This year's Florida CEO Trends survey brings good news about Florida's economic performance in 2006 and only slightly less positive projections for 2007. The chief executive officers of Florida's largest corporations and institutions expect the U.S. economy to experience slower growth in the upcoming year, which may impact Florida businesses, especially those in real estate and construction. The potential upside is that a cooling real estate market might decelerate Florida's rapidly rising cost of living, which CEOs now see as an impediment to recruitment and retention.
Since 2000, the Florida CEO Trends survey has tracked changes in CEO perceptions, plans and actions through the shifting economic circumstances of recent years. The results from this year's survey are especially important because, while bringing good news, they also provide insight into the potential impacts on Florida of a possible slowdown in the national economy.
Beating back the challenges
Florida's economic performance since 2000 has been remarkable. Not only has the economy prospered, it has done so despite a series of daunting, and in some cases unprecedented, challenges.
Each of the past six years has brought a new and serious difficulty. First came the economic recession in 2001, when the U.S. economy contracted for three straight quarters. The recession was followed by the terrorist attacks on 9/11, which hurt Florida's international tourism for the rest of 2001 and through most of 2002. In 2003, the Iraq War reignited fears of terrorism and further dampened international tourism. Then in 2004, when conditions seemed to be returning to normal, four massive storms hit the state in just 46 days. Three more hurricanes struck the state in 2005. Finally, in 2005 and 2006, increases in fuel prices impacted tourism by raising travel costs and cutting into consumers' discretionary income. Gas prices rose from $1.80 per gallon in January 2005 to over $3 per gallon by September 2005, where the price remained for just over a year before falling to about $2.20 per gallon in November 2006.
Any one of these developments by itself could have created serious problems for Florida's economy. All of them coming one after another could have been crippling.
National job growth leader
Florida has not merely survived these challenges, it has flourished. Unlike Texas, California and New York, all of which experienced net declines in employment during the 2001 recession, Florida came through the national slump without job losses.
In fact, Florida has led the nation in job growth for the past five years. Between August 2004 and August 2005, Florida employment grew by 252,600 jobs, slightly ahead of much-larger California, double the employment growth in Texas, and three times the amount in New York. Florida continued to lead the country between August 2005 and August 2006, when the state added 243,000 jobs compared to 234,000 for Texas, 192,000 for California and 80,000 for New York.
On the money for 2006
If anyone should know if Florida's economic growth will continue to defy the odds, it is the state's corporate leaders. Florida's chief executive officers have unique knowledge of Florida's economic prospects. They understand where the economy is headed not only because they watch production, sales and employment patterns, but also because they can influence the future through their own actions.
Over the past five years, many observers predicted enduring economic weakness or worse, but the annual projections of Florida's CEOs have been consistently more positive -- and more accurate. In the Florida CEO Trends survey of 2001, which included interviews both before and after 9/11, the state's business leaders correctly predicted economic recovery in the upcoming year. They concluded that the terrorist attacks posed no threat to Florida's long-term economic development, which they said would continue to be propelled by technological innovation, population growth, international trade and similar forces with decades of momentum.
Florida's CEOs were also accurate in predicting that Florida's economic growth in 2002 and 2003 would be strong despite weakness in the economy nationally. Annual nationwide growth in real gross domestic production dropped to 1% in 2001 over 2000. The rate of growth nationally struggled upward to 1.9% in 2002 before reaching a more healthy 2.5% in 2003, 3.9% in 2004 and 3.2% in 2005.
Throughout this period, Florida's rate of growth outpaced the nation's even as the national economy improved. Since 2001, Florida's growth rate has exceeded the rate of growth nationally by at least one percentage point and often by two points or more. While year-to-year growth in real domestic product for the U.S. was slower in 2005 than in 2004, Florida's growth, in contrast, continued to accelerate, rising from an already rapid pace of 6.5% in 2004 to a whopping 7.8% in 2005.
Slower pace in 2007
Results from this year's CEO survey point to continued economic growth, but perhaps at a slower pace. More than eight out of 10 CEOs say they will reach their revenue goals for 2006. This figure is only a little lower than last year's number of 92%, which was a record high.
CEOs also expect to do well in 2007. Two-thirds predict that their organizations' performance in the new year will surpass the performance level of 2006. The comparable numbers were 57% in 2001, 73% in 2002, 82% in 2003, 83% in 2004, and 76% in 2005. Although Florida CEOs are not as optimistic about 2007 as they were about 2006, they remain firm in their expectation that Florida's economy will continue to prosper.
Tourism may grow more slowly
Results from this year's CEO survey suggest that tourism may be beginning to experience a temporary slowdown. One-third of CEOs in hospitality and restaurant businesses report that their companies will fall short of their revenue goals for 2006. However, none of these CEOs expect their organization's performance to deteriorate further in 2007.
Other data also indicate a possible weakening of the tourism market. Total visitors to Florida in the first two quarters of 2006 were only slightly greater than the number of visitors in that same period in 2005. If this trend holds for the rest of 2006, annual growth for visitors would be at its lowest level since 2002, when, in the wake of 9/11, the total number of visitors declined by several million from the number reached in 2000.
