2655 LeJ eune Road, Suite 608, Coral Gables, FL 33134 | T: 305-461-3811 | F: 305-461-3822

| E: info@weg.com | W: www.weg.com




February 03, 2014
EXECUTIVE SUMMARY
Our assessment of the Florida economy, based on taxable
sales, indicates a stable and gradual expansion in key
spending categories of products, due to the moderate growth
of household spending and investment in the State after the
“Great Recession” of 2008-2009. The Washington Economics
Group (WEG) expects moderate acceleration throughout
2014-2015, provided by tourism activity, international trade
and a steady recovery of the construction industry. An
expected, moderate acceleration of U.S. economic activity
should provide an additional impulse. Financial crises, such as
the one experienced by the U.S., tend to leave behind a long-
lasting sequel of high unemployment and deep declines in
housing prices. Florida was particularly battered by the Great
Recession when three of its main industries, finance, real
estate and construction, suffered severe blows. Florida is now
in the process of recovery, with expansion starting to take
place in 2014 among key spending categories.
Consumer spending in Florida has fully recovered from the
recession. Its average post-recession growth (starting in
March 2010) has been about 5.4 percent, slightly above the
pre-recession average of 4.7 percent, enough to sustain the
ongoing expansion in the State.
Total Investment (sales tax receipts on investment goods)
comprises construction-related investment and business
investment in plant and equipment. It was growing at an
average rate of 8.6 percent before the recession, and
presently at a more tepid 4.6 percent after the recovery. The
main reasons for this modest performance have been much
tighter credit availability and uncertainties with respect to
stronger U.S. expansion. The state economy needs a stronger
stimulus from investment to achieve higher rates of growth.
It is encouraging to see a sustained quicker pace in
construction activity since March 2012 with further
acceleration taking place this year.
GRAPHICAL ANALYSIS
The following table and charts explain in more detail the
extent of the severe recession and help to illustrate the
reasons for the gradual pace back to full strength.




Florida I ndex of Retail Activity
A Broad Measure of Spending in Florida
Figure 1 shows the percent change in this Index. Since April
2012 it has remained within a range of 5.0 to 7.0 percent
growth, indicating a definite recovery, but without
considerable impetus. Nevertheless, household spending is
providing support that sustains economic activity in the State.
The key to an improvement in household spending is higher
levels of employment, which is starting to occur this year.



Florida Barometer of Key Consumer
& Investment Spending Categories
(Florida Taxable Sales)
Trend
Florida Index of Consumer Spending, of which: ↑
Retail Sales

Durable Sales

Tourism & Recreation
↑↑
Total Investment, of which:
↑↑
Business Investment in Plant and Equipment

Building Investment (Construction Related)
↑↑
↑=Moderate Growth - ↑↑= Strong Growth
Figure 1.
Source: Florida Office of Economic and Demographic Research (EDR).





AN ANALYSIS OF TAXABLE SALES TRENDS
SHOW A STEADY RECOVERY IN FLORIDA:
ACCELERATION LIKELY IN 2014-2015

2655 LeJ eune Road, Suite 608, Coral Gables, FL 33134 | T: 305-461-3811 | F: 305-461-3822 | E: info@weg.com | W: www.weg.com


Reasons for Modest Growth of Consumer
Spending

Real Median Household Income is Still Recovering
Modest growth in household spending on consumer goods
can be explained by the drop of Florida’s real median
household income and by slow recovery in employment. Since
2010, real median household income has remained slightly
above $46,000. The last time Florida’s real income registered
a similar level was in 1997. The recession erased about
$6,000 in median household income.
Payroll Employees Added Monthly: Another Leading
Indicator of Household Spending on Consumer Goods
The great recession set Florida back 10 years in terms of
employment levels. The State began losing jobs in April 2007
and the declines continued until December 2009. About
923,000 jobs were lost during that period, of which about
457,000 have been recovered up to October of this year. In
essence, the economy was adding an average of 13,000 jobs
a month before the recession, between J anuary 2000 and
April 2007. However, during the recession Florida lost an
average of 28,000 jobs a month.
After a modest recovery, the average number of jobs added
monthly is 10,400. There was a strong increase in
employment in November of this year and we expect
employment to be sustained in the short-term by the holidays
and by the tourism season. However, it will take a long time
to recuperate the total lost jobs.




