The Economy and Your Business: Managing Successfully in the New Normal

Dr. J. Antonio Villamil

Dean, School of Business, St. Thomas University Founder and Principal Advisor, The Washington Economics Group

YPO Presidents Retreat Epic Hotel - Miami September 14, 2012

The 2012-2013 Business Environment: Managing your Business in the New Normal Economy A prolonged period of below potential economic growth in US and industrial countries Business opportunities in selected emerging markets of Asia and Latin America positive for South Florida businesses Low pricing power for most products and services (e.g., low and stable inflation), which suggests a prolonged period of relatively lowreal interest rates Consumers and businesses reliquifying balance sheets; building cash Emphasis on productivity, expense management and credit quality to improve profitability of your business

Economic Drivers Suggest Steady Economic Expansion in South Florida, but not as Same Pace as in Prior Recoveries: A Selective Approach to Business Development
Economic Driver Outlook 2012-2013
Sluggish economic expansion (2% growth in GDP for 2012) not much stronger in 2013

US Economy

Global Economy

A mixed performance. Euro Zone in recession, but Canada, Asia, most of Latin America experiencing moderate growth Volatility likely next 12 months due to Euro Zone uncertainties. However, low real interest rates in US should assist recovery in housing and business investment

Financial Markets

US Economy: Below Potential Economic Growth Through 2013

Indicator Economic Growth (% Real GDP) Inflation (% Core CPI/U) Personal Income Growth (%) Fed Funds Rate (Average) Unemployment Rate (%)

2010 3.0 1.0 3.8 0.18 9.6

2011 1.7 1.7 5.0 0.10 9.0

2012E 2.0 1.6 4.5 FLAT 8.0

2013F 2.5 2.0 5.0 FLAT 7.5

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve and The Washington Economics Group, Inc. for Forecast (F).

Global Economic Driver of Florida: Stronger Economic Growth in Selected Emerging Markets, but Sluggish in Many Industrial Countries Positive for Expanding your Global Business
Region/Country
World Output (GDP), of which Japan United Kingdom Canada Euro Area, of which Germany France Spain Italy Developing Asia, of which China India

% from Previous Period 2010

5.3 4.4 2.1 3.2 1.9 3.6 1.7 -0.1 1.8 9.7 10.4 10.8

2011
3.9 -0.7 0.7 2.4 1.5 3.1 1.7 0.7 0.4 7.8 9.2 7.1

2012E
3.0 2.0 FLAT 2.0 -0.5 1.0 0.3 -1.5 -1.9 7.1 8.0 6.1

2013F
3.5 2.0 1.5 2.5 1.0 1.4 0.8 -0.6 -0.3 7.5 8.5 6.5

Source: International Monetary Fund, World Economic Outlook, Update July 2012 and The Washington Economics Group (WEG) and Forecasts (F).

Global Economic Activity: Latin America Region Expanding at Moderate Pace Positive for Florida Exports, Tourism, Foreign Investment
Region/Country
Latin America & the Caribbean, of which Brazil Mexico Colombia Dominican Republic Chile Peru Argentina

2010
6.0 7.5 5.6 4.0 7.8 6.1 8.8 9.2

2011
4.3 3.0 4.0 5.9 4.5 6.0 6.9 8.9

2012E
4.0 2.0 2.0 4.0 4.0 5.0 6.0 2.0

2013F
4.0 3.5 3.0 4.5 4.5 5.0 6.0 4.0

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Macroeconomic Report on Latin America and the Caribbean, June 2012, and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).

South Florida Economy: Modest Growth, but Strong Headwinds in 2012 and into 2013
Indicators Gross Domestic Product Growth (%) Total Taxable Sales (%): Miami-Dade County Broward County Palm Beach County Population Growth (%) Total Non-Ag Employment (%) Export Growth (%) Existing Single-Family Home Sales (%) 3.0 1.0 4.0 1.4 -0.8 19.0 3.0 8.0 4.0 2.0 1.5 1.5 18.0 21.0 8.0 5.0 6.0 1.4 1.0 10.0 6.0 8.5 6.0 7.0 1.2 1.7 8.0 10.0 2010 1.7 2011 1.0 2012E 1.7 2013F 2.0

Sources: BEA, DEO, Enterprise Florida, Inc. Florida Association of Realtors, US Census, Foreign Trade Data, Florida EDR and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).

Business Opportunities under the New Normal of Below Potential Economic Growth

Mergers and acquisitions (M&A activity) Exports to selected emerging markets; including services such as tourism, education, health Business services (accounting, legal, engineering, consulting) Foreign companies investing in South Florida (from Canada, Europe, Mexico, China, Brazil) Selective income producing properties (commercial) Wealth management (high net worth international visitors, baby boomers) Mortgage refinancing products

Sectors/Industries Growing in Florida

Professional and business services (accounting, legal, IT, management, engineering and others) Health-related manufacturing and services Private education providers International trade-related companies Tourism and hospitality-related industries and companies Wholesale and Retail Trade

Concluding Perspectives

A much-changed economic environment for business through 2013

A New Normal: Slower economic growth than in prior cycles with ample financial liquidity Consumers, corporations and businesses repairing balance sheets: building cash! Risk shifting from private to public sector (public finance a key issue) Low and stable short-term interest rates through 2013; time to lock in if you are a borrower (interest-sensitive)

Conclusions Where in Florida?

There is significant statistical dispersion around average levels of economic performance in Florida Large and diversified Florida counties and regions will outperform real estate and population-driven ones

Where in Florida?
Stronger Economic Outlook Weaker Economic Outlook

Miami-Dade, Broward, Palm Beach I-4 Technology Corridor (Orlando Region to Tampa Bay) Jacksonville (Duval County) Alachua County (Gainesville)

Southwest Florida (Collier to Sarasota Counties) Brevard County (Space Coast) Leon County (State Gov.) Rural, agricultural-dependent counties