South Florida's economy feeling hints of recovery from recession

McClatchy NewspapersMarch 5, 2012 

MIAMI — About three years ago in the depths of the recession, contractor George Cuesta was hoping to land a small hotel renovation job in South Beach. He didn’t get it, but nobody else did either. The gutted building sat idle off 22nd Street when the funding fell apart, as pigeons nested on the exposed beams inside and vandals spray-painted the cinderblock walls.

Under the control of a new owner, the old hotel on Park Avenue is once again on Cuesta Construction’s sights, and this time he’s pretty sure he’ll soon sign a contract and send a construction crew in there to jumpstart the stalled venture.

“There’s a lot of investors looking at these sort of projects on the Beach,’’ Cuesta said as he walked the sand floor of the shuttered 46-room hotel. “They want to get started again.”

Such optimism may sound familiar. Both 2010 and 2011 began with a growing consensus that momentum was building behind a recovery. Consumer confidence strengthened across the country and in Florida, home prices appeared to stabilize, and the stock market rallied.

But the rebounds never stuck, continuing a shaky pattern that has proven to be South Florida’s weakest economic recovery in at least two generations — and probably since the Great Depression.

A review of statistics going back to the 60s helps explain the fitful recovery that continues to keep unemployment levels at near records in South Florida and housing prices depressed. No recession in the last four decades has caused such lasting damage.

Since the 1970s, South Florida has rebounded from five recessions much faster than it has since the so-called Great Recession officially ended in June 2009. Until now, the longest recovery in hiring took 35 months, the stretch of time required to erase the 45,000 jobs South Florida lost in the 1973-75 recession.

Forty-four months after payrolls started shrinking during the 2007 downturn, South Florida is still down 207,000 jobs from peak hiring levels in 2008.

Anemic job growth is the main problem. In past recessions, it took at most three years for Miami-Dade payrolls to start expanding by 2.5 percent a month, the average growth rate between downturns for Florida’s largest labor market.

But nearly four years after hiring first started to contract in Miami-Dade County, employment only recently hit 1.8 percent growth in Miami-Dade. For all of South Florida, the pace is slower — jobs are growing at about 1.4 percent a month, well behind the average of 3.6 percent a month outside of recessions.

The biggest source of the hiring lag: a construction industry down nearly 80,000 jobs from peak hiring levels. That amounts to almost 40 percent of the jobs South Florida would need to erase employment losses from the recession.

The housing depression prompted a global banking crisis that lingers. Miami-Dade now loses more jobs in finance each month than from construction. Those continued losses from the mortgage industry and insurance carriers are diluting the gains made by record hiring in the healthcare and hospitality industry.

“Whenever you have a financial crisis, the recovery takes a long time,’’ said Robert Cruz, head economist for Miami-Dade County. “There are clouds out there.”

That anemic pace helps explain why nearly three years into the official recovery, economists are only now starting to feel optimistic that the rebound will finally get traction this year and push South Florida back into a strong growth mode.

New housing numbers once again look promising. Unemployment rates in South Florida have been dropping since June. Auto sales are up, spending continues to grow, and consumer confidence has regained ground lost during an anxious 2011.

“People feel good, and they’re going out and spending more,’’ said Juan del Busto, who runs the Miami branch of the Federal Reserve in Doral. When optimism was building in 2011, del Busto said he didn’t partake in the celebration.

“From January on, I saw things going down, down, down,’’ he said. “I don’t see that this year.”

Still, each week brings a mixed bag of economic numbers.

The Dow Jones Industrial Average last week crossed 13,000 for the first time since 2008, only to lose ground in the face of disappointing reports on personal income and manufacturing output. In the last 30 days, gasoline prices in South Florida jumped 5 percent to $3.83 a gallon. That’s up 11 percent from a year ago, a troubling trajectory given the pressure it will put on household spending in the middle- and lower-class.

And in the wake of national banks signing a deal with regulators on foreclosure irregularities, analysts expect a flood of repossessed homes to hit the fragile housing market this year . Moody’s predicts home values will drop another 12 percent in South Florida this year thanks to foreclosure sales, a stunning drop that would roll back real estate to values last seen in the fall of 2001.

So where does the optimism come from in 2012?

