LEE COUNTY BUSINESS CLIMATE SURVEY REPORT

LEE COUNTY BUSINESS CLIMATE SURVEY REPORT Second Quarter, 2016 Prepared in partnership with: and The Regional Economic Research Institute Florida Gulf Coast University

Project Staff Dr. Christopher Westley, Director John Shannon, Economist Nicholas Holst, Lead Student Researcher Monique Carlone, Student Researcher Alesa Whitehead, Student Researcher Report Information This report is conducted quarterly by the Horizon Council of Lee County, Florida, and Florida Gulf Coast University s Regional Economic Research Institute. This work would not be possible without considerable cooperation from the Horizon Council s Chairs, the RERI s student researchers, and the Lee County Economic Development Council. The Regional Economic Research Institute studies, analyzes are reports on the regional economy encompassing Collier, Lee, Charlotte, Hendry, and Glades counties. Established in 2005, it serves as a public service and economic development unit of the Lutgert College of Business Dean s Office and strives to connect Southwest Florida to the resources of Florida Gulf Coast University. The Institute s Business Climate Survey group specializes in sampling design and analysis, including program evaluation, policy research, and needs assessment. The Business Climate Survey group involves FGCU students in every stage of survey development, allowing them to develop professional skills and networks that add value to their degrees and, by extension, to their future employers. Regional Economic Research Institute Lutgert College of Business Florida Gulf Coast University 10501 FGCU Blvd, S. Fort Myers, FL 33965-6565 (239) 590-1000 http://www.fgcu.edu/cob/reri/ Photo Credits: Shutterstock, Lee County Economic Development Office

TABLE OF CONTENTS INTRODUCTION... 2 EXECUTIVE SUMMARY... 3 I. RECURRING QUESTIONS... 4 II. THE EXECUTIVE BUSINESS CLIMATE INDEX... 6 III. SPECIAL TOPICS... 7 IV. COMMENTS, SUGGESTIONS, AND RECOMMENDATIONS... 9 V. COMPANY CHARACTERISTICS... 10 APPENDIX A. HISTORICAL TRENDS OF RECURRING QUESTIONS... 11 APPENDIX B. FULL COMMENTS, SUGGESTIONS, AND RECOMMENDATIONS... 12 APPENDIX C. FULL COMMENTS ON TOP FIVE CHALLENGES FOR COMPANIES... 13 Regional Economic Research Institute 1

INTRODUCTION The Lee County Business Climate Survey Report, published in partnership between the Horizon Council and Florida Gulf Coast University, provides primary research to the business community, elected officials, and other concerned citizens in an effort to gauge the state of Lee County s economy over time as well as impressions and concerns about it in the future. Since the beginning of this partnership, the BCS has been comprised of three areas of focus. The first area encompassed in the first seven questions of the survey focuses on Lee County business executives impressions of economic conditions and trends with respect to hiring and investment. The second area has been the calculation of an Executive Business Climate Index. This EBCI provides a summary number which will allow one to quickly gauge whether the business climate in Lee County is improving or declining. Finally, the third area has been various questions that change from survey to survey. In the past, these Special Topics have focused on areas such as business executives concerns about interest rates and access to capital, firms demand for critical occupations and their ability to find workers within those occupations, the cost of doing business in Lee County, and even concern for employee wellness and wellness programs. The BCS also allows respondents to voice concerns, kudos, and criticisms of Lee County s economic environment. Every effort is made to include these comments in each survey. The Horizon Council FGCU Business Climate Survey is administered, written, and published by the staff and students working with the Regional Economic Research Institute in the Lutgert College of Business. We very much welcome your comments and suggestions regarding the report, including suggestions for Special Topics questions for future editions. This survey would not have been possible without the many busy business owners and executives who took the time to respond to it. I also thank John Boland, Glen Salyer, and their colleagues at the Lee County Economic Development Office; Robert Beatty, Dean of Lutgert College of Business at FGCU; Russell Schropp, Chair of the Horizon Council s Business Issues Taskforce; and Michael Quaintance of Keiser University. CareerSource Southwest Florida s James Wall and Peg Elmore provided valuable input and advice. Christopher Westley Dr. Christopher Westley Director, Regional Economic Research Institute Lutgert College of Business Florida Gulf Coast University Fort Myers, Florida 33965-6565 2 Executive Business Climate Survey Report, 2016

