The Florida economy is finishing its third year of economic recovery from the Great Recession. The state entered the recession a year before the rest of the country and we didn’t begin our recovery until six months after the national upturn. The economy has not snapped back – it has been a slow grind. We were all shocked by the sharpness of the recession and we have been cautious in our economic behavior as a result.
Caution can be measured by the savings rate – the percent of our income that we save. The national savings rate rose from 1.5 percent to 5.4 percent as we went from the lavish times during the boom to the fearfulness of the recession. Since the recession ended, the savings rate has fallen to about 4 percent which is about the 20-year average. The American consumer is back, not to the boom levels, but to a more normal behavior.
This is good news for Florida, because our economy is consumer driven, including not only by the consumer spending of Floridians, but also by the spending of consumers who come to Florida as tourists and seasonal residents, as well as those who move to Florida to retire or seek jobs. The importance of the consumer for the state’s economy shows up in the share of state employment accounted for by trade, transportation and utilities (20.3 percent). This is the state’s largest source of employment.
Other important consumer-oriented industries are leisure and hospitality and (private) education and health. Job growth in these three industries adds to 99 percent of the job growth in the state since the recession low. The job growth in the rest of the economy netted to zero as growth in some industries was canceled by declines in others.
Even the state’s construction industry, after experiencing a 50 percent collapse in employment during the recession, remains an important employer. Residential construction dominates theindustry in the state because of population growth and the growth of second homes. Once again, the industry is driven forward by consumer spending. And there is evidence that residential construction has begun the long climb from the depths it fell into during the recession.
One indication that the consumer is back is the fact that the confidence of national consumers and of Florida consumers recently reached five-year highs. Another indicator is the record number of tourists who are visiting the state in 2012. It is likely that the number of tourists will be close to 90 million by the end of 2012. Finally, almost 500 persons move to the state every day. Most in-migrants are seeking work, but the state continues to be a haven for retirees and winter residents.
There is a cloud hanging over the state and nation as this is written, namely, the “fiscal cliff”. If Congress does not act by Jan. 1, the Bush tax cuts will go away and there will be draconian across-the-board cuts in federal spending on discretionary programs. I don’t believe that this will happen. The cliff was created by Congress to force itself to resolve the high federal deficits and rising national debt.
But it is reminiscent of a person who wishes to lose weight and resolves to go on a three-month hunger strike if a certain number of pounds are not lost by Jan. 1. If you cannot cut your appetite in the next couple of months, you will not stick to a hunger strike in the New Year. The fiscal cliff will be enormously unpopular and will plunge the economy back into recession. Congress will solve the problem but may temporarily shake the confidence of consumers as the national economy is brought to the brink of disaster. But the improvement in the federal government’s finances will increase consumer confidence as next year progresses.
Florida’s housing market still has a way to go, but we are confident that the worst is behind us and are projecting a continued slow and steady recovery in 2013.
It is well known that Florida has been hit harder than many states by the national housing market crisis. Home prices in Florida, as in most other states, peaked in 2006 and began their freefall shortly thereafter. This peak in home prices was more pronounced in Florida due to the added pressure on residential property demand exerted by the state’s high rate of population growth and its status as a vacation and retirement hub.
This excess demand from outside of the state contributed to additional increases in home prices on top of what was already a significant nationwide escalation. As a result, when the market eventually corrected, home prices in Florida had further to fall.
And fall they did. As measured by Florida Realtors’ Residential Real Estate Price Indices, price levels for single-family homes, condos, and townhomes in Florida dropped by about 45 percent between their peak in 2006 and the first quarter of 2009. Over the next two years, Florida housing prices were somewhat volatile and experienced a handful of peaks and valleys, with the lowest price levels reported in early 2011. (Note: This paragraph has been modified to correct errors in the original.)
The condition of Florida’s housing market in 2012, however, has shaped up to be much more positive.
Why? For one, the vast majority of statistical indicators have consistently behaved as they should in a healthy market setting for several months running.
Monthly counts of existing homes sales in Florida have steadily and substantially increased over the past year or so. In each of the past 10 months, we have seen higher sales counts for existing homes in Florida than was reported during those same months in 2011. At the same time, the rate of existing homes being put on the market each month has slowed to a degree. As a result, we have seen a significant reduction of the overall inventory of homes for sale in Florida: It’s now at what is historically a healthy, balanced level.
Importantly, this decrease in the number of homes on the market in Florida has been accompanied by rising – not falling – prices. Along with the decline in market inventory, these steady increases in home prices have recently incentivized many homebuilders in Florida to start building again.
What’s driving this revival in the Florida housing market? Several factors are at play. For one, Florida’s unemployment rate, while still higher than average compared to other states, is certainly trending downward. This higher level of employment and marginal increase in job security for workers has certainly played a role in stabilizing the market.
