2019 Economic Outlook: Mostly Strong
Southwest Florida experts forecast how our key business sectors will fare next year.
Southwest Florida has been bombarded with a lot of unwanted “color” in 2018—red tide, blue-green algae, citrus greening. The question for 2019: Will our economy be in the red or the black?
Gulfshore Business gathered data from economists and industry experts who fore- cast the health of the local markets for real estate, tourism, agriculture, finance and health care for the new year.
“It looks to shape up like another good year for Florida,” says Jerry Parrish, chief economist and director of research at the Florida Chamber Foundation. “Over the past five years, Florida produced one out of 11 new jobs in the U.S.”
Parrish says the probability of a recession over the next nine months, bar- ring a “black swan” unexpected event, is very low. “People are moving here, taking jobs, building homes, buying stuff because there’s opportunity,” he says. “I see that continuing for next year. Even if the economy softens a little bit, Florida’s still going to be strong.”
The Southwest Florida region tends to overheat during boom periods and overcorrect during busts, says Chris Westley, director of the Regional Economic Research Institute and professor of economics at the Lutgert College of Business at Florida Gulf Coast University.
Gross domestic product data show the region’s economic activity bounced back from the 2008 recession in 2014 and remained strong until 2017 (the most recent numbers available). “Then it began to slow down considerably,” Westley says, noting overall GDP for Collier County in 2017 was at 1.2 percent, the first time it dipped below 3 percent in five years. Lee County was at 1.5 percent.
Westley blames the decline on the slow growth of construction. “A lot of that is explained by Hurricane Irma. A lot of construction projects were put on hold,” he says. But construction employment rebounded in September 2018, increasing year over year in Collier County by 27.5 percent and in Lee County by 20 percent.
“As long as the expansion continues, we can expect our region to exceed the state, and the state to exceed the country,” he says. However, Westley says many economists—who weren’t prepared for 2008— believe a correction will happen in 2020. “If the economy continues to expand through next summer, we will be in the longest expansion in U.S. history. But, it’s been a pretty weak expansion. It’s possible that weak expansions last longer. It’s possible we could fall into a recession next year or 2021. It’s going to turn on a dime.”
REAL ESTATE AND DEVELOPMENT
Randy Thibaut, CEO of Land Solutions in Fort Myers, says we are not in a depression or in a recession. “We think we’re in a market correction and expect that to continue into 2020,” he says.
He says factors that led to the market crash in 2008 are not happening today, such as runaway speculation and financing, and overbuilding of single-family homes. Although, he says, the potential does exist for overbuilding of assisted living and apartment construction.
Thibaut says the combination of rising interest rates, prices becoming too expensive for most homebuyers, tariffs increasing the cost of building new homes, and increasing government fees all equate to a softening of the market.
Interest rates are expected to rise to 5.8 or 6 percent by 2020. “In and of itself, 6 to 8 percent interest rates are not a scary thing,” he says. However, for every 1 percent the interest rate goes up, buyers average $20,000 less in borrowing power. That makes it more difficult for first-time homebuyers to find affordable homes, with prices already higher in response to increases in labor, materials, concrete and land over the past five years. Now, he says, tack on an expected extra $9,000 per new home because of new tariffs on imported materials.
Westley says many homebuyers in Southwest Florida have been saving up equity for 30 years and don’t need to take out a mortgage. Parrish says most international buyers are cash buyers as well. “They’re less sensitive to the interest rate but sensitive to the U.S. dollar,” he says. “As they raise interest rates, the U.S. dollar will get stronger, too.”
Thibaut says over the next several years, a great deal of building materials and labor will be redirected to northern Florida to assist with rebuilding after this year’s Hurricane Michael. “We’re mostly recovered from Hurricane Irma, but there are still signs of people waiting for roofs to be replaced,” he says. “It’s definitely added greatly to our labor shortage and cost of materials.”
Despite all of that, Thibaut sees a stable market. “We have a ton of new millennial buyers and a stable stream of baby boomers continuing to make purchases in Southwest Florida,” he says. “They’re just a little more value- conscious than they were before.”
Parrish says a greater number of people from high-tax states in the Northeast are moving to Florida, and even more are inquiring about housing and business relocation. He says rising interest rates are spurring some buyers to speed up their purchases, not delay them. “People with the means are moving to Florida,” he says. “We’re going to see a big population bump.”