EXECUTIVE SUMMARY The Executive Business Climate Survey provides a view of the local economy that is based on responses from senior executives from a range of industries across the county. An invitation to complete the internet survey was sent to 565 executives and business owners in Lee County. Eighty-eight executives completed the survey from April 18, 2016, through May 2, 2016. Four reminders were sent during the survey period. This survey provides a key economic indicator for Lee County, the Executive Business Climate Index. This index value is computed each quarter and released to the public as a way to provide an established economic indicator on the state of the local economy. The index is computed using the two questions concerning the current and future economic conditions and a third question concerning the expected industry economic conditions. The index is an average of the responses, with substantially better equal to 100, moderately better equal to 75, same equal to 50, moderately worse equal to 25 and substantially worse equal to zero. The index value can range from 0 to 100. The results from the second quarter survey reflect a five-point decline from the first quarter 2016 measure, with the index falling from 68 to 63. This marks the lowest EBCI since the second quarter, when the EBCI was calculated at 62. The current survey s Special Topics section focuses on the cost of doing business, prices, the state of the economy, and primary business challenges for business in Lee County. Other findings of the Business Climate Survey for the second quarter of 2016 include: 59 percent of executives stated that the current economic conditions have improved over last year, while 33 percent stated that they were the same; 50 percent of the executives expect the economy to improve over the next year; 50 percent of the executives stated that the current economic conditions for their industry have improved over last year, but 32 percent stated that economic conditions remained approximately the same, and 18 percent indicated they are moderately worse; 49 percent of executives expect economic conditions for their industry to improve over the next year; 58 percent of companies expect to investment next year while 2 percent expect to reduce investment levels; 50 percent of executives had d employment over the last year, while 2 percent had reduced employment; 44 percent of executives expect to employment at their companies during the next year, while 56 percent of executives plan to remain at the same level; 79 percent of executives indicate that the cost of doing business has d by no more than 5 percent over the past year; 12 percent of executives believe that the cost of doing business will by at least 5 percent over the next year; 41 percent of executives indicate that they have d prices by at least 2 percent over the past year; 87 percent of executives stated they are optimistic about the Southwest Florida economy over the next year; 88 percent of executives indicate that they are optimistic about the state of Florida economy over the next year; 58 percent of executives stated that they are optimistic about the United States economy over the next year, while 42 percent are pessimistic about the United States economy over the next year; and 63 percent of executives believe that finding qualified employees will be a top 5 challenge over the next year. Regional Economic Research Institute 3

Percent of Responses Percent of Responses Percent of Responses I. RECURRING QUESTIONS Each quarter, the Horizon Council FGCU Business Climate Survey polls Lee County s business leaders about the state of the economy in Lee County. These seven questions are designed to provide a snapshot of short-term trends and perceptions regarding the state of the local economy, employment, and capital investment. Asking the same recurring questions allows for a side-by-side comparison of the economy during each quarter. The results from these questions for the second quarter of 2016 can be found in Figures 1 through 7 below. 8 7 6 5 4 Figure 2: Future Economic Condition What are your expectations for the Lee County one year ahead? 62% 51% 46% 46% 2016 Figure 1 reports that 59 percent of surveyed executives indicated that economic conditions in Lee County were better compared to a year ago. This marks a significant decline from the first quarter 2016 measure of 73 percent as well as the measure from the second quarter measure of 82 percent. These results indicate that local business owners and executives are generally less pleased with the direction of the local economy over the past year. 8 7 6 5 4 3 2 1 6% Figure 1: Current Economic Condition How are the Current Lee County economic conditions compared to one year ago? 15% 13% better 53% 69% 67% better 33% 17% 18% Same Figure 2 tracks business leaders perceptions about economic conditions going into the next year. The survey found that 50 percent of executives indicated they expect economic conditions in Lee County to be better in the next year. This is a decline from the 2016 first quarter reported figure of 72 percent, as well as a decline from the second quarter report, which found that 74 percent of surveyed executives expected conditions in Lee County to be better in the next year. 9% 1% worse 2016 worse 3 2 1 4% 23% 17% better better 24% 21% Same 3% 2% worse Figure 3 reports on executives perceptions about their particular industry and is more narrowly focused. The survey found that 50 percent of surveyed executives believe that current conditions in their industry were better compared to a year ago. This was a decline from the 61 percent recorded in the first quarter 2016 survey and the 75 percent reported a year ago on the second quarter report. 8 7 6 5 4 3 2 1 5% Figure 3: Current Industry Condition 16% 13% 45% 59% 61% 32% 26% 22% 1% worse What are the current conditions in your industry in Lee County compared to one year ago? better better Same Figure 4 reports that 49 percent of surveyed executives expect conditions in their industry to be better in the next year. This is a slight decline from the 2016 first quarter report, which reported that 65 percent of surveyed executives expect conditions in their industry to be better in the next year, as well 18% 4% worse 2016 worse 4 Executive Business Climate Survey Report, 2016

