Looking to the South
While Georgia's economic growth will tend to track the nation's this year, our neighbor to the south — Florida — will boast the top performing economy east of the Rockies.
Florida will add at least 210,000 jobs, a 2.7 percent gain. Inflation-adjusted personal income will rise by 4.5 percent, and gross state product will grow by 4.3 percent. Those are big numbers. In contrast, our neighbor to the west — Alabama — will see job growth of just 1.2 percent; personal income growth of 1.8 percent; and GSP growth of only 2.6 percent.
The structure of Florida's economy immunized it against the recession that hammered the Southeast in 2001. Only 5 percent of Florida's jobs are in manufacturing, contrasted with 10.5 percent in Georgia and 11.1 percent for the nation as a whole. Florida's service-dominated economy is not overly vulnerable to low cost foreign competition.
Florida's economy benefits from three powerful demographic trends that will be important forces for many years to come. First, the leading edge of the Baby Boom Generation (people born between 1946 and 1964) is approaching retirement — and Boomers are expected to flock to the sunshine state.
Second, the leading edge of the Echo Boom Generation has begun graduating from college. Echo Boomers are those children of Baby Boomers born between 1982 and 1995. There are about 60 million of them. This group is smaller than the 78-million strong Boomer generation, but larger than the generation between — Generation X (people born from 1969 to 1981) — which numbers about 40 million. As the Echo Boomers go off to college and begin to graduate, their empty-nest parents will be more inclined to make pleasure trips to relatively affordable destinations like Florida.
Third, it's not only retirees that are moving to Florida, but job seekers of all ages. Florida added some 400,000 residents in 2005. That's about 7,700 new citizens per week.
Florida is now home to some 17.9 million people. That's about the same as the combined populations of Arkansas, Louisiana, Mississippi, South Carolina and Kentucky.
Not content to rest on its fortuitous demographics and massive low-wage tourism industry, Florida is aggressively seeking to establish biotechnology and venture capital clusters. Lured to the state by $1 billion in incentives — $370 million from the state and $650 million from Palm Beach County — the Scripps Research Institute is building a 100 acre campus in a former orange grove 20 miles outside of West Palm Beach. Scripps is the world's largest private research center. Some think it is the most ambitious economic development project in Florida history.
Setting aside the possibilities of major hurricanes, skyrocketing oil prices and terrorist attacks, the most serious risk to Florida's economy is its real estate boom.
Over the last year, existing home prices in Florida have gone up by 25 percent, second only to the 30 percent increase reported for Arizona. Over the last five years, Florida home prices have literally doubled. Even after taking into account factors such as population density and income levels, Florida is one of the two states with the highest concentration of overvalued housing. The other is California.
The more overvalued home prices are, the greater the risk of a price correction. Markets are considered extremely overvalued when observed prices exceed expected prices by 30 percent or more.
According to a recent study conducted by National City Corporation, home prices in 2005 in a number of Florida metros were already above expected prices by more than 30 percent — 62 percent in Naples, 58 percent in Port St. Lucie, 46 percent in West Palm Beach.
A major home price correction is a decline of at least 10 percent over at least eight quarters. The good news for Florida? Of the 63 major home price corrections in the United States over the last 20 years, not a single one has taken place in Florida.
One possible explanation, and reason for optimism, is that the fundamental determinates of demand for housing in Florida have been and continue to be quite strong - growth in employment, growth in population, growth in personal income and robust business relocation activity.
Still, with mortgage rates rising — albeit from historically low levels — the potential for home price corrections in Florida is on the increase.
P. George Benson is dean of the Terry College of Business at the University of Georgia. He holds the Simon S. Selig, Jr. Chair for Economic Growth and can be contacted at email@example.com.