Economy: Housing drop impacts other industries

By Business Observer Staff
| 6:00 p.m. August 31, 2007
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Opinion

by: Aysegul Timur

The decline in housing sales is beginning to spread to other parts of the Gulf Coast economy, including consumer durables and business investment. Layoffs in the construction industry can be expected to rise, impacting retail sales.

Both rising gasoline prices and a weak housing market have hurt consumer confidence in Florida, which showed a decline in July to 81, down one point from 82 in June, according to the University of Florida's Bureau of Economic and Business Research. Consumer confidence had hit the lowest level in May 2007 since October 2005. Along with the confidence, retail sales have also dropped. While some of this decline is due to increased gasoline costs, it mostly reflects problems in housing.

The weakness in the housing market is expected to spill over significantly to consumer spending, which is the dominant driver of our economy. Home-equity withdrawals have been an important source of consumer spending over the past few years. The drop in home-equity withdrawals has affected more than just those who depend on homebuilding - they also now include those in the retail sector.

You can measure retail sales activity in Southwest Florida by looking at taxable sales for each county. Look at the tables below showing the regional economic activity changes in different categories for December 2005-2006 and 2006-2007, reported by Office of Economic and Demographic Research, the research arm of the Florida Legislature. Categories such as consumer durables, building investment and business investment are feeling the most impact from the housing downturn. Other categories, such as tourism and recreation and consumer non-durables have also been affected, but not to the same extent, according to the latest data.

To measure personal consumption, take a look at the index of retail activity. The index is constructed by aggregating the categories of autos and accessories, other durables, tourism and recreation, and consumer non-durables. These categories represent the bulk of non-investment spending and are analogous to personal consumption.

In June 2007 compared with the same month a year ago, the index shows retail activity declined in all areas. The biggest decline was in the Punta Gorda area (-5.4%) and the least was in the Tampa area (-1.9%). The decline in Florida was 1.1%.

The first taxable-sales category is automobiles and accessories. These include the sale of new and used cars, repair shops, auto supply stores and taxable sales at gasoline stations. In all areas, the data in this category show a decline in sales, which is consistent with the state overall. The steepest decline in sales was in the Fort Myers area which showed a decrease of -22.7% from June 2006 to June 2007. All other areas also showed a decline that ranges between -14.3% (Sarasota) and -1.9% (Tampa). Florida's overall decrease is -10.1%. These numbers reflect that consumers who worry about the jobs and slow markets avoid buying big-ticket purchases such as cars.

The consumer durables category of taxable sales includes the sale of appliances, furniture, home electronics, aircraft, boat dealers, hardware and decorating stores. Consumer-durable sales have declined in all areas of Southwest Florida and across the state since December 2005, a result of the weakness in the housing market.

The consumer non-durables category includes food and convenience stores, department and clothing stores, drug stores, antique dealers, book stores, florists, pet dealers and suppliers, social organizations, storage, communication firms, print shops, nurseries, vending machines, utilities, and any kind that doesn't fit into other categories. The data in this category have indicated that many areas started experiencing a small decline in June 2007 compared to the same month in 2006, but overall Florida showed an increase of 2.1% in this category.

Tourism and recreation taxable sales includes hotels and motels, bar and restaurant sales, liquor stores, among others. Both tourism and recreation show a small decline for recent months compared to 2006, indicating that slow housing sales or decreased home values and rising gasoline prices have started impacting sales activities in these categories.

Building investment (construction) taxable sales includes sales by building contractors, heating and air conditioning contractors and other related services. Services provided by these businesses are not generally taxable. On the other hand, the category of business investment includes farm equipment, feed and seed suppliers, store and office equipment, computer shops, machine shops, industrial machinery, and hotel and restaurant suppliers, among others. Transactions reported as subject to the "use" tax are also included here. Both categories have dramatically declined, parallel to decrease in number of home sales and median sales prices.

Finally, the retail sales were weak in June 2007 nationally, but they are down substantially in Florida, according to data from the Florida Department of Revenue. The low consumer confidence is reflected in lower retail sales compared to a year ago. This is the result of declines in home equity and the continued slowdown in home sales as inventories rise.

Aysegul Timur, Ph.D., is an associate professor of business administration at the Kenneth Oscar Johnson School of Business at Hodges University in Naples. Dr. Timur is also a management, economics and statistics consultant and a corporate trainer. She can be reached at 239-513-1122 or [email protected].

SINGLE FAMILY SALES

Change in Number of Existing Single Family Homes Sold

Year Collier Lee Sara/Mana Charlotte Tampa Bay Florida

2001-02 19.9% 12.4% 7.4% -1.2% 8.9% 9.9%

2002-03 11.7% 16.2% 29.0% -0.4% 17.8% 13.1%

2003-04 16.0% 5.3% 23.8% 17.1% 16.6% 10.7%

2004-05 3.7% 26.1% -15.6% -6.0% 11.6% 2.5%

2005-06 -40.9% -25.1% -34.1% -24.3% -35.5% -27.6%

Change in Median Sales Price of Existing Single Family Homes Sold

Year Collier Lee Sara/Mana Charlotte Tampa Bay Florida

2001-02 11.9% 8.1% 9.5% 19.2% 6.2% 8.8%

2002-03 12.7% 12.2% 18.1% 11.3% 7.8% 11.8%