Can Florida economy take a double whammy?
BY SCOTT ANDRON (Miami Herald)
Cesar L. Alvarez has practiced corporate law in Miami through 35 years and five national recessions.
He has seen the energy crisis of the 1970s, the rampant inflation of the late '70s and early '80s, and the savings-and-loan failures of the early '90s. But now, with a record housing bust, a financial system meltdown and consumer confidence in the basement, he says none of the past downturns was as bad as today's.
''I think this is the worst that I have seen,'' said Alvarez, now the CEO of the 1,800-lawyer Greenberg Traurig firm. ``If I had to rank it, I would rank it No. 1.''
He's not the only one. South Florida's economy faces a surge in home foreclosures, higher-than-normal inflation, rising unemployment and pullbacks in consumer spending. Add to that the meltdown of the national financial system.
''Florida has been in a relatively mild recession for the past year,'' said University of Florida economist David Denslow. With the national -- in fact, global -- recession, ``we'll have, as it were, a recession on top of a recession.''
Population growth and foreign trade have made past recessions shorter and milder here. But the current downturn comes at a time when population growth has slowed sharply, especially in South Florida. And as our problems spread to foreign markets, we can't rely on them as much to ease our pain.
For the first time since UF researchers began keeping track 40 years ago, the number of electric hookups in the state fell slightly in September compared with the previous year, Denslow told a group of state business leaders Thursday.
Electric hookups are an important indicator that UF's Bureau of Economic and Business Research uses in estimating population growth.
Tony Villamil, an economist and dean of the St. Thomas University business school, agreed with Denslow, adding that Florida's foreign trade partners -- another major shield against past downturns -- are facing their own problems.
''The international sector has been a key driver,'' he said. ``That is starting to slow.''
With all of these economic forces arrayed against us, many observers say South Florida will face the toughest times in recent memory before it's over -- probably in another year or more.
The good news, they say, is that this downturn won't be on the scale of the Great Depression -- when the economy shrank by a third and as many as one in four Americans were out of work.
South Florida has suffered in previous national recessions, although sometimes not as much as other parts of the country.
For instance, the 2001 recession barely registered here. But others were tough, including:
• The 1990-91 recession, which saw the demise of such economic pillars as Eastern Airlines, PanAm and Southeast Bank.
• The 1980-82 downturns, when soaring inflation and mortgage rates of 18 percent put an end to a condo development boom.
• The 1973-75 contraction, when Middle Eastern nations cut the flow of oil to the United States.
Leonard Abess, chairman of City National Bank since 1983, notes that the worst recession is always the one you're in. ''When it's happening, it always seems worse than memory,'' he said.
In some key respects, this downturn doesn't seem as bad as previous cycles.
For instance, Florida's unemployment rate hit 9 percent in the early 1980s; it remains below 7 percent now. And inflation, despite the recent spike in gasoline prices, is nowhere near the double digits of the Carter administration.
But the unemployment rate tends to peak late, after the economy has started to recover. And in recent months, the state has led the nation in job losses.
State figures released Friday showed more than 119,000 jobs lost in the past 12 months. Most were in construction, which has been crushed under the weight of an oversupply of homes.
SPENDING SLOWS
Other signs are worse. Worried consumers are cutting their spending. Car dealers are having trouble getting loans for their customers -- even those with good credit.
Lombardo Perez Sr., president of Metro Ford-Lincoln-Mercury, said this is the worst time for car dealers in the 41 years he has been in the business.
Sales at his stores are down 30 to 35 percent. Fewer customers are visiting, and many who want to buy are being turned down for loans. Even the carmakers' own finance companies, such as GMAC, are pulling back.
''They have cut back leasing down to nothing,'' Perez said. ''People with good credit were able to buy with 5 or 10 percent down payment and get 72 months'' to repay the loan. ``Now you need 20 or 30 percent down.''
Despite big price drops, the housing market has yet to rebound.
In late September, Miami-Dade had a 32-month supply of single-family homes and a 41-month supply of condos listed for sale -- meaning it would take that long to sell all the homes at the current pace. Broward had a 20-month supply of single-family homes and a 29-month supply of condos, South Florida Regional MLS listings data show. In a normal market, homes for sale amount to a six- to 12-month supply.
