The Miami Branch of the Atlanta Fed is responsible for gathering economic information from Florida's 13 southern counties, plus the travel and tourism industry for the entire Sixth District. We gather this information from business executives, community leaders, the Miami Branch's board of directors, and the Travel and Tourism Advisory Council via the Regional Economic Information Network, all of which helps support the formulation and implementation of sound monetary policy.
Business contacts in South Florida have reported continuously improving business sentiment since January 2014, with the most upbeat reports coming in June and July.
General business conditions
During the last Federal Open Market Committee cycle, which ran from June 19 to July 30, contacts in the private sector reported robust demand in most industries, although government spending remained soft in South Florida. Several small business contacts discussed their capital expenditure projects that are under way to help meet increased consumer demand. Although these contacts acknowledged that the availability of credit has improved, they noted that the process of obtaining a loan from a traditional lender takes longer now than before the recession, partly the result of increased due diligence. As a result, according to our contacts, small businesses are using internal cash flow, nontraditional banks, or private investors to finance their growth.
The tourism sector continued to report increases in consumer spending, and retail contacts reported that lower-income consumers tend to avoid discretionary expenditures. Contacts in real estate sales and construction in South Florida report ongoing significant expansion.
Contacts indicated increases in mergers and acquisitions, facilitated in part by the low interest rate environment. However, the near-term implication of these mergers and acquisitions could be a reduction in available jobs since cost synergies are generally an important element of these transactions.
Employment and labor markets
Business contacts continue to report a concern with a skills gap between job seekers and available job opportunities. Some contacts report expanding their training and development offerings for employees. However, most are requiring applicants already to possess experience in their field. According to the attendees of a human resources roundtable, the skills gap is especially prominent in specialized fields (for example, mechanics, plumbers, and welders). Many specialists attribute the discrepancy to the social emphasis that every high school graduate should pursue a four-year degree. Also, business contacts continue to express concerns that immigration laws are hindering the relocation of talent from abroad.
Some wage pressures are being reported at various levels, and some employers are making small midyear adjustments. Most contacts report hiring highly skilled talent at higher salaries and also adjusting the wages of current highly skilled employees during their regular review cycle. Some contacts expressed concern that rising health care costs passed down to employees could suppress real wage growth.
Costs, prices, and wages
Business contacts in the manufacturing sector reported increases in input costs, and they expect that they will incur additional increases before the end of the year. Most have been able to pass the increases on to their customers. Tourism contacts continued to report price increases for hotel rates, food, and attractions, and these increases were passed on to customers with no impact on consumer demand.
Availability of credit and investment
Business contacts indicated that most of their contacts are investing in capacity expansion, anticipating improved demand, and some of them indicated that any capital expansion is the result of delayed investment. The requirements to qualify for a mortgage are much more stringent than before the recession, making the process for home buyers, particularly first-time home buyers, a challenge.
Banking contacts all report being well capitalized and having sufficient money to lend. Large banking contacts report that loan production has increased, although they are not afraid to turn down clients—their rejection rate is higher than prerecession levels. According to contacts, some small banks are taking on more risk by extending the duration of loans and becoming more aggressive on deals the larger banks are unwilling to finance. Alternative lenders are offering a "merchant cash advance" product, which is a high-priced commercial product geared primarily to small businesses for short-term financing.
Overall, as 2014 progresses, business contacts continue to report positive activity and demand with growing enthusiasm. Tourism throughout the region is thriving, with record-breaking reports from South Florida and a very optimistic outlook for the remainder of the year.
By Marycela Diaz-Unzalu, a Regional Economic Information Network analyst in the Atlanta Fed's Miami Branch