PHOENIX – Nov. 15, 2010 – The pace of the national recovery is moderating and the lift spurred by nearly $800 billion in federal stimulus spending is fading, but there are several promising signs that growth will continue, including in Florida, a leading national fiscal analyst told reporters Friday morning.
Moody’s Analytics economist Chris Lafakis said the Federal Reserve will remain aggressive, with a quantitative easing plan that he equated to “basically flooding the global monetary system.” Lafakis predicted the strategy would lift asset prices, reduce corporate borrowing costs, and increase the willingness of consumers to spend.
Lafakis predicted substantial growth in Florida’s economy, mentioning that the Miami, Orlando and Tampa areas are expected to recover “quite significantly” due to a rebound in population growth and an increased willingness of people to travel to Florida for vacations. “The story of pent-up demand is true in no place more so than Florida,” he said.
Nationally, corporate balance sheets are strong and business profits have “fully recovered from the recession,” he said, adding that businesses are in a position to hire more employees, though their level of willingness varies.
“It’s truly the case that profit growth leads job growth,” Lafakis told state government reporters gathered for the annual conference of the Association of Capitol Reporters and Editors.
Household liabilities in the United States have fallen by $900 billion since peaking two years ago and a shift to spending and addressing pent-up demand for purchasing “creates a lot of economic juice,” Lafakis said.
Arturo Perez, a fiscal affairs expert with the National Conference of State Legislatures, said states are collectively facing budget gaps that total half a trillion dollars in the coming years. He said state tax revenues bottomed out in fiscal 2010 and that tax collections were growing in 42 states in fiscal 2011, which began July 1. Perez described the prevailing sentiment across the states as “cautiou-mistic” with revenues rebounding from a depressed base.
The national economy, which had shed 700,000 to 800,000 jobs per month during the recession, has been adding jobs in recent months but not at the 150,000 per month rate that Lafakis said is needed to keep up with growth in the labor force and make a dent in the unemployment rate.
Over the past three months, he said, the national recovery has “downshifted to a more moderate pace.”
In the conference’s opening session Thursday, Lori Grange, deputy director of the Pew Center on the States, described research showing elected officials face a “huge deficit” in public trust in state government.
Grange said taxpayers favor reduced government spending over new taxes as a budget-balancing strategy and are breaking strongly against new state government debt and borrowing. The center plans to release a report on state debt trends in February, she said.
Grange said Illinois had gone on a “borrowing binge” that had led to the lowering of its bond rating and noted that voters in Washington rejected a $500 million request for capital spending to improve public schools.
The economic crisis is forcing state government officials to fundamentally rethink their operations, Grange said. She said high unemployment, expiring federal stimulus funds and increased demand for social programs had created “the perfect storm of lousy conditions and all of it’s in the face of significant budget gaps.”
Source: News Service of Florida, Michael Norton
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Moody’s hopeful on recovery, notes pent-up Fla. demand