''I would say the early '80s housing recession was a dreadful moment in South Florida because it brought housing to a halt,'' said Coral Gables real estate consultant David Dabby. ``But it didn't last that long because the government corrected the [high] interest-rate problems.''
That time, however, prices had spiked by only about 80 percent, compared to more than 200 percent in the recent boom. In general, the bigger the spike, the bigger the subsequent drop.
Retailers, meanwhile, are facing the prospect of a not-so-merry Christmas season. The industry forecasts a slight increase in sales; outside observers say sales will more likely be flat or drop slightly. Some predict the worst holiday season in decades.
But Miami retail consultant Herbert Alan Leeds said those predictions are optimistic. He figures the average retailer will see a drop of at least 7 percent in same-store sales for the holiday season. Same-store sales includes only those stores open at least a year. And results in South Florida will likely be worse than the nation, Leeds said.
Most consumers have little money to spend on gifts, and those who do are reluctant to spend it. That reluctance has as much to do with psychology as the actual economic distress, said Leeds, who became a retail consultant in 1975, after a career as a department store executive.
Even the tourism industry, though faring better than most, is bracing for a lackluster 2009.
Typically during and right after a recession, visitors to South Florida from within the United States drop off. From 1990 to 1992, for example, domestic visitors to Miami-Dade County fell.
For the first six months of this year, the number of domestic visitors to Miami-Dade fell 1.2 percent.
But now, as then, foreign visitors helped make up some ground. For the first six months of this year, foreign visitors grew 8.2 percent, for a net gain of 3 percent. Back in the early 1990s? International visitors grew at double-digit rates.
The slowdown in foreign economies threatens to cut into this source of money, too.
Nicki Grossman, president of the Greater Fort Lauderdale Convention and Visitors Bureau, projects a 4 percent drop in hotel-tax revenue for the budget year that began Oct. 1. That may not seem like much, but it would be the worst drop in the bureau's history, Grossman said. And the projections would have been worse if not for several new hotels.
Aggressive marketing and promotions in the Northeast and Europe should pay dividends in 2009, Grossman said.
People are ''going to want to escape their day-to-day worries,'' she said. ``They're going to want to sit on the beach and forget about the stock market.''
Recent problems in the financial industry -- notably the demise of giants like Bear Stearns, Lehman Bros., Merrill Lynch, Washington Mutual and Wachovia -- have prompted comparisons between the current downturn and the Great Depression.
WHAT'S DIFFERENT
The main common theme is a financial crunch. But UF's Denslow and other experts said our current crisis is different in several important ways.
First, the size and scale of our problems, at least so far, are nowhere near that of the 1930s. Second, more protections are in place to prevent panic -- such as federal insurance of bank deposits. And third, the government is moving quickly and aggressively to limit the damage this time.
''We're not going to see the unemployment rate go to 24 or 25 percent,'' Denslow said. ``We're not going to see a one-third decrease in the value of goods and services. It's just not going to happen.''
After the crash of 1929, the government failed to take the kind of actions needed to stem the problems, at least not until President Franklin D. Roosevelt took office in 1933, said Mira Wilkins, an economic historian at Florida International University.
That's a sharp contrast with Congress' recent decision to spend up to $700 billion bailing out the financial sector.
''When your credit dries up, you should have some firm action . . . to cope with the problem before the problem escalates,'' Wilkins said. ``Despite our anti-government sentiment, despite all the rhetoric about greed on Wall Street, we do have responsible people in government who are going to do something about this and are going to have the economy in mind.''
Orlando-based economist Hank Fishkind agreed.
''The sky fell for sure, but the world didn't come to an end,'' Fishkind said. ``The government stepped in and didn't make the same mistakes it made in the 1930s. It could have been dramatically worse.''
AFTER THE STORM
Some observers predict we will emerge from recession by 2010 but acknowledge that anything could happen.
''No two business cycles are exactly alike,'' said University of Central Florida economist Sean Snaith. ``They're like economic snowflakes. There's no reason to expect any two business cycles will be identical to each other because business is changing all the time.''
However long it takes, attorney Alvarez said, this, too, shall pass.
''Everyone who has ever bet against the U.S. economy has lost,'' he said. ``We have come through every single recession, we have come through it together, and come through it without panicking.''