Still, the resilience of Florida tourism should not be underestimated. In both 2004 and 2005, Florida experienced terrible hurricane seasons, and yet the flow of visitors into the state expanded rapidly. Of course, the hurricanes of 2004 and 2005 did cause widespread property damage and did disrupt attendance at many events and attractions. However, tourism quickly rebounded. In 2004, Florida had 5 million more visitors than the previous year -- a 7% increase -- and a comparable increase was observed in 2005 compared to 2004.
If tourism's rate of growth is indeed slowing in Florida, the dip is probably a function of gas prices. This means that tourism should pick back up through the rest of 2006 and into 2007, since gas prices moderated in September 2006.
A broadened economic base
One reason for Florida CEOs' consistently positive assessment of the state's economic prospects is Florida's increasing economic diversity. Annual Florida CEO Trends surveys have repeatedly found that Florida's largest corporations are moving aggressively into international markets. This year, one in four CEOs reported that at least 10% of their company's earnings is generated by international business.
Further, 40% predicted that this year the role of international business in their firms' activities would increase.
Florida's movement into international commerce is simply the latest step in a process of economic diversification that has been under way for decades. Before World War II, Florida was primarily an agricultural state, but during the war Florida became the primary site for America's flight training. The space program came to Florida at the beginning of the 1960s, and Disney arrived before the end of the decade. Population growth took off, fueled by retirees and the increasing availability of air conditioning. Florida's international commerce accelerated rapidly in the 1980s as a result of Hispanic in-migration, economic globalization and market growth in Latin America.
Today, Florida's economy has a much broader base than it had just a few decades ago. With its economic eggs now in more than one or two baskets, the state is far less vulnerable to natural and man-made disasters.
Peaks and valleys less extreme
An important benefit of Florida's economic diversification is increased stability. The peaks and valleys of the business cycle in Florida have become less extreme.
The recession of the mid-1970s hit Florida particularly hard. High oil prices impacted tourism, and high interest rates cut into construction and population growth. The state's unemployment rate topped 10% in 1975, two percentage points higher than the national rate. During the recession of the early 1990s, Florida's unemployment rate again exceeded the national rate, but this time by only one point.
When the nation's economy sagged again in 2001, Florida suffered even less. A recovery was under way by the end of 2001, but, nationally, the expansion was slow and uneven, in part because of the terrorist attacks on Sept. 11.
Throughout most of this period, Florida's unemployment rate remained about half of a percentage point or more below the national rate. Between 2002 and 2005, unemployment nationally hovered around 6% before falling below 5% in 2006. In contrast, Florida's unemployment rate peaked at 5.5% in 2002 and then fell to 5.2% in 2003, 4.8% in 2004, 3.8% 2005, and 3.3% in August 2006.
Three other findings in this year's Florida CEO Trends survey indicate continued economic growth. One is the prevalence of expansion plans. Roughly two-thirds of CEOs are planning to expand their businesses into new markets. Almost half are moving into new overseas markets. Many are also expanding in South Florida (26%), Central Florida (26%) and/or North Florida (19%).
A second indication of continued growth is workforce projections. Almost two-thirds of Florida's CEOs expect to increase their staffing levels in 2006. This is slightly below the rate in 2005 (71%).
Still a third sign that Florida's economic expansion remains fairly strong is what CEOs say about their projected contributions for charity and philanthropy: 97% of respondents plan to contribute at least as much in 2007 as they did in 2006.
Shifting priorities
Not surprisingly, as economic conditions have shifted, so have the priorities of Florida's CEOs. Each year survey respondents are asked to name the single most pressing problem facing their organizations in Florida.
In 2000, when the Florida CEO Trends survey was initiated, the national economy was still booming, and the problem most often referenced by the CEOs of Florida's largest companies was difficulty recruiting and retaining employees. Over half of the CEOs interviewed in 2000 said this was their biggest problem.
In the 2001 survey, this was again the most frequently cited challenge (28%), but it was almost matched by concern about the uncertain economic outlook (21%). A year earlier, economic uncertainty had hardly been mentioned at all, rating concern among only 3% of the CEOs interviewed.
In the 2002 survey, these two problems switched places in CEO priorities. The concern referenced most frequently was the uncertain economic outlook, which was cited by 42% of the respondents. Difficulty recruiting and retaining employees dropped to second place at 16%.
In the 2003 survey, the uncertain economic outlook was again the problem cited most often, but the frequency was down from 2002 because a variety of other issues moved up in the list of CEO concerns. Those that had risen included healthcare costs (cited by 13% of CEOs); recruitment, training and retention (12%); the performance of state and local government (9%); and growth management (9%).
Challenged by tight labor market
Beginning in 2004, after Florida's economic expansion had gained momentum, CEO priorities started to look much as they had in 2000, when the economy was at the tail end of an economic boom. Increasingly, the challenges faced by Florida CEOs center on tight labor markets rather than slack consumer demand.
