2013 Economic Forecast

Joel Houston, Professor of Finance, Warrington College of Business Administration
January 3, 2013
Filed under Educate, Top Stories

What’s the economic outlook for 2013? The Wall Street Journal recently posed that question to 44 top economists. Their average forecast is that the U.S. economy will grow 2.4 percent in 2013, and that the unemployment rate will slowly decline to 7.5 percent. So, if you believe the current consensus then we, in Gainesville, should expect more of the same—slow, steady growth with only a modest improvement in the unemployment rate.

The lack of a sharp rebound from the recent recession remains a concern.  While a variety of forces can explain the slow recovery, two main reasons are most often cited. One culprit is a slow-to-recover housing market, which has forced households to curtail consumption in the face of declining wealth and higher debt ratios. Another concern is that indecision and the lack of consensus among policymakers has created a climate in which businesses are reluctant to invest capital or hire workers because they are uncertain about the future tax and regulatory environment.

Over the past decade, the Florida economy has followed the same trajectory as the U.S. economy, but the roller coaster ride has been more dramatic—Floridians saw a stronger run-up in housing prices during the early 2000s, but they have witnessed greater declines in the aftermath of the recession. Today in Florida, the unemployment rate still remains above the national average.

On the local level, we have been a bit more fortunate. The unemployment rate in Alachua County remains below the national average. This by no means suggests that all is well—our unemployment rate has more than doubled in the past five years, and it still exceeded 6 percent in late 2012. And, as we all know, things are often worse than the simple numbers suggest—many of our citizens are underemployed or have chosen to drop out of the work force because of the lack of opportunities.

In the years ahead, we need to continue to foster a business-friendly environment that reflects the values of our community. We want to leverage the tremendous assets of the University of Florida and Santa Fe College and their partners, while at the same time creating a diverse economy that is not solely dependent on any one sector. Looking around town, I think we all recognize that while there is a lot of work to be done, there are many encouraging signs of progress, and as a result, there are many reasons to be optimistic about the years ahead.

On an individual level, a new year is always a good time to re-think our financial goals.  If in doubt, it’s always good to remember some sound principles:

  • If you haven’t done so already, begin to put a solid foundation in place.  This includes paying down excessive debt, having proper insurance and having enough cash on hand to address unforeseen events.
  • It is important to develop and maintain a consistent savings plan. The more you save and the sooner you save, the better off you are going to be in the long run.
  • Hold a diversified portfolio that includes a mix of stocks, bonds and international assets.
  • Do your best to manage taxes and fees—over time, low-cost index funds and exchange-traded funds are likely to do better than funds with exorbitant fees.
  • Finally, I know it is hard, but do your best to avoid the day-do-day noise in the market. Too many of us rush in to buy stocks after a big run-up, and dump them after a big decline. In most cases, we should follow Warren Buffet’s sage advice:  Be fearful when others are greedy and be greedy when others are fearful.

Joel Houston is a professor of finance in the Warrington College of Business Administration at the University of Florida. He has a Ph.D. in business economics from the University of Pennsylvania and instructs, among other courses, UF’s core finance course and elective course in Valuation to MBA and graduate students.

 

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