As local officials continue to make unsubstantiated claims about the cause of the growth in Tallahassee’s local economy, additional research by Tallahassee Reports sheds light on the driving factors behind the claim that Tallahassee has the fastest growing economy in the state of Florida.
The new research indicates approximately 30-40% of the growth in the GDP per Capita of the Tallahassee’s MSA was attributable to growth in the Finance & Insurance components of the GDP calculation as provided by the US Bureau of Economic Analysis (BEA).
It appears the growth in this category was due to the rebuilding efforts in the aftermath of Hurricane Hermine.
Also, the data shows the GDP per Capita ranking was inflated due to the Tallahassee MSA having the slowest population growth among all of the 22 Florida MSA’s in 2016.
Links to source materials are included at the end of this report.
When officials say Tallahassee has the fastest growing economy in the state of Florida, they are referring to the Gross Domestic Product based on population, GDP per Capita.
To completely understand this claim, lets first look at the growth in real GDP, not accounting for population.
The Bureau of Economic Analysis (BEA) shows that the Tallahassee MSA GDP grew 4.3% from $13.160 billion in 2015 to 13.730 billion in 2016.
This means that the Tallahassee MSA GDP grew $570 million in 2016. Remember this number.
The first row in the table below shows that the real GDP growth of 4.3% for the Tallahassee MSA ranks 4th in the state of Florida.
What is driving this GDP growth?
The Bureau of Economic Analysis (BEA) provides the 14 components of economic activity and the contributing percentage for each component to the overall growth. The information for the Tallahassee MSA is shown in the table below.
As you can see, there are four categories with a (D) which means the data is confidential. More on that later.
Looking at the contributing components, the Tallahassee MSA growth ranks 1st in the “government” component and 5th in “other services, except government.”
However, the Tallahassee MSA does not rank in the top 10 in any of the other published components.
If you add the available contributing components in the table above, the total is 2.37%. This indicates approximately 45% of the 4.3% growth in the Tallahassee MSA is attributable to the four “confidential components”.
TR has obtained information within the (D) component of “Finance, insurance, real estate, rental” that shows the “Finance & Insurance” component grew 33%, or $190 million, from $593 million in 2015 to $783 million in 2016.
Remember from above, the total growth in Tallahassee MSA GDP was $570 million. This means the $190 million growth in one component, Finance & Insurance, accounts for 33% of the $570 million in growth in 2016.
Based on these numbers, simple math shows that the “Finance & Insurance” component is responsible for 1.43% of the 4.3% growth in GDP from 2015 to 2016. This is twice the impact of any of the other components reported in the table above.
Without the major growth in Finance & Insurance, the growth in Tallahassee MSA GDP would have been approximately 2.9%.
Tallahassee Reports has previously published a story about the relationship between the “Finance & Insurance” component and Hurricane Hermine, which hit Tallahassee and the surrounding area in 2016.
Population Growth and GDP per Capita
How did a 4.3% growth in Tallahassee MSA GDP, ranked 4th in the state of Florida, result in a number one ranking when looking at GDP per Capita?
To understand this outcome, we downloaded the population estimates used by the BEA to calculate GDP per Capita. These numbers are shown in the table below.
As you can see, the Tallahassee MSA, with the fastest growing GDP per Capita in 2016, also has the slowest population growth in Florida in 2016.
These two facts are connected and here is how.
Usually, population growth fuels GDP growth through more jobs and more economic output. The GDP per Capita measure attempts to capture the productivity of the growth in GDP. In other words, how many more people did it take to generate a change in the GDP.
The 2016 GDP per Capita ranking indicates that Tallahassee’s productivity significantly increased from 2015 to 2016.
And it did, but in a perverse and unsustainable way.
When an MSA experiences an influx of insurance payments due to a hurricane or other disaster, a GDP per Capita comparison will be inflated because the growth in the payments are not related to growth of existing economic drivers. For example, the major expansion of a manufacturing plant.
In addition, if the MSA exhibits slow population growth compared to other MSA’s, a GDP per Capita comparison can be further inflated.
This is what appears to have happened in Tallahassee – a sudden growth in economic output, driven by a natural disaster, accompanied by a relatively slower growth in population.
The result is a misleading comparison of the GDP per Capita that will be revealed once the one-time stimulus, in this case insurance payments, is no longer present in the GDP measurement of the MSA.
This is why it is important for local economic officials to understand exactly what is driving a sudden change in economic ouptut.
The above analysis indicates the number one GDP per Capita ranking of the Tallahassee MSA is being driven by a large increase the “Finance & Insurance” component of the GDP calculation.
The most rationale explanation of the sudden growth in GDP is tied to the expenditures associated with Hurricane Hermine, which hit Tallahassee in 2016.
Also, the fact that Tallahassee MSA had the slowest population growth in 2016, further inflated the GDP per Capita measure and resulted in a misleading conclusion about sustainable economic productivity.