EconSouth (Fourth Quarter 2005)
Florida Drives the Region’s Economy
Florida continued to outpace both the nation and the rest of the Southeast in employment growth in 2005. Job gains in the state over the past two years have been similar to those during the boom of the late 1990s. Employment has expanded rapidly in a number of industries, including construction, professional and business services, and employment services (see the chart).
The growth in Florida’s real per capita income, at approximately 3 percent, is closer to the national trend because the jobs created in Florida tend to be lower paying than average. Nonetheless, state tax revenues expanded at a double-digit pace thanks to the continued influx of out-of-state tourists.
Ongoing strong in-migration should help sustain housing markets at healthy levels. However, the housing market should slow moderately as speculative demand for condominiums declines and higher mortgage interest rates restrain the pace of home purchases. Also, repair work associated with hurricane damage could lead to some spot material shortages and construction delays. Despite two extremely active hurricane seasons, the outlook for tourism is surprisingly bright. In fact, current bookings for 2006 suggest that the tourism and hospitality industry will have another strong year. Overall, Florida should continue to be the driving force behind growth in the Southeast.
Real estate and construction face softening demand
Sales of both single-family homes and condominiums enjoyed another strong year, and prices rose rapidly in most markets as demand continued to outstrip supply. But reports suggest that demand softened during the second half of the year, and this softening is likely to cause housing price increases to moderate. The pace of permit issuance remained strong, suggesting that planned construction activity is robust. But cost escalations and spot material shortages have led to some delays and project cancellations, and Hurricane Wilma, which struck the state in October, added further uncertainty to the outlook.
The coastal condominium market is likely to slow in the coming year as speculative demand subsides. Although favorable migration patterns indicate that single-family housing will continue to experience solid demand, the pace will likely ease relative to 2005. Shortages of materials and skilled labor remain an issue for 2006.
Repairs from the 2004 hurricanes boosted nonresidential construction levels in the state during 2005. Generally, office and industrial markets enjoyed a decline in vacancy rates and had positive net absorption of space. Fort Lauderdale, which had the tightest office and industrial markets in the state, saw office vacancies decline from approximately 15 percent to 12 percent during the year while industrial vacancies fell from 12 percent to 7 percent. These factors combined to relieve the downward pressure on rents and are favorable for development in 2006. Following the series of hurricanes, spot shortages of key materials such as concrete delayed some new projects and could restrain the pace of commercial development into 2006 as well.
Tourism looks bright for the coming year
Employment in the state’s leisure and hospitality industry increased by just over 3 percent in 2005. In south Florida, hotels averaged 68 percent occupancy over the summer, the highest rate on record, and room rates were more than 10 percent higher than in 2004. Disney World’s celebration of the 50th anniversary of Disneyland had a strong positive impact on central Florida’s tourism. The state’s tourism industry has noted increased bookings for the first half of 2006 compared to a year earlier, partly because Orlando has picked up some conventions previously scheduled for New Orleans. Tourism faces some uncertainty, however, surrounding the impact high energy prices and the recent hurricanes will have on travel in the coming year.
Services keep steady pace
Professional and business service industries, which account for 18 percent of Florida’s employment, were a major driver in the state’s overall employment growth, with a 6 percent increase (74,000 jobs). Much of this growth was driven by demand for temporary workers (employment services). Other service industries, such as health services and retail trade, experienced moderate growth. The encouraging outlook for the state’s economy as a whole suggests that the growth in demand for services should continue at a solid pace in 2006.
Manufacturing outlook is mixed
Manufacturing employment, which accounts for approximately 6 percent of the state’s total employment, grew by 1.5 percent during 2005. An 8 percent increase in transportation equipment industry employment supported a 2 percent overall growth in durable goods manufacturing jobs. In the nondurable sector, textile and apparel producers and plastics producers posted moderate growth in payrolls during the year while the chemical, paper, and printing industries showed declines.
The new year may bring some further improvement to parts of Florida’s
manufacturing sector. For instance, the lumber and wood product industry will
benefit from hurricane rebuilding activity, and recently awarded U.S. Department
of Defense contracts will bolster the state’s transportation equipment
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