Percent of Responses Percent of Responses Percent of Responses Percent of Responses as a decline from the second quarter report, which reported that 72 percent of surveyed executives expect conditions in their industry to be better in the next year. Figure 4: Future Industry Condition over the next year, and a decline from the second quarter report, which reported that 60 percent of surveyed executives expect to employment over the next year. Figure 6: Future Hiring Trend 8 What are your expectations for your own industry in Lee County one year ahead? 8 What hiring trends do you see for your business over the next year? 7 6 5 4 3 2 1 7% 18% 19% better 42% 54% 54% better 46% 27% 24% Same 4% 5% worse 2016 1% worse 7 6 5 4 3 2 1 6% 7% employment 38% 53% 54% employment 56% 44% 39% Same or flat employment 1% 1% reduce employment 2016 Reduce Employment Figures 5 and 6 focus on employment. Figure 5 reports that 50 percent of executives have d employment over the last year. This is an from the 2016 first quarter report, which reported that 49 percent of surveyed executives have d employment over the past year, however this was a decline from the second quarter report, which reported that 55 percent of surveyed executives have d employment over the past year. 8 7 6 5 4 3 2 1 1 9% 5% d employment Figure 5: Current Hiring Trend What has been your hiring trend over the last year? 4 54% 5 d employment 44% 42% Figure 6 reports that 44 percent of surveyed executives expect to employment over the next year. This is a decline from the 2016 first quarter report, which reported that 48 percent of surveyed executives expect to employment 33% Little or no change In employment 6% 4% 4% reduced employment 2016 Reduced Employment Finally, Figure 7 focuses on capital investment. It reports that 58 percent of surveyed executives expect to investment over the next year. There was a decrease from the 2016 first quarter report, which reported that 60 percent of surveyed executives expect to investment over the next year, and a decline from the second quarter report from, which reported that 62 percent of surveyed executives expect to investment over the next year. 8 7 6 5 4 3 2 1 13% 11% 7% Figure 7: Future Investment Trend Do you plan to investment in your business during the next year? investment 51% 51% 49% investment 4 33% 33% Keep investment the same or flat 5% 4% 2% reduce investment 2016 Results from previous quarters surveys going back to can be found on FGCU s Regional Economic Research Institute s web site, at fgcu.edu/cob/reri. For charts depicting historical trends for recurring questions, see Appendix A below. 1% Reduce investment Regional Economic Research Institute 5

II. THE EXECUTIVE BUSINESS CLIMATE INDEX One of the key features of this survey is the calculation of an Executive Business Climate Index. Each quarter, this index value of the current business climate in Lee County, is computed and released to the public as a way to provide an economic indicator allowing one to quickly gauge whether the business climate in Lee County is improving or declining. The EBCI is computed using the two questions concerning the current and future economic conditions (reported in Figures 1 and 2) a third question concerning the expected industry economic conditions (reported in Figure 4). The index is an average 75 71 67 63 59 74 2nd Qtr Horizon Council FGCU Business Climate Index 72 3rd Qtr of the responses, with substantially better equal to 100, moderately better equal to 75, same equal to 50, moderately worse equal to 25 and substantially worse equal to zero. The index value can range from 0 to 100. The results from the second quarter survey reflect a decline from the first quarter 2016 result, with the index decreasing from 68 to 63. This outcome is the second quarterly measure outside of a narrow range between 74 and 69 that persisted for over two years. It is also the lowest EBCI reported since the second quarter, when the EBCI was calculated at 62. Although still positive, the 1st 2nd quarter index measures may signify declining optimism among Lee County s business community. 69 4th Qtr 72 1st Qtr 73 2nd Qtr 70 3rd Qtr 71 4th Qtr 68 1st Qtr 2016 63 2nd Qtr 2016 6 Executive Business Climate Survey Report, 2016

