Florida’s Strong Economy Offers Opportunities for Employers
Ten-Year Forecast Indicates Changes on Horizon as Boomers Retire
During February’s Florida PEO CEO Legislative Summit held in Tallahassee, Amy Baker, chief economist and legislative coordinator with the Florida Legislature Office of Economic & Demographic Research (EDR), provided attendees an overview of key economic and demographic statistics from 2018 and her office’s best predictions for Florida’s economy between now and 2030. The good news? Florida’s economy is strong, outperforming national averages. The other news? Employers should be looking ahead to 2030, when the last cohort of Baby Boomers will retire. Aging Floridians will consume more government-funded services while making fewer purchases that help build the economy, and fewer workers will be available to contribute to Florida’s gross domestic product and personal income growth.
Florida’s Economy Today
Baker began her report by saying, “The most important takeaway is that Florida, for several years, has been outperforming the nation as a whole.” In the latest revised data for the state’s Gross Domestic Product (GDP), Florida had real growth of 4% in 2015, placing it above the national average of 2.9%. For the 2016 calendar year, Florida’s growth slowed to 3.2%; however, this was still well above the national average of 1.6%. For 2017, Florida’s real growth further slowed to 2.2% over the prior year, matching the national average. This ranked Florida 16th among states for growth. The Estimating Conference expects that Florida’s Real Gross Domestic Product (GDP) will show growth of 3.5% in Fiscal Year 2018-19 and then begin a slow decline to the 2% range in the mid-and long-term portions of the forecast.
Baker went on to report that the state’s personal income growth is also strong, mainly due to robust population growth, which is expected to continue. She cautioned that this statistic may not provide a complete picture of income growth for the state, saying, “We’re paying more attention to per capita personal income growth. Even though Florida has been outperforming the nation as a whole, in terms of per capita growth, we trailed the nation as a whole in performance in 2017. We grew 3.3% compared to the national average of 3.6%.”
The reason Baker cited for this lag in per capita growth is an increasing wage gap in Florida. Florida’s average annual wage has typically been below the U.S. average. The most recent data for the 2017 calendar year showed that Florida’s average wage, relative to the U.S. average, fell slightly from 87.7% in 2016 to 87.5%. The ratio in 2014 (87.2%) was Florida’s lowest percentage since 2001.
Baker explained that the wage gap in Florida is driven mainly by two things: strong tourism and the wide range and distribution of wages from one community to another. While record tourism growth is good news for Florida, the industry employs many workers in the Accommodations & Food Services sector, which has the lowest average annual wage.
“When we look at all of our industries in Florida, the metric that we’re growing the strongest on is tourism,” she said. “The fact of life of tourism growth [is that] tourism [employs] a lot of maids, waiters, janitors and support staff. Because you’re hiring so many people in support-level roles that are low paid, it’s driving the average annual wage in Florida, and that’s one reason why we’re lagging on per capita growth.”
Baker went on to describe how the state’s demographics contribute to the wage gap, noting that urban centers have higher wages, denser populations and higher costs of living while rural areas have lower populations, lower wages and fewer economic opportunities.
“If you look at the breadth of annual wages in Florida, it goes from $53,438 for Palm Beach County all the way down to $30,645 for Franklin County in North Florida,” she reported. “This makes it very challenging for the Legislature to deal with because it’s not going to be one-size-fits-all on almost anything in Florida, whether it’s economic development or school policy or anything else; we have some very strong differences.”
Since the Great Recession, Florida has outpaced the United States in job creation. The growth rates in November 2018 stood at 2.8% for Florida and 1.7% for the United States. For the same time period, Florida’s unemployment rate of 3.3% compared favorably to the U.S. rate of 3.7%. Baker pointed out that the lowest unemployment rate on record in Florida was 3.1%, in March 2006. Baker then posed this interesting question to the attendees of the Summit:
“For those of you that live in Florida, you know that March 2006 was the very height of the building boom, and so the question is … does it feel like it felt back during the housing boom? And the answer is no. It doesn’t at all feel like it felt during the housing boom. We should be struggling to find people in Florida to work jobs just like we did during the boom, but we’re not.”
