National Economic Headwinds for Florida
The Florida Chamber Foundation has been charting Florida’s rise in the global economy in its ambitious 2030 Blueprint, which aims to position the state – now the equivalent of the world’s 16th largest economy, ahead of Saudi Arabia and behind the Netherlands – at 10th. That growth means that national and global economic and geopolitical trends are felt across the state more acutely and can ripple into local economic impact. On Jan. 12, the Chamber will hold its virtual Florida Economic Outlook & Jobs Solution Summit. FLORIDA TREND asked Dr. Ben Tabatabaei, the Chamber’s Chief Economist and Executive Director of the International Center for Economic Development, for a preview of his 2023 message. An international business economist, Tabatabaei joined the Chamber in 2022 and previously advised U.S. policy makers and private companies on economic development and foreign policy issues. He holds a Ph.D. in international political economy and public policy from the University of Southern California.
In the next year there are several factors that will determine the growth of Florida’s economy including inflation, global oil production, consumer sentiment and geopolitical instability in three regions. As a reminder, Florida businesses need to create over 1.5 million jobs by 2030, so these headwinds really matter.
A major driver of inflation has been energy costs. The U.S. became a net total energy exporter in 2019 for the first time since 1952, maintaining that position until the end of 2021. The change to the Biden Administration, resulted in America’s energy policy changing. On Jan. 27, 2021, President Biden ordered the secretary of the Interior Department to halt new oil and natural gas leases on public lands and waters and begin a thorough review of existing permits for fossil fuel development. This resulted in additional decrease in the production of oil and gas in United States and a rise in fuel cost. Inflation results from too much money in search of too few goods.
In terms of COVID, the Executive Branch through administrative action put aside $1 trillion, of which $200 billion, is still in the pipeline. Legislative action accounted for $6 trillion of which $600 billion has not been spent. Federal Reserve action committed $7.1 trillion, of which $4.7 trillion, has been spent. Continued increased spending and rising fuel costs made inflation a major problem for the national and global economy. Inflation will continue to plague the U.S. economy for the foreseeable future, since lack of oil supply and covid spending has not been adequately addressed.
Global Oil Production
Following his inauguration, President Biden canceled the permit needed for the Keystone XL oil pipeline, which was expected to transport 830,000 barrels of oil per day to refineries in Texas. Coupled with the halt of new oil and natural gas leases on public lands and waters and review of existing permits for fossil fuel development, this signaled there would be less oil available on the global market. As the world economy began recovering from COVID shutdowns, the demand for oil and gas increased. Beginning in 2022, the U.S. went from a net exporter of oil to a net importer. The Russian invasion of Ukraine followed by a cut of 2 million barrels a day by OPEC in early October of 2022 decreased limited global supplies and increased the cost of oil.
Jerome Powell, chair of the Federal Reserve, met with a group of the world’s central bankers to discuss the problem of inflation. The consensus was they will have to increase the sacrifice ratio— the amount of pain that monetary policy is willing to inflict to the real economy to achieve a particular inflation outcome. Unfortunately, this means to attain lower inflation, there must be willingness to sacrifice economic growth and employment.
U.S. Consumer Sentiment hit an all-time low of 50.0 points in June. It was steadily improving until it dropped in October from 59.9 to 54.7. If consumers feel inflation is getting worse, they will continue cutting down on consumption – further decreasing economic growth. Generally, Florida’s consumer sentiment has performed better than the national average with continued positive quarterly growth. Florida’s GDP increased by $30 Million from Q1 to Q2 2022. However, it would be impractical to think Florida can completely shield itself from the wider impacts of the U.S. economy if it takes a greater downturn.
We must keep close watch in three regions: First, Europe, with the continued Russian hostility in Ukraine and its impact on energy in Europe. Second, Iran, with widespread unrest and potential of the clerical regime instigating further conflict with Saudi Arabia affecting oil production. And third, Taiwan because of a potential invasion of Taiwan by China, instigating a global conflict between China and the U.S. and our allies in NATO. The chance of miscalculations by various participants remains significant. The silver-lining is that due to the current global economic conditions, there is less willingness to expand regional conflicts since resources are already strained.
Until there is an increase in domestic oil production to offset the lack of global oil production, economic growth will suffer. To deal solely with inflation through monetary policy by the Federal Reserve, deepens the recession and causes unnecessary pain, since inflation is a lagging indicator. It will also not solve the underlying problem of needing affordable abundant energy for economic growth.