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Issue 1 introto_researchinitiative


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Issue 1 introto_researchinitiative

  1. 1. Issue 1An Introduction to the Economic Research Initiative andOrange County’s Economic Structureby Luis Nieves-Ruiz, AICPIntroduction to Economic Research InitiativeThe United States is in the midst of an economic recession. According to the U.S Labor Department, morethan two million jobs were lost between January and March of this year. Florida is one of the states expectedto lose the greatest proportion of jobs along with Michigan, Hawaii, and Ohio (Hegenbaugh and Hansen,2009). However, rather than dwelling on the present dire circumstances, one should focus on finding longterms strategies to bring back prosperity and new investment to our area. The path to economic recoverystarts with understanding how to measure our area’s strengths and supporting the industry sectors that arevital to the local economy.The purpose of the Economic Research Initiative is to help assess prospects for economic recovery byanalyzing the business sectors that comprise Orange County’s economic structure. This project would bringthe local focus that is often missing from other economic publications currently available. It aims to providesound data that could be used to supplement other economic and land use projects in the County. Finally, theproject should help to generate a healthy discussion about the County’s economy and the best approaches tospur economic growth.One way in which it would look at the local economy is by using community indicators. These are points that,when combined, generate a picture of what is happening in a local system (APA, 2004). Indicators can assistin measuring the interaction between economic, environmental, and social factors that represent the wholecommunity. System or descriptive indicators are used to provide the most relevant information to policymakers by summarizing individual characteristics of the community. Examples of some frequently usedeconomic indicators are the “bedroom tax” charged on hotel rooms, theme park attendance, and buildingpermits. Some of the indicators currently used to measure Florida’s economic activity may not completelywork for Orange County, because the state and county economies differ somewhat. Therefore, to help bettermeasure our economic vitality, it is important to create our own indicators focusing on Orange County’s areasof economic specialization.Orange County’s economic structureMost economists have described Florida’s economy as a “three legged stool”, meaning the state’s economicactivity is mainly driven by three industries, each of them a leg of the stool. There are several variations ofthis “stool” model. The one that is mostly mentioned is the retiree-real estate- tourism variation. However,other sectors such as agriculture, construction, and the military, are also mentioned in other versions of themodel. It could be argued that some of the legs will change depending on the Florida region that is beingdescribed. For example, industries catering to retirees make the bulk of economic activity on several parts ofthe southern coast, but as you move northward, other activities take precedence, such as the military andagriculture.Most recently, the state of Florida has been extensively criticized for relying on an economic model built onadding more homes and attracting more people. This model also supported a private economy comprised offirms whose only role was to help entitle land for new development, finance real estate deals, and sell thenew homes. Now the model is said to be collapsing, as the influx of northerners that provided the steadyincrease in tax revenues has virtually evaporated. News headlines describing this dynamic as a “PonziScheme”, “Paradise Lost”, and “the Sunset State” have pointed out the failures of this model.Is Orange County in the same situation as the rest of the state? Orange County is certainly weathering the ECONOMIC OUTLOOK MAY 2009