Percent of Responses Percent of Responses Percent of Responses III. SPECIAL TOPICS Each Executive Business Climate Survey contains a set of questions not asked on a recurring basis. These special topic questions focus on areas of importance to the economic development of our region with the intention of accessing the business community s input and feedback to development officials, industry agents, and government officials. The present survey attempted to mimic questions asked in the second quarter EBCS and obtain information relating to the current challenges facing local businesses, along with current and expected future cost changes in Southwest Florida. Results from the second quarter survey and present survey are reported in figures 8 through 10. In addition, the survey also asked local business executives to provide their expectations for the Southwest Florida, state of Florida, and U.S. economy over the next year. 8 7 6 5 4 3 2 1 5% 2% Figure 8: Costs over Past Year How has your cost of doing business changed over the past year? Lower 31% 33% 0 to 2 percent 43% 45% 2 to 5 percent As shown in Figure 8, there appears to be no significant difference between the second quarter and present survey results, with 79 percent of business executives reporting the costs of doing business over the past year have d less than 5 percent or been lower. 15% 19% 5 to 10 percent 2016 6% 1% More than 10 percent 8 7 6 5 4 3 2 1 2% 2% Figure 9: Costs over Next Year 43% 44% 42% 4 As shown in figure 9, there also seems to be no significant change in the expectations of how costs will change over the next year, with only 12 percent of business executives indicating they believe their cost of doing business will over 5 percent over the next year. 8 7 6 5 4 3 2 1 How do you expect your costs to change over the next year? Lower 16% 12% 0 to 2 percent 2 to 5 percent Figure 10: Prices over Past Year 47% 61% 27% Figure 10 shows business executives impressions about how their prices have changed over the past year. 41 percent of business executives reported that they have d prices by at least 2 percent over the past year, a significant from the second quarter report, which reported that 23 percent had d prices by at least 2 percent. 17% 9% 11% 5 to 10 percent 12% 5% 2016 3% 3% More than 10 percent How have your prices changed over the last year? Lower 0 to 2 percent 2 to 5 percent 5 to 10 percent 2016 2% 1% More than 10 percent Regional Economic Research Institute 7

Percent of Responses Somewhat Pessimistic, 13% Very Pessimistic, Figure 11: Southwest Florida Economy How do you feel about southwest Florida's economy over the next year? Very Optimistic, 1 Somewhat Optimistic, 77% Figure 13: United States Economy How do you feel about the U.S. economy over the next year? Very Pessimistic, 5% Somewhat Pessimistic, 37% Somewhat Optimistic, 58% Very Optimistic, Figure 11 focuses on the southwest Florida economy. 87 percent of business executives indicated they are optimistic about the southwest Florida economy over the next year, while 13 percent indicated they are pessimistic. Figure 13 focuses on the United States economy. Only 58 percent of business executives indicated they are optimistic about the United States economy over the next year, while 42 percent indicated they are pessimistic. Figure 12: Florida Economy How do you feel about Florida's economy over the next year? Very Optimistic, 11% 7 6 5 63% Figure 14: Top Five Business Challenges What are the top five challenges that your company will face over the next year? 5 Somewhat Pessimistic, 12% Very Pessimistic, Somewhat Optimistic, 77% 4 3 2 1 Qualified Workforce Markets and Growth 38% Regulation 25% Controlling Costs 18% HealthCare Costs 13% Financing Issues 12% Politics 3% 3% Poor Local and Pricing National Competition Economy Figure 12 asks about the state of Florida s economy. 88 percent of business executives indicated they are optimistic about the state of Florida s economy over the next year, while 12 percent indicate they are pessimistic. Figure 14 focuses on the top five business challenges business executives will expect to face over the next year. 63 percent of all business owners indicate that finding qualified workforce will be an issue, while 50 percent believe the market and growth will be an issue. A complete list of executive responses to the questions can be found in Appendix C. 8 Executive Business Climate Survey Report, 2016

