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'09 Economic Forecast
The financial crisis added another challenge to business owners trying to guess what 2009 will bring. Everyone agrees the economy won't come roaring back.
economy by Jean Gruss, Mark Gordon and Dave Szymanski
Business owners on the Gulf Coast wouldn't mind pulling a Rip Van Winkle in 2009. For most, it's going to be a tough year and salvation may not come until 2010.
Most entrepreneurs are an optimistic bunch by nature. But they're not Pollyannas. They know the boom years are over and they'll have to fight hard for every sale.
But for those who have lived in Florida for some time, this is nothing new. The state's economy rises higher and sinks lower than other states that just plod along. Out of the wreckage of this downturn will likely emerge a stronger entrepreneurial corps and the Gulf Coast will be a better place because of them.
Here is the Review's compilation of discussions with business owners and economic soothsayers along the Gulf Coast, from Tampa to Naples.
Tampa Bay:
Diversification helps
One way Scott Riley measures the Tampa Bay area economy is the number of stores and restaurants opening. There haven't been many in 2008. In fact, some closed.
His company, Fintech, helps stores and restaurants manage their liquor ordering electronically. And in tough times, that can remain steady or even increase. Fintech 2008 revenues should rise at least 30%.
Riley saw consumers buying liquor in stores and drinking it at home instead of in restaurants or bars. They also traded down to less-expensive brands. He sees more of that behavior in 2009.
But Riley isn't playing it too conservatively. He's hired more salespeople and is taking the company's services to the Gulf Coast.
"We would be growing quicker if the economy was better," he says. The Tampa Bay area needs to clean out its home inventory to boost the economy more fully, Riley says.
Riley sees a pickup in the last quarter of 2009, and more so in 2010. The difference in this recovery is that it won't accelerate as quickly.
"It will take a little longer to come back, just because it's (the downturn) across the board, not just one segment," Riley says.
Florida's sunshine and lack of income tax will help the region grow again, he says. "The economy's growth will be on a slower scale, but it will be on a more solid, stronger foundation, and definitely more diversified," Riley says.
Mark House, managing director of the Florida operations for The Beck Group, a commercial builder, has a backlog of projects in 2008, sees growth in 2009 but sees a shift coming in his industry.
The shift will likely be to public and medical projects, such as hospitals, doctors offices, courthouses, bridges, sewer lines and roads as the population ages and infrastructure needs grow more critical.
"Short term, things look good, long term, we have questions," House says.
Office and retail space need to be absorbed. Beck in 2009 will perform as it did in 2007 and 2008 - a small rise in revenues. House foresees more public projects and smaller projects. Housing absorption needs to happen before the entire regional economy recovers, House says.
Tom Dorety, president and chief executive officer of Suncoast Schools Federal Credit Union in Tampa and chairman of the board for the Credit Union National Association, doesn't see the regional unemployment rate improving until mid-2009. Credit unions were hit hard in 2008 because of falling economic conditions among its customers, which include many non-professional and professional working people.
"2008 business has not been good," Dorety says. "We're a consumer-driven institution. Home values have declined so much. We're starting to see interest from investors. This is the worst cycle we've seen."
Dorety sees a gradual improvement in the 2009 economy as consumers regain their confidence in the job market and the condition of their employers.
Randy Simmons, chairman of R.R. Simmons Construction in Tampa, said that when fear calms, the market will improve and some people will come out of this downturn with huge financial gains on the shoulders of those who could not wait it out.
"It is odd how many people act as if this has never happened before," Simmons says. "This is Florida. We invented the boom-to-bust cycle."
When the dust clears it will be interesting to see where the blame lands, Simmons says. "Everyone has touched this at some point, regardless of what is said," Simmons says. "Opportunity and values will stabilize and this correction will pass."
Russ Sampson, executive vice president at Colliers Arnold, says the recovery may go beyond 2009 because the Tampa Bay area is experiencing consolidation and job loss crossing virtually all industries.
"This downturn appears to be severe and probably worse than the 1990-1992 time periods," Sampson says. "The bad news is that we are not at the bottom; consequently, our recovery could take years."
The commercial real estate industry is probably worse than some other industries because financing of projects by the big banks is non-existent, Sampson says. Demand for all product types is down and negative absorption has occurred for three consecutive quarters. Consequently, vacancy rates continue to rise and lease rates and values continue to drop.
Colliers Arnold will survive 2009 partly because it has been in business for more than 35 years in the Tampa Bay area, it has been cutting expenses through 2008 and will continue to explore new ways to become more efficient.
"Even in a downturn, there will be opportunities for our company to succeed and prosper," Sampson says.
REVIEW SUMMARY
Topic. Gulf Coast Economy
Predictions. Varying degrees of gloom, but some rays of hope.
Key. Those who were prepared for the downturn are surviving it the best
Sarasota-MANATEE:
A few bright spots
The business of dying in Sarasota and Bradenton isn't dead yet, but it sure is struggling.
The funeral-home business has never been known for its gazelle-like growth, of course, but at least it has been consistent: A regular stream of clients who provided a steady income base could always be counted on, both in good times and in lean times.
But Jason Toale, who, along with his brother runs Toale Brothers Funeral Homes and Crematory, is worried that 2009 could be the 60-year-old company's toughest year yet.
"People are still going to die, regardless of the economy," Toale says. "But people's buying habits are definitely changing."
It's a sentiment many businesses are feeling, from restaurants to computer services to manufacturers. And banks and financial institutions in Sarasota and Bradenton, first in line to reap the boom's benefits a few years ago, are now first in line for suffering.
"Not in my career have I seen things this bad," says Tom Randle, president and chief executive of Sarasota Coastal Credit Union and a 25-year veteran of the financial services field. "I think we will have a few more quarters like this, but God-willing, it's not four or five more."
