Economic Research Initative Issue #6 Findings and Conclusions

Introduction

Last year, the Orange County Planning Division started the Economic Research Initiative series, a thorough study of Orange County’s economic sectors. These publications were supplemented by a series of Outlook articles that addressed different aspects of our economy, such as population growth, retail vacancy, government intervention, and the construction industry. The premise behind these publications was simple. To foster economic growth and prosperity, one needs to understand the industries and sectors that comprise the local economic structure. There have been several changes in the national and state economies since the publication of the first issue of the Economic Outlook in May of last year, Most of these changes have not been positive. Job losses started to slow down around May of last year. This indicates a stabilization of the job market. However, while layoffs have declined, companies are still not hiring aggressively (Harrington, 2010). Moreover, the measure of unemployed and underemployed workers reached 17.5 percent this year, the highest rate since 1982 (Leonhardt, 2009). Pay cuts or furloughs, the result of downgrades in rank or shortened workweeks, have now become the preferred cost-cutting method for companies to reduce labor costs. Indeed, the total weekly pay for production workers index 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 and construction industries is probably the most significant factor. Most of the economic growth between 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 the baby boomer population that would be migrating from the northern states. The building boom of commercial and residential developments, in turn, helped to fuel the rapid population growth that occurred during these years. Many people would move to Florida to build the houses and stores that would serve the next wave of people moving to the area. These newcomers would then increase the demand for a variety of goods and services, and thus the cycle would continue. It finally 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. The effects 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 population loss since the World Wars I and II periods. This sudden loss is a problem, because Florida’s government is primarily funded through sales and property taxes, which are closely linked to population 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 population numbers for the County showed an increase of just over 9,000 residents. This was unusual because the county had been adding more than 20,000 residents annually since 2001. Then came the 2009 population numbers, which showed a decrease of more than 6,000 residents. This

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Summary of Major Project Findings and Conclusions by Luis Nieves-Ruiz, AICP

Issue 6

decrease in population growth has been steeper in unincorporated Orange County, as can be seen on Exhibit 1. Many of these people may have left because of the lack of jobs. According to the Bureau of Economic Analysis, construction and real estate represented almost 33 percent of all economic output in the Orlando area in 2006. Meanwhile, the national average at the time was closer to 20 percent (Cave, Damien, 200). Once these activities diminished, non-residential builders started to see higher vacancy rates, and in turn, construction companies started to consolidate as a means to survive. In times of economic turmoil, it is very important to understand what industries are key to the local economy. The industries studied for this project had several common characteristics including high location quotients, representing high levels of export activities, established local suppliers, and other anchor 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”’. Clusters are comprised of firms and related economic actors and institutions that draw competitive advantage from their proximity and connections (Corthright, 2006). These agglomerations can include companies that produce similar products, their suppliers, and related institutions such as research organizations 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 local economic growth. Therefore, economic diversification efforts should focus on building on or extending the strengths of the local clusters. The cluster assessment methodology used in this project provides a good framework for understanding how the local economy works and helps to define which industries drive economic growth. Major Project Findings On each of the series articles, staff used the InfoUSA database to identify possible industry clusters in Orange County. Through this research, staff found 11 agglomerations within the following

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Exhibit 1: Absolute Population Changes in Unincorporated Orange County 2000-09

Sources: BEBR Population Estimates 2001-2009, U.S. Census Bureau 2000

industries: Healthcare, Floriculture and Nursery, Modeling Simulation and Training, and Tourism. Exhibit 2 shows the general location of these agglomerations in Orange County. Altogether, these clusters are responsible for over 75,000 jobs in Orange County. All of these industries have their own challenges for growth that need to be overcome. A complete list of the industries that comprise these clusters can be found at the end of the article. The Health Care agglomeration is comprised of Hospitals and Ambulatory Health Services, Medical High Tech, and Medical Wholesale. Even though medical services are spread through the County, staff found three agglomerations. Two of them were found along Orange Avenue. The North Orange agglomeration employs over 18,000 people and the South Orange one employs over 22,000. These two agglomerations would benefit from the arrival of commuter rail, because each of them would have its own 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 along Colonial Drive, This agglomeration employs about 3,000 people. As a sector, healthcare is expected to continue to grow, because of the demands of the aging population. It remains to be seen how the developments at Lake Nona would enhance Orange County’s health care sector, and whether they would have any potential effects on the current corridors. Thus far, it seems that the health care sector has 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 green houses. These business produce a variety of flowers and ferns sold across the United States. The Nursery and Floriculture cluster is comprised of plant growers and supporting industries, such as fertilizer manufacturers, landscape services, and bio technology firms. The cluster also includes an office of the University of Florida’s Institute of Food and Agricultural Sciences. The high location

