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Prepped for Growth
Economy by Jean Gruss | Editor/Lee-Collier
Observers say the residential real estate downturn isn't going to do serious damage to the Gulf Coast's economy. Low unemployment, population growth and millions of tourists will drive the region's economy.
To get a good sense of where the region's economy might be headed in 2007, consider the prospects for Joe Gammons' company.
Gammons is president and owner of Office Furniture and Design Concepts in Fort Myers. He expects sales of office furniture to grow 30% next year, in line with the growth his business experienced in 2006.
Office furniture sales are good leading indicators of future growth because they show businesses are confident enough to expand. If Gammons' forecast is any indication, the region's economy will continue to grow despite the downturn in residential real estate.
"The greatest expansion market is healthcare," he says. Doctors are opening new practices or expanding existing ones as more people retire to Southwest Florida and require medical services. "From the private-sector segment, medical is leading the charge," he says.
Professional-service companies such as law firms and accounting practices are growing too. "Surprisingly, some Realtors are still expanding as well," Gammons says.
In the public sector, schools and universities are fueling the growth as counties build more educational and administrative buildings. "Government always continues to grow," Gammons says.
As the population continues to grow, so will government services. "Thirty-six thousand people moved into Lee County this year," says Dan Regelski, regional director of the Small Business Development Center at Florida Gulf Coast University in Fort Myers. The center helps budding entrepreneurs land municipal, state and federal contracts for goods and services.
Statewide, 1,200 people move to Florida every day. After factoring for those who leave, that's a net gain of 900 people daily.
Commercial construction should remain strong as offices, warehouses and shops spring up around new communities that were built during the boom years. "They're still catching up to the rooftops," says Russell Weyer, an economist with Fishkind & Associates in Naples.
Still, population growth won't quickly absorb all the new and existing homes for sale across the state. "It's going to take until 2009 to work that inventory off," Orlando-based economist Hank Fishkind told an audience at a recent economic outlook conference. "We're at the bottom of this cycle."
Investors fueled the most recent housing boom and that makes annual comparisons difficult, says Weyer. If you take the investors out of the equation, growth next year should compare favorably with years that preceded the boom.
Southwest Florida's residential downturn won't recover as quickly as the east coast of Florida, Fishkind says. That's because the region from Tampa to Naples generally attracts Midwesterners from states such as Ohio and Michigan. These states are experiencing a recession driven in part by the struggling auto industry and people who have trouble selling their homes in northern states may postpone a move to Florida.
However, thousands of auto-industry workers have accepted buyouts from automakers and that combined with Florida's low unemployment could translate to increased migration from the Midwest, says Charles Richardson, regional senior vice president for Southwest Florida at Coldwell Banker. "When there are no jobs up north, they come down here," he says.
"One thing that's really important is that we have very, very low unemployment," says Gary Jackson, director of the Regional Economic Research Institute at Florida Gulf Coast University in Fort Myers.
In October, Lee and Manatee counties tied for the lowest unemployment rate on the Gulf Coast at 2.5%. Charlotte County had the highest unemployment rate at 3.2%. That means people who lose their jobs in the residential construction downturn will probably find jobs in other industries, such as retail. While that transition occurs, Jackson expects the unemployment to edge up, though not much more than the 3% range.
"This area has traditionally done well, even in recessions, because of its location and the inflow of people who create a lot of growth," Jackson says.
Economists say population growth and the low unemployment rate will soften the impact of declining sales of existing and new homes. Relatively low interest rates and strong job growth will eventually generate enough home sales to absorb the current oversupply of homes. "We're still talking another year of adjustment," Jackson cautions.
David Jones, chairman of Investors' Security Trust in Fort Myers and a retired Wall Street economist, says weakening home prices may mean that the oversupply of homes could be absorbed faster than anticipated. Jones forecasts the Federal Reserve will lower short-term interest rates next year, though it will still remain vigilant about inflation. "All things considered, we avoid a recession," he says.
Meanwhile, tourism is likely to pick up as oil prices decline and the memory of hurricanes recedes. The winter season is shaping up well, if airline passenger traffic is any indication. Traffic at all three major Gulf Coast airports was higher in October.
Of course, tourism is a big source of future homebuyers. Although there is no empirical evidence, economists say it makes sense that an increase in tourism correlates with rising home sales. Lots of people are banking on it.
AT A GLANCE
Gulf Coast Airport Traffic
Airport Oct. Increase*
Tampa International 2.5%
Sarasota-Bradenton 18%
Southwest Florida 7.1%
*Year to year
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