TOURISM AND HOSPITALITY
John Lai, president and CEO of the Sanibel-Captiva Chamber of Commerce, says 2018 started off with record growth, but there was no playbook to prepare the region for the impact of red tide and blue-green algae.
He says it led to a disastrous third quarter that was expected to rebound in the fourth quarter. “We were dealt an ecological disaster we weren’t expecting,” Lai says.
Lee County bed tax collections were down 16.4 percent in August 2018, year over year. “That equates to $5.66 million,” Lai says. “Collier and Pinellas were both up. [Visitors] checked out and went to one of our competing drive markets.” Jack Wert, executive director of the Naples, Marco Island, Everglades Convention and Visitors Bureau, says red tide exposure in Collier County was limited to the northern beaches. “Most water-related tour companies felt declines in business, but not necessarily the hotels,” he says.
Wert says 2018’s water quality issue is causing them to take a conservative outlook for 2019, expecting a 2 per- cent increase in visits. “We need to reassure people it’s OK to come,” he says.
Group meeting reservations for the first three months of 2019 are already on pace in Collier County. “It’s a positive outlook,” Wert says. “Meeting planners are booking business, and we’re anticipating the leisure market will still be strong.”
Lai says the first quarter of 2019 in Lee County is expected to meet or exceed early 2018’s pace as well. He is hopeful that 2019’s weather will be helpful because of El Niño, which is expected to bring much wetter and colder weather to the Northeast. “We are seeing that travelers are very forgiving, and memories of disasters both manmade and ecological are starting to shorten,” he says. “We’re optimistic that 2019 will be the year that 2018 was shaping up to be.”
The focus for Southwest Florida tourism isn’t just on the beaches. Wert says about eight hotels are in various stages of planning for inland Collier County, with two expected to open in 2019 in East Naples near the new Collier County Sports Complex. That facility will open its first phase in December 2019 for amateur sports tournaments. “Sports tourism will continue to grow,” Wert says. “That is driving some of that hotel development.”
Lai echoes that sentiment, noting three new inland hotels will be opening in Lee County in 2019. “The demand is so strong,” he says, expecting amateur sports tournaments to continue boosting the local economy during the off-season. “Amateur sports has taken a leading role. I expect that to continue to grow in 2019.”
The international market is also expected to be strong in 2019, despite a strengthening U.S. dollar that makes their travel more expensive. Wert says Canadian visits will likely be down, but strong demand from the U.K. and Germany persists. “A Collier County advantage is that most of our travelers are upscale,” he says. “Fluctuations in the exchange rates don’t seem to affect their travel.” While tourism focuses on out-of-town visitors, hospitality takes into account locals who partake in the area’s shopping, dining and entertainment. “Incomes are growing at nearly the rate before the last recession,” Parrish says. “The outlook for hospitality is stronger than for tourism in general.”
While tourism is emerging from the onslaught of red tide and blue-green algae, the agricultural industry in 2019 will continue its ongoing battle against citrus greening, an incurable disease that causes citrus trees to slowly starve to death.
Gene McAvoy, regional vegetable agent for Southwest Florida at University of Florida’s Institute of Food and Agricultural Sciences, says 12 years ago, 250 million boxes of citrus were harvested from 800,000 acres in the state. By 2017, citrus greening had caused the acreage to be cut in half and yield to decrease by two-thirds. Then came Hurricane Irma.
“Irma hit the industry hard,” McAvoy says. “It marched up through the heart of the citrus belt. We were already hurt by citrus greening, and that really hurt. Fortunately, we’re coming back.”
Hurricane Irma uprooted 25 to 30 percent of the trees in some groves, and because it made landfall just before harvest time, it blew most of the fruit off the remaining trees. “There have been some assistance programs from the federal government, disaster relief funding to help growers,” McAvoy says. “You have to replant, or you get out.”
McAvoy says some smaller farmers near Fort Myers and Naples did sell their land for development. But many larger growers have been replanting, and they’re estimating a yield of 79 million boxes this harvest, which ends in the spring of 2019.
McAvoy says farmers learned how to keep new plantings healthy longer, but there’s still no cure for citrus greening. “A grove used to last 50-plus years,” he says. “Now, it’s 15 to 20 years, then they have to replant it. But they can keep it productive during that time.”