  2. 2. impacts of the economic recession. However, most economists have noted that Central Florida appears to bemore resilient than the rest of the state. While most coastal jurisdictions were feeling battered by the downturnin the construction industry as early as 2007, the local economy was still producing a decent number of jobs.This supports the argument that the local economic structure is somewhat different that the rest of the state.Exhibit 1 compares the location quotients for five economic sectors for Orange County, the Orlando MSA, andthe State of Florida. Location quotients measure economic specialization by comparing the local economy(Orange County) with a reference economy (the United States). Basic industries, those most important foreconomic development, have a location quotient higher than 1. Industries are organized by economic sectoraccording to the North American Industrial Classification System (NAICS). Exhibit 1: Comparison of Location Quotients for Selected Industry Groups 8 6 4 2 0 Amusements & Administrative & Specialty Trade Accommodation Crop Prod. Recreation Support Serv. Contract. Florida 1.66 1.42 1.58 1.35 1.73 M SA 4.91 3.29 1.5 1.34 1.18 Orange 6.34 4.19 1.65 1.05 1.03 Source: BLS Location Quotient Calculator, 2009Notice that there is a sharp difference in the location quotients. Orange County has more jobs in theAmusements, Gambling and Recreation (NAICS 721) and the Accommodation (NAICS 721) sectors whencompared to the state and the region. These numbers show the important role that the “leisure” sector, whichincludes convention and theme park business, plays in Orange County’s economy. On the other hand, thestate has a higher location quotient in the Specialty Trade Contractors (NAICS 238) and Crop Productionsectors (NAICS 111), two of the aforementioned “legs of the stool”. At the same time, there is a negligibledifference in the importance that the Administrative Support Services sector (NAICS 561) has in the threeeconomies. A more thorough look at the local economy is provided in Exhibit 2.The table shows the top 25 industries by location quotient in Orange County. Our economy is heavilyspecialized in “travel and leisure” and its supporting industries. That is not surprising to anyone who has visitedone of the area’s theme parks or attended a conference at the Orange County Convention Center. Overall,Amusement and Theme parks (NAICS 713110), Convention and Visitors Bureaus (NAICS 561591), and OtherTravel Arrangement Services (NAICS 561599) had the highest location quotients. Other industries withinTransportation and Warehousing (NAICS 48), Accommodation and Food Services (NAICS 72), andAdministrative and Support Services (NAICS 56) also support the local tourism industry.The County also has a relative strength in non-tourism related industries, such as Floriculture (NAICS111422), Other Non Residential Exterior Contractors (NAICS 238192), Telemarketing and Other ContractCenters (NAICS 561422), and Other Technical and Trade Schools (NAICS 611519).Another common way of examining employment concentration is by identifying the location of thesebusinesses. In 2005, the year where data were more recently available, there were more than 39,000 firms inOrange County. Most of these firms tend to be small. Over 50 percent of all these businesses employ less ECONOMIC OUTLOOK MAY 2009
  3. 3. than five people. However, firms with 200 or more employees are responsible for more than a third of all local jobs.Therefore, these large businesses play a very important role in Orange County’s economy. Exhibit 2: Top 25 Industries by Location Quotient and Employment in Orange County Location 2007 NAICS Sectors Industry Subsectors Quotient Employment Agriculture, Forestry (11) Floriculture Production 4.5 1,278 Other Nonresidential Exterior Contr. 8.0 1,465 Construction (21) Other Building Exterior Contractors 5.5 1,608 New Housing Operative Builders 4.5 1,108 Commercial & Service Industry Mach. 4.4 2,604 Manufacturing (31-33) Fertilizer, Mixing only, Manufacturing 7.7 338 Wholesale Trade (42) Fish/seafood Merchant Wholesalers 3.8 476 Retail Trade (44) Luggage/leather Goods Stores 5.0 419 Charter Bus 6.4 1,100 Transportation & Warehousing (48) Other Airport Operations 5.3 1,906 Line-haul Railroads 4.0 9 Real Estate and Rental Leasing (53) Other Machinery Rental & Leasing 4.1 1,050 Human Resources Consulting Services 4.6 1,798 Prof., Scientific & Technical Serv.(54) Drafting Serv. 3.9 238 Computer Facilities Management Serv. 3.4 1,074 Convention Visitors Bureaus 15.6 750 All Other Travel Arrangement Services 13.9 6,300 Convention & Trade Show Organizers 9.9 2,765 Administrative, Support, Serv. (56) Tour Operators 9.2 1,489 Telemarketing & Other Contact Centers 3.8 7,363 Professional Employer Organizations 3.3 12,413 Educational Serv.