Recent economic forecasts for Florida range from "doom and gloom" to optimism.  Was Chicken Little right or are we just experiencing a "passing storm?"  Metaphorically speaking, do we just need an umbrella or should we be building a storm shelter?  Let's try to understand the impact of economic changes on local businesses...

First, we must consider the facts:

• Residential housing construction is a major component of Florida's economic activity, and an even larger component, percentage wise, of Marion County's economic activity.
• Housing starts are off 40 - 50% from last year statewide, and Marion County's starts, as well as resales of existing houses, have suffered the greatest drop in the state.
• In his address to the Ocala / Marion County EDC at their annual meeting on September 14th, Dr. Fishkind, noted economist, indicated that although housing sales have leveled off, there is an 18-month supply of existing and spec homes available in Marion County that will keep construction activity depressed for at least that period (www.fishkind.com > PowerPoint Presentations).
• Unemployment rates for Marion County have risen to equal the state average, after a long period of having been significantly lower,  and according to Dr. Fishkind and other forecasters are likely to rise above the state average (Dr. Fishkind's slides note that from 2008-2010, Marion County population is projected to rise by 18,915, while in that same period only 4,017 net new jobs of any type will be created.  This means that only 21% of the population moving to Marion County will find jobs.  While some of the new arrivals will be retired and not looking for a job, our unemployment rate will still rise.)
• While the Federal Reserve's recent rate cut will reduce borrowing rates, it also reduces income rates for retirees supplementing their pensions and Social Security with interest from certificates of deposit.  This will reduce their discretionary spending.
• Although they are only about one-third of the population, retirees in Marion County account for almost two-thirds of the discretionary income spending.
• There is general agreement among stock market analysts that the Federal Reserve will have to continue to lower rates at least through next summer in order to stimulate the national construction market and ward off a recession.  These actions will further reduce retirees' income and discretionary spending.
• While the Federal Reserve is forced to lower rates, the threat of inflation is created as some sectors of the economy resume strength faster than others, and as energy and food prices rise due to worldwide demand and adverse weather conditions.  In an interview with 60 Minutes last week, Alan Greenspan said the specter of re-emerging inflation will haunt the U.S. economy in years to come.  Inflation will increase your costs and reduce the ability or willingness of your customers to buy.

What are the implications of all of this?  Well, it depends what business you are in.  If you are in construction, a construction-related trade, or sell to contractors or developers, you are apt to experience a sustained reduction in sales for 18 to 24 months.  You will need to react by lowering expenses, finding other customers or new products / services you can offer.  Commercial construction, because of a longer planning period than residential construction, will remain active for most of 2008 according to Dr. Fishkind.  Examples of products / services would be those that people might use in an existing house to make it meet their needs rather than trying to sell and move "upmarket."  This might include bath and kitchen renovations, adding a room or converting a garage to a living area, and installation of hurricane resistant windows and doors.

Businesses that sell primarily to retirees will need to maintain close contact with their customers.  As interest rates drop, retirees might have less money to spend and will need to adjust their buying habits.  By surveying customers to determine changing needs,  music stores might offer less expensive group lessons rather than individual lessons, restaurants might offer a daily lower-priced "special," golf courses might offer free driving range time with each round of golf played, furniture and appliance stores might consider a delayed payment plan.

Demand in general could drop as unemployment rises.  The danger here is that many of the largest Marion County employers are susceptible to drops in the housing market and to rising unemployment.  Based on a slide in Dr. Fishkind's PowerPoint for the Ocala / Marion County EDC (www.fishkind.com > PowerPoint  Presentations), here is my view on the vulnerability of the top 20 major private sector employers:

1. Munroe Regional Medical Center - 2,427 employees: only affect should be from county budget cuts.
2. Wal-Mart - 2,385 employees: Rising unemployment and potential inflation will cut sales of non-necessary items (discretionary purchases).
3. Publix Supermarkets - 1,450 employees: Same comment as for Wal-Mart.
4. Ocala Regional Medical Center - 1,301 employees: Same comment as for MRMC.
5. Emergency One - 1,281 employees: Nationally falling tax revenues will reduce domestic sales as local municipalities curtail spending.
6. Cingular Wireless - 1,000 employees: Activity should remain level.
7. ClosetMaid - 890 employees: Sales will fall with housing slowdown.
8. Winn Dixie Supermarkets - 760 employees: Same comment as for Wal-Mart.
9. Lockheed Martin - 593 employees: Activity will depend on military spending, actions of the new Congress will be the key factor.
10. Cheney Brothers - 575 employees: Sales to restaurants may drop as discretionary spending slows.
11. Mark IV Automotive / Dayco - 529 employees: Sales should drop as auto sales nationwide slow.
12. Taylor, Bean & Whitaker - 523 employees: Undetermined... New mortgages will drop as housing remains slow; lowering interest rates may spur a growth in refinancing existing mortgages.
13. Kmart - 500 employees: Same comment as for Wal-mart.
14. On Top of The World Communities - 486 employees: Sales should fall with housing slowdown..
15. Merillat Corporation - 450 employees: Sales will fall with housing slowdown.
16. Swift Transportation - 440 employees: Sales will fall with general business slowdown.
17. Hospice of Marion County - 421 employees: Should be unaffected by economy, other than that rising inflation may increase cost of operation.
18. Skyline Corporation - 319 employees: Sales should fall with housing slowdown.
19. Custom Window Systems - 290 employees: Sales should fall with housing slowdown.
20. Southeast Milk - 250 employees: Should be unaffected by economy, other than that rising inflation may increase cost of operation. 

If your business sells to any of the above entities or their customers, your business may be affected by the same factors that make the above companies susceptible to changes in the economy.  You can offset this vulnerability by diversifying your customer base.  You will note that the medical industry is generally not affected by the economy.  If you can sell to healthcare companies or to their employees, you can increase the degree to which your company is insulated from changing economic conditions.

There are some other factors to consider in evaluating changes in the economy.  Rising unemployment generally is followed by rising crime, especially burglaries and hold-ups.  This creates opportunity for businesses that offer security solutions.  Inflation can lead to rising energy costs which will stimulate demand for energy-efficient appliances, automobiles, houses, and machines.  Businesses that can provide these, or retrofit existing ones, will have an advantage.  If the economy continues to cause the U.S. dollar to fall to, and remain at, new lows against other currencies, opportunites for businesses that can export their products are increased.  Do not forget that with the advent of eBay Stores, any business can advertise and ship worldwide.

Returning to the question, "Is the sky falling?", the answer depends upon your actions.  If you are negatively affected by changes in the economy and do nothing, the answer is "Yes."  On the other hand, if you are negatively affected by changes in the economy and take actions to offset those effects, the answer is "No, this is merely a rainy period."

 My advice is that, whatever business you are in,  you should consider what factors in the economy affect your business and determine what the trends in those factors are.  If you do that, you will be able to take early actions that will insulate you from, or offset, adverse changes in the economy.  By doing that, you will be able to "weather the storm."