BUSINESS BAROMETER FOR FLORIDA

October 2014

EXECUTIVE SUMMARY
Sales tax data for the first seven months of the year, released
by Florida Office of Economic and Demographic Research,
confirms our outlook of a gradually strengthening economy,
driven by Tourism and Investment-related spending, shown in
Table 1. Employment growth, with about 117,500 new jobs in
the first 7 months of this year, also supports this trend. The
industries more closely associated with Tourism and
Investment Leisure & Hospitality, Construction and
Professional & Business Services have reported the largest
increase in employment as we enter the fourth quarter of 2014.

Table 1. Florida Barometer of Key Consumer & Investment

Spending Categories (Based on Florida Taxable Sales)
Trend

Total 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

Source: FL EDR and WEG Trend Analysis, based on 7 months data 2014.

In this issue, WEG preliminarily examines payroll employment

as an indicator of economic vitality and of the strength of
Floridas economic base. There are several methods to analyze
the competitive economic base of a region. One method is

Location Quotient Analysis (LQ). This technique shows, as an

example, which industries are more competitive and which
industries are lagging, using employment changes in a region
relative to changes in the Nation as a whole.
In Florida, the economic base (industries defined as those
with exportable products and services) is primarily composed
of Leisure & Hospitality, Retail, Financial Activities,
Construction and Professional & Business Services. These
industries are net exporters (sellers) of their products and
services outside of the State (to the rest of the U.S. or
globally). The first three industries have been expanding their
LQ during the 2009-2013 period, indicating growing
competitiveness. Professional & Business Services
remained steady, but more recent data indicates it is
expanding.
Construction, although an exportable industry, shows a
reduction of its LQ component as a result of the deep negative
impact of the Great Recession. However, there are notable
increases in Construction employment so far in 2014. This
bodes well for the future of the industry and for the positive
impact on Floridas economic base that can be exportable.
Retirees living in Florida can be considered part of the States
exportable economic base, since they receive social security
checks and, in many instances, dividends from their
investments elsewhere. As far as Florida is concerned those are
exportable financial inflows that generate jobs and income in
the State, impacting many industries with a positive LQ.

Methodology to Analyze Floridas Economic Base of Exportable Industries

The economic base methodology is founded on the assumption
that the local economy can be divided into two broad sectors:
basic (net exportable sectors) and non-basic (local
consumption sectors). The non-basic sector produces goods
and services mainly for local consumption and depends largely
on local economic drivers. The basic sector produces goods
and services for local consumption and for export outside
the region, thus it depends significantly upon external
economic drivers. The Economic Base Concept upholds the
basic sector as the engine of a local, regional and State
economy because it attracts income from outside that in turn
contributes to the growth of the local economy.

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Therefore, the expansion and strengthening of the

basic sector bolsters the non-basic sector and fosters
the development of the local, regional and State
economies.
The LQ gauges an industrys concentration in an area (in this
case Florida) relative to a reference area (in this case the
Nation). It compares an industrys share of local employment
with its share of national employment (industry share of local
employment/industry share of national employment).

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Business Barometer for Florida,

October 2014

Interpretation of Calculated Quotient

LQ > 1.0

LQ 1.0

LQ = 1.0

All employment is non-basic.

The industry is not meeting
local demand for a product or
service.

All employment is non-basic.

The industry meets local
demand for a product or
service.

The Location Quotient Method (LQ) does not assume that all
employment in an industry is basic. If the calculated quotient
of an industry is greater than one, that industrys surplus

Some employment is basic. The

industry meets local demand
and also produces goods or
services that are sold outside
the region.

employment is considered basic, because it is greater than

what is needed to meet local demand.

Location Quotient (LQ) over time

Figure 1 below shows the size of the industry, its change in LQ
over time and its performance. Figure 1 also helps identify
industries that are lagging and industries that are pillars of the
local economy by being exportable.

2655 LeJeune Road, Suite 608, Coral Gables, FL 33134

Each cluster will fall within a quadrant with the vertical axis
indicating the LQ and the horizontal axis indicating the
percentage change of the LQ from 2009 to 2013.

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Business Barometer for Florida,

October 2014

Location Quotient (LQ) Analysis of the Florida Economy

Figure 2 illustrates the results of LQ analysis of the Florida
economy, compared to the national economy and utilizing the
relative changes in employment as an indicator.

Tables 2 to 5 with the results for 2009 and 2013 are also
provided for further explanation. The size of the symbols in
Figure 2 represents the relative size of the industry in terms of
employment in Florida.

Source: Florida DEO.

Table 2. Star LQ Industries

Star Industries
(Top Right Quadrant)

Private
Employment
2013*

New
Employment
Jan-July 2014*

LQ
2009

LQ
2013

% LQ
2009- 2013

Tendency
2014-2015

Professional & Business Services

1,117.4

20.9

1.06

1.06

0.0

Leisure & Hospitality

1,036.4

29.5

1.25

1.28

2.4

Retail Trade

1,005.4

5.7

1.14

1.17

2.6

512.9

8.9

1.10

1.15

4.5

Financial Services

Source: Florida DEO for data and The Washington Economics Group, Inc. for LQ Estimates. *Employment in Thousands.

