Local and national economies likely to slow in ‘07, rebound in ‘08
By Dr. Stephen Fuller and Arnfield Cudal
National
Reflecting the dramatic decline in new residential construction, a sharp increase in oil prices beginning in April, and the effects of the Federal Reserve Board’s tighter monetary policy, the U.S. economy slowed down significantly last year following a strong first quarter. According to recent estimates, the U.S. will be entering the third consecutive quarter where the economy has grown at a rate insufficient to maintain the unemployment rate at its December 2006 average, about 4.5 percent. Altogether, Gross Domestic Product, which accounts for the total value of all goods and services produced by a nation in a given year, is currently projected to grow in 2007 at the slowest growth rate since 2002. With this forecast, unemployment is expected to rise, ending the year at 5.2 percent or higher.
In response to the sluggish economy and with the inflation threat subsiding, the Federal Reserve is expected to lower its benchmark rate (the rate banks charge each other overnight) in June. With lower interest rates, a recovering housing market, and steady oil prices, the economy should begin to strengthen, setting the stage for a stronger year of growth in 2008.
However, there are several real risks to this forecast. If the slowdown in new residential construction continues into 2008, or if the downturn in residential construction bottoms out by mid- 2007, the economy is still vulnerable to a rapid rise in oil prices. A repeat of 2006 oil price increases in 2007, also would undercut the forecast.
Palm Beach County
Meanwhile, Palm Beach County exhibited slowdowns not only in the residential housing market, but also in bed tax collections, which is a measure of the hospitality industry’s activity. Compared to the third quarter 2005, bed tax collections declined 5.6 percent. Slowdowns were also accounted for in passenger traffic at the Palm Beach International Airport. Compared to last year. Airport third quarter traffic tallies had 137,223 fewer passengers - a drop of 9.5 percent.
PBI Traffic
Source: PBIA |
In summary, Palm Beach County’s economy - well into the housing market decline which began in the fall of 2005 - is demonstrating resilience. Economic activity will likely continue to be moderate in 2007. Growth expectations in tourism, international commerce and jobs will continue to be key factors in propping up Palm Beach County’s economy.
Dr. Stephen Fuller is developer of the Palm Beach County Economic Index and director of the Center for Regional Analysis in Virginia.
Arnfield Cudal holds a Master’s Degree in Business Administration and is the Investment Analyst for the Clerk & Comptroller.