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Exhibit 2: Employment Agglomerations by Industry Sector in Orange County

Source: InfoUSA, 2009

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 a strong 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 in Orange County. Several high technology service industries have location quotients that are greater than 1, including Commercial and Service Industry Machinery, Data Processing and Hosting, Architectural and Engineering Services, Telecommunications, and Scientific and Research Development Services. Together, these industries employ about 20,000. Of these sectors, Orange County is recognized as a national 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 and Peripheral Equipment Manufacturing, Computer and Software Stores, Human Resource Consulting, Management Training, among others. While many identify Central Florida Research Park as the only cluster of MS&T activity in Orange County, staff found three other areas of interest. A second cluster is located near the Aloma-University area around Winter Park. It has 17 companies and about 500 employees. Two additional smaller concentrations (5 businesses each) can be found in the City of Orlando and West Sand Lake Road. Together, they employ 259 people. The continued increased in federal funding for defense companies solidifies the standing of the MS&T clusters in Orange County.

Tourism is the most important industry in Orange County, and industries within this sector have the county’s highest location quotients. The core industries within this sector are Amusement & Theme Parks, Hotels and Motels, and All Other Amusement and Recreation Industries. The economic benefits of these industries go far and include over 15 supporting industries. Staff identified three clusters of activity that had highest concentration of core and supporting industries. The first cluster follows International Drive from the City of Orlando to Lake Buena Vista. This cluster employs over 12,000 people in core and supporting industries. The second cluster is on State Road 535 near the Downtown Disney entrance. Just over 11,500 individuals are employed by tourism related establishments in this area. The final cluster is in South Orange Blossom Trail. This area has the highest concentration of tourism support industries, such as convention trade organizers, tour operators, promoters, and transportation providers. This area benefits from its easy access to the Orange County Convention Center, a big generator of tourism activity (Exhibit 3). The biggest challenge to the tourism industry is the local recession, which has decreased the number

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Exhibit 3: Orange County Convention Center

Source: ernierosa, 2008

of leisure and business visitors. A second challenge is that the Central Florida region can be perceived as a mature market, which has implications for the growth in number of visitors each year. The recent passage of Travel Promotion Act will hopefully help to increase the number of international visitors to the area. The private sector would also need to continue to enhance local offerings by refurbishing the current properties and adding more attractions. Community Indicators One of the premises discussed in first issue of the Economic Research Initiative was the need for community indicators that reflect the local economy. Three indicators used locally to measure quarterly economic activity are the gas tax, building permits, and the Tourism Development Tax. Now that construction has decreased significantly and most sales activity is based on foreclosures and short sales, it becomes important to verify the utility of some of these indicators. While the gas tax still remains a good indicator, construction has gone down dramatically, and is not expected to come back to previous levels within the next couple years. Therefore, there is a need to find new indicators that can take its place. Any new indicators of economic activity need to be based on the current basic industries and the County’s main industry clusters: nursery and floriculture, simulation, and tourism. Exhibit 4 lists some possible indicators by cluster.

Staff recognizes that some of the information described here may not be as easily found as the previous indicators and that some currently are in use by their respective industries. However, they could help to complement the current indicators and provide a better perspective on the economy. Conclusions The purpose of the Economic Research Initiative was to study the local economic structure and find areas of economic specialization. Based on staff’s research, there has not been such a study done at the local level in the County’s recent history. What we found was that some of the sectors that are currently 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-term prosperity, economic research and policy must highlight and enhance the contributions of these important clusters. This is especially relevant in an economic climate were economic incentives are

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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

