Jacksonville, Florida. Photo by Kendrick Disch
In a February SouthPoint post about economic conditions in north and central Florida, we reported that our contacts' optimism in late 2014 had carried into the new year. Since then, the Regional Economic Information Network team at the Jacksonville Branch has noted an overall improvement in activity and continued positive sentiment.
General business conditions continue firming
Feedback throughout the winter months was quite upbeat. Most contacts felt that an improving economy and labor market were driving growth. In early spring, although feedback remained positive, the messages became more mixed, with some contacts indicating a plateau in growth—most notably, transportation and retail contacts cited challenges from severe weather in various markets. However, bankers noted reasonable momentum with consumers and businesses; real estate contacts saw robust activity with increasing sales and prices at all price points; and homebuilders and commercial construction firms noted much stronger levels of activity. Tourism remained vibrant. Though the consumer inched along, restaurants reported revenue increases that they believe were the result of lower gas prices influencing discretionary spending. As spring progressed, activity continued along an upward, albeit slow, trajectory.
By midsummer, a small number of contacts reported demand was flat, and transportation contacts reported that activity—especially related to the movement of energy-related materials—declined notably since the first quarter. However, a majority of other contacts noted improved activity. Some began to add to capacity to meet increased demand—and, more importantly, anticipated future demand.
Employment largely stable
Throughout the first part of 2015, contacts continued to indicate no major problems in filling jobs outside of information technology (IT), accounting, compliance, and truck drivers. Staffing levels across firms generally remained steady, with some adding to headcount. Those hesitant to add staff turned to contingent labor (such as contract staff or temps) to meet demand. In late spring, we began to hear about increased turnover at many levels, and recruiting and retention appeared to be getting tougher. In central Florida, tourism contacts cited concerns of potential worker shortages as a result of a very low regional unemployment rate and increased construction attracting available labor.
Labor, nonlabor costs and price pressure surfacing
By March, mentions of mounting wage pressures at all job levels surfaced. Though not universally reported, numerous contacts said they were beginning to increase starting salaries, which they noted will eventually ripple through higher levels of staff to maintain internal pay equity and retain talent. Wages increased for engineers, truckers and technicians, and IT specialists. Into the summer, stories of referral and signing bonuses, customized perks, and other benefits enhancements for both recruitment and retention became more common.
Feedback on health care costs continued to be mixed. Health care costs for most increased at a pace greater than overall inflation, though companies continued to try to minimize the increases by changing plan designs or by sharing more of the cost with employees.
Overall, concerns about nonlabor costs were muted. Some mentioned lower energy and fuel costs have offset increases in other input costs.
The ability to raise prices varied among industries. However, a number of contacts indicated pricing power had improved, though the magnitude of price increases was limited. Generally, though, margins were edging up.
Credit, investment remain available
Throughout the first half of the year, credit was readily available and banking contacts reported increased activity. Many companies, especially small businesses, continued to deleverage even in the low interest rate environment, and many larger firms reported funding investments internally. Lenders reported increases in mortgage refinances as rates dipped, and they noted improved home equity levels. Auto lending was described as extremely strong.
Almost without exception, retail contacts noted expansion activity and further growth plans, all the result of expectations for stronger consumer spending. Real estate agents indicated that appraisal issues improved, and buyers, even the self-employed, generally faced little trouble financing home purchases. Stories regarding business investment were mixed between outlays for deferred projects and spending for new demand. This year, it's become clear that there is less hesitation about investment.
Business outlook mostly bright
Though we heard a couple of references to a cloudier outlook during the next two to three years as we approach another presidential election, collectively—and as recently as July—most REIN contacts and board members were as positive about current activity and future expectations as we have seen since the recession.
What's is in store for Florida in the second half of the year? Stay tuned.
By Chris Oakley, regional executive, and Sarah Arteaga, REIN director, both of the Atlanta Fed's Jacksonville Branch