Baker explained that the workforce participation rate peaked during the housing boom at 64.1%. Since then, the number of people who have jobs or are actively seeking jobs has fallen to 59.1%. This reduction in workforce participation keeps the unemployment rate low.
“If those people were looking for a job, our unemployment rate would be much higher than it is,” she said.
According to Baker, those not seeking to be employed include construction workers who were nearing retirement age during the collapse of the housing market, stay-at-home parents who delayed having children until the economy improved and young people who are pursuing higher education instead of entering the workforce out of high school. Other people who are not entering the workforce can be described as “discouraged.” They are those who might want to work but lack the skills that are in demand. Baker described this as a “skills mismatch,” and went on to say that a “desire mismatch” can also keep someone out of the traditional job market.
“Especially among the young people, a lot of them are comfortable focusing on their quality of life,” Baker explained, “and they believe [nontraditional part-time jobs such as Uber, etc.] gives them quality of life, and [they focus] less on having a career with steady wage progression.”
Baker reported that employment is improving across the state, but it varies widely from county to county:
Population growth in Florida is still strong, at 1.5% per year, but it has slowed from more than 3% per year in the 70s, 80s and 90s. Baker provided an easy way to remember projected growth for the state: “Our population is going to be about 22 million in 2022,” she said. “We’re adding a city about the size of Orlando or St. Petersburg to our population every single year, so suffice it to say, [we see] very strong growth and we’re projecting it to continue.”
Projections for Florida’s Economy
Baker turned to projections for Florida’s economy, stressing the impact that aging Baby Boomers will have. People born from 1946 to 1964 make up this demographic, and thus far, only the people born in the first eight of those years have reached retirement age. Baker pointed out that we’re not even halfway through this large group of workers who are approaching retirement.
The first cohort of Baby Boomers became eligible for retirement (turned age 65) in 2011. Eight cohorts have entered the retirement phase: 2011, 2012, 2013, 2014, 2015, 2106, 2017 and 2018. This represents almost 39% of all Baby Boomers. In 2000, Florida’s prime working age population (ages 25-54) represented 41.5% of the total population. With the aging Baby Boom generation, this population now represents 37.4% of Florida’s total population and is expected to represent only 35.9% by 2030.
“The bigger effects we will see from Baby Boomers retiring in Florida’s economy are still ahead of us,” Baker said. “Our prime working age population in Florida is the ages 25 to 54. By the time we get to 2030, that group is going to be down to 35.9% of our population. The prime working age population is going to be supporting more young people and more retirees than they’ve ever supported before in Florida. That’s going to have implications for the workforce.”
Between 2010 and 2030, Florida’s population is forecast to grow by almost 5.5 million persons. Florida’s older population (age 60 and older) will account for most of Florida’s population growth, representing 53.8% of the gains. Florida’s younger population (age 0-17) will account for 15.4% of the gains while the younger working age group (25-39) will account for 18.6% of the growth. Note the low and negative growth rates for prime wage earners (age 45-54).
While retiring Baby Boomers ultimately will put pressure on Florida’s economy, Baker pointed out that retirees moving into the state during the early years of their retirement bring their wealth with them, making purchases that contribute to Florida’s economy via the sales tax. But as Boomers age, they will require more assistance with home and health care, which will place greater demands on the state and on local communities.
“Baby Boomers as a class have a decided preference for Florida,” Baker said. “From a revenue perspective, for the short term, that’s all good news. They’re healthy. They’re buying a house. They’re outfitting the house. We’re relying in Florida on sales tax, so every appliance they put in that house, every shade they put in that house, every piece of furniture they put in that house is benefitting our state sales tax collections.”
Baker sees this positive trend going through 2025, when more of the retirees who moved to Florida will be elderly and the trend goes downward. Older Boomers will be making fewer purchases of taxable goods and will be in need of more services, which are not taxed in Florida. Adding to this, homegrown retirees who may have worked in lower-paying industries will bring less wealth to retirement, will make fewer purchases and will require more government services.
“We’re in the best of all places right now,” Baker said. “As we move forward to 2030, that picture is going to be tightening up.”