Unemployment and Underemployment Rates: A Third
Indicator of Household Spending
Another reason for the slow recovery in household spending
is that unemployment and underemployment rates remain
high. The following chart shows the official unemployment
rate (U-3) and the unemployment and underemployment
combined (U-6). Until 2007, underemployment in Florida
hovered around 3 to 4 percent and then began widening with
the recession. It has remained above 7 percent throughout
the first three quarters of 2013, with likely improvement in
2014.


Florida Retail Sales: Durables and Non-Durables
(Excluding tourism and recreation taxable sales)
Retail sales are a narrower measure of consumer spending
than the broad index previously discussed, impacted by
changes in household income.




Figure 2.
Source: Bureau of Labor Statistics.
Figure 3.
Source: Bureau of Labor Statistics.
Figure 4.
Source: Florida EDR.

2655 LeJ eune Road, Suite 608, Coral Gables, FL 33134 | T: 305-461-3811 | F: 305-461-3822 | E: info@weg.com | W: www.weg.com


Non-durable sales tend to be rather stable, since they are
composed mainly of essential items.
Durable sales are the best indicator of households spending
because consumers are willing to purchase high-ticket items
only when they feel confident about their income prospects.
Retail sales in Florida recovered rather quickly from the
depths of the recession and now exhibit a gradual trend
upwards. This is a positive development for 2014-2015.
Durable Sales
Florida durable sales plunged during the Great Recession and
after a long stabilization period are now hovering around a
monthly growth of 10 percent. Auto and accessories sales
have been spurring growth in this category. Auto and
accessories sales averaged 6.0 percent monthly growth
before the recession and have been averaging 8.3 percent
monthly growth after the recovery. Florida is a leading U.S.
region for automobile-related sales.



Tourism & Recreation Taxable Sales: Close to 100 Million
Overnight Visitors are Likely to Visit Florida by 2015
The visitor industry is one of the pillars of the Florida
economy. This industry exhibited a fast and solid recovery
from the Great Recession. During the post-recession period, it
has been growing at a faster pace than before the recession,
6.1 percent monthly vs. 5.0 percent before. According to Visit
Florida, in the first nine months of 2013 Florida welcomed
72.6 million visitors, an increase of 3.4 percent over the same
period last year. From J anuary to August, visitors spent $51.8
billion, a year-to-year increase of 5.8 percent. We expect this
upward trend to continue, as the tourism season starts in the
fourth quarter of 2013. Florida has become a “global brand”
for all types of tourism (family, recreation, business and
others).




I nvestment Spending Categories by Business

Total Investment Trends
Total Investment comprises Building Investment and Business
Investment in related plants and equipment. This important
indicator underwent a prolonged recession mainly due to the
huge declines in the construction industry. It started
recovering in the first quarter of 2010 and gained momentum
in 2013 with rising construction activity. However it is still
growing at a much slower pace (4.6 percent monthly) than
before the recession (8.6 percent monthly). Acceleration is
likely in 2014 as new construction accelerates.
Figure 5.
Source: Florida EDR.
Figure 6.
Source: Florida EDR.
Figure 7.
Source: Florida EDR.

2655 LeJ eune Road, Suite 608, Coral Gables, FL 33134 | T: 305-461-3811 | F: 305-461-3822 | E: info@weg.com | W: www.weg.com


Business Investment in Plant and Equipment
These taxable sales include industrial, farm and office
equipment. Business investment recovery from the Great
Recession was relatively quick, but it has remained
significantly below its pre-recession heights with a growth of
8.3 percent before the recession, and just 3.9 percent
afterward. There is a steady, but gradual upward trend, likely
to increase in 2014.

