Q&A of the Day – How Will DOGE Impact Florida’s Economy?
Each day I feature a listener question sent by one of these methods.
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Today’s Entry: Hi Brian, I listen daily and appreciate the time you spend researching your stories. On that note I have a question about DOGE. One of the arguments against DOGE’s cuts is that it’ll hurt the economy. While I believe the bigger risk to the economy is uncontrolled debt spending, obviously sparking a recession wouldn’t exactly be ideal either. What I’d like for you to address is whether you feel that recession risk is rising and what the potential impact is in Florida. Thank you for your consideration.
Bottom Line: You bet. They’re great questions. I’ll start with your recession question. The bottom line is that there is essentially no chance of an imminent recession. There are a few reasons for this. First and foremost, the corporate earnings season that recently concluded was an extremely successful one. Earnings increased an average of 13% year-over-year – the largest annual growth rate since the 4th quarter of 2021, when companies were recovering from pandemic lockdowns. The earnings growth has helped fuel dividend increases and to support higher stock prices aiding investor performance – or what’s known as the “wealth effect”, and it’s also leading to increased investments by businesses seeking to continue to grow their businesses. Those investments should continue to fuel job gains over the near term and will help create opportunities for those laid off in the public sector.
Entering this year the ten leading economists projected first quarter growth at 2.1%. Most recently that’s bumped up to 2.2%. Meanwhile, the Federal Reserve’s GDPNow tracker projected growth at 2.9% in January and that forecast has been lowered to 2.3% most recently. So, one gauge has actually improved over the past month while the other has come down and the Trump administration's policies have rolled out however both forecasts are showing essentially the same thing. Growth to start the year that’s just north of 2%. I don’t see a reason to think that there’s anything that these forecasts are significantly missing. Looking at the administration's impact further out is hard to do because of how many wild cards are in play. For example, how many layoffs of federal employees will take place and over what timeframe? How much spending will Congress authorize? How will tax policy be addressed by Congress? Will there be more tariffs? Will tariffs already imposed be rolled back? Until we have answers to those questions it’s simply a guessing game. As for the impact in Florida...
As it turns out there’s no state that relies less on the federal government than Florida. Federal spending directed within states averages about $4,000 per resident on average. In Florida, federal spending has paced $2,693 per person – the lowest in the country. Somehow that seems appropriate for a state that goes by the slogan “the free state of Florida”. In any event, given that reality, whatever the direct financial impact of reductions in federal spending will be, they’ll be less in Florida than anywhere else. As for the employment picture...
Despite being the 3rd largest state in the nation, Florida ranks 6th for total federal employment with 94,014 federal employees as of the start of the year. The total civilian labor force in Florida is just over 11 million people. In other words, only 0.8% of Florida’s labor force is comprised of federal employees. That’s a figure that’s once again well below the national average.
Whether we’re talking about direct funding or employment, Florida will be one of the least impacted states in the country from whatever changes take place within the federal government and with government spending.
Now, the U.S. economy overall does play a large role in Florida’s economy given that the state is the top tourist destination in the country. So, if for example, there were a short-term slower growth economy or recession spawned in part due to a reduction in federal government spending, that would have an impact in our state if people started booking fewer vacations. 9.5% of Florida’s economy is comprised of tourism. With that said Florida’s economy most recently ranked as the 16th largest in the world in large part due to its diversification over the past decade. Florida TaxWatch projects the state’s economy to grow at a 3.2% rate this year, which is a full point above the national average.
So, on balance, based upon what’s known today the national economy is still expected to continue to grow above 2% with Florida’s economy growing above 3% despite federal layoffs and whatever spending changes may happen in D.C., the unemployment rate is already low, and many companies have had trouble finding skilled employees. Public employees who’re laid off will likely be able to find new work without much down time.
Also, in the event that we do have less federal spending, that would help to lower the inflation rate which would lead to lower interest rates and likely spur additional economic activity – especially in real estate where many sellers and buyers have remained out of the market due to higher mortgage rates.