August Outlook: Soft Landing Looks More Likely As Florida Economy Soars

For months, economists and investors predicted the pandemic-spurred economic boom would turn to bust in 2023. The only question was how severe the slowdown might be.

Now, though, the narrative has changed. The economy just keeps chugging away. Second-quarter gross domestic product (GDP) came in above expectations. Meanwhile, the national unemployment rate in June was just 3.6% — and Florida’s jobless rate fell to a rock-bottom 2.6%.

Source: Florida Department of Commerce


“At the start of 2023, a soft landing seemed like a pipe dream, but it’s more and more on the table as a possible outcome,” said Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting. “We’re probably facing more of a ‘near recession’ now than an actual one.”

Federal Reserve Chairman Jerome Powell offers a similar analysis. Central bank policy has been geared to dramatically slow the economy. The Fed raised interest rates at 10 consecutive meetings in 2022 and 2023, hit the pause button in June, then came back with another quarter-point hike in July.

At his July 26 news conference, Powell said the Fed’s own analysts have stopped calling for negative economic growth. “The staff now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession,” he told reporters.

In a sign of how fluid the economic picture is, just last month in this space, we quoted a prominent real estate economist who indicated that a U.S. recession was inevitable. Now, though, the conventional wisdom around that topic has changed.

The ever-shifting outlook illustrates a reality of investing in this environment. Following a period of intense volatility early in the pandemic, markets rewarded investors with outsized returns. The return to reality, and to economic uncertainty, illustrates the importance of a strategic approach.

Feldman Equities remains laser-focused on ground-up development and renovation of best-in-class properties in Florida, a state that has proven quite resilient – even more resilient than the nation as a whole. The next few years should be an ideal climate for Feldman Equities’ aggressive program of acquiring underperforming office buildings in the greater Tampa Bay market.

The inflation picture comes into focus

When the pandemic spurred the highest rise in consumer prices since the early 1980s, the Fed was caught flat-footed. Powell infamously characterized rising prices as “transitory.” But by June 2022, the U.S. inflation rate topped 9%.

After Powell’s initial denials about the threat of inflation, the central bank has been in full inflation-fighting mode. From early 2022 through July 2023, the Fed pushed rates from zero to 5.25%. 

“We’ve raised the federal-funds rate now by 525 basis points since March 2022,” said in his late July news conference. “Monetary policy, we believe, is restrictive and is putting downward pressure on economic activity and inflation.”

Fed policy seems to be achieving its goal. As of June 2023, the U.S. inflation rate had cooled to 3%, according to the Bureau of Labor Statistics. Still, Powell says the consumer price index (CPI) is still well above the Fed’s target rate.

“The June CPI report, of course, was welcome, but it’s only one report, one month’s data,” Powell said. “We hope that inflation will follow a lower path as was — that it would be consistent with the CPI reading, but we don’t know that, and we’re just going to need to see more data.”

He pointed to a separate inflation measure, the Personal Consumption Expenditures (PCE) index, which was up 3.8% as of late July.

The relationship between inflation and real estate values is complex. Inflation creates tailwinds for real estate valuations. This is because as the cost of goods and services increases, so does the cost of constructing new buildings. That means the value of existing buildings goes up, as those properties become more valuable relative to the cost of building new ones. What’s more, inflation can spur higher rents. On the downside, inflation leads to higher expenses and higher interest rates, which means the cost of borrowing to buy property goes up.

Florida’s growth story continues

Despite continued predictions of a recession just around the corner, the labor market keeps humming along. In June, the U.S. economy created 209,000 jobs, and the unemployment rate fell to 3.6% from 3.7% the previous month. Average hourly wages increased 4.4% year over year, to $33.58 an hour.

The Sunshine State continues to outpace the nation in labor market indices. The state’s unemployment rate was just 2.6% in May, more than a full percentage point below the national average. And the state’s year-over-year job growth was 3.4%, among the best in the nation.

Sign up to learn more about how to invest in office buildings and to get early access to our next investment opportunity.