Uncertainty about the economic outlook, which had been the top concern of 31% of CEOs in 2003, was picked by only 11% of respondents in 2004, 8% in 2005, and 14% in 2006. Replacing it at the top of the list was recruitment, training and retention, cited by one in four CEOs in 2004 and one in three in 2005 and 2006.
CEOs in virtually every sector of Florida's economy report problems in this area. Recruitment, training and retention were identified as the top concern of at least one-third of CEOs in agribusiness (46%), business services (44%), construction (33%), energy (43%), finance (36%), human resources (40%), manufacturing (50%), media (33%), professional services (56%), restaurants (33%), retail (57%), wholesale (33%), technology (57%), and telecommunications (40%).
Insurance access a top concern
In this year's survey, the concern cited second-most often by Florida CEOs was new to the list: The availability of property, casualty and liability insurance. Almost one in five CEOs reported that insurance availability is the most serious problem facing their companies and the most serious problem facing their industry. Insurance was cited most often as the biggest concern of CEOs in hospitality (40%), education (50%) and real estate (47%).
The cost of healthcare and workers' compensation, which was the No. 2 in 2005, was cited less frequently this year than it had been in the previous three years. The percentage of CEOs identifying healthcare costs as the most pressing problem facing their companies was 8%, down from 19% in 2005.
Living costs a rising concern
A new concern among CEOs in 2005, housing costs were also cited as a problem in the 2006 survey. Although this issue was not mentioned frequently enough to place it on the list of top problems, it is significant both because it appeared recently and because it is related to recruitment difficulties.
Projections for the housing market in 2007 are mixed. A majority (55%) of Florida's CEOs expect property values to stabilize in 2007, but 22% say the market will fall, and another 22% say it will rise.
The CEOs in this year's survey also expressed concerns about living costs in general. Almost half (46%) of the respondents reported that the rising cost of living in Florida has had a negative impact on recruitment and retention. This percentage was up sharply from 31% in 2005.
Growing concerns about recruitment, training and retention are directly related to CEO assessments of how different factors affect their corporations' performance. In the 2005 and 2006 Florida CEO Trends surveys, respondents were asked what one factor contributed most to the success of their organizations. In both years, a majority said it is the quality of their employees. Other factors cited this year include business strategies (17%), products and services (8%) and executive leadership (6%).
Recruitment challenges appear to be severe but not worsening. Three-fourths of the CEOs surveyed this year said that they have either "a lot of trouble" (27%) or "some trouble" (47%) recruiting workers with sufficient skills. Only about 20% said they have no difficulty (10%) or only a little difficulty (12%) with recruitment. These figures differ little from those in 2005.
Healthcare increases not as steep
Healthcare costs for Florida's largest corporations continue to rise, although not as rapidly as reported in 2005. Sixty-two percent of this year's respondents said their companies' healthcare costs are projected to grow by at least 10% in 2007. This is a lower percentage of respondents (77%) who in 2005 expected cost increases of 10% or more.
To deal with the rising cost of healthcare, Florida's largest companies have been shifting some of the burden to employees. This began in earnest in 2003 and reflected a marked change in policy. This year, over 40% of respondents said that the percentage of healthcare premiums paid by their employees would increase in 2007.
The bottom line
Florida's amazing economic performance in the face of an unprecedented series of challenges since 2000 is attributable to a number of factors. One is simply the momentum behind Florida's population growth, which took off in the 1950s and shows no signs of slowing.
A second factor that has helped Florida overcome the many challenges it has faced since 2000 is the state's huge investment in fixed capital. Florida's businesses and governments have made massive investments in expressways, airports, seaports, hotels, amusement parks, factories, farms, schools, universities, flood control and much more. These assets are powerful magnets for sustained growth.
A third factor is the state's leadership. The governor and Legislature took swift and effective action to address the challenges of recent years. Florida's leaders have boosted the state's economy by keeping taxes low despite fiscal stress from the 2001 recession and the uneven economic recovery nationally in 2002 and 2003.
Ironically, the biggest challenges in the immediate future are in part a consequence of Florida's economic boom. Difficulties with recruitment and retention stem mainly from tight labor markets. The rising cost of living, especially with respect to housing costs, reflects growing demand from population growth and investors. To be sure, policy-makers have tools for mitigating these issues -- obvious examples include affordable housing programs, public education and occupational skills training. But with unemployment below 4% and a net gain of 1,000 people moving into the state every day, Florida is likely to continue to experience the challenges of prosperity.
About the Author:
Dr. Lance deHaven-Smith is a professor in the Reubin O'D. Askew School of Public Administration and Policy at Florida State University. A former president of the Florida Political Science Association and the author of 15 books, one of which won the Manning Dauer Prize for scholarship from the University of Florida, Professor deHaven-Smith has written and conducted research on a wide range of topics, including survey research, Florida growth and development and national, state and local government.
Other contributors to this section include Janet Ware, Ginger Broslat, John M. Dunn, Diane Sears, Christine Jordan Sexton, Gary Shepherd, Jeffery Zbar.