© 2008 Miami Herald Media Company. All Rights Reserved.http://www.miamiherald
BY SCOTT ANDRON (Miami Herald)
Cesar L. Alvarez has practiced corporate law in Miami through 35 years and five national recessions.
He has seen the energy crisis of the 1970s, the rampant inflation of the late '70s and early '80s, and the savings-and-loan failures of the early '90s. But now, with a record housing bust, a financial system meltdown and consumer confidence in the basement, he says none of the past downturns was as bad as today's.
''I think this is the worst that I have seen,'' said Alvarez, now the CEO of the 1,800-lawyer Greenberg Traurig firm. ``If I had to rank it, I would rank it No. 1.''
He's not the only one. South Florida's economy faces a surge in home foreclosures, higher-than-normal inflation, rising unemployment and pullbacks in consumer spending. Add to that the meltdown of the national financial system.
''Florida has been in a relatively mild recession for the past year,'' said University of Florida economist David Denslow. With the national -- in fact, global -- recession, ``we'll have, as it were, a recession on top of a recession.''
Population growth and foreign trade have made past recessions shorter and milder here. But the current downturn comes at a time when population growth has slowed sharply, especially in South Florida. And as our problems spread to foreign markets, we can't rely on them as much to ease our pain.
For the first time since UF researchers began keeping track 40 years ago, the number of electric hookups in the state fell slightly in September compared with the previous year, Denslow told a group of state business leaders Thursday.
Electric hookups are an important indicator that UF's Bureau of Economic and Business Research uses in estimating population growth.
Tony Villamil, an economist and dean of the St. Thomas University business school, agreed with Denslow, adding that Florida's foreign trade partners -- another major shield against past downturns -- are facing their own problems.
''The international sector has been a key driver,'' he said. ``That is starting to slow.''
With all of these economic forces arrayed against us, many observers say South Florida will face the toughest times in recent memory before it's over -- probably in another year or more.
The good news, they say, is that this downturn won't be on the scale of the Great Depression -- when the economy shrank by a third and as many as one in four Americans were out of work.
South Florida has suffered in previous national recessions, although sometimes not as much as other parts of the country.
For instance, the 2001 recession barely registered here. But others were tough, including:
• The 1990-91 recession, which saw the demise of such economic pillars as Eastern Airlines, PanAm and Southeast Bank.
• The 1980-82 downturns, when soaring inflation and mortgage rates of 18 percent put an end to a condo development boom.
• The 1973-75 contraction, when Middle Eastern nations cut the flow of oil to the United States.
Leonard Abess, chairman of City National Bank since 1983, notes that the worst recession is always the one you're in. ''When it's happening, it always seems worse than memory,'' he said.
In some key respects, this downturn doesn't seem as bad as previous cycles.
For instance, Florida's unemployment rate hit 9 percent in the early 1980s; it remains below 7 percent now. And inflation, despite the recent spike in gasoline prices, is nowhere near the double digits of the Carter administration.
But the unemployment rate tends to peak late, after the economy has started to recover. And in recent months, the state has led the nation in job losses.
State figures released Friday showed more than 119,000 jobs lost in the past 12 months. Most were in construction, which has been crushed under the weight of an oversupply of homes.
SPENDING SLOWS
Other signs are worse. Worried consumers are cutting their spending. Car dealers are having trouble getting loans for their customers -- even those with good credit.
Lombardo Perez Sr., president of Metro Ford-Lincoln-Mercury, said this is the worst time for car dealers in the 41 years he has been in the business.
Sales at his stores are down 30 to 35 percent. Fewer customers are visiting, and many who want to buy are being turned down for loans. Even the carmakers' own finance companies, such as GMAC, are pulling back.
''They have cut back leasing down to nothing,'' Perez said. ''People with good credit were able to buy with 5 or 10 percent down payment and get 72 months'' to repay the loan. ``Now you need 20 or 30 percent down.''
Despite big price drops, the housing market has yet to rebound.
In late September, Miami-Dade had a 32-month supply of single-family homes and a 41-month supply of condos listed for sale -- meaning it would take that long to sell all the homes at the current pace. Broward had a 20-month supply of single-family homes and a 29-month supply of condos, South Florida Regional MLS listings data show. In a normal market, homes for sale amount to a six- to 12-month supply.