The LQ for Financial Services, the fourth largest employer in

the State, has been growing by about 4.5 percent since 2009.
Retail Trade, with growth of 2.6 percent between 2009 and
2013, is the third largest employer in Florida. Leisure &
Hospitality, the second largest employer, grew by 2.4
percent. Professional & Business Services is the largest
employer, and these services have been stable since 2009.
All these industries, located in the upper right quadrant, are
considered to be strong and growing providing an exportable
competitive advantage for Florida. They are all basic
(exportable), because they have a LQ above 1.0. This means
that they export a portion of their production to the rest of the

2655 LeJeune Road, Suite 608, Coral Gables, FL 33134

U.S. and globally, therefore, generating net income flows for

the factors of production of Florida, creating employment and
economic growth for the State. These four industries constitute
the foundation of Floridas exportable economic base,
according to data between 2009 and 2013.
Leisure & Hospitality and Retail Trade Services are
boosted by tourism (visitor) spending. Their position at the top
right quadrant, though not surprising, denotes the competitive
advantage that Florida enjoys on tourism due to the States
natural beauty and its well-developed hospitality infrastructure.

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Business Barometer for Florida,

October 2014

Financial Services and Professional & Business Services

pay an average wage that is higher than the State average.
These two industries not only provide knowledge-based
services to rest of the U.S., but also to foreign corporations,
investors and tourists. The strengthening of Financial Services,
after the difficulties experienced during the Great Recession,
bodes well for this key exportable industry of Florida.

As shown on Table 2 in the previous page, the four

industries added a combined total of 65,000 jobs in the
first seven months of the year, equivalent to 55 percent
of total private employment added during that period
in the State.

Table 3. Emerging LQ Industries

Emerging Industries
(Lower Right Quadrant)

Private
Employment
2013*

New
Employment
Jan-July 2014*

LQ
2009

LQ
2013

% LQ
2009-2013

Tendency
2014-2015

Transportation, Warehousing &

Utilities

247.2

4.7

0.85

0.86

1.2

Educational Services

142.7

5.0

0.73

0.75

2.7

Source: Florida DEO for data and The Washington Economics Group, Inc. for LQ Estimates. *Employment in Thousands.

Two emerging industries are located in this quadrant:

Transportation, Warehousing & Utilities and Educational
Services. These are industries that could move up to the upper
right quadrant. The group including Transportation,
Warehousing & Utilities is important because it captures
international trade and transportation, two key industries to
Floridas economy.

Educational services in Florida are increasingly exportable

through foreign students and inflows of Foreign Direct
Investment from global and other institutions locating facilities
in the State.

Table 4. Mature LQ Industries

Private
Employment
2013*

New
Employment
Jan-July 2014*

Health & Social Services

985.2

Wholesale Trade

Mature Industries
(Top Left Quadrant)

LQ
2009

LQ
2013

% LQ
2009-2013

Tendency
2014-2015

16.9

.99

.98

-1.0

321.1

4.8

1.02

.98

-3.9

Construction

367.7

20.6

1.17

1.11

-5.1

Other Services

306.4

2.9

1.03

.99

-3.9

N/A

Source: Florida DEO for data and The Washington Economics Group, Inc. for LQ Estimates. *Employment in Thousands.

The growth of the LQ in the mature industries has been

declining since 2009. However, Construction remains an
exportable industry with an LQ of 1.1 percent, and
the other three mature industries in Table 4 above
easily meet local demand. All of them have been
adding jobs in the first seven months of this year.
Construction is of particular interest for two reasons: it is an
engine of growth, and it was severely battered by the Great
Recession. Construction was on a tailspin for a long time after

2655 LeJeune Road, Suite 608, Coral Gables, FL 33134

the recovery, but is showing a revival this year, and has created
about 21,000 new jobs up to the month of July. The strength
of Construction should boost employment and production in
other key industries that are impacted by construction activity
Professional & Business Services, Financial Services, Retail
Trade, Manufacturing and Transportation, Warehousing &
Utilities contributing thus, to a stronger exportable
economic base. There are significant linkages between
Construction activity and most exportable (basic) industries.

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Business Barometer for Florida,

October 2014

Table 5. Declining LQ Industries

Private
Employment
2013*

New
Employment
Jan-July 2014*

Information

133.9

Manufacturing

Declining Industries
(Bottom Left Quadrant)

Mining

LQ
2009

LQ
2013

% LQ
2009-2013

.7

.91

.88

-3.3

322.0

-3.3

.48

.47

-2.1

5.6

.2

.14

.11

-21.4

Source: Florida DEO for data and The Washington Economics Group, Inc. for LQ Estimates. *Employment in Thousands.

The LQ of Information, Manufacturing and Mining has been

declining. Only Information meets local demand. Due to the
absence of significant mineral deposits in Florida, Mining is a
heavy importer of resources. Manufacturing hardly meets
about half of local demand. Thus, there is room for a growing
Manufacturing sector in Florida to meet local demand, and
eventually to be exported outside the State.

The State Legislatures repeal of the tax on new manufacturing

equipment is expected to lead, over time, to a stronger and
more competitive Manufacturing sector in Florida. Eventually,
Manufacturing can become a key exportable industry of the
State.

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 Index

Building Investment

The index is constructed in order to smooth the volatility in the

taxable sales data and thereby to allow comparisons on a monthly
basis. It is also constructed by aggregating the categories of autos
and accessories, other durables, tourism and recreation and
consumer nondurables. This grouping represents the bulk of noninvestment spending and is analogous to personal
consumption. The sum of these four categories is seasonally
adjusted and a four-month moving average is taken.

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.

Tourism and 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.

2655 LeJeune Road, Suite 608, Coral Gables, FL 33134

Business Investment
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.

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