(61) Other Technical & Trade schools 5.0 1,775 Amusement & Theme Parks 58.8 45,439 Arts, Entertainment, Rec.(71) Other Performing Arts Companies 7.9 259 Accommodation & Food Svcs.(72) Hotels and Motels, except Casino Hotels 5.2 42,399 Source: BLS Location Quotient Calculator, 2009To further study job concentration, the County was divided into six employment submarkets. The highest numberof jobs and establishments are in the Central employment submarkets (Exhibit 3). Three important activity centersare located within this submarket: Downtown Orlando, the Maitland Center, and Orlando Central Park. Thesesubmarket is also home to the two largest employers in Orange County: Florida Hospital and Orlando RegionalHealthcare. Besides health care providers, these submarket is also home to several government and corporateoffices. ECONOMIC OUTLOOK MAY 2009
  4. 4. The Southwest submarket is the next largest employment center in the County. While it has fewer firms than theNortheast and Northwest submarkets, the Southwest submarket has the second highest number of largeemployers. Most of the firms in the “leisure” sector are located on this submarket including the theme parks andthe Orange County Convention Center.The rest of the submarkets, except for the East, have almost the same number of jobs between them. Being hometo the Orlando International Airport, the Southeast market has a higher number of large employers than the rest ofthe submarkets. Moreover, this is the home of the Burnham Institute and what is expected to become a futuremedical city in the Lake Nona area. Thus, the importance of this submarket to the local economy will continue togrow through the next ten years. Exhibit 3: Location of Orange County’s Major Employers by Employment Submarket Source: infoUSA Database, 2005ConclusionsThe purpose of the Economic Research Initiative is to examine Orange County’s economy in a comprehensiveway. The next series of articles would help to provide a thorough look at some of the leading industries in OrangeCounty and future economic growth. A list of the next articles in this series is included in the next page.Today, Florida’s economy is at a “crossroads”. The old growth model is showing signs of fissures, and the “three-legged stool “concept does not seem to apply to Orange County anymore . To be able bring back economicprosperity, it is important to have a good understanding of how the local economy works. This means that weneed to know what industries are driving economic activity locally, their location, and how these economic sectorsare interrelated to each other. Economic indicators can be a useful tool to help measure the impact that thedifferent industries may have on the local economy. ECONOMIC OUTLOOK MAY 2009
  5. 5. ReferencesBureau of Labor Statistics, U.S. Department of Labor. (March 2009). Economic New Release. The Employment Situation: March 2009. Originally published on April 3, 2009. Retrieved on April 7, 2009 from http:// of Labor Statistics, U.S. Department of Labor. 2007 Location Quotient Statistics for Orange County, Orlando MSA, and State of Florida. Retrieved on March 11, 2009 from LOCATION_QUOTIENT/servlet/ lqc.ControllerServletHegenbaugh, B. and Hansen, B. Jobs: Maps shows states hit hardest; forecasts for rebound . USA Today. Originally published on February 10, 2009. Retrieved April 7, 2009 from employment/2009-02-08-recession- unemployment-relocation_N.htm?csp=DailyBriefing&POE=click-referHoward , M.R. (2009). Florida Trend. Not a Lot of Jobs, But the Right Jobs. Originally published on April 1, 2009. Retrieved on April 3, 2009 from Database License Group. (2005). Orange County Business Leads Report . Database provided by METRO PLAN ORLANDOJackson, J.W. Florida should end Ponzi scheme based on growth, economist says. Orlando Sentinel. Originally published on March 31, 2009. Retrieved on April 4, 2009 from florida-economy-ponzi-scheme 033109,0,5455806.storyPhillips. R. (2003). Community Indicators. Planning Advisory Report 517 . [Electronic Version} Orange County Growth Management Department Issues Month of Publication Planning Division Research & Intergovernmental Coordination Section Post Office Box 1393 Introduction May Orlando, FL 32802-1393 Telephone: 407.836.5600 Fax: 407.836.5862 Nursery and Floriculture Production July E-Mail: High Technology Sectors August Leisure and Hospitality October Health Care and Biotechnology December ECONOMIC OUTLOOK MAY 2009