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Tampa Area Ranks 9th Among Areas Most Prone To Recession

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By MICHAEL SASSO The Tampa Tribune

Published: January 7, 2008

TAMPA - It may be a blue way to open the new year, but some economists say Florida has up to a 60 percent chance of falling into recession this year.

It's not just Florida as a whole that's at risk, either. Some regional economies, including the Tampa Bay area, stand a greater risk of recession than others, largely because of their deep ties to the housing industry.

Moody's Economy.com ranks Tampa as the ninth most likely metropolitan area in the nation to go into recession in 2008.

If the state goes into recession, with or without the nation, Florida would probably see rising unemployment, layoffs, and reduced spending.

Behind the risk is Florida's dependence on the housing industry to provide jobs and tax revenue, as well as residents' reliance on home equity loans to finance purchases. Each of those has tightened during the past year.

For the past few years, Florida was the envy of the nation for its strong job growth and low unemployment, but it now appears to be following the economic slide of the nation overall.

By definition, a recession is two consecutive quarters of negative growth in the gross domestic product, or GDP — or in the case of a state, gross state product. The terms refer to the total value of goods and services produced in a year minus the cost needed to make them.

More loosely, economists typically look at a variety of factors including employment, wholesale and retail sales and industrial production when looking for signs of recession.

Unemployment Hits 5%

On Friday, the U.S. Department of Labor said employers nationwide had tightened hiring in December and the unemployment rate had jumped to 5 percent, a two-year high. The disappointing employment figures raised the specter of a nationwide recession, experts warned.

Florida will announce its unemployment rate for December on Jan. 18. Florida's unemployment rate in November was 4.3 percent, up from 3.3 percent a year earlier.

Some areas of the state have seen their unemployment rates soar over the past year.

In the Cape Coral-Fort Myers area, for example, the unemployment rate hit 5.4 percent in November, compared with 3 percent in November 2006. In Ocala, the unemployment rate rose to 5 percent from 3.4 percent during that time.

Economist Tony Villamil says that Florida business activity is slowing by most major economic measures. But he urges perspective. The state's tourism industry remains strong, and Florida's trade with foreign countries is booming.

"There's a little bit of exaggeration going on," said Villamil, head of Miami-based Washington Economics Group and a past adviser to former Gov. Jeb Bush. "The state is not falling off the cliff."

For now, some industries in Florida — such as commercial real estate and retail sales of groceries and general merchandise — appear to be holding up, according to state sales tax data and interviews with industry professionals.

But retailers of big-ticket items such as cars and boats are getting hammered.

"I guess it's the housing market, because it's the only thing that wasn't there before," said Jack McGaughy, owner of Jack's Interbay Marine in Tampa, where boat sales have dropped at least 30 percent over two years. "In general, people are not interested in buying boats. They're not coming in the store."

During the last national recession in 2001, Florida got away relatively untouched, said Stephen Morrell, an economist at Barry University near Miami and a member of former Gov. Bush's council of economic advisers. Among other things, Florida continued to add jobs, unlike the nation at large, Morrell said.

This time, though, it's unclear whether Florida will fare so well because of the circumstances of the housing slump and tighter lending by banks, Morrell said. In a report he prepared last month for Florida TaxWatch, a Tallahassee watchdog group, Morrell put the chance of recession in Florida at 40 percent during the first six months of this year.

Florida In Bind Over Housing Ties

In a report published Nov. 21, Economy.com senior managing director Steve Cochrane ranked metropolitan areas on their risk of going into recession this year.

Cochrane ranked Phoenix as the most at-risk metro area in the country because of overvalued real estate, a large number of workers in housing-related fields and a large percentage of subprime loans relative to all home loans. The least at-risk metro area: Fort Smith, Ark. It has few housing-related workers, a small inventory of houses on the market and relatively few subprime mortgages.

Factors putting Tampa at risk, according to Cochrane's report, include:

Housing-related employment. According to his research, 13.3 percent of employees in the Tampa area are in housing-related industries such as construction, real estate, mortgage lending, building supply retail and home décor. His research didn't include the self-employed. Tampa ranked 44th out of 381 metro areas in terms of the percentage of housing-related workers.

Home equity. As home values skyrocketed two years ago, Floridians tapped into their home equity through second mortgages in huge numbers. By fall 2006, these "home equity extractions" added nearly 15 percent to Floridians' disposable income, according to research Economy.com did using Equifax credit reports.

Floridians often used that home equity to finance other purchases, boosting the state economy. By the third quarter of 2007, home equity borrowing had fallen by half, adding only 8.5 percent to Floridians' disposable income.

With home values continuing to slide, Floridians won't have as much equity to tap, which could result in consumers cutting spending. Locally, the Bay area ranks 59th out of 381 markets in the importance of home equity extractions to personal income, according to Cochrane's report.

Exposure to subprime mortgages. Economy.com research says Tampa ranks 35th out of 381 markets in the number of subprime loans originated in 2006 as a percentage of all home loans.

Because subprime loans are now defaulting in record numbers nationwide, Florida's exposure to the trend could hurt consumer spending and suppress housing values here.

California, Nevada Also At Risk

Cochrane pegs Florida's overall risk of recession within the next six months at about 60 percent. Other states facing a big risk of recession include Arizona, California and Nevada, where investors helped inflate housing values and millions of people with poor credit obtained subprime loans, Cochrane said.

There are signs that Florida's economy as a whole is starting to feel the effects of the real estate industry downturn, he said.

For example, Florida sales tax receipts from all industries are down 3.2 percent from January through October 2007 compared with the same period in 2006, state data show. Big-ticket items have been hit particularly hard, though cheaper goods haven't seen as big of a slide.

Sales tax collections from motor vehicle dealers were down 8.8 percent through the 10-month period. Motorboat and yacht dealers turned in 13.7 percent less in sales taxes in the period compared with the same time last year.

Although the residential real estate market looks weak for the near future, it's hard to know how much it will drag down some other sectors of the economy.

In the retail real estate sector, for example, opinions of what's happening vary.

Pat Duffy, president of Colliers Arnold, which handles sales and leasing of large retail projects in the Tampa Bay region, said some shopping center developers are now a little less aggressive in where they build. In the past, developers might have built a strip center in a growing but sparsely populated part of town, figuring houses would soon follow. Today, they will wait until people move in to the neighborhood, he said.

However, Duffy said he sees no sign of a major slowdown in retail development. There are enough retail projects in the pipeline to satisfy the area's shopping needs for at least five years, Duffy said.

Wanda DeBoer, a real estate broker who represents small restaurants and retailers, sees more trouble. She insists that the economy at least is hurting small businesses, if not the big chains.

"Look at the vacancies showing up and down the streets everywhere," she said.

Moody's Economy.com Rankings

Moody's Economy.com ranked 381 metropolitan areas for their risk of going into recession this year. The top 10 areas, based on factors including housing-related employment, importance of home equity to income and exposure to subprime mortgages:

1. Phoenix

2. Jacksonville

3. Sebastian

4. Bakersfield, Calif.

5. Punta Gorda

6. Panama City

7. Cape Coral

8. Vallejo, Calif.

9. Tampa

10. Naples

Source: Economy.com

Reporter Michael Sasso can be reached at (813) 259-7865 or msasso@tampatrib.com.

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