Dr. Jerry Parrish is the Chief Economist and Director of State and Local Policy Analysis at the Institute of Government at Florida State University. He said Florida has two different economies: one with almost full employment with more than 600,000 open jobs, and the other with persistently low consumer sentiment.
“Consumer sentiment is lower than what it was during the worst of the pandemic and you know, that’s really unusual, with almost full employment,” he told the Club. “I watch that because it’s really an indicator of how people are going to spend their money. And you’ve heard all over the place that about 70% of the economy is people out there spending money, so if they have a poor outlook, that’s certainly a concern in the future. What’s driving it is inflation.”
Dr. Parrish said Florida weathered the coronavirus pandemic’s economic upheaval better than most states, recovering all its jobs by October of 2021. The exception is in healthcare and especially registered nurses. Thirty-five other states still don’t have their jobs back. Other economic factors he noted at play:
- Since the pandemic, U.S. wages have increased 7.9% for people who’ve switched jobs and 6.1% for those who’ve stayed put, but inflation now is exceeding those earnings gains;
- A survey shows 25% of Americans are delaying retirement due to inflation;
- Falling mortgage demand because of rising interest rates and plunging homebuilder sentiment;
- As interest rates go up, the dollar gets stronger and has now reached parity with the Euro. “That means that guy in Chicago who wanted to take his family on vacation my skip Florida this year and go to London,” or other European destinations.
- A strong dollar favors those in the U.S. who import items, but for those exporters, “you may not be competitive anymore.”
“People at lower incomes take the biggest brunt of inflation,” said Dr. Parrish, who also chairs the Council of Economic Advisers at the University of West Florida’s Haas Center. “If you’re spending all your money on gas and rent and food, there’s not much money left for fun stuff. The economy runs on fun stuff. If you’re buying a motorcycle or a motor home, or taking a great vacation or something like that, that’s really, really good for the economy, right?” he asked the Club.
Dr. Parrish has maintained a probability of recession forecasting model for the past several years. One component is the spread between 2-year and 10-year U.S. Treasury bond yields. “The interest rate on a 2-year bond, which should be lower, is inverted now,” he said, noting it’s the largest inversion since 2000 and “a lot of the time, this signals a recession is coming on.”
So, is Florida heading for a recession? Dr. Parrish said his model shows about a 67% probability, noting as well a Wall Street Journal chart he displayed for Club members that shows a historical drop in consumer sentiment “very hard and very quickly right before we have a recession.” On the positive side, “If we do go into a recession, Florida will weather it better than the U.S.,” he said. In his question and answer session with Club members, Dr. Parrish also explored the positive factors in a recession, including easing inflation and increased entrepreneurism.