IV. COMMENTS, SUGGESTIONS, AND RECOMMENDATIONS The comments indicated that executives were concerned with the national and international economy as it relates to local activity, as well as some general comments of the workforce. There are concerns and comments about: Public Infrastructure Proper training Governmental regulation Increasing costs Wage rates Executive responses to this question are found in Appendix B. Regional Economic Research Institute 9

V. COMPANY CHARACTERISTICS Each executive provided information about his or her firm, including: Business Type; Number of Employees; Company Location; and Geographic Client Base. The following figures provide an overview of general characteristics of the responding companies. Professional, Scientific, & Technical Service Construction Manufacturing Finance & Insurance Real Estate Sales Information Accommodation & Food Services - Resorts Health Care & Social Assistance Computer Software, Design, and Technical Educational Services Agriculture, Forestry, Fishing, and Hunting Real Estate Development Accommodation & Food Services - Restaurants Aerospace Arts, Entertainment, and Recreation Real Estate Rental and Leasing Accommodation & Food Services - Attractions Transportation and Warehousing Utilities Retail Trade Business Types 0 5 4 4 3 3 2 2 2 2 2 2 1 1 1 7 10 10 14 16 Employee Size of Firms Responding to Survey 250 or more employees, 14% 100-249 employees, 19% 1-9 employees, 25% 10-24 employees, 18% 50-99 employees, 14% 25-49 employees, 1 0 2 4 6 8 10 12 14 16 18 20 5 45% 4 35% 3 25% 2 15% 1 5% Geographic Locations of Business Respondents 8% 8% 12% 13% 15% 17% 17% 2 26% 38% 45% 8 7 6 5 4 3 2 1 7% Geographic Client Base of Lee County Firms 16% 23% 26% 28% 32% 36% 51% 61% 67% 10 Executive Business Climate Survey Report, 2016

APPENDIX A. HISTORICAL TRENDS OF RECURRING QUESTIONS Historical trends of the seven recurring questions asked in each Executive Business Climate Survey can be found in this section. 10 9 8 7 6 5 4 3 2 1 How are the current Lee County economic conditions compared to a year ago? 2016 2016 better better Same worse worse 10 9 8 7 6 5 4 3 2 1 What are the current conditions in your industry in Lee County compared to one year ago? 2016 2016 better better Same worse worse 10 9 8 7 6 5 4 3 2 1 What has been your hiring trend over the last year? Substaintially d employment d employment Little or no change in employment reduced employment Substaintially reduced employment 2016 2016 10 9 8 7 6 5 4 3 2 1 What are your expectations for the Lee County economy one year ahead? 2016 2016 better better Same worse worse 10 9 8 7 6 5 4 3 2 1 What are your expectations for your own industry in Lee County one year ahead? 2016 2016 better better Same worse worse 10 9 8 7 6 5 4 3 2 1 What hiring trends do you see for your business over the next year? Substaintially employment employment Same or flat employment reduce employment Substaintially reduce employment 2016 2016 10 9 8 7 6 5 4 3 2 1 Do you plan to investment in your business during the next year? Substaintially investment investment Keep investment the same or flat reduce investment Substaintially reduce investment 2016 2016 Regional Economic Research Institute 11