''I would say the early '80s housing recession was a dreadful moment in South Florida because it brought housing to a halt,'' said Coral Gables real estate consultant David Dabby. ``But it didn't last that long because the government corrected the [high] interest-rate problems.''
That time, however, prices had spiked by only about 80 percent, compared to more than 200 percent in the recent boom. In general, the bigger the spike, the bigger the subsequent drop.
Retailers, meanwhile, are facing the prospect of a not-so-merry Christmas season. The industry forecasts a slight increase in sales; outside observers say sales will more likely be flat or drop slightly. Some predict the worst holiday season in decades.
But Miami retail consultant Herbert Alan Leeds said those predictions are optimistic. He figures the average retailer will see a drop of at least 7 percent in same-store sales for the holiday season. Same-store sales includes only those stores open at least a year. And results in South Florida will likely be worse than the nation, Leeds said.
Most consumers have little money to spend on gifts, and those who do are reluctant to spend it. That reluctance has as much to do with psychology as the actual economic distress, said Leeds, who became a retail consultant in 1975, after a career as a department store executive.
Even the tourism industry, though faring better than most, is bracing for a lackluster 2009.
Typically during and right after a recession, visitors to South Florida from within the United States drop off. From 1990 to 1992, for example, domestic visitors to Miami-Dade County fell.
For the first six months of this year, the number of domestic visitors to Miami-Dade fell 1.2 percent.
But now, as then, foreign visitors helped make up some ground. For the first six months of this year, foreign visitors grew 8.2 percent, for a net gain of 3 percent. Back in the early 1990s? International visitors grew at double-digit rates.
The slowdown in foreign economies threatens to cut into this source of money, too.
Nicki Grossman, president of the Greater Fort Lauderdale Convention and Visitors Bureau, projects a 4 percent drop in hotel-tax revenue for the budget year that began Oct. 1. That may not seem like much, but it would be the worst drop in the bureau's history, Grossman said. And the projections would have been worse if not for several new hotels.
Aggressive marketing and promotions in the Northeast and Europe should pay dividends in 2009, Grossman said.
People are ''going to want to escape their day-to-day worries,'' she said. ``They're going to want to sit on the beach and forget about the stock market.''
Recent problems in the financial industry -- notably the demise of giants like Bear Stearns, Lehman Bros., Merrill Lynch, Washington Mutual and Wachovia -- have prompted comparisons between the current downturn and the Great Depression.
WHAT'S DIFFERENT
The main common theme is a financial crunch. But UF's Denslow and other experts said our current crisis is different in several important ways.
First, the size and scale of our problems, at least so far, are nowhere near that of the 1930s. Second, more protections are in place to prevent panic -- such as federal insurance of bank deposits. And third, the government is moving quickly and aggressively to limit the damage this time.
''We're not going to see the unemployment rate go to 24 or 25 percent,'' Denslow said. ``We're not going to see a one-third decrease in the value of goods and services. It's just not going to happen.''
After the crash of 1929, the government failed to take the kind of actions needed to stem the problems, at least not until President Franklin D. Roosevelt took office in 1933, said Mira Wilkins, an economic historian at Florida International University.
That's a sharp contrast with Congress' recent decision to spend up to $700 billion bailing out the financial sector.
''When your credit dries up, you should have some firm action . . . to cope with the problem before the problem escalates,'' Wilkins said. ``Despite our anti-government sentiment, despite all the rhetoric about greed on Wall Street, we do have responsible people in government who are going to do something about this and are going to have the economy in mind.''
Orlando-based economist Hank Fishkind agreed.
''The sky fell for sure, but the world didn't come to an end,'' Fishkind said. ``The government stepped in and didn't make the same mistakes it made in the 1930s. It could have been dramatically worse.''
AFTER THE STORM
Some observers predict we will emerge from recession by 2010 but acknowledge that anything could happen.
''No two business cycles are exactly alike,'' said University of Central Florida economist Sean Snaith. ``They're like economic snowflakes. There's no reason to expect any two business cycles will be identical to each other because business is changing all the time.''
However long it takes, attorney Alvarez said, this, too, shall pass.
''Everyone who has ever bet against the U.S. economy has lost,'' he said. ``We have come through every single recession, we have come through it together, and come through it without panicking.''
© 2008 Miami Herald Media Company. All Rights Reserved.http://www.miamiherald
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