Construction-Related Investment
Our analysis of the construction industry shows a steady
improvement, shown in the accompanying charts. There is
still a long way to go to recover the employment and gross
sales lost during the recession. The value of construction,
measured by Florida Department of Revenue, experienced a
sharp decline as a result of the Great Recession, followed by
a long period of stabilization with monthly gross sales of
construction-related products fluctuating between $1.0 billion
and $1.5 billion.
An uptrend has been observed since March 2012. However,
the monthly growth rate after the recession (6.8 percent
monthly) is significantly below the pre-recession rate of 10.4
percent monthly. A steady recovery will continue in 2014 and
accelerate in 2015.

Drivers of Construction Investment Taxable Sales
Construction Employment
To better illustrate the challenging environment in the
construction industry, employment fell below 400,000 jobs in
J une 2009 from a peak of 692,000 in J une 2006 and has
remained within a range of 300,000-400,000 ever since. It
will take several years to reach an expansion phase in this
key employment category.
Housing Starts: Another Indicator of Construction
(Building Investment) Taxable Sales
Housing starts also reflect the severe hit taken by the
construction industry during the recession and the subsequent
gradual recovery. This indicator shows a definite trend upward
but from very low levels. Therefore, recovery in housing activity
will be gradual.
Figure 8.
Source: Florida EDR.
Figure 9.
Source: Florida EDR.
Figure 10.
Source: Florida EDR.
Figure 10.
Source: Florida EDR.
Notes
This analysis intends to take the pulse of the Florida
economy, utilizing the state taxable sales compiled by the
Florida Office of Economic and Demographic Research and
other useful indicators from U.S. government agencies.

Retail I ndex- The index is constructed in order to smooth
the volatility in the taxable sales data and thereby allow
comparisons on a monthly basis. The index is constructed
by aggregating the categories of autos and accessories,
other durables, tourism and recreation, and consumer
nondurables. This grouping represents the bulk of non-
investment spending and is analogous to personal
consumption. The sum of these four categories is
seasonally adjusted and a four month moving average is
taken.

Autos & Accessories- The category of "automobiles and
accessories" taxable sales includes the sale of new and used
cars, repair shops, auto supply stores, and taxable sales at
gasoline stations.

Consumer Durables- The category of "consumer
durables" taxable sales includes the sale of appliances,
furniture, home electronics, aircraft, boat dealers, hardware
and decorating stores.

Tourism & Recreation- The category of "tourism and
recreation" taxable sales includes hotels and motels, bar
and restaurant sales, liquor stores, photo and art stores, gift
shops, admissions, sporting goods, rentals, and jewelry
stores.

Consumer Nondurables- The category of "consumer
nondurables" taxable sales includes food and convenience
stores, department and clothing stores, drug stores, antique
dealers, bookstores, florists, pet dealers and suppliers,
social organizations, storage, communications firms, print
shops, nurseries, vending machines, utilities, and any "kind"
that doesn't fit into the other categories.

Building Investment- The category of "building
investment" taxable sales includes sales by building
contractors, heating and air conditioning contractors,
insulation, well drilling, electrical contractors, interior
decorating, paint and wallpaper shops, cabinet and
woodworking shops, soil, lumber and building suppliers, and
roofing contractors. Services provided by these businesses
are not generally taxable.

Business I nvestment- The category of "business
investment" taxable sales includes farm equipment, feed
and seed suppliers, store and office equipment, computer
shops, machine shops, industrial machinery, hotel and
restaurant suppliers, transportation equipment,


manufacturing and refining equipment, industrial suppliers,
paper and packaging materials, medical and optical
supplies, commercial rentals, and wholesale dealers.
Transactions reported as subject to the "use" tax are also
included here, regardless of the kind code of the business
reporting the "use" tax.