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Bernanke, we hate to admit, is fueling Florida's growth

  • By Matt Walsh
  • | 7:07 a.m. May 23, 2013
  • | 2 Free Articles Remaining!
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Florida's economy is back.

Well, pretty much.

It's back to its old ways of growing faster than the nation and faster than most states in population growth, job growth and home sales. The growth state product expanded at a 3.6% pace in 2012, compared to the anemic 2.2% growth in the nation. And tourism is rocking.

It's just like the good ol' days of 1980 to 2004.

It's not quite back to the aggregate levels of the 1980s and 1990s, when Florida added 350,000 new residents a year (this year Florida is expected to add 254,000). But in the context of how we're doing compared to the rest of the nation, economically you'd rather be here than elsewhere. (Sure, North Dakota is the fastest-growing job state in percentage terms, but c'mon, who wants to frack for oil in snow pants and long underwear from September through June?)

What you're experiencing now is essentially the new normal, with gradually increasing growth rates expected to persist through 2015, according to Wells Fargo economists Mark Vitner and Sara Silverman, who recently produced a detailed outlook on Florida's economy. Vitner should know. He has been following Florida's economy since the 1980s, back when he started tracking it for Barnett Bank.

As Vitner sees it, just about every economic indicator is heading up on the trend lines through 2015 (see table.)

Faux recovery
About the only underside to Vitner's analysis is that Florida is experiencing a Ben Bernanke-driven recovery. We'll call it a faux recovery — driven more by government intervention than by market fundamentals.

Begrudgingly — let's say very begrudginly — you can say Bernanke's no-interest-rate and print-more-money policies are working. They're stimulating Florida's growth by creating economic conditions that have been influencing consumer behavior. There is no denying: Incentives change behavior.

Vitner details what has occurred. Thanks to Bernanke's “quantitative easing” and low interest rates, investors and savers have turned to the stock market for decent returns. As the stock market climbed so did wealthy consumers' net worths.

At the same time, as the Federal Reserve printed more and more money, the value of the dollar fell, especially vis-a-vis the Canadian dollar and Brazilian Real.

As a result of these two interventions, guess what happened?

Affluent investors came back to Florida's popular coastal areas and propelled one of the best hospitality and retail seasons in nearly a decade. We've had restaurant owners tell us this was one of their best seasons ever.

Vitner says in the traditional affluent snowbird markets of Naples, Sarasota, Palm Beach, Fort Myers, Stuart and Vero Beach consumer spending has outpaced the rest of the state during the past three years, especially in the car and luxury categories.

Tourism surge
The lower value of the dollar also triggered a tourism surge, to the greatest extent from Canada and Brazil. And many of these international visitors bought homes and condominiums with cash, according to Vitner. As expected, the Brazilians spent and invested most of their cash in Miami. Orlando and Tampa Bay also benefited.

On top of this, cash-laden institutional investors also looking for decent returns swooped into Florida's depressed real estate market and rocketed home sales — again with all-cash purchases. According to Vitner:
“Cash buyers accounted for nearly 50% of home sales during the first three months of this year,” Vitner says. In 2012, they accounted for 30% of home sales in Miami, 20% in Orlando and 15% in Tampa Bay.

“While not all cash buyers are investors, most investors are cash buyers, so the elevated level of cash buyers provides a fairly good indication of just how much the investor influx is influencing home prices,” Vitner writes.

Indeed, home prices have risen more than 25% in Miami and more than 20% in Tampa, Orlando, Sarasota, Fort Myers, Naples, Vero Beach and Port St. Lucie.

The big unknown is what effect these institutional Wall Streeters, who buy blocks of homes at a time, will have on housing prices going forward. What happens when they decide it's time to dump? As we said, a faux, intervention-induced recovery.

Vitner doesn't go so far as to describe the recovery as artificially driven. He says it's on “two paths.” We described the one path previously — the Bernanke-influenced recovery. The other is the one based on fundamentals. And as Vitner sees it, this one is showing slower improvement — “with businesses cautiously expanding and a high proportion of new jobs coming from historically lower paying industries.” To wit:

• Wages and salaries nationwide the past three years have risen 11.7%; in Florida, they have risen 7%.
• Vitner reports that low-wage jobs, which are categorized as those paying 20% or more below the average wage, have accounted for 45% of the state's new jobs over the past 12 months.
• “Restaurants, hotels and tourist attractions have added 40,500 net new jobs over the past year, with most of the gain coming in the restaurant category. Hiring at restaurants has surged 4.7% percent over the past year, as chains and independents have added 30,400 new positions,” Vitner writes.

