Late last year the Bureau of Economic Analysis (BEA) released data that showed that Tallahassee had one of the fastest growing Growth Domestic Product’s (GDP) in the state of Florida in 2016 with a growth rate of 4.3%. This growth was ranked 5th in the state when compared to the 22 Florida MSA’s.

When the numbers were released, TR wrote about the controversy surrounding the numbers and how local government officials could not explain what was driving the sudden growth. The growth in 2015 was a meager 0.5%.

Now it is clear why these officials could not explain the magnitude of the growth – it never happened.

This week the BEA released the revised numbers for 2016 and these numbers show that GDP growth for the Tallahassee MSA was revised down from 4.3% to 2.1%, a 52% drop. This revision changes the 2016 GDP growth ranking in the state of Florida from 5th to 12th.

Growth rates for other MSA’s in Florida were also revised, but the fall of the Tallahassee MSA in the state ranking shows few, if any, were revised as much the Tallahassee MSA.

When the 2016 numbers were released last year, the BEA indicated that the numbers were preliminary. However, this did not stop local officials from bragging about a number they could not explain.

Here are some tweets:

From the Mayor’s Office twitter account: “The numbers don’t lie, folks! #Tallahassee has the fastest growing #economy per capita in #Florida! ”

From the OEV’s twitter account: “Tallahassee metro area has the fastest growing economy per capita in the state.”

From the City of Tallahassee retreat agenda: “the Tallahassee metropolitan statistical area (MSA) is the fastest growing economy (per capita) in the State of Florida.”

Also, the Andrew Gillum campaign for governor of Florida is using the “fastest growing economy” statement in their messaging. The tweet below is from the Gillum campaign’s communications director, Geoff Burgan.

In addition to the revisions released this week, the BEA issued preliminary GDP growth numbers for 2017. The numbers show that the Tallahassee MSA growth in GDP was 3.1% which was tied for 5th when compared to the other 22 MSA’s. See chart below.

Revisions for 2017 will be released next year.

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.

Analysis

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.

Summary

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.

Source materials:

BEA,Component Contribution, 2016, Table 3.

BEA, Finance & Insurance Growth, 2015-2016

US Census, MSA Pop. Stats., 2015-2016

Based on research by Tallahassee Reports and lengthy discussions with Bureau of Economic Analysis (BEA) officials, information indicates that the rebuilding efforts after Hurricane Hermine, financed by millions of dollars in insurance payments, was the main driver of the 4.3% growth in GDP during 2016.

From 2012 to 2015 the Tallahassee GDP growth was basically flat.

In a previous article, Tallahassee Reports, with help from BEA officials, determined the main driver of the 2016 growth in GDP was the “Insurance carriers and related activities” category.

This finding is in contrast to the comments of local officials who quickly pointed to local development projects as the reason for the jump in GDP.

Mayor Gillum tweeted, ” The numbers don’t lie, folks! #Tallahassee has the fastest growing #economy per capita in #Florida!”

The Office of Economic Vitality (OEV) tweeted: “2016 GDP per capita showed highest growth rate among FL’s 22 metro areas.”

Their comments were parroted by the local media.

On Thursday the Tallahassee Democrat published a story on the front page about the economic growth:

“The private sector, due to milestone infrastructure efforts, is pushing the economic wave, said Tallahassee Mayor Andrew Gillum.

‘These are a result of the kind of development and redevelopment we’ve seen throughout our city1” said Gillum, who is running for governor. “A lot of things had to co-conspire to make it possible to allow us to be one of the leading economies in the state of Florida and, in fact, in the nation per capita.”

Chamber Vice President, Jay Revell told WTXL’s Ashley Richmond, “When a community is building, you’re progressing. That’s really been the reason that Tallahassee is now the state’s leader in economic growth. Tallahassee has the fastest growing GDP per capita of any community in the state of Florida.”

However, it appears no one was interested in understanding what was actually driving the growth.

A simple review of the components of the GDP numbers, provided by BEA, showed growth in the construction category in the Tallahassee MSA actually ranked  17th out of the 22 Florida MSA’s in 2016.

However, the BEA data showed the Finance and Insurance category jumped approximately 32%, which was ranked number 2 among the 22 Florida MSA’s in 2016.

Disasters as Drivers of GDP

It is not uncommon for disasters to drive economic growth captured in the GDP measure. But the growth is short lived.

After Hurricane Katrina, The Economist said, “While big hurricanes like Katrina destroy wealth, they often have a net positive effect on GDP growth, as the temporary downturn immediately after the storm is more than made up for by the burst of economic activity that takes place when the rebuilding begins.”

And the New York Times said, “Economists point out that although Katrina has destroyed a lot of accumulated wealth, it ultimately will probably have a positive effect on growth data over the next few months as resources are channeled into rebuilding.”

After a round of California fires in 2007, Alan Gin, a University of San Diego economist said, “In the odd nature of economic accounting, this will probably be a stimulus. There will be a huge amount of rebuilding in the next couple of years, financed by insurance payments.”

The Impact of Hermine

Bloomberg.com reported that Hermine, the first hurricane to strike Florida since 2005, caused approximately $300-$400 million in insured damage. As much as 70 percent of the expense was estimated to be tied to residential properties, and insurers will also pay claims related to business interruption and vehicle damage.

The Florida Office of Insurance Regulation shows that Leon County had twice as many Hurricane Hermine claims than any other Florida county.