Since Florida’s economy rebounded from COVID-19, largely ahead of most states, South Florida has been widely regarded in business and economic circles as somewhat of an outlier, an impregnable fortress of low unemployment, burgeoning opportunity and a magnet for people from elsewhere who want to be here.
That picture was reinforced Friday when FloridaCommerce announced another round of low jobless rates statewide and in the tri-county area, as well as healthy job growth in a variety of sectors. Moreover, there have been recent announcements of more business relocations to Broward and Palm Beach counties, coupled, of course, with the arrival of international soccer star Lionel Messi to play for Inter Miami, a one-man economic driver whose “Messi Mania” has captivated even soccer agnostics.
Meanwhile, builders are still constructing high-rises and Florida leads the nation in the arrival of millennials who earn $200,000 or more a year, according to SmartAsset, the financial advisory firm.
The good feelings aside, both local consumers and business leaders are increasingly mindful of the erosion being exacted by the nation’s inflationary spiral, with the Federal Reserve late last month again lifting its target federal funds rate to the 5.25% to 5.5% range, the highest level since March 2021. It has caused many to wonder when the central bank will be finished with its months-long war on inflation.
“Are we there yet?” asked Sean Snaith, economist at the University of Central Florida and director of its economic forecasting arm. The answer to his question: ‘no.’
“I think the battle against inflation is going to linger on here throughout 2024,” he told the South Florida Sun Sentinel by telephone last week. “I can’t see the Fed cutting interest rates before the end of ‘24 at the earliest. They may not go much higher but they are going to have to stay there longer.”
The chief reason: “Primarily the labor market, which has defied the Fed’s tightening,” Snaith said.
Nationally, wage growth is 4.4% year over year and the job market is still loaded with a supply of more than 10 million jobs.
Although regionally, workers have scored wage gains in a variety of industries such as the airlines and hospitality, the cost of daily living continues to pressure consumers in housing, energy, groceries, dining out, entertainment, and a variety of other services.
Businesses, too, have felt the pressure as suppliers increase prices and skilled labor has been more costly.
A poll taken of members of a Council of Economic Advisors for the Greater Fort Lauderdale Chamber of Commerce shows that 19 members surveyed are increasingly watchful over their spending as well as demand from consumers. While they’re not sanguine about the short- to intermediate-term outlook, they’re not at the point of being somber.
Asked to compare their consumer demand expectations for the second half of the year against the first half, four said they expected increases, three are looking for a decrease, while a dozen believe it will be the same.
Asked what might be the cause if they are experiencing softening consumer demand, four said inflationary conditions, one said recession fears, six cited higher financing costs and four cited unspecified “other” causes.
The leaders also indicated that rising costs are still pressuring their businesses.
Then came a question about the bottom line on pricing.
“What statement best describes your current pricing strategy?” they were asked.
Of the 18 who answered, four said they “are easily passing through price increases,” seven said “it has become more difficult than six (6) months ago but we are passing on some increases,” six said they are “maintaining prices,” and only one said his firm is lowering prices.
Sun warms marine industry, but labor costs sky high
Jimmie Harrison, owner of Frank & Jimmie’s Propeller and president of the Marine Industries Association of South Florida, said an industry that pours more than $1 billion into the region’s economy is still benefiting from an unexpected surge of consumer enthusiasm during the COVID-19 pandemic.
Boating, many industry officials have said, was the one form of recreation that made people feel comfortable because it is outdoors and surrounded by fresh air.
“For the marine industry the sun is still shining,” Harrison said. “We are still busy as all of the other marine businesses are doing well. People are still using their boats. It’s kind of waiting and seeing.”
But for a business that needs a skilled labor force, the costs are sharply upward. It’s not the interest rates that are bothering the business as much as the need to pay higher wages.
“It’s gotten worse in that the cost of labor has gone through the roof for us,” he said.
“We have been able to raise prices to match salary increases,” he said. “There’s got to be a limit and we’re starting to bump that ceiling now.”
Labor costs and the supply of skilled workers are also concerns for Decimal Engineering of Coral Springs, which provides sheet metal fabrication among other specialty services for a variety of industries including aerospace, said Alan Garey, the president and CEO.
“We have a lot of skilled labor here and it’s hard to find, and if you don’t pay the going rate then somebody else will,” he said.
Decimal continues to enjoy strong demand, Garey said.
“I would say the first half of the year remained pretty strong,” he said. “The second half has kind of slowed down a little bit. We had a softer third quarter but the fourth quarter has been stabilizing and things are looking pretty good for next year. We’ll close out the year at a pretty good pace.’
Hospitality softer, but holding the line
Tim Petrillo co-founder and CEO of The Restaurant People, operators of 16 restaurants in the region, said he is “somewhat optimistic that the inflationary pressures are behind us, although we will soon be facing some margin pressure in the next six months”.
“Labor costs are still up,” he said. “ Housing pressure and cost of living is always something we have to deal with.”
“Capital projects have definitely taken a pause,” Petrillo added. “There are not a lot of banks willing to lend to restaurants.”
But his group, which has good banking relationships, recapitalized its credit line.
“We are the tip of the spear on consumer spending,” Petrillo said. “Everybody has to eat, but full service dining is a leading indicator as to how the slowdown is happening in the economy.”
“Overall the destination is softer compared to the years before,” he said.
One key reason cited by airline and tourism officials is that more Americans are traveling abroad this year because it’s the first time since the pandemic outbreak that international destinations are fully open for business.
Housing: An expensive problem
Bob Harrington, a vice president at Northmarq Capital, which helps finance commercial real estate projects in South Florida, joined a chorus of others in the financial and development fields who point to soaring insurance costs as an impediment to the construction of multi-family housing.
The rising costs being borne by the multi-family building owner “are going to be passed” to the renters, who will pay more each month for a roof over their heads, he said.
Some residents are leaving South Florida for cities and towns to the north, where it’s cheaper to live.
“You certainly see folks have moved farther north up the east coast to Martin County and the Treasure Coast. The cost of living is so much less there,” Harrington said.
“Sometimes it’s costs that are out of the renters’ or homeowners’ control that are pushing them to other markets,” he added.
South Florida employers continue to point to the dearth of housing required by would-be workers who make good salaries but still can’t afford homes that are to their liking.
“We looked for skilled talent from out of town,” said Garey of Decimal Engineering. “We’ve lost some people we tried to hire from out of town.”
“We are looking at ways to supplement that with a first month’s rent or relocation (incentives) or stuff we haven’t done in the past,” he said.
Those types of additional costs can’t be passed along to consumers in perpetuity, warned Snaith, the UCF economist..
“You can only pass along so much of your higher costs to consumers that are already under stress,” he said.
An uptick in consumer bankruptcies
Stressed consumers are not completely defined by those paying close to $4 a gallon for gasoline or financing home purchases with lofty 7% mortgages.
Fort Lauderdale bankruptcy attorney Chad Van Horn noted that filings of personal bankruptcies have been on the rise in South Florida during the first half of this year when compared to 2022. But the numbers have not reached the levels of the pre- or early COVID-19 years.
“I think that people got used to money being there and they lived a certain lifestyle,” Van Horn said. “For some of the expenses, it’s hard to flip the switch and say I’m not going to pay (bills) anymore.”
Credit card interest rates are now 25% on average, he added. “If you’re paying 25%, you’re not going to make much headway trying to get out of that.”