Warning signs ahead for the local economy

A slowdown in population growth, an increasing wage gap and relatively low levels of single-family building permits are potential red flags for the Florida economy, a new report suggests.

Pinellas and Hillsborough counties are among the Florida counties where building permits remain well below those in the years leading up to the Great Recession, according to an economic overview from the Florida Legislature Office of Economic and Demographic Research published Wednesday.

The legislative report is one of three recent releases that help businesses consider long-term spending and investment plans.

A pre-Christmas report from Wells Fargo Securities and newly released third quarter 2018 economic indicators updates from Pinellas County highlight employment and real estate trends that appear more promising than those in the state report.

Overall, the legislative report paints a picture of a state economy that’s mostly recovered from the economic downturn and is generally strong, but a deeper dive shows potential fault lines.

For instance, growth in  the state’s Gross Domestic Product — which is the market value of all the goods and services produced in Florida — had been outpacing national averages. But it dropped from 4 percent in 2015 to 2.2 percent in 2017, and further slowing is expected after this year, the report said.

Personal income growth statewide also has been above the national average until 2017, when it grew only 3.3 percent, compared to the national average of 3.6 percent.

Personal income growth has been driven by robust population growth, but population growth is slowing slightly. A 1.74 percent gain in population for the 12 months ended April 1, 2018  largely was the result of in-migration from residents of hurricane-battered Puerto Rico and the U.S. Virgin Islands.

Florida’s population gains will continue to outpace those of the rest of the U.S., averaging 1.51 percent between 2018 and 2022, but they won’t approach the more than 3 percent long-term growth rate that occurred between 1970 and 1995, the legislative report said.

Employment

Population growth in Florida moderated slightly during the 12 months ending July 1, 2018, the Wells Fargo report said. “Even at a diminished pace, Florida continues to see a massive influx of residents, thanks to robust job growth and the rising tide of baby boomer retirees,” Mark Vitner, Wells Fargo senior economist, wrote in a Dec. 21 report.

Employment growth gained steam in November, with payrolls at most of the key industries in the state rising last month. That included hiring at restaurants, bars and hotels, which has grown 3.9 percent over that past year and is “welcome news, giving that the state’s tourism sector was among the hardest hit by the [2017 and 2018] hurricanes,” Vitner said.

Florida employment growth by industry
Source: Wells Fargo Securities

The Wells Fargo report did not address wages, but the state legislative report does.

Florida’s average annual wage historically has been lower than the rest of the country, because of the large number of accommodation and food service jobs, but the gap between the average annual wage in Florida and the average annual wage in the United States increased slightly in 2017, the legislative report said.

Hillsborough and Pinellas Counties had some of the highest average annual wages in the state last year — $52,652 in Hillsborough County and $47,742 in Pinellas County.

But there are nine counties, mostly in the Panhandle, where the average annual wage is below $33,340. It’s lowest in Franklin County, where wages average $30,645 annually.

The employment picture also is polarized, the report said. Statewide, employment was up 7.7 percent in March 2018, compared to March 2007, and almost two-thirds of Florida’s counties have gained employment relative to their levels in March 2007, including Hillsborough, where employment is up 4.5 percent. In Pinellas, it’s down 1.9 percent, and about two dozen other Florida counties have yet to see employment return to pre-recession levels, the legislative office said.

Still, the employment rate in Pinellas County was up 1.5 percent in the third quarter of  2018 compared to 2017, and the unemployment rate dropped nearly 23 percent year-over-year, the economic indicators update from the county said.

Real estate

In Pinellas County, single-family building permits were down 56.9 percent in 2017 compared to the peak level between 2000 and 2007, and Hillsborough County’s permits were 28.2 percent lower last year than in the pre-recession peak, the legislative office said.

The rate of home ownership in Florida is at the lowest point it’s been in 34 years, and home financing is still challenging, the state report said.

However, existing home sales volumes are growing statewide, while median sales prices are rising as well. In June, the median sales price of a Florida home topped the price peak hit in June 2006, just before the recession began. In November, the median sales price in Florida was $255,000, about 97.9 percent of the national median.

In Pinellas County, the median sales price for a single family home in Q3 2018 was $256,000 , up 3.2 percent from a year earlier, while the median sales price for a townhome or condo was $167,000, up 12.1 percent year-over-year.

Vacancy rates dropped and lease rates rose for Class A office space in Pinellas in Q3 2018 compared to a year earlier, the county said.

Pinellas County commercial real estate
Source: Pinellas County Economic Development

Pinellas County saw fewer tourists for the three months ended Sept. 30, compared to the same quarter in 2017, the county said.

Tourism is a key downside risk for the state, according to the legislative report. Visitors to Florida make purchases and pay sales taxes that make up nearly 13 percent of the state’s general revenue collection. Natural and man-made disasters and disease outbreaks threaten that revenue source, as does a strong and strengthening dollar, which tends to have a chilling effect on international travel, the report said.