Tourism

Airport Visitor Arrivals

Transportation Company Receipts

Number of Conventions/Attendees

Hotel Occupancy/Number of Nights

becoming scarce. The location quotient methodology used for this project is not beyond critique. This method assumes that the demand for services is constant across the region and that firms within a sector produce identical products. Moreover, the base area used for comparison and the level of specificity used to describe the industries can certainly have an effect on the location quotient outcome. Finally, as mentioned on the third issue, the NAICS classification system does not aggregate some cutting edge technology sectors. Because of these reasons, staff used the business establishment database to support the location quotient data. Each sector was carefully studied at the six-digit NAICS level to provide more specificity, and establishments that did not fit the profile of the industry were purged from the list. To measure the County’s competitiveness more effectively, the United States was used as the base region. These measures should bring confidence to the assumptions and arguments made through the series. To conclude, the findings of this project should be seen not as the end, but more as the start of a new discussion 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. Other studies could look at the individual clusters and identify the location factors that led some industries to choose that location within Orange County. This is very important for technology clusters, such as the Aloma-University corridor (Exhibit 5). A future study could examine more in depth the actual relationships between these companies. Finally, and perhaps the most important, one needs to find ways to foster these clusters so they can continue to grow and benefit Orange County’s economy, its citizens, and its communities.

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Source: InfoUSA, 2009

Exhibit 5: Aloma-University High Tech Agglomeration

Appendix

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Cluster Sectors

Health Care

Ambulatory Health Services (NAICS 621)

Hospitals (NAICS 622)

Pharmaceutical and Medicine Manufacturing (NAICS 3254),

Electromedical Apparatus Manufacturing (NAICS 3345),

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 and

Floriculture

Nursery & Tree Production (NAICS 1114)

Nursery & Florist Merchant Wholesale (NAICS 4249)

Nursery Garden & Farm Supply Stores (NAICS 4442)

Fertilizer Manufacturing (NAICS 3253)

Farm & Garden Equip Merchant Wholesale (NAICS 4238)

Other Chemical Merchant Wholesale (NAICS 4246)

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)

Tourism

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)

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)

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Cluster Industry Sectors

Modeling Simulation &

Training (includes both developers and

Technology users)

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)

Photographic Equip & Supplies Merchant Wholesalers (NAICS 42341009)

Computer & Software Merchant Wholesalers (NAICS 423430)

Electric Equip & Wiring Merchant Wholesalers (NAICS 423610)

Computer & Software Stores (NAICS 443120)

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)

References Bloomberg 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 http://www.nytimes.com/2009/11/21/ business/economy/21jobless.html?emc=eta1 Cave, 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 http://www.nytimes.com/2009/08/30/ us/30florida.html?_r=1&emc=eta1 Collins 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 http://www.nytimes.com/2009/08/28/ business/economy/28growth.html?emc=eta1 Cortright, 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 http://www.usatoday.com/money/economy/2009-08-17-commercial- real-estate_N.htm?csp=DailyBriefing&POE=click-refer Ernierosa. Orange County Convetion Center picture. Retrieved from www. panoramio.com Harrington, Jeff. Are we in a recovery? Yes and No. Saint Petersburg Times. Originally published on May 8, 2009. Retrieved on February 8, 2010 from http://www.tampabay.com/news/business/article999414.ece Leonhardt, 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:// www.nytimes.com/2009/11/07/business/economy/07econ.html?emc=eta1 McLean, Mary L. and Voytek, Kenneth P. Understanding your Economy: Using Analysis to Guide Local Strategic Planning. Planners Press: Chicago IL p.63 Uchitelle, 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 http://www.nytimes.com/2009/10/14/business/ economy/14income.html?emc=eta1 Wiseman, Paul. Smaller banks at risk if commercial real estate falters. USA Today. Originally published on February 11, 2010. Retrieved on February 12 from http://www.usatoday.com/money/industries/ banking/2010-02-11-banks11_ST_N.htm?csp=DailyBriefing&POE=click-refer

Economic Research Initiative Series

Summary of Major Project Findings and Conclusions

The Health Care Sector in Orange County

The Tourism Sector in Orange County

The High Technology Sector in Orange County

Nursery and Floriculture Production Sector

Introduction to the Economic Research Initiative

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Orange County Growth Management Department Planning Division

Research & Intergovernmental Coordination Section Post Office Box 1393

Orlando, FL 32802-1393

Telephone: 407.836.5600 Fax: 407.836.5862

E-Mail: [email protected] www.ocfl.net/planning