What’s the economy likely to do this year?
It’s likely to grow about 4% — about twice as fast as normal, according to Nicholas Lacy, the chief portfolio strategist for Raymond James Financial.
On average, the economy has grown about 3% for the past 50 years, Lacy, the featured speaker, told the crowd during the Pasco Economic Development Council Inc.’s Economic Forecast Luncheon on Jan. 20, at Hyatt Place Tampa Wesley Chapel.
“What’s it going to do going forward? Depends on who you ask.
“Don’t ask a politician.
“If you ask an economist, they’re going to give you stuff all over the place. So, you ask the Fed.
“Why the Fed? Because they kind of control interest rates — so, good people to ask.
“They say long-term, the U.S. should be able to grow its economy by 1.8% to 2% a year.
“Historically, that’s lower. And why is that? It’s labor force. We have a labor force that’s not growing as fast as the prior 50 years,” Lacy said.
Lacy is bullish on Florida’s prospects.
“There are so many good things happening in Florida,” he said. “If you look at our level of unemployment, it’s fantastic.
“Florida has benefited because what do we have that most other states don’t, other than sunshine? More people.
“What’s important when it comes to the economy?” he asked. “It’s jobs. That’s where I think the economic growth is going to come from. It’s the creation of jobs and getting people back into the job market.”
Pasco and Hillsborough counties are in a good position because they are getting such an influx of people, their growth has outpaced Florida’s growth rate, he said.
He touched on a number of economic issues, including inflation, interest rates and the impacts of COVID-19.
“What is everybody talking about today? Inflation.
“Is inflation important? Absolutely. Is inflation going to be with us for a while? Absolutely. We just have to change the definition of transitory.
“It’s no longer a quarter. It might be a year. It might be a couple of years.
“If you take a look back through history at all of the inflationary periods — you look at the bottom to the top of inflation cycles and you annualize what various parts of the market did, what ended up working?
“Over time, the things that tend to work during inflationary times are stocks because companies have the ability to adjust, gross earnings, gross sales, raise prices, all of these things.
“Big question: What will the Fed do?
“They’re going to raise interest rates. There is a zero percent probability that the Fed will not raise interest rates.
“That’s what the data tells us today: Zero percent probability.
The questions are: When and by how much, he added.
“The Fed has been very clear that it is going to be very slow, methodical, and they’re going to watch the data.
“The Fed believes they can raise rates to 2%. That’s their target. How long it’s going to get there? I don’t know. If it takes them two years to get there, I think that’s problematic because I think the market will probably not like that. It’s too fast,” Lacy said.
He also explained the impacts that higher mortgage rates have on the growth in housing value.
“If you think about the real estate market, the real estate market is very, very, strong. (In) Florida, especially, but it’s all those Sunshine States in the United States, where people are leaving cold areas and coming here.
“Great taxes here. Great people. Great environment. All of these things. But it has pushed property prices up,” Lacy said.
However, he added, if mortgage rates go up, “we should see housing price growth slow, because higher (interest) rates means you can no longer afford that house.”
Lacy also touched on the pandemic’s impacts.
“COVID is still an issue,” Lacy said, but based on the level of traffic he encountered on the way to the luncheon, things apparently are improving.
He also noted that a much smaller percentage of people who are infected by the virus are getting seriously ill and becoming hospitalized, or dying.
But beyond illnesses, the pandemic also has had impacts on business operations and employment trends, Lacy said.
“You probably took a decade of change and pushed it into a two-year period. And, you’ve seen businesses fail, very quickly.
“Don’t wait for things to go back to normal.
“We’re not going back to normal. We’re going to go to new normal. You have to be able to identify, how do you fit in that new normal and what does that mean to your business?
“And not all businesses are going to succeed,” Lacy said.
The pandemic also has affected how people work.
“What the pandemic has taught us is, unless you have to be there in person, unless you absolutely have to be there in person, you can probably do your job from anywhere,” Lacy said.
Published January 26, 2022