SPENDING: Taxable sales in South Florida posted their 22nd month of yearly growth in December, expanding more than 7 percent for the first time since the end of 2006. Business spending has been a drag, growing at a slower pace than overall sales since 2009, according to Florida’s Office of Economic and Demographic Research. But in recent months, that gap has narrowed, and business investment in South Florida ended 2011 up 3.5 percent in Broward and 8 percent in Miami-Dade.

Freddy Balsera, who runs a communications firm in Coral Gables, said he’s seen an end to a long slump in client spending as 2011 came to a close.

“We’re finally seeing a pick-up,’’ said Balsera, president of Balsera Communications. “It’s kind of a luxury to do communications and PR. We were the first to get cut. But we’ve signed up four new clients in the last two months.”

HIRING: Unemployment appears very much on the mend. First-time jobless claims continue to plunge — down 28 percent in Broward and 29 percent in Miami-Dade, according to the most recent reports. While nearly 16,000 people applied for their first unemployment checks in January, the region’s overall jobless rate dropped from nearly 12 percent at the end of 2010 to 9.6 percent in December.

Job growth for the region hit 1.4 percent in December, still well below the average expansion rate of 3.6 percent, but the highest since May 2007.

The crowded floor of Compuquip Technologies’ command center in Doral helps explain why this recovery is taking so long.

Eighteen techies man computers, chatting in headsets and clicking keyboards as they walk customers from as far away as Kentucky through whatever desktop crisis faces them this weekday morning. The remote help center picked up millions of dollars worth of contracts in the recession as companies outsourced their IT work to cut costs.

“If you can invest in technology, you can do more with less,’’ Chairman Alberto Dosal said.

Yet his sales ledger hints at recovery. Only in recent months has Compuquip seen a big increase in sales across the board — from computer equipment to services. “We’ve had the best quarter we’ve ever had in 31 years,’’ he said. “Many of our new clients are reinvesting just because they haven’t done anything in the past five years.”

HOUSING: As South Florida’s real estate market begins its sixth year of a historic depression, a bottom still remains elusive. At least officially.

The Case-Shiller housing index, the most widely watched measure of real estate values, posted a tiny gain in December in South Florida while most other metropolitan areas continued to lose ground. But it was less than a 1 percent increase, and Case-Shiller has recorded two- and three-month blips of recovery for South Florida since 2009 only to have the losses return.

But another index — this one calculated by a federal housing agency — shows more promise. The Federal Housing Finance Agency’s index on home values in Broward gained 2.8 percent during the second half of 2011, while Miami-Dade homes gained 1.8 percent. It was the first stretch of back-to-back quarterly gains since the fall of 2006 for Broward and the summer of 2007 for Miami-Dade.

Miami-Dade managed to post record number home sales in 2011, with 24,929 sales of condominiums and single-family houses, according to the Miami Association of Realtors. That’s up four percent from the prior peak in 2005, though sales of houses alone remain about 25 percent below boom levels.

The gains have been enough to breathe a little life into construction. Permits for single-family homes have more than doubled in Broward since a year ago, from about 70 a month to 150. In Miami-Dade, gains have been more spotty but permits ended the year up 9 percent to just under 70 a month.

Permits are still down 83 percent from their peaks in 2004, an astounding slowdown in a real estate collapse that economists think basically has no comparison in the post-war era. “You would maybe have to go back to the Depression to see numbers like that,’’ said Cruz, the Miami-Dade economist.

For Cuesta’s construction company, the days of major projects requiring dozens of laborers and specialty contractors has given way to an era of more modest renovations. After a quick tour of the ramshackle Park Avenue hotel that he hopes to renovate, the 38-year-old stopped by another small job: redoing an upstairs apartment at the chic Barton G restaurant for a private dining room and lounge. Four Cuesta workers slammed axes through drywall and ripped up flooring using claw hammers.

“There used to be a lot more ground-up construction,’’ Cuesta said after the tour. He said that if the worst is behind his company, the end of the slump only came recently. “We’re on the tail end of our slowest year.”

He blamed the lack of big ventures on a sense that land values are stalled at the bottom of the market. Why purchase land — even at distressed prices — for a commercial venture if there’s little risk that the price is going to go up any time soon?

“Until there is a threat to land owners that values are going to go up, they’re not going to pull the trigger’’ on a construction project, he said. “Until there is a real risk of prices going up, I don’t think you’re going to see a lot of movement. Hopefully, by the end of the year, you’ll see an increase in some prices.”

To read more, visit www.miamiherald.com.

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