Lew Nonnenmocher, RE/MAX on the Coast 
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Prospects for Florida’s recovery heat up, economists say

May 6, 2009

  •  After two long years of recession, economists are beginning to see signs that the economy’s recovery is finally in sight. South Florida home sales are picking up, Wall Street has staged some solid rallies and even consumer confidence is rising.

    But the road to recovery will be uneven. Economists say that an uptick in business spending will lead the way, followed by federal government stimulus projects that will create some jobs. Consumers, unfortunately, are likely to be the last to see good times return, because widespread unemployment – which is now just a notch below 10 percent – won’t start to go down until after the recovery is well under way.

    It has been rough, but economists say it’s always that way for Florida.

    “It performs better in good times, but during bad times, in recessions, it is one of the worst performing states in the nation,” said Moody’s Economy.com economist Chris Lafakis. “And during times of expansion it is one of the best.”

    Some experts say they already see the early signs of such progress.

    “The negative numbers just start getting smaller or they stop falling or they fall at a slower rate,” said SunTrust Chief Economist Gregory Miller. It’s like you tumbled out of a boat a while ago and “now we’re at the stage of swimming back to the surface.”

    Other economists agree that the worst may be over as soon as this summer. Consumers surely have had enough, judging by the strong jump in Floridians’ consumer confidence this month.

    Here’s how economists say the state will find its way out of the slump:

    Business-led recovery

    Economists say the recovery will begin with an increase in business capital spending, as companies rebuild inventories or upgrade technology or send business travelers back out on the road.

    At some South Florida companies, capital spending already has increased and begun to pay off. Last year, Stress Free Corporate Housing, which provides temporary living arrangements for executives, says the audio-visual equipment it installed in its new Weston office is helping to bring in new business.

    The firm wanted to hold employee conferences and save on travel expenses. But it also began using the equipment for Webinars – seminars via the Internet – for its clients.

    President and Chief Executive Officer Darin Karp said his firm is about to sign a deal with a Fortune 500 company to provide temporary housing for executives from Asia and the Middle East who need to come to Florida for training.

    “We’re definitely seeing glimmers of hope off the first quarter and the beginning of this quarter,” Karp said. “We have some big stuff on our plate, and it’s attributed to doing the Webinars.”

    Stimulus spending

    An increase in government spending is expected in the fourth quarter, as states and cities pump out the $787 billion in federal stimulus money to build roads and other projects. That influx of cash will lead to more jobs, at least in construction.

    Even though the stimulus law was enacted in February, government is still crafting detailed plans and regulations for the federal package, so it’s unclear precisely how many millions will be earmarked for Florida.

    “We will begin to see some impact of the stimulus legislation in the last quarter of this year,” said economist Antonio Villamil, dean of the School of Business at St. Thomas University.

    Confidence rises

    Consumer confidence – a measure of how willing people are to spend on big-ticket items – is already rising. The University of Florida consumer confidence survey issued earlier this week showed the index jumped to 71 in April, up from 65 in March, which is close to the low reached during the last recession in 1991.

    The importance of the jump is that consumer confidence is a forward-looking economic indicator, one that is often a sign that consumer spending will rise, too.

    Employment to lag

    Employment rates aren’t expected to rise until recovery of other sectors is under way. Only after growth returns in the overall economy will businesses be comfortable enough to begin to create jobs again. Employment is key to consumers’ recovery. Don’t look for consumer spending to increase until after employment stabilizes, economists say.

    “Every business cycle is unique, but they get going in fits and starts,” said economist Manuel Lasaga, president of Strategic Information Analysis in Miami. “This [recovery] will be weaker than normal.” Strong growth, he said, won’t appear until 2010.

    And some sectors seem to be hurt so badly, their recovery is not at hand. Surely, housing remains deeply troubled. Manufacturing, too, is waiting for signs of recovery.

    “We’re not seeing that [any increase in demand] yet frankly,” said Tom Kennedy, a CPA who is chairman of the South Florida Manufacturers Association. Kennedy is controller of R.L. Schreiber in Pompano Beach, which produces food products for the food service industry. The credit crunch, he said, is making the business environment even more difficult.

    When will it end? The economy should begin to pull out of recession around the end of summer, according to several economists. At the latest, look for it early next year, others say.

    “We are in the fourth phase of the recession,” said SunTrust’s Miller. That’s the pre-recovery phase, he said. Next is the turnaround.

    It’s a little early yet, and the signs are still faint.

    “You really have to look long and hard to find any signs of strength in the economy,” said Mark Vitner, Wachovia’s senior economist. “But it’s not so hard to find areas where the economy had been in a free fall and now is just merely declining.”

    For those businesses looking forward to the turnaround, they’ve set their sights on year’s end.

    “People are getting new budgets for purchasing at the end of the third quarter, the fourth quarter. A lot of lights are coming on,” said Joel Ledlow, chief executive officer of ScheduAll, a Hollywood firm that produces management software systems for broadcasters and media. “People are saying they have cut about as much as they can cut. Now they’re ready for some very strategic investments.”


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