Posted on Wednesday, November 17, 2010
Economist Tony Villamil foresees a slow but ongoing recovery of the South Florida economy, barring an unexpectedly dramatic decline in government employment.
"The economy is improving but very slowly," said Villamil, dean of the business school at St. Thomas University in Miami Gardens. "Usually when you have a financial crisis like we had in ‘08 … it takes awhile for the economy to repair the balance sheets of consumers and businesses."
But he said lower housing values have reduced property tax revenue so much that financial stress on local governments could "derail" South Florida’s recovery from recession.
"You are probably going to see more layoffs in the public sector. And the average salaries tend to be higher, so it has a multiplier effect through the whole economy," Villamil said. "We still have a very serious problem in county and municipal finance."
An upturn in residential real estate values eventually will boost property tax revenue. But the path to a healthy market is likely to be long. "It’s going to take at least two to three more years to absorb all the inventory of unused homes and condos," Villamil said. In addition, "there is a lot of [vacant] space on the commercial real estate side."
Villanil said a two-track economic recovery is likely to unfold, with construction and real estate lagging in job creation while such industries as health care service and life science research set the pace:
"The area of research and development is likely to do well, and the same is true of health care services. You see, for example, Baptist Health System and others putting in satellite facilities, clinics for people with minor injuries and things like that. That’s going to continue."
Other positive economic indicators in South Florida include robust export activity and active foreign investment in properties and businesses.
Villamil said further momentum could come from an extension of cuts in the capital gains tax and other federal taxes during the administration of President George W. Bush: "It would help significantly the confidence of investors if the Bush tax cuts are extended for all income brackets for the next, at least, two to three years, until the economy recovers."
Pace of drug development could hinge on federal funding
Research and development activity in South Florida’s bioscience industry is likely to expand further, but the rate of growth in federally funded drug development is worrisome.
"I don’t see any reason why we’re not going to continue to see growth in 2011," said C. Russell Allen, president and chief executive officer of BioFlorida, a West Palm Beach-based association that promotes the state’s bioscience industry.
But Allen also said public funding for drug research and development from the National Institutes for Health (NIH), the prime source of federal R&D money, has failed to keep up with the rising cost of developing drugs. "It’s a big concern, and one that our industry spends a lot of effort on," he said. "We talk to our congressional delegation about the importance of NIH funding and will continue to do so."
More than 40 bioscience research companies in South Florida recently qualified for federal grants to develop new medical therapy products, up to a maximum of about $244,000 per grant.
It’s "not necessarily a ton of money" considering the full cost of developing products for approval by the U.S. Food and Drug Administration, Allen said. "The cost to get to market is about a $1 billion ... But for an emerging company, every little bit helps."
The grant money is part of a one-time investment in R&D that President Obama authorized this year by enacting the landmark health care reform bill known as the Patient Protection and Affordable Care Act of 2010. In similar fashion, a temporary increase in NIH funding for research was part of the economic stimulus law enacted early last year, the American Recovery and Reinvestment Act of 2009.
The underlying long-term trend in NIH funding for bioscience research has been disappointing, Allen said, because "we’ve seen a pretty good decline over the years" relative to the lofty cost of drug research and development. "The cost of development is rising."
Private financing for bioscience research is depressed, but "investments haven’t completely dried up," he said, citing positive comments by venture capital investors at two recent industry conferences. "In both cases, we had investors saying they are looking at opportunities now" in the bioscience industry.
PNC predicts slow income growth and flat employment next year
PNC Bank predicts that personal income in South Florida will increase slowly next year while total employment remains at a virtual standstill.
"Income growth re-emerged in the second half of 2010, but it will take years of sustained growth to repair the damage to household finances from the housing bust and the recession," PNC Bank reported. "Retailers will feel the after-effects of the recession for some time to come. Marginal retailers will likely show lingering high bankruptcy rates."
Pittsburgh-based PNC estimated that personal income in Miami-Dade, Broward and Palm Beach counties will show annual growth of 0.8 percent this year and 1.9 percent next year after dropping by 3.2 percent in 2009. Median household income in South Florida would rise to $49,500 next year, up slightly from an estimated $49,000 this year and $48,800 last year.
In a recently updated forecast of the South Florida economy, PNC also predicted that the area’s monthly unemployment rate will average 11.6 percent this year and 11.3 percent next year, compared to 10.2 percent last year.
In addition, "we assume that positive domestic in-migration has returned to southeast Florida in 2010," PNC reported. "This will elevate population growth and demand for service sector jobs."
Working against a brisk recovery from recession is a massive loss of home equity in South Florida that may have further to go. PNC said "downside pressure from a deepening foreclosure mess combined with a lingering high unemployment rate will contribute to continued moderate erosion of [home] prices into 2011."
But PNC also reported that the tri-county area has enough employers in non-housing industries to keep total employment from falling further under the weight of the housing market collapse: "Southeast Florida has many non-seasonal, well-paying firms that are not linked with housing, and are improving as the nation’s economic recovery slowly gains traction in late 2010 and into 2011."
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