Raymond James economist sees lingering unemployment but hot home sales locally

Six months ago, when businesses began to shutter with the spread of Covid-19, it was almost inconceivable that the pandemic and its restrictions and limitations would last this long. Yet here we are, with no guarantees of a return to “normal” any time soon. In this series, the Catalyst talks with leaders in business, the arts and government about those six long months, about sacrifices they’ve made, and continue to make in order to survive, and about the future and how it looks to them. This is The New Normal.

Six months into the Covid-19 pandemic, there are two factors in the Tampa-St. Petersburg-Clearwater metro area economy that worry a top local economist.

Public services could be in jeopardy because tax revenue is down at state and local governments. That comes at a time when unemployment already is high, said Scott Brown, chief economist at Raymond James Financial (NYSE: RJF), headquartered in St. Petersburg and one of the largest financial services companies in the area.

Scott Brown, chief economist, Raymond James

“We have bounced off the bottom, but it’s likely that the pace of improvement will be continuing but slower than we’ve seen in the past several weeks,” Brown said.

The leisure and hospitality industry, a mainstay of the local economy, remains depressed, and the small business sector is having a tough time.

“The large firms are better able to withstand a temporary hit. The smaller businesses are having a tougher time, particularly restaurants. You had some support from the federal government and as this presses on it gets harder for those firms to stay above water. We expect to see a lot of them going out of business.

“A lot of people thought this would be temporary in nature. A lot of businesses thought that, both large and small. But what we’re finding is it’s lasting a lot longer and as such there’s going to have to be some adjustments.”

There’s still an elevated level of jobless claims.

“Some of the jobs we lost in March and April have come back but certainly not all of them and I think you’re still seeing some weakness in the broader economy in terms of job losses,” Brown said.

A Sept. 2 report from the U.S. Bureau of Labor Statistics showed the employment picture in the metro area.

“The bigger firms have to keep earnings growing and if the top line is not bouncing back fast enough, you have to cut the bottom line so you may be see job losses continuing,” Brown said.

He doesn’t see the tourism industry bouncing back quickly.

“Leisure and hospitality, spectator events, entertainment, those kinds of things won’t come back until the pandemic is well behind us. That still may be quite a long time away, even with a vaccine. It might not be 100 percent effective and people may be reluctant to take it, or even to go out in crowds again,” Brown said.

Tourism is a major source of tax funding in Pinellas County. Last year, the tourist development tax, or bed tax, brought in more than $64 million for  tourism marketing programs, as well as beach nourishment, construction on stadiums and museums, and reserves to be used in the event of an emergency.

Add to that the loss of sales tax revenue from businesses that closed or curtailed operations in efforts to control the spread of Covid-19, and state and local governments will be hurting, Brown said.

“You’re talking about cuts to social program, teachers, police and fireman,“ Brown said.

Florida’s general revenue is expected to fall by $3.4 billion for fiscal year 2020-2021 and by $2 billion for fiscal year 2021-2022, according to a draft report submitted to the legislative budget commission on Sept. 3. Much of that is from expected losses in sales taxes associated with tourism and recreation, with a smaller part attributed to corporate income tax losses as a result of reduced profitability, business failures and delayed business formation, the report said.

There are bright spots. The local economy has diversified into industries beyond tourism so there’s more balance, and consumer spending has rebounded.

“You are seeing gains in some sectors now where people have been cooped up and they haven’t been able to spend. Checking accounts and saving accounts have been built up, because people couldn’t spend. So you are seeing people putting down payments on boats and cars and new homes,” Brown said.

Businesses and their workforce are getting used to working from home, so there could be some pressure on commercial real estate.

“A lot of companies have a lot of buildings with no one in them right now or very few people. That’s going to be a bit of an issue. We don’t expect to see commercial real estate recovering any time soon,” Brown said.

But residential real estate is a stronger performer.

“You figure if you’re going to spend a lot of time in your home, you want a bigger home, better location, so the real estate sector is doing a lot better,” he said. Also, “There’s pent-up demand. People who couldn’t buy homes back in March and April, which is normally a strong time for housing, those people are catching up.”

Closed sales are one of the simplest and most important indicators for the residential real estate market, according to the Pinellas Realtor Organization. In July 2020, the most recent date for which information was available, closed sales were up 8 percent over July 2019, although they are down 6.7 percent year to date.

Source: Pinellas Realtor Organization