Florida: An Economic Overview

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FloridaAn Economic Overview

• May 8, 2008

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More Measured Economy

• Florida is no longer one of the nations fastest
  growing states, but still strong. State Gross
  Domestic Product (GDP) ranks us 12th in the
  nation in real growth (2nd in 2005) and 34th in
  per capita level.

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Personal Income Moderating
1990
4
Employment Softens
March (YOY) US 0.4 FL
-0.7 (-56,600 jobs)
March US 5.1 FL 4.9
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Population Growth Slowing

• Population growth continues to be the states
  primary engine of economic growth, fueling both
  employment and income growth.
• Population growth hovered between 2.0 and 2.6
  since the mid 1990s, slowing to 1.8 in 2007.
  Over the forecast horizon, population growth will
  further slow averaging 1.1 between 2025 and
  2030.
• Florida is still on track to break the 20 million
  mark during 2012 and become the third most
  populous state surpassing New York.

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Floridas April 1 Population

• Floridas population
• was 15,982,824 in 2000
• was 18,680,367 in 2007
• is forecast to grow to 25,340,721 by 2030

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Floridas Population Growth

• Population increased by
• 402,580 between 1999 and 2000
• 445,224 between 2003 and 2004
• 331,235 between 2006 and 2007
• Population is forecast to increase on average by
• 304,406 between 2015 and 2020
• 295,448 between 2020 and 2025
• 277,120 between 2025 and 2030

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Population Components

• Most of Floridas population growth is from net
  migration, representing about 79 percent of
  Floridas population growth between 2006 and
  2007.
• In 2030, net migration is forecast to represent
  92.1 percent of Floridas population growth.

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Revenue Estimates Are Down

• General Revenue Growth
• FY 2007-08...(1,003.0) to 24,468.5
• FY 2008-09...(1,941.5) to 24,578.4 0.4
• FY 2009-10...(2,171.9) to 26,339.9 7.2
• FY 2010-11...(2,135.2) to 28,509.5 8.2
• FY 2011-12...(1,922.5) to 30,656.5 7.5
• (An additional 54 million short in March.)

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The Reason?

• US economy is being simultaneously buffeted by
  three major shocks
• Home prices are already falling at the national
  level for the first time since the Great
  Depression.
• Financial markets are experiencing their worst
  credit crunch since the late 1980s at best
  maybe since the Great Depression, and
• International oil prices have reached sustained
  record levels of over 100 a barrel.
• Florida is particularly hit hard by the two
  housing-related shocks home prices and credit
  tightening.

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Framing the Problem Demand

• Fed lowered interest rates to unprecedented
  levels (Federal Funds Rate 1), which coupled
  with the flight from the stock market, spurred
  the housing bubble.
• Easy credit and new financial innovations fed the
  bubble.
• The bubble popped as interest rates began to move
  up and high home prices began to chase off
  buyers.
• Exotic forms of financing began to experience the
  end of teaser rates and the start of resetting,
  revealing the faults in system.

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The Result

• Starts and Sales plummeted, while prices lagged
  behind.
• Credit market is in turmoil, and financing is
  harder to find and harder to get as lending
  standards tighten.
• Foreclosures and delinquencies are on the rise.
• According to the Fed, delinquency rates on credit
  card loans, auto loans, and other forms of
  consumer credit, while still moderate, have
  increased somewhat, particularly in areas hard
  hit by house price declines and mortgage
  defaults.
• Inventory of unsold homes has surged.

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Florida
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Existing Home Sales
15
Volume Changed Before Price
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Overhang

• The national inventory of homes is about 10
  months.
• In Florida, the excess supply of homes is likely
  greater than 200,000.
• Subtracting the normal inventory and using the
  most recent sales experience, Florida would need
  the following time to work off the current
  excess
• 16 months (24 mos sales exp)...4th quarter, FY
  2008-09
• 19 months (12 mos sales exp)...1st Quarter, FY
  2009-10
• 20 months (6 mos sales exp)...1st Quarter, FY
  2009-10

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Overhang Drives Prices

• Nation as a whole has experienced an actual drop
  in home prices, defying pundits.
• Historic relationships are out of balance - to
  rents and to starts and sales.
• Foreclosures and delinquencies are increasing,
  further swelling the supply and depressing
  prices.
• Inventories of unsold homes suggest that prices
  will continue to fall at least until 2009,
  bringing the total reduction in house prices
  nationally to around 15 percent - more in Florida
  (June 06 to March 08 20 down in median
  price).

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Vulnerability
71.8
Avg 66.3
If the rate dropped immediately back to the
long-run average, 409,418 homeowners would be
affected and over 80 billion of value.
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Recession Risk

• A recession is a significant decline in economic
  activity spread across the economy, lasting more
  than a few months, normally visible in real GDP,
  real income, employment, industrial production,
  and wholesale-retail sales.
• Uncertainties about values of mortgage-related
  assets and related losses, and consequently
  strains in financial markets, could persist for
  quite some time.
• Credit problems (liquidity and solvency) have
  spread far beyond the subprime arena to include
  even commercial paper and business investment.
• The downside risks to the economy, resulting
  particularly from the weakening of the housing
  sector and the deterioration in credit market
  conditions, continue to rise.

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Sentiment is Eroding

• Consumer sentiment can be a leading indicator of
  recession nationally, it is lower than the
  lowest point achieved during the 1990 - 1991
  recession (63.2 versus 63.9 in October of 1990).
  Since January 1978, only 10 months have been
  lower than April. 
• Florida consumer confidence is at its lowest
  level in sixteen years (during the 1990-91
  recession).

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Energy Price Threat

• Oil prices have risen about tenfold in a decade,
  persisting above a record 100 a barrel
• Elevated prices are likely to continue
• Supply Constraints and Disruptions
• Increased OPEC Discipline
• Demand Growth
• Speculators (especially Hedge Funds)

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Fed Dilemma

• Fed has to be cautious in its actions rate cuts
  can lead to inflation.
• Stagflation is a period of out-of-control price
  inflation combined with slow-to-no output growth,
  rising unemployment, and potentially recession if
  it continues long enough.

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Six Drags on Estimates

• Slower Population Growth (11/07)
• Loss of Wealth Effect from Declining Home Prices
  (11/07)
• Growing Home Inventory (11/07)
• Spreading Credit Crunch (3/08)
• Elevated Energy Prices (3/08)
• Likelihood of National Recession (3/08)

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Revenue Bringing It Together

• Drags are more persistent relative to some past
  events.
• Downside risks are strong and still growing.
• Current forecast for 2007-08 is optimistic and
  on track for 2008-09 given what we know now.
• Decreased levels of consumer spending affect
• Sales Tax
• Documentary Stamp / Intangibles Taxes
• Corporate Income Tax

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The Economy Will Rebound

• In FY 2009-10, growth rates will return to more
  typical levels. In the meanwhile...
• The national economic contraction will run its
  course and, more importantly, the financial
  markets will recover stability.
• The subsequent turnaround in Florida housing will
  be led by
• Falling home prices that begin to attract buyers
  and clear the inventory.
• Long-run sustainable demand caused by continued
  population growth and household formation.
• Floridas unique demographics and the aging of
  the baby-boom generation.