One theme among both small business owners and senior executives in big business is uncertainty. That's especially true considering the topsy-turvy market, which changes almost every day. The looming presidential election is also adding to the anxiety, many entrepreneurs say.
At Toale Brothers, customers' changing buying habits, which include scaling back on all sorts of funeral extras, from big flower bouquets to elaborate sound displays, are especially troublesome for an already thin-margin business.
Toale, the third generation of his family to take a leadership role in the business, says he's hopeful he won't have to let go of any employees or close one of the company's three funeral homes in 2009.
Michelle Nelson, chief executive of Anexio, a Sarasota-based technology services company with numerous small business clients, isn't as glum about 2009 - although she realizes there are plenty of reasons to feel that way. Like many other entrepreneurs, she's choosing to be optimistic as an alternative to the gloom and doom. Says Nelson: "I don't let fear drive who we are or what we do."
Anexio, which had more than $2 million in revenues last year after growing 50% in 2006, has had to scale back on what Nelson calls "overzealous growth projections." But she is still projecting a slight revenue increase in 2008 and 2009.
There are a few other isolated bright spots in the region.
Ken Chester, founder and president of Cruise Cars, a Sarasota-based solar powered vehicle company, says revenues could triple next year. This is on top of growing 400% in 2008. Says Chester, who declines to release specific revenue figures: "I'm selling a product that people have to use."
Chester plans to proceed with his growth plans in 2009 while keeping a close eye on the general economy. Even though he recently incorporated in Canada and he plans to open a warehouse in California next year, Chester, a retired pharmaceutical executive, knows the economic malaise can swallow him up one day, too. "I'm not under any illusions," he says. "Credit [could] be so tight next year people will have trouble buying anything."
One local business owner who is actually buying something these days is Sam Prost, who runs Weber Manufacturing and Supplies, a 45-year-old family business in southern Sarasota County. The company makes screws and valves for other manufactures and companies, in industries including cars and medical supplies.
Prost recently spent $130,000 on a new screw-cutting machine and, in a big-time thumbing of the nose of credit markets everywhere, he plans on spending another $400,000 or so on two more machines by early next year. The company, which grew sales by about 10% this year, declines to release revenues.
Prost obtained financing for the purchases through the internal financing arm of the company that manufactured the machines. The purchases will come just in time, too, as Weber Manufacturing fends of competitors, both locally and overseas.
"We're going to really need to have these machines," Prost says. "Otherwise we won't be able to compete."
Charlotte-Lee-Collier:
We love snowbirds
In Charlotte, Collier and Lee counties, business owners won't mind if the roads are clogged with snowbird residents and tourists this winter.
It's been a long summer. Retail sales, new-home sales, hotel occupancies and the unemployment rate have all been among the worst of all regions for the Gulf Coast.
"I think we're going to see this recession is going get a little bit worse before it gets better," says Gary Jackson, director of the Regional Economic Research Institute at Florida Gulf Coast University in Fort Myers.
Because the economies of the southern Gulf Coast counties are so dependent on home construction, the key is going to be the economic health of northern states. "That's what you need to watch," Orlando economist Hank Fishkind told a group of Fort Myers executives recently.
Northerners seeking to relocate to Florida must be able to sell their homes before moving, but the problem is that the feeder markets from the Midwest are mired in recession. Only when that situation improves will the Gulf Coast's economies see a rebound.
It doesn't help that county governments have an anti-growth attitude. Fishkind singles out Collier as one of the most difficult places in the state to obtain building permits. He calls the county's building staff "difficult" and decision-making "problematic."
But Collier's not alone. Fishkind says Lee and Charlotte don't have effective public-private partnerships that could encourage businesses to establish themselves here.
But even if they did, financing is now a big obstacle as banks clamp down on lending. "We've got a two-year slog ahead of us," says Tom Wallace, president of Independent Development Services Corp., a company that helps small businesses obtain loans. "It's going to be a painful experience for a lot of people," he says.
Any businesses related to housing, from architects to furniture stores, are struggling. But most businesses dependent on consumer spending are facing tough conditions. "It really is going to be a tough year," says Suzanne Specht, assistant director of the Small Business Development Center at FGCU. "I don't see anything coming through until 2010."
Specht counsels businesses plan for the worst and hope for the best. "I've had to counsel small-business owners on how to lay people off," she says.
Businesses shouldn't count on the government bailout, either. "The bailout is trying to invigorate the market, but I don't think it's going to be enough for the banks to find small-business owners credit worthy," Specht says.
One of the major concerns is that the problems in residential real estate will spread to commercial space such as offices, warehouses and shops. Already, vacancies are surging along the U.S. 41 business corridor. The problems may be felt most in shopping centers as consumer spending declines because unemployment has surged to around 9%.
"We've got to get through the liquidity crunch," says Shelton Weeks, professor of real estate at the Lutgert College of Business at FGCU. "I don't see anybody going into any new projects in the near future."
Prices for residential real estate are likely to drop another 10%, Weeks says. That's because foreclosures will continue to litter the region. "These properties are abandoned, their condition is deteriorating," he says. That drags down prices in entire neighborhoods.
"So much of our economy is tied to the northern end of I-75," Weeks says, referring to snowbird residents and tourists.
There are some signs of hope, however. Southwest Florida International Airport hasn't been hit nearly as hard by airline cutbacks as other airports. And although corporate hotel bookings are soft, hoteliers say high-end leisure travel is holding its own so far.
"I'm a little more optimistic than other economists," says FGCU's Jackson. The sharp decline in oil prices could make Florida more attractive for tourists and the drop in housing prices could lure more buyers. "It's become more affordable," he says. "It's still a desirable place to live."
One thing is certain: Everyone will be nicer to the snowbirds this year.
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