Economy slowing, but not too much

In the Tampa Bay area, signs of a slowdown abound but economists agree that business should remain vibrant.

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

By HELEN HUNTLEY

© St. Petersburg Times, published July 9, 2000

The "Help Wanted" signs are still up, but the Tampa Bay area is getting the first signals that the booming economy is heading for a slowdown.

Real estate agents say they are rebuilding inventories of homes for sale and prices are beginning to stabilize, bringing some welcome sanity to a frenzied market.

Contractors are pulling fewer new permits for multifamily housing while some apartment complexes are offering a month or two of free rent to fill vacancies.

Consumer spending is slowing in a few areas, most noticeably for cars and clothing.

Banks are writing off more bad loans and cutting off credit to riskier borrowers.

Does that mean tough times are around the corner?

Probably not.

"If the economy the last three years has been an A-plus, maybe it will slow down to an A," said Frank Fralick, group president for Beers construction company in Tampa. "We don't see any evidence otherwise."

It's not just optimistic builders who are talking that way. Economists agree that business in the Tampa Bay area should remain vibrant even as the area feels a few ripples from a national economic slowdown.

"The rate of growth has decelerated a little bit," First Union economist Mark Vitner said. "We think we'll see growth slow in the second half of the year simply because the national economy is cooling off. But Florida, and the Tampa Bay area in particular, still ranks among the hottest economies in the country. Florida and Georgia together will account for one out of every five new private-sector jobs created in the country this year."

He says even the national economy will remain "well above what we used to think of as the speed limit."

The Federal Reserve Board has pushed interest rates up six times in the past 12 months, a deliberate effort to slow the pace of economic expansion and keep inflation under control.

The U.S. economy grew at a torrid 5.5 percent annual rate during the first quarter, but many economists project the second-quarter numbers will come in around 4 percent thanks to the Fed's efforts.

"The first-quarter growth was just astronomical, so it's natural to see at least a little bit of a pause," said Scott Brown, an economist at Raymond James & Associates Inc. in St. Petersburg.

Statistics released over the past two months show that's beginning to happen nationally. Consumers are spending a tad more cautiously, partly because higher gasoline prices and higher interest rates mean they have less money in their wallets. And stock prices are no longer roaring ahead as the dot-com mania has subsided and investors have begun fretting about corporate profits.

"Right now we're still in a record expansion, but I happen to believe we're on the downside of it," said Ken Thomas, a banking analyst in Miami.

In the Tampa Bay area, the real estate market is providing the earliest indications that economic growth might be slowing.

"We see in the last 60 days that there is more inventory now becoming available and fewer buyers trying to negotiate at the same time for a house," said Bob Glaser of Smith and Associates in Tampa. He said his company's inventory of homes for sale has climbed from about $82-million to $109-million.

As homes stay on the market a little longer, Smith said his agents are warning sellers that they may not get the prices they would have a few months ago.

But prices have been escalating so fast in some areas, real estate agents and buyers could use a little relief. Existing homes in the Tampa Bay area sold for an average of $97,900 in May, up 9 percent from a year ago, according to information compiled by the Florida Association of Realtors. New homes are selling for an average of $183,792, up 7 percent, according to Rose Residential Reports, a company that tracks home construction.

Now the pace of new construction is starting to slow in the Tampa Bay area.

After double-digit increases in 1999, new single-family permits are running just 2 percent ahead of last year and permits for multifamily homes are down 32 percent.

Part of that falloff is a matter of letting population growth catch up with what's already been built.

"We have gone through exceptionally strong multifamily apartment construction," said David F. Scott Jr., a finance professor at the University of Central Florida in Orlando. "Once those are in, you would expect there to be a lull because the population is only growing about 2 percent a year."

In areas such as north Tampa, where many new apartments have gone up, complexes are using aggressive promotions, roommate matching services and sometimes even free rent to fill vacancies.

The luxury condo market also may be due for a rest after a spate of building in St. Petersburg and Tampa. And lack of available land presents natural constraints in Pinellas County.

"I don't see any trouble signs," said Page McKee, vice president of Hardin Construction, which built the new Marriott Waterside Hotel in Tampa and has a retail and entertainment complex under construction in Ybor City. But he said some projects "on the bubble" might end up being shelved.

"Interest rates are up, and lenders are being smarter, prudent," he said. "For some, the window of opportunity might be about to go away."

But plenty of projects are still under construction.

"If there's a slowdown, it's slight, at least in this area," said Rodney Fischer, executive director of the Contractors and Builders Association of Pinellas County. "Labor is still a problem with us."

His Hillsborough counterpart, Joseph Narkiewicz of the Builders Association of Greater Tampa, said the market is still strong although some subcontractors have begun making "courtesy calls" on builders, looking for work.

Tampa Bay consumers also appear to be shifting some of their spending patterns, although the economy may or may not be to blame. Apparel sales have slowed in the bay area as elsewhere, although sales of hard goods are strong. Some auto dealers also report a falloff in business.

The most recent state sales tax statistics available show that through April, retail sales remained robust in Pinellas, Hillsborough and Pasco counties although they were leveling off in Citrus and Hernando. For the five-county area, April sales were up 13 percent over March and 7 percent over the previous April.

But there was a noticeable change in June among some groups of St. Petersburg Times advertisers, advertising director Richard Reeves said. He said car dealerships and stores heavily dependent on apparel sales showed signs of a slowdown, even though employment advertising remained strong.

"The department store people say it's like somebody flipped a switch and it (clothing sales) just stopped," he said. "People are having sales that don't normally have sales to try to make something happen."

Nationally, disappointing sales were the rule among retail chains that reported their June results last week. Sales were up 3.4 percent for stores open a year or more, compared with the 7.4 percent gain recorded in June 1999.

General merchandise stores such as Wal-Mart fared better than traditional department stores such as Dillard's and JCPenney. At the same time, stores such as Eckerd Drug, Radio Shack and Pier 1 Imports reported sales growth in double digits.

"Nationally retail apparel sales growth has been less than exciting, so everybody is trying to figure out why," said Stephen Knopik, president of Beall's Inc., which operates more than 50 department stores and 180 off-price outlets in Florida. He said Beall's business is still "pretty darned good."

But TeleCheck Services Inc., a check authorization service, said its research shows retail sales growth in the Tampa Bay area lagged the rest of the nation in June. The company said bay area sales were up 2.7 percent over June 1999, compared with a gain of 3.1 percent statewide and 3.4 percent nationally.

"We may have become jaded by how good things have been," said Mike Niemira, an analyst who tracks retail spending for the Bank of Tokyo-Mitsubishi. "The major retailers tell us their sales growth is slowing down, but it's still not bad relative to the past five years."

Some car dealers think higher interest rates are worrying customers.

"We are seeing some buyer hesitation," said Elliot Kahana, sales manager of Crown Eurocars in St. Petersburg. He said the concerns developed in June after strong sales earlier in the year.

Used car sales also are being affected.

"I am noticing that more people get their cars fixed instead of trading them," said Fred Borkes, sales manager at Carlisle Dodge in Clearwater. "Our service department is getting more business."

Other dealers say they have not seen a slowdown.

"This is the best month in our 13 years of existence," said David Jay, sales manager of Crown Acura in Clearwater.

And people still are going out to eat in droves.

Tampa-based Outback Steakhouse Inc. said sales are up 5.5 to 6 percent for the first six months of the year, with Tampa Bay area restaurants mirroring the companywide trend.

Emmanuel Roux, who owns several downtown St. Petersburg restaurants, including Redwoods, said business improved in May and June after a slow winter season. "People are ordering better wines and you just have more customers," he said.

The tourists are still coming too.

After a January hurt by travelers' fears about Y2K computer problems, Florida tourism rebounded through the winter and spring to modest gains. Summer has been highly promotional among hotels and theme parks that are using an unusual amount of discounting to lure crowds. But officials say it is difficult to determine whether that's a reaction to the economy or to new competition that put a lid on what had been record-setting hotel rates in 1999.

"We're concerned about what those $2-a-gallon gas prices in some of our feeder markets in the Midwest could do to us, but fortunately more of our summer business comes from the Southeast" that doesn't have to drive or fly as far, said Austin Mott, president and CEO of Visit Florida Inc., the state's prime tourist marketing agency. "I think we'll be fine through the summer. But I don't know about the fall."

For companies trying to hire new employees, a slowdown would be good news. But so far, the job market is as tight as it's ever been.

The Tampa Bay area created nearly 60,000 new jobs in the past year, recording the second-highest rate of job growth in the nation. Unemployment is a tiny 2.7 percent, far below national and state averages.

Joel Martinez, staffing manager at Citibank's Tampa offices, said he is trying to fill about 100 vacancies.

"We haven't seen a flood of people who are out of work. The people we talk to already have jobs," he said.

Many bay area high-tech companies are going full speed ahead with plans to expand, from St. Petersburg's Jabil Circuit Inc., which sold $543-million in stock last month to raise a war chest for expansion, to Clearwater's Khameleon Software, which employs 65 people and wants to add 15 more.

"Our pipeline is actually bigger than it was in January," said Douglas Angelone, Khameleon's vice president and general manager.

Michael Landis, chief financial officer for Tampa-based OpenNetwork Technologies, another software company, said projections for slightly slower economic growth don't concern him.

"We're in a market that has been growing at triple digit rates and is forecast to grow at triple digit rates for the next few years," he said.

-- Times staff writers Mark Albright, Scott Barancik, Michael Braga, Teresa Burney, Jeff Harrington, Kyle Parks and Yilu Zhao contributed to this report.

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