Frankly, the low-wage jobs are no surprise and certainly no change from Florida's historical trends. Demographics is destiny. With Florida remaining one of the nation's top retirement and tourism markets, the state is destined to be more of a lower-wage, service-oriented economy than a Silicon Valley.

Nonetheless, the variety of business is much improved. Compared to 30 years ago, Florida has vastly diversified and continues to do so. You can see the evidence in Gov. Rick Scott's daily press barrage of companies hiring and moving to Florida — Hertz Corp.'s headquarters; Northrup Grumman and United Paradyne Corp. on the Space Coast. It's also evident every week in this newspaper, where we chronicle the growth and successes of entrepreneurs along the Gulf Coast, many of them in STEM industries.

This diversification will continue and spread gradually. Industries such as bio- and technology health care are building critical mass. What's more, Florida will continue to attract employers as long as the governor and Legislature continue to focus on creating the right climate for business.

And we know what that is — low taxes, low regulation. Those policies help fuel population growth, which fuels economic growth. We've watched that formula work for more than 30 years here.

What's next?
At the same time, we all know Washington interventions still have a huge effect on us. It's affecting Florida's growth now. And it will affect it again. The big question is “when?”

Bernanke said he would stop quantitative easing and the “zero-interest-rate” policy when the nation's unemployment rate falls to 6% or below. It's at 7.5% today.

When he changes course and begins the inevitable hikes in interest rates, it will be as if you're taking your foot off the gas pedal to go from 55 to 30.

At that point incentives begin to change. There will be less of a reason for international buyers and institutional buyers to do what they've been doing. And if the dollar gains strength, that makes tourism more expensive, especially for the groups fueling it now, Canadians and Brazilians.

The trickle down will continue: less retail activity, fewer home purchases, slow home-price appreciation.

Isn't it frustrating that one man, one institution has so much control over our economic fate?

The price of intervention is high.

Taxwatch Tradition: The Turkey Hunt
Florida TaxWatch recently released its annual list of legislative “turkeys,” identifying suspicious appropriations that typically help a legislator's local district and which didn't get proper vetting in the legislative process.

As TaxWatch reports this year, lawmakers showed more restraint this year than last year.

This year's TaxWatch turkeys totaled 107 projects and other items and $106.8 million in appropriations.

A year ago, the turkey list included 159 items worth $171 million — and that was even when the Legislature had to find $3 billion worth of cuts to balance the budget.

A 10-year history of turkeys looks like this:

2003: $0
2004: $202 million
2005: $240 million
2006: $295 million
2007: $256 million

2008: $110 million
2009: $15 million
2010: $61 million
2011: $203 million
2012: $171 million
2013: $110 million

Who were the biggest turkeys growers?

2005-06: Speaker Alan Bense, Senate President Tom Lee.

2007: Speaker Marco Rubio and Senate President Ken Pruitt.

Surprisingly, the governor in 2006 was popular Jeb Bush.

The best turkey cutters: 2003 Speaker Johnnie Byrd and President Jim King.

Golden State
Florida has capitalized on its geography over the past 30 years by becoming a Latin American finance capital and a leading port for imports and exports.

But in the past two years, Florida has become leading exporter of gold, according to Wells Fargo economist Mark Vitner. Vitner reports in a May commentary on Florida's economy:

“Gold has become the state's most valuable export over the past two years, and Switzerland its largest export market.

“Gold exports surged from a mere $21 million in 2009 to just under $8 billion in 2012. Florida has strong ties with South America and has been importing large amounts of the precious metal as central bankers and global investors drove up the demand and price for gold.

“The United Arab Emirates is also purchasing more gold from Florida, which has more than tripled the state's exports to the country in the past two years. In fact, the UAE is now the ninth-largest export market for Florida, after not even cracking the top 25 in 2009.

“However, both the price and Florida's exports of gold have been slipping since October 2012. The mid-April plunge in gold prices may reduce the dollar value of Florida exports over the next few months.”


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