Scientists are working on that cure, including tests that have shown adding a gene from spinach can make a citrus tree immune to the disease. “Genetically modified trees may be the solution if the American public will go for that,” McAvoy says. “They’re also looking at non-GMO solutions with trees that are more tolerant through breeding.”
Westley says Southwest Florida’s citrus production fell 30 percent since its high in 2013. “The state became a net citrus importer last year for the first time since data’s been collected,” he says, noting citrus greening also impacts Florida’s main citrus competitor, Brazil. McAvoy says Brazil has a much larger area for citrus production, so those farmers just relocate and replant. “It takes a while to catch up to them,” he says. “Our advantage is the fresh, not-from-concentrate market. It’s difficult to move fresh from Brazil and keep the quality.” Westley says with the economic threat of citrus greening, farmers can turn to other crops. McAvoy says vegetables have already surpassed citrus as the No. 1 crop in Florida—21.9 percent vs. 20 percent. And, he says, vegetable crops rebound quickly from hurricane damage because of their short planting cycles.
“We have the advantage. We can grow through winter,” McAvoy says, noting Florida supplies 150 million people from Chicago to Atlanta with vegetables in the winter months. “NAFTA [North American Free Trade Agreement] has not been good to the state of Florida [and its tomato and pepper crops]. Now we’re growing a lot more diverse mix of crops, almost 60 different types of vegetables in Southwest Florida—arugula through zucchini.”
Parrish agreed that a big concern is competition with Mexico. “We may see some federal help there,” he says. “It’s not fair for countries to sell stuff at less than the cost of production.”
McAvoy says Florida does export to Japan and Europe, so it remains to be seen the impact of the federal government’s tariffs. He says another national issue impacting local agriculture is immigration. “Labor’s getting tighter and tighter. We’ve seen the past few years, labor south of the border dried up,” he says.
Many Mexican migrant laborers have been replaced by those from Haiti, Honduras and El Salvador, granted entry into the United States under temporary protected status. But McAvoy says that program may be eliminated. Also, the current visa process requires farmers to predict far in advance the exact number of laborers they will need, for which tasks they’ll be needed, and for how long. Miscalculations are costly, he says.
McAvoy says it’s simply not an option to employ Americans to work in the fields. “Hendry County is the second-poorest county in the state,” he says. “In 2008, when unemployment was 22 percent, not any white people were asking for jobs on farms. It’s hard work.”
He expects 2019 to be transitional, but a better year. “We’ll have more opportunities for more local sales,” McAvoy says. “We’re finding opportunities for agri-tourism. People must eat, and even if times get tough, they’re spending money. In a better economy, they spend more on fruits and vegetables.”
BANKING AND FINANCE
Economists Westley and Parrish have positive outlooks for banking and finance in 2019. Westley says the industry doesn’t comprise a large percentage of the workforce. However, it contributes higher wages that allow workers to live in the area. “It’s more stable, not seasonal,” he says, noting he expects growth in the coming year.
Parrish says demand is high for both wealth management and general banking services. “That’s one of the biggest contributors to Florida’s GDP,” he says. “Florida’s now a trillion-dollar economy. The finance guys are involved in everything.”
He says Florida is well-suited for expansion in this sector. “We’ve seen a lot of consolidation. I’m hoping we’ll see a return to more community banks,” he says. “There are a lot of well-funded banks ready to lend capital.”
Parrish says every hour of every day, nearly $1 million of adjusted gross income moves into Florida. “That’s good for us,” he says. “Florida runs on sales taxes. Seventy-seven percent of general revenue comes from sales and use taxes. We need people making money and spending it on taxable goods and services.”
Westley says health care is another year-round industry that he expects to have steady growth in 2019. He says care for the aging baby-boomer population is nothing new. “More assisted-living and nursing homes are popping up,” he says. “That’s been part of growth for 30 years. It’s relatively stable.”
Parrish says in the retirement community of Southwest Florida, health care facilities are the new golf courses. “They spend money on health care. They spend money on wellness, too,” he says.
He says about 4 million of Florida’s 21 million residents are age 65 or older. By 2030, that number will jump to 6.4 million. “It’s good for medical research” Parrish says. “Florida can lead the way in geriatric care.”