APPENDIX B. FULL COMMENTS, SUGGESTIONS, AND RECOMMENDATIONS This list includes specific responses from the executives for the following question: Please indicate any other comments, suggestions, or recommendations you would like to make regarding the regional economy or your business. 1. Again, more skilled workers needed. 2. Lee County needs to improve its roadways and infrastructure before development happens - not in response to it after it happens. Collier County does a good job of putting in roadways and infrastructure knowing where development will be expanding in future years. Lee County continues to wait and be reactive. This is not a good strategy. This could be a result of Lee County's reduced impact fees limiting the funding needed. 3. Focus on more technology based businesses and industries, and promote or incentivize local colleges to pool of qualified employees with math and computer technology skills. 4. We must stop the dumping of freshwater from Lake Okeechobee, this is killing local business. We must encourage Southwest Florida to invest in bringing more industry to the area. This area is entirely service based and cannot support the salaries required to keep educated, quality people in the area. 5. There is increasing pressure in Southwest Florida and particular in Lee County to push away all "dirty" business, as in heavy industrial and manufacturing business. These types of businesses provide for well-rounded regional economy and often, allow for the "pretty" businesses to function. It is wonderful for the residents of southern Lee County to want to push out "that dirty old railroad", or the trucks and warehouses. But they forget how all the materials arrived to build their homes, how the food they eat ended up on the grocery shelves, or how all of the recyclable materials they "throw-away" leave the area. We need to stop beating up on heavy industry and transportation, and build a better Southwest Florida for today and tomorrow. 6. The density of areas needs to be d to reduce suburban sprawl which is what creates massive traffic. We need an improved metro system, and connection to a high speed rail nationwide system that also intersects with Tampa, Orlando, Miami and Jacksonville. Without changes the future will be traffic gridlock. 7. We need to look carefully at limiting growth. We cannot maintain the current pace and have any quality of life. Also, limit the contact between elected officials and developers. 8. I still believe that diversification is important for a robust regional economy. I see some diversification, but we are still very service and tourism focused. Our demographic is heavily skewed toward seniors. This will impede efforts to diversify the economy. 9. Costs for doing business varies by county/region. For instance, the cost of doing business in Cape Coral is about 2 more than in Fort Myers, and they are in the same county. 10. Regional approach to attracting new and coming business. Stream-lining processes for permitting, zoning, land entitlement, (area standardization) Redundancy elimination. 11. Increase plumbing salaries. 12 Executive Business Climate Survey Report, 2016

APPENDIX C. FULL COMMENTS ON TOP FIVE CHALLENGES FOR COMPANIES This list includes specific responses from the executives for the following questions: What are the top five challenges that your company will face over the next year? Qualified Workforce 1. Training and recruiting young workforce 2. Hiring technological competent workers 3. Hiring employees for traditional manual labor 4. Finding qualified employees 5. Hiring experienced colleagues 6. Retaining qualified employees 7. Access to skilled labor 8. Hiring well quailed tradesmen and technicians 9. Hiring class A CDL drivers 10. Finding educated and qualified help to perform administrative duties 11. Attracting talent HealthCare Costs 1. Increase in healthcare and overall benefits costs. 2. Health insurance 3. Increased cost of healthcare for employees Controlling Costs 1. Increase pressure to raise wages 2. Increased difficulty managing costs through operations improvements 3. Material prices continue to 4. Holding fees close to the CPI 5. Costs to do business continue to rise Markets and Growth 1. Demand is not at the same rate as inflation 2. Difficulty staying up to date with technological changes 3. Increased difficulty maintaining market share 4. Difficulty attracting and maintaining clients 5. Lack of other businesses investing in technology 6. Technology will continue to fragment media consumption thereby reducing my company s penetration thereby lowering my ability to hold advertising rates 7. Financial sector profits are nil, good for clients bad for us. We are doing the same work for half the revenue. 8. Commodity inflation/deflation 9. Expanding our market 10. Need to international exposure in Europe 11. Keeping up with false demands in housing Regional Economic Research Institute 13

12. Slowdown of home sales 13. Excessive hotel rates and rental housing become issues for consumer spending and hiring of personnel. Disposable income for tourism is limited to hotel stays and bare essentials, when the average cost of a hotel in Southwest Florida is in excess of $250 per night. Also, lack of affordable housing and limited rental housing makes it difficult to recruit talented personnel to the SWFL region. We have experienced several staff members resign and return "home" to other areas due to the housing crisis. Our employment cost has gone up as a result. Regulation 1. Increased federal and state requirements not related to delivery of service 2. Increase in regulations from the EPA 3. Increase in government bureaucracy is slowing down permit processes 4. Dealing with governmental regulations 5. Swings in direction of local governing body 6. Ever changing HR laws 7. Dealing with financial and administrative headaches of federal regulation Financing Issues 1. Holding onto cash and freezing new projects 2. Devaluation of foreign currency 3. Lack of funding and access to capital Poor Local and National Economy 1. Economic conditions of the country 2. Potential second housing bubble 3. Fed interest rate policy 4. Low interest rate environment 5. Broad economic growth 6. Material shortages Pricing Competition 1. Competing with lower cost imports 2. Increased pressure to lower prices 3. Competition willing to lower the bar by inadequate fees and free labor 4. Heavy international competitive pressure 5. Increase competition Politics 1. Concerned that we are going towards a socialist government 2. Concerned about political and taxation activism 3. Uncertainty of upcoming election 14 Executive Business Climate Survey Report, 2016