Additionally, the recovery of the nation’s financial markets has contributed to an increased level of certainty (at least, relative to where we were in 2008 and 2009) and a restoration of household wealth, allowing more people to participate in the housing market. Furthermore, with the relatively low level of current home prices combined with a robust rental market, numerous investors are snatching up homes throughout the state and turning them into rental properties.
Another contributing factor is a renewal of migration to Florida. Before the Great Recession, hundreds of thousands of people were moving to Florida each year. Afterward, however, net migration came to a standstill. Fortunately, recent census data indicate that large numbers of people are moving to Florida again, which equates to additional housing demand. We are also seeing significant numbers of properties being purchased by foreign buyers, particularly from Canada and Central and South America.
In Florida’s sizable distressed property market, we are seeing signs that lenders have climbed up the learning curve in terms of handling and processing delinquencies. At the same time, we suspect there may still be a bit of a logjam given that Florida is a judicial foreclosure state. We suspect lenders may be trending more toward encouraging short sales rather than going through the foreclosure process, based on recent increases in completed short sales and declining numbers of foreclosure and REO sales.
While it may take several years for Florida’s inventory of distressed properties to clear, a positive aspect of this “trickle” of new distressed properties coming on to the market is that it is no longer driving down home prices to the extent that it was before.
(Note: An earlier version of this article described the author as a doctoral candidate in economics at Florida State University. He is now a Ph.D.)
Florida’s retailers are expecting to have a good holiday shopping season, and we think consumers will be pleased with the values they will be able to find. The busy and important holiday shopping season, which can account for 20 to 40 percent of a retailer’s annual sales, is predicted to inject $58 billion into Florida’s economy — up from $55 billion in 2011.
That’s a 5.2 percent increase that will have positive effects on the entire state economy as we begin 2013. Last year, holiday sales in Florida set a new record, hitting their highest level since the Great Recession. The recession has been over for nearly three years now, so it’s confirmation that we are back to a normal growth cycle. That has made consumers more confident, and monthly surveys show that people are much more optimistic that the economy will improve in the next year, and in the next five years.
The sustained growth has made retailers more confident in their hiring, and holiday shopping sparks a season of job growth for us. Florida retailers will create as many as 42,000 seasonal jobs this year to handle the crowds, and many of those jobs will become permanent. Overall, the retail industry supports about one out of every four jobs in Florida, so what’s good for retail is good for Florida.
One of the biggest stories in retail this year is the continued growth in online shopping. E-commerce sales are expected to be about 15 percent higher than last year, and well over 5 percent of all retail sales are now online. In all, Florida shoppers will be spending at least $2.9 billion on holiday shopping online this year.
As retailers modernize their operations to handle e-commerce, we are looking to state and federal policymakers to modernize as well. The most important policy issue for Florida’s retailers continues to be e-fairness – the urgent need to close the loophole that allows online-only retailers like Amazon and Overstock to evade collecting Florida’s sales tax. No. 1 on our wish list for Santa this year is for Congress to pass the Marketplace Fairness Act in the Senate and Marketplace Equity Act in the House.
In Florida, we are continuing to advocate for the state legislature to take action in Florida to press for online retailers to begin collecting and remitting state sales taxes. As we look forward to the 2013 legislative session, we hope this will be that last holiday season that Florida’s retailers are forced to compete at a disadvantage.
(Note: Over an earlier version of this commentary, the first name of the writer was incorrect.)
Recent economic data suggest that Florida’s recovery has gained strength in 2012, but the continued growth will largely depend on national policy decisions in 2013.
Florida’s labor market experienced relatively high unemployment following the 2007 Great Recession. As of October 2012, Florida’s economy has gained an additional 221,000 jobs over the year. Over the same period in 2010-2011, the state added 191,000 new jobs. In terms of industry contributions, the “professional and business services” industry accounted for a significant number of new jobs in the state.
In addition, the jobless rate continues to decrease, reaching a post-recession low of 8.5 percent in October 2012. While we have observed a decrease in the state’s jobless rate, it remains elevated when compared to past recoveries. In addition, many workers have dropped out of the labor force or have accepted part-time jobs as they struggle to find full-time positions – a caveat that makes the jobless rate a less reliable economic indicator.
In addition to the improving labor market, other indicators suggest that Florida’s economic output continues to increase.
Taxable retail sales activity, consumer confidence, trade, and housing metrics suggest a higher gross state product (GSP) growth rate for 2012 as compared to the dismal 0.5 percent rate of growth observed in 2011. In the final quarter of 2012, gains in consumer confidence and building permits suggest continued growth.
Despite those encouraging signs, Florida’s future in 2013 will largely depend on fiscal policies and global growth in 2013.
We expect that a fiscal compromise will be achieved, but the state’s economy may slow as a result of an increased tax burden and possible spending cuts. In the unlikely event that the U.S. does not address the tax increases and spending cuts scheduled to take effect in 2013, we expect the state’s economy will slow or face a mild recession over the next year.
Comment on this Roundtable Using Facebook