March 29, 2024

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Florida CEO Trends Survey Analysis: Challenges Ahead

2008 was a lackluster year and Florida's CEOs project 2009 will be similar or worse.

Housing and credit top two factors impacting state’s business climate

The less-than-positive expectations of CEOs for the upcoming year are based on concerns about three factors impacting Florida’s economy. Asked what one factor is having the most impact on Florida’s current and future business climate, CEOs cited the state’s housing market (55%), the credit crunch (28%) and a possible recession (10%). Majorities of CEOs in almost every economic sector pointed to the state’s housing market as the key factor impacting Florida’s business climate.

» Housing Starts
Authorized by Building Permits
housing
Source: U.S. Census Bureau
The 2006-2008 falloff in residential construction is far greater than the two slumps Florida experienced in the 1980s.

Moreover, almost half (45%) of CEOs report that the state’s housing market has negatively impacted their company’s employee recruitment or retention efforts. Negative impacts from the housing market were reported by at least half of CEOs in agribusiness, energy, healthcare, hospitality, manufacturing, media, professional services, retail trade and restaurants.

State data on housing starts (see chart above) reinforce the perceptions of Florida’s CEOs that the state’s housing market is problematic for business.

Beginning in the early 1990s, Florida’s housing market expanded every year for more than a decade. In the past three years, however, the rate of new residential home construction has plummeted. New home starts fell to 230,000 in 2006, and then to 102,000 in 2007. Based on data through October, housing starts in Florida in 2008 will number about 70,000. The 2006-2008 falloff in residential construction is far greater than the two slumps Florida experienced in the 1980s.

However, there may be some light at the end of the tunnel. The views of Florida’s CEOs suggest that property values in Florida may be bottoming out. Fifty-eight percent of CEOs expect the state’s property values to stabilize in 2009. This is up from 45% percent in the previous survey.

The possibility that Florida property values may be approaching their low point finds some support from housing market indicators. The U.S. Census Bureau reported in October 2008 that, nationally, sales of new homes increased 2.7% in September over sales in August, while sales of existing homes increased 5.5%. Similarly, Standard & Poor’s/Case-Shiller Home Price Index showed in August that prices of existing homes were falling at a declining rate relative to prior months. Of course, these trends may change if the financial crisis continues and the economic downturn worsens.

CEOs hopeful, but preparing for the worst in 2009

CEO predictions about the national economy are mixed but on balance lean toward a negative assessment. More than one-fourth of CEOs (28%) expect improvement in the U.S. economy, a figure which is up from 17% last year. On the other hand, more than one-third of CEOs (39%) think that the U.S. economy will deteriorate. This is the same percentage as in the 2007-2008 survey, which was the highest percentage expecting the U.S. economy to deteriorate since the CEO Trends survey was launched in 2000.

CEO predictions about the national economy vary little across Florida industries. The only sectors where a majority of CEOs expect the U.S. economy to improve in 2009 are agribusiness and human resources. CEOs in most industries were divided more or less evenly between predictions that the U.S. economy either would stabilize or would deteriorate.

In general, Florida CEOs’ expectations for the national economy in the upcoming year appear to reflect considerable uncertainty. Hope is counterbalanced by doubt, and most business leaders are preparing for the worst.

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