Over the course of the six weeks between the January and March Federal Open Market Committee meetings, my colleague Chris Oakley, the regional executive of the Atlanta Fed's Jacksonville Branch, and I met with 17 business leaders from across north and central Florida, as well as with members of our branch board of directors, to gain a broad perspective on current economic conditions.
Overall, most contacts indicated that that the stronger pace of activity experienced in the latter part of last year either has been sustained or should resume as the weather improves. (Unlike the rest of the country, Florida has been relatively untouched by the adverse winter weather. However, our contacts with a national footprint or those who experienced delayed parts deliveries, like manufacturing, construction, and food services, have noted disruptions in activity as a result of bad weather in certain markets.)
Designers and builders of both large and small enterprises noted a pick-up, especially in manufacturing, health care, and financial services, with one firm reporting a record backlog of projects due to organic growth and acquisitions. Other areas of strength for the state included tourism, housing construction, port activity, and an increasing number of retirees choosing Florida as their new home. On the flip side, banker contacts continued to be disappointed with a lack of loan demand among small business clients, but "tire kicking" appeared to have increased along with expectations for a higher level of activity this year. Restaurant contacts indicated worries about middle- and low-income consumers, whose disposable incomes are challenged with low wage growth and adjusting to increased health care premiums.
Florida has experienced a stronger rebound in new home permits than the nation since the beginning of 2014 (see the chart). Conversations with business contacts reflect this trend. Some residential home builders indicated that they are building spec homes with confidence that the properties will sell; one custom builder reported that his spec homes have been selling at 98 percent of the asking price. Banker contacts noted price increases as a result of both reduced real estate owned inventories on their books and a shortage of developed lots for new home construction. On the credit side, bankers reported that available credit now appears to have achieved some equilibrium with real estate demand. It was also noted that demand for rental property remains robust as some previous homeowners who lost their homes during the downturn have indicated no interest in owning another home and will continue to rent, at least in the near term.
Feedback regarding the labor market was mixed. We heard several stories about the inability to fill construction jobs, especially high-skilled positions. One contact speculated that this lack of talent could eventually result in a greater proportion of construction taking place in factory-like settings with only assembly occurring in the field, allowing for the use of greater automation in manufacturing components. Staffing contacts noted postrecession high levels of openings, and those workers with unique skills (often I.T. or accounting-related) were in the driver's seat and were able to dictate working conditions and have some leverage in compensation negotiations. A large manufacturer found success in partnering with Florida's universities and military veteran placement services to ensure an adequate supply of engineers and other high-skilled workers.
A good amount of discussion about increased labor costs focused on health care benefits, with sources sharing anecdotes about annual increases as high as 20 percent. A majority of contacts indicated they are passing along or sharing premium increases with employees. We also heard stories of companies reducing or discontinuing benefits for family members who might otherwise qualify for benefits elsewhere. Further, it was emphasized, especially among lower-wage, service-oriented companies, that the individual mandate of the Affordable Care Act is resulting in a larger number of eligible employees electing coverage, which is also driving up costs for the employer. A large design-build firm noted increased labor costs among its subcontractors, and a real estate rental firm indicated a "fair amount of wage pressure" for higher-level employees, such as property managers. In the government sector, both at the county and municipal levels, contacts commented on a resumption of wage increases among their constituents, the first for most since the recession.
With regard to nonlabor costs, developed land and construction material costs were both noted as concerns among construction contractors. Restaurant contacts expect food costs to rise about 4 percent this year, consistent with what they experienced in 2013, with increasing meat prices driving the rise. Banker contacts continued to point to rising regulatory and compliance costs. Overall, there appears to be more of an appetite for attempting to push through input cost increases through pricing, though the consensus is that any increase would be conservative.
So, overall, the takeaway from all of these anecdotes is that it's more of the same. While uncertainties are fewer and farther between than in the past couple of years, the outlook in the northern half of Florida appears a little less cloudy and even laced with cautious optimism. For a wider viewpoint on the economy across the Southeast, see the Atlanta Fed's latest Southeastern Insights.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch