Economic Research Initative Issue #6 Findings and Conclusions


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Economic Research Initative Issue #6 Findings and Conclusions

  1. 1. Issue 6Summary of Major Project Findings and Conclusionsby Luis Nieves-Ruiz, AICPIntroductionLast year, the Orange County Planning Division started the Economic Research Initiative series, athorough study of Orange County’s economic sectors. These publications were supplemented by aseries of Outlook articles that addressed different aspects of our economy, such as populationgrowth, retail vacancy, government intervention, and the construction industry. The premise behindthese publications was simple. To foster economic growth and prosperity, one needs to understandthe industries and sectors that comprise the local economic structure.There have been several changes in the national and state economies since the publication of thefirst issue of the Economic Outlook in May of last year, Most of these changes have not beenpositive. Job losses started to slow down around May of last year. This indicates a stabilization ofthe job market. However, while layoffs have declined, companies are still not hiring aggressively(Harrington, 2010). Moreover, the measure of unemployed and underemployed workers reached17.5 percent this year, the highest rate since 1982 (Leonhardt, 2009). Pay cuts or furloughs, theresult of downgrades in rank or shortened workweeks, have now become the preferred cost-cuttingmethod for companies to reduce labor costs. Indeed, the total weekly pay for production workersindex fell for 10 consecutive months before rising again in July of last year (Uchitelle, 2009).Several events led to the current economic meltdown, but the decline of the real estate andconstruction industries is probably the most significant factor. Most of the economic growthbetween 2002 and 2006 was driven by large flows of capital coming from Wall Street and abroad.Most of these funds were invested in the financing of real estate projects across the nation,especially in the Sunbelt region of the country. These new developments catered mostly to thebaby boomer population that would be migrating from the northern states. The building boom ofcommercial and residential developments, in turn, helped to fuel the rapid population growth thatoccurred during these years. Many people would move to Florida to build the houses and storesthat would serve the next wave of people moving to the area. These newcomers would thenincrease the demand for a variety of goods and services, and thus the cycle would continue. Itfinally stopped when people realized that there was not any demand for most of these new projects.The State of Florida has suffered some of the worst consequences of this economic situation. Theeffects of the decline of construction and real estate “spilled over” to other sectors of the economy.Now the state’s unemployment is expected to reach 12 percent before it starts to decline again.Most residents can not afford to wait for the economic return, bringing population declines this year.According to BEBR, the state of Florida lost 58,000 people in 2009. This was the first populationloss since the World Wars I and II periods. This sudden loss is a problem, because Florida’sgovernment is primarily funded through sales and property taxes, which are closely linked topopulation growth. The state banned the use of a state income tax in 1924 (Cave, Damien 2009).Some of these conditions were detailed in Outlook’s March issue. The 2008 preliminary populationnumbers for the County showed an increase of just over 9,000 residents. This was unusualbecause the county had been adding more than 20,000 residents annually since 2001. Then camethe 2009 population numbers, which showed a decrease of more than 6,000 residents. This ECONOMIC OUTLOOK MARCH 2010
  2. 2. decrease in population growth has been steeper in unincorporated Orange County, as can be seenon Exhibit 1.Many of these people may have left because of the lack of jobs. According to the Bureau ofEconomic Analysis, construction and real estate represented almost 33 percent of all economicoutput in the Orlando area in 2006. Meanwhile, the national average at the time was closer to 20percent (Cave, Damien, 200). Once these activities diminished, non-residential builders started tosee higher vacancy rates, and in turn, construction companies started to consolidate as a means tosurvive. Exhibit 1: Absolute Population Changes in Unincorporated Orange County 2000-09 Sources: BEBR Population Estimates 2001-2009, U.S. Census Bureau 2000In times of economic turmoil, it is very important to understand what industries are key to the localeconomy. The industries studied for this project had several common characteristics including highlocation quotients, representing high levels of export activities, established local suppliers, and otheranchor industries. The methodology used for the study was simple. Once a sector was identified,staff verified the agglomeration of similar industries using the InfoUSA database.Mature agglomerations of industries within the same field are often referred to as “clusters”’. Clustersare comprised of firms and related economic actors and institutions that draw competitive advantagefrom their proximity and connections (Corthright, 2006). These agglomerations can includecompanies that produce similar products, their suppliers, and related institutions such as researchorganizations and universities.They are a sign of economic specialization and hint at possible regional competitive advantages.More important tough is that industries within mature clusters are also the ones driving localeconomic growth. Therefore, economic diversification efforts should focus on building on or extendingthe strengths of the local clusters. The cluster assessment methodology used in this project providesa good framework for understanding how the local economy works and helps to define whichindustries drive economic growth.Major Project FindingsOn each of the series articles, staff used the InfoUSA database to identify possible industry clustersin Orange County. Through this research, staff found 11 agglomerations within the following ECONOMIC OUTLOOK MARCH 2010
  3. 3. industries: Healthcare, Floriculture and Nursery, Modeling Simulation and Training, and Tourism. Exhibit2 shows the general location of these agglomerations in Orange County. Altogether, these clusters areresponsible for over 75,000 jobs in Orange County. All of these industries have their own challenges forgrowth that need to be overcome. A complete list of the industries that comprise these clusters can befound at the end of the article. Exhibit 2: Employment Agglomerations by Industry Sector in Orange County Source: InfoUSA, 2009The Health Care agglomeration is comprised of Hospitals and Ambulatory Health Services, MedicalHigh Tech, and Medical Wholesale. Even though medical services are spread through the County, stafffound three agglomerations. Two of them were found along Orange Avenue. The North Orangeagglomeration employs over 18,000 people and the South Orange one employs over 22,000. These twoagglomerations would benefit from the arrival of commuter rail, because each of them would have itsown station. The two hospitals in the area have already announced redevelopment projects in the area,which should solidify the status of the two corridors. A third corridor is found in the City of Ocoee alongColonial Drive, This agglomeration employs about 3,000 people. As a sector, healthcare is expected tocontinue to grow, because of the demands of the aging population. It remains to be seen how thedevelopments at Lake Nona would enhance Orange County’s health care sector, and whether theywould have any potential effects on the current corridors. Thus far, it seems that the health care sectorhas not developed a mature cluster because its establishments mainly serve the local population.Since the 1880s, Northwest Orange County has been noted for its concentration of nurseries and greenhouses. These business produce a variety of flowers and ferns sold across the United States. TheNursery and Floriculture cluster is comprised of plant growers and supporting industries, such asfertilizer manufacturers, landscape services, and bio technology firms. The cluster also includes anoffice of the University of Florida’s Institute of Food and Agricultural Sciences. The high location ECONOMIC OUTLOOK MARCH 2010
  4. 4. quotients in some of these industries suggest that there is a lot of export activity in this sector.Furthermore, the concentration of these industries in one part of the County implies that there is astrong connection between these industries. Overall, the sector is responsible for about 2,500 jobs.Suburbanization trends within the City of Apopka are of concern to the future viability of this cluster inOrange County.Several high technology service industries have location quotients that are greater than 1, includingCommercial and Service Industry Machinery, Data Processing and Hosting, Architectural andEngineering Services, Telecommunications, and Scientific and Research Development Services.Together, these industries employ about 20,000. Of these sectors, Orange County is recognized as anational leader only in the Commercial and Service Industry Machinery, which includes photonics.However, the only technology sector that shows signs of clustering is the Modeling, Simulation &Training (MS&T) industry. MS&T is comprised of a variety of industries, including Computer andPeripheral Equipment Manufacturing, Computer and Software Stores, Human Resource Consulting,Management Training, among others. While many identify Central Florida Research Park as the onlycluster of MS&T activity in Orange County, staff found three other areas of interest. A second cluster islocated near the Aloma-University area around Winter Park. It has 17 companies and about 500employees. Two additional smaller concentrations (5 businesses each) can be found in the City ofOrlando and West Sand Lake Road. Together, they employ 259 people. The continued increased infederal funding for defense companies solidifies the standing of the MS&T clusters in Orange County. Exhibit 3: Orange County Convention Center Source: ernierosa, 2008Tourism is the most important industry in Orange County, and industries within this sector have thecounty’s highest location quotients. The core industries within this sector are Amusement & ThemeParks, Hotels and Motels, and All Other Amusement and Recreation Industries. The economic benefitsof these industries go far and include over 15 supporting industries. Staff identified three clusters ofactivity that had highest concentration of core and supporting industries. The first cluster followsInternational Drive from the City of Orlando to Lake Buena Vista. This cluster employs over 12,000people in core and supporting industries. The second cluster is on State Road 535 near the DowntownDisney entrance. Just over 11,500 individuals are employed by tourism related establishments in thisarea. The final cluster is in South Orange Blossom Trail. This area has the highest concentration oftourism support industries, such as convention trade organizers, tour operators, promoters, andtransportation providers. This area benefits from its easy access to the Orange County ConventionCenter, a big generator of tourism activity (Exhibit 3).The biggest challenge to the tourism industry is the local recession, which has decreased the number ECONOMIC OUTLOOK MARCH 2010
  5. 5. of leisure and business visitors. A second challenge is that the Central Florida region can be perceivedas a mature market, which has implications for the growth in number of visitors each year. The recentpassage of Travel Promotion Act will hopefully help to increase the number of international visitors tothe area. The private sector would also need to continue to enhance local offerings by refurbishing thecurrent properties and adding more attractions.Community IndicatorsOne of the premises discussed in first issue of the Economic Research Initiative was the need forcommunity indicators that reflect the local economy. Three indicators used locally to measure quarterlyeconomic activity are the gas tax, building permits, and the Tourism Development Tax. Now thatconstruction has decreased significantly and most sales activity is based on foreclosures and shortsales, it becomes important to verify the utility of some of these indicators. While the gas tax stillremains a good indicator, construction has gone down dramatically, and is not expected to come backto previous levels within the next couple years. Therefore, there is a need to find new indicators thatcan take its place.Any new indicators of economic activity need to be based on the current basic industries and theCounty’s main industry clusters: nursery and floriculture, simulation, and tourism. Exhibit 4 lists somepossible indicators by cluster. Exhibit 4: List of Possible Indicators by Economic Cluster Cluster New Indicators Nursery and Floriculture Plant Exports Fertilizer Sales Fertilizer Production Modeling Simulation & Training Amount of Federal Contracts Signed New Employment Companies Attracted Airport Visitor Arrivals Transportation Company Receipts Tourism Number of Conventions/Attendees Hotel Occupancy/Number of NightsStaff recognizes that some of the information described here may not be as easily found as theprevious indicators and that some currently are in use by their respective industries. However, theycould help to complement the current indicators and provide a better perspective on the economy.ConclusionsThe purpose of the Economic Research Initiative was to study the local economic structure and findareas of economic specialization. Based on staff’s research, there has not been such a study done atthe local level in the County’s recent history. What we found was that some of the sectors that arecurrently promoted at the state level do not have an established economic position in Orange County.Meanwhile, other areas of economic importance are currently less of a focus. To foster long-termprosperity, economic research and policy must highlight and enhance the contributions of theseimportant clusters. This is especially relevant in an economic climate were economic incentives are ECONOMIC OUTLOOK MARCH 2010
  6. 6. becoming scarce.The location quotient methodology used for this project is not beyond critique. This method assumesthat the demand for services is constant across the region and that firms within a sector produceidentical products. Moreover, the base area used for comparison and the level of specificity used todescribe the industries can certainly have an effect on the location quotient outcome. Finally, asmentioned on the third issue, the NAICS classification system does not aggregate some cutting edgetechnology sectors. Exhibit 5: Aloma-University High Tech Agglomeration Source: InfoUSA, 2009Because of these reasons, staff used the business establishment database to support the locationquotient data. Each sector was carefully studied at the six-digit NAICS level to provide morespecificity, and establishments that did not fit the profile of the industry were purged from the list. Tomeasure the County’s competitiveness more effectively, the United States was used as the baseregion. These measures should bring confidence to the assumptions and arguments made throughthe series.To conclude, the findings of this project should be seen not as the end, but more as the start of a newdiscussion of the local economy. While some of the sectors studied had the highest location quotients,there are several others with relatively high location quotients that need to be further studied. Otherstudies could look at the individual clusters and identify the location factors that led some industries tochoose that location within Orange County. This is very important for technology clusters, such as theAloma-University corridor (Exhibit 5). A future study could examine more in depth the actualrelationships between these companies. Finally, and perhaps the most important, one needs to findways to foster these clusters so they can continue to grow and benefit Orange County’s economy, itscitizens, and its communities. ECONOMIC OUTLOOK MARCH 2010
