Poor Economic Prospects for Coral Gables and South Florida: What Can We Do?

I.  In the national and world economic context:

A recent report, “the long climb”, published in the Economist on the economic prospects for the U.S. and the world economy, raises some significant challenges for the financial future and management of the City of Coral Gables.  That excellent report concludes that the economy will necessarily have to take a different path to return to growth because of the nature of the financial crisis that left behind accumulated debt in households, banks and other business that has to be cleaned up over time.  Furthermore, it concludes that consumers will not return to their past spending patterns as they need to reduce their debt overhang through increased savings. This means that neither asset inflation (residence, commercial buildings, the real estate and related businesses) will not be seen for many years.  With consumer spending stagnate only exports will be the basis for long-term growth. (This explains why the U.S. should be pushing China to increase consumer spending and why the U.S. is letting the US dollar weaken.)

Coral Gables needs to look to different kinds of economic sectors and businesses to return to growth in the future.  Failing to do so will mean that Coral Gables will follow a sluggish national and regional economy slow growth patterns for years to come.

II.  In a regional and South Florida context:

In a recent speech of Dennis P. Lockhart, President and Chief Executive Officer, Federal Reserve Bank of Atlanta gave an overview of the economy and what is seen ahead for growth and reduced unemployement:

A turnaround in the housing market is key to recovery. The housing market has begun to improve as measured by sales volumes, prices, and new home starts. Yet new and existing house inventories remain high, suggesting a weak residential construction outlook. And house sales are being supported by two government programs.

The consensus among forecasters is something approaching a jobless recovery.

Business spending for capital goods and inventory retrenched dramatically in the recession. Businesses remain very cautious about spending on equipment and software.Banks too have been deleveraging and repairing their balance sheets.

Banks too have been deleveraging and repairing their balance sheets. A return to robust bank lending is unlikely, at least in the near term.

And one of the few bright spots in the economy.

A surprisingly positive factor in the current domestic economy and outlook is the global economy. A worldwide recovery is materializing, led by the developing economies of East Asia and India.

And commercial real estate,

I want to draw attention to a developing risk that could set back the progress being made by banks. That is commercial real estate. The recession weakened the fundamentals of all segments of commercial real estate (retail, office, hotel, warehouse, and—sometimes included—multifamily residential). Vacancies have risen, rents have fallen because of vacancies and renegotiations, and capitalization rates (the discount rate used to calculate value) have risen.

If the growth of Coral Gables cannot depend on high employment, prosperous business, strong demand for real estate and growing property values, then city leaders need to examine what are the new opportunities for this city in the years ahead.  Now is the time to do the planning and preparation of community action plans.

About Stephen E. McGaughey
International consultant in economic development programs and projects

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