Like many of you, the New Year brings to mind many questions about what's to come in business and the economy. As an economist for PNC Financial Services Group, I wonder how kind 2017 will be to our pocketbooks. Will the unemployment numbers stay low or will they begin to increase? What about the cost of gas and health care?
Here are some of our forecasts on how the Gulf Coast economy will fair this year.
The region goes into 2017 with considerable strength.
The market area, which includes Tampa and North Port-Bradenton-Sarasota, is on track to see employment growth of about 2.9% for all of 2016. This is stronger than PNC Economics' U.S. forecast and is close to a full percentage point faster than the national rate of job growth for the year.
The Gulf Coast economy is sensitive to macroeconomic trends, which is currently an asset that allows the region to ride the coattails of an expanding U.S. economy.
Continued jobs and income gains nationwide are boosting regional tourism. Fuel prices though, have been crawling up, but are still low enough to support consumer spending.
The population is growing at a healthy pace as retirees around the country recover the wealth they lost during the recession and are able to sell their homes and move into the area. This strong pace of population growth fuels stronger demand for housing, health care, professional services and consumer spending on retail trade.
Though it's still sizable, the foreclosure pipeline is narrowing, which in turn is lifting home values.
Home prices are expected to rise by 6% in the coming year, thanks to a strong housing demand and a shrinking pipeline of foreclosure.
Business will influence job creation.
Entrepreneurship is picking up, indicating that the regional economy is getting back to normal. The jobless rate fluctuated between 4.5% and 4.7% throughout 2016. Yet, the labor force expanded at healthy rates throughout the year, which is a good sign of stronger confidence in the region's economy.
Looking ahead, the rate of job growth in the Gulf Coast will likely cool to 2.3% in 2017 as the regional economy approaches full employment. Still, the economy will be firing on all cylinders, allowing it to outrun the U.S. economy, which is forecast to see job growth of only 1.5% in 2017. The unemployment rate is likely to decline steadily to a low of 4.3% in the second half of 2017. Meanwhile, the tight labor market will lead to faster wage growth.
Much of 2016's story will continue to be played out in the coming year. Professional and business services will play a major role in job creation, while a healing labor market and income growth will boost tourism. Strong rates of in-country migration will bolster housing demand and will stimulate consumer spending. Gasoline prices will likely trend higher over the course of the year, but this is unlikely to dent consumer spending, given that other aspects of household finances are improving.
The presence of the University of South Florida and a large, elderly population will keep education and health care growing.
Unlike 2016, faster inflation and rising interest rates will be major themes of the coming year's economic story.
The Federal Reserve raised its benchmark interest rate in December as it expected stronger wage growth, higher energy prices and increased government spending to lift consumer price inflation.
PNC Economics expects the Fed to raise rates two more times in 2017. Borrowing costs, including mortgage rates, will likely tick higher over the course of the year. However, this is unlikely to adversely affect the economy, given that rates are very low to begin with. On the upside, rising interest rates will be a plus for savers and retirees that depend on interest income.
There is some upside potential for the regional economy to beat expectations. PNC Economics expects the U.S. economy to gain momentum in the coming year as fiscal stimulus, in the form of tax cuts and infrastructure spending, kicks in during the second half of 2017. This could lead to higher profits for regional businesses and more construction jobs in the area.
Mekael Teshome is an assistant vice president and economist for The PNC Financial Services Group.