  7. 7. Appendix Cluster Sectors Ambulatory Health Services (NAICS 621) Hospitals (NAICS 622) Pharmaceutical and Medicine Manufacturing (NAICS 3254), Electromedical Apparatus Manufacturing (NAICS 3345),Health Care Medical Equipment Supplies (NAICS 3391), Scientific Research and Development Services (NAICS 54171) Medical Supplies (NAICS 42345), Ophthalmic Goods (NAICS 42346) Other Professional Equipment (NAICS 43349) Nursery & Tree Production (NAICS 1114) Nursery & Florist Merchant Wholesale (NAICS 4249) Nursery Garden & Farm Supply Stores (NAICS 4442) Fertilizer Manufacturing (NAICS 3253) Nursery Farm & Garden Equip Merchant Wholesale (NAICS 4238) and Other Chemical Merchant Wholesale (NAICS 4246)Floriculture Farm Supplies Merchant Wholesale (NAICS 4249) Nursery Garden & Farm Supply Stores (NAICS 4442) Florists (NAICS 4531) Research & Development in Biotechnology (NAICS 5417) Landscaping Services (NAICS 5617) All Other Support Services (NAICS 5619) Amusement & Theme Parks (NAICS 71311) Hotels and Motels (NAICS 72111) All Other Amusement and Recreation Industries (NAICS 71399) Other Travel Arrangement Services (NAICS 56159) Tour Operators (NAICS 56152) Convention and Trade Show Organizers (NAICS 56192) Tourism Charter Bus (NAICS 48551) Luggage and Leather Goods Stores (NAICS 44832) Other Machinery Rental and Leasing (NAICS 53249) Fish and Seafood Merchant Wholesalers (NAICS 424460) Other Ground Passenger Transportation (NAICS 485999) Data Processing, Hosting and Related Services (NAICS 51821) Independent Artists, Writers, and Performers (NAICS 7115) Performing Arts Companies (NAICS 7111) Full-service Restaurants (NAICS 72211) Special Food Services (NAICS 7223) ECONOMIC OUTLOOK MARCH2010
  8. 8. Cluster Industry Sectors Highway, Street, and Bridge Construction (NAICS 237310) Other Computer Peripheral Equipment Manufacturing (NAICS 334119) Other Electronic Component Manufacturing (NAICS 334419) Search, Detection & Navigation Instruments (NAICS 334511) Other Aircraft Parts & Equipment (NAICS 336413) Ophthalmic Goods Manufacturing (NAICS 339115) All Other Misc Manufacturing (NAICS 339999) Modeling Photographic Equip & Supplies Merchant Wholesalers (NAICS 42341009) Simulation & Training Computer & Software Merchant Wholesalers (NAICS 423430) (includes both Electric Equip & Wiring Merchant Wholesalers (NAICS 423610) developers and Computer & Software Stores (NAICS 443120)Technology users) All Other Publishers (NAICS 511199) Engineering Services (NAICS 541330) Custom Computer Programming Services (NAICS 541511) Human Resource Consulting Services (NAICS 541612) Process & Logistics Consulting Services (NAICS 541614) Other Management Consulting Services (NAICS 541618) Other Technical Consulting Services (NAICS 541690) Research & Development in Biotechnology (NAICS 541711) Marketing Research & Public Opinion Polling (NAICS 541910) All Other Professional & Technical Services (NAICS 541990) Colleges & Universities (NAICS 611310) Computer Training (NAICS 611420) Management Training (NAICS 611430) Offices of Physical, Occupational, Speech Therapists, and Audiologists (NAICS 621340) Other Individual and Family Services (NAICS 624190) Other Performing Arts Companies (NAICS 711190) Civil and Social Organizations (NAICS 813410) National Security (NAICS 928110) Unclassified Establishments (NAICS 999999) ECONOMIC OUTLOOK MARCH 2010
  9. 9. ReferencesBloomberg News. Jobless Rate Up in 29 States, Hitting Records in 4 of Them. New York Times. Originally published on November 21, 2009. Retrieved on February 8 from business/economy/21jobless.html?emc=eta1Cave, Damien. After Century of Growth, Tide Turns in Florida. The New York Times. Originally published on August 30, 2009. Retrieved on February 8, 2010 from us/30florida.html?_r=1&emc=eta1Collins Rudolf, John. Construction That Fueled Growth in the Sun Belt Slows. New York Times. Originally Published on August 28, 2009. Retrieved on February 8, 2010 from business/economy/28growth.html?emc=eta1Cortright, Joseph. (2006). Marking Sense of Clusters: Regional Competitiveness and Economic Development. The Brookings Institution Metropolitan Policy Program [electronic version]Davidson, Paul. Commercial Real Estate Gets Worse. USA Today. Originally published on August 17, 2009. Retrieved on February 8, 2010 from real-estate_N.htm?csp=DailyBriefing&POE=click-referErnierosa. Orange County Convetion Center picture. Retrieved from www. panoramio.comHarrington, Jeff. Are we in a recovery? Yes and No. Saint Petersburg Times. Originally published on May 8, 2009. Retrieved on February 8, 2010 from, David. Broader Measure of U.S Unemployment Stands at 17.5%. New York Times. Originally published on November 7, 2009. Retrieved on February 9, 2010 from http://, Mary L. and Voytek, Kenneth P. Understanding your Economy: Using Analysis to Guide Local Strategic Planning. Planners Press: Chicago IL p.63Uchitelle, Louis. Still on the Job, but at Half the Pay. New York Times. Originally published on October 14, 2009. Retrieved on February 9, 2010 from economy/14income.html?emc=eta1Wiseman, Paul. Smaller banks at risk if commercial real estate falters. USA Today. Originally published on February 11, 2010. Retrieved on February 12 from banking/2010-02-11-banks11_ST_N.htm?csp=DailyBriefing&POE=click-refer Orange County Growth Management Department Economic Research Initiative Series Planning Division Research & Intergovernmental Coordination Section Post Office Box 1393 Introduction to the Economic Research Initiative Orlando, FL 32802-1393 Nursery and Floriculture Production Sector Telephone: 407.836.5600 Fax: 407.836.5862 E-Mail: The High Technology Sector in Orange County The Tourism Sector in Orange County The Health Care Sector in Orange County Summary of Major Project Findings and Conclusions ECONOMIC OUTLOOK MARCH 2010