’s visiting London or whether it’s doing any of the other touristy things or purchasing any of the exports that Britain sells? The pound is going to have to stay low to make that competitive.
“In contrast, I would expect the euro to rise if they can overcome some of the uncertainty about who is next … because now Germany is a proportionally bigger player in the euro zone and Germany has been so efficient. They have improved productivity so much that if it were just Germany in the euro, then the euro would be much stronger than it is today. And, with the exit of Britain, the long-term tendency might be for the euro to rise, but that is offset by the risks of further political unrest in Europe.
Moving on to a closer look at the U.S. economy, there’s good news in the first-quarter revision in the GDP.
“We got it up over 1 percent growth rate in the first quarter, and this is the final revision of first-quarter GDP until they end up doing benchmarking a year or two down the road. But, 1.1 percent — not so bad. And, now of course concern about the second-quarter GDP. Certainly is going to be higher than the first quarter. May well come in in the 2.2 to 2.5 percent range. We’ve gotten some good news on consumer spending, which continues to be strong growing at an annual rate of just over 4 percent.
“At the same time, there are some worrisome signs in the economy. Job growth slowing down now for two months in a row. We are seeing signs that although the economy is healthy, there are some challenges.”
An economist at the University of Central Florida forecast that Florida’s economy could reach a trillion dollars by 2018.
That would make Florida the 16th largest economy in the world, just ahead of Netherlands, just behind Mexico, Harper said.
“It’s good that economic recovery has come to Florida; we’ve had job recovery. But … the problem in Florida is never the rate of job creation. It continues to be an attractive state. There is a lot of inbound migration to Florida from other states, and we’ve had good job growth, but if you look at Northwest Florida, it’s been disproportionately in leisure and hospitality. That’s particularly true for Pensacola. Fort Walton, Panama City already had very, very robust tourist economies, but so much of our growth has been in leisure and hospitality, whereas we have seen shrinkage in government contracting that has been at the heart of growth in the Fort Walton economy. And so, we’re seeing the aviation aerospace sector driven by defense contracting shrinking a little bit in Fort Walton. That’s led to some weaker-than-usual job growth. But, for Florida overall, the concern is quality of jobs. It’s not about quantity.”
It’s clear that this is going to be a record summer for tourism all across Northwest Florida, Harper said.
“A bit depends on the weather. We are traditionally a drive-to market. Over 90 percent of our visitors arrive in vehicles, and they typically come from one tank of gas away. To the extent that the weather forecast is good, they should be right here, and it will be a record economy in tourism for the summer because the jobs market is better and gas prices are still reasonable. So, that shows up in the bed-tax revenues. That shows up in the bridge crossings to get to the beaches, and so it is a good, strong summer.”
Dr. Rick Harper serves as associate vice president for research and economic opportunity at the University of West Florida and oversees the University’s Center for Research and Economic Opportunity. He can be reached at firstname.lastname@example.org. CREO staff writer Brandy Hilboldt Allport contributed to this report. He can be reached at email@example.com.
This article is part of a collaboration between WUWF and the UWF Center for Research and Economic Opportunity.