Cape Business Newsletter: October
A cautious view of economic growth
Cape businesses should anticipate about a 3 percent annual growth rate through the end of the year. That’s a decent performance, compared with recent history – although the oil price shocks reported elsewhere in this edition could put a damper on expected growth.
One interesting note: The rate of gains among the self-employed exceeds that registered by companies with large payrolls.
Caution remains the keyword, said UMass Boston Professor and MassBenchmarks co-editor Alan Clayton-Matthews. “Declining unemployment may in part reflect a labor force that is falling faster than employment, and this is not a sign of strength.”
The housing bubble specter
Another forecasting company targets the Cape as a potential victim of the housing bubble – Credit Suisse First Boston has compiled a list of top 10 potentially overpriced markets. But its methodology doesn’t wash for the peninsula. It measures the gap between house prices and family incomes:
The wider the difference, the more vulnerable the market. On the Cape, however, residential properties are being purchased increasingly by second-home owners and prospective retirees, often with all cash.
The income gap does make it harder for younger families to buy a home, but it has little impact for older arrivals, many cashing out their equity in houses elsewhere to move here.
The summer rental market
Supply is outstripping demand. That’s the statistical conclusion of www.weneedavacation.com, one of Cape’s largest online rental sites. Booms in real estate prices and aging baby boomers have led to a rush buying into second-home market.
As a result, even though rental bookings were up 27 percent in 2005, inventory of available weeks grew 46 percent. Early in the rental season, prices dropped only 1 percent, but by June as many as 176 owners listing at the Web site dropped their weekly rates. More price-cutting continued into July and August.
Don’t expect a cut in state gasoline tax
The inevitable political cry is being heard across Beacon Hill to cut or suspend the 21-cent state gasoline tax as way to relieve cost pressures on motorists and businesses. But Gov. Mitt Romney rejects it, calling instead for more “efficiency” as experts predict unprecedented highs.
“Let’s not create additional incentives to use more gasoline and energy,” said the governor. “Let’s instead recognize we need to find ways to conserve energy, to utilize it more efficiently.”
Local budgets: Where is the state’s share?
The state is paying smaller share of local budgets than in 1988. That means homeowners are picking up bigger part of tab.
An analysis by a public and private sector task force led by Sovereign Bank of New England Chairman John P. Hamill points to three problems for localities: increasingly restricted and unpredictable local aid levels, constraints on ways to raise local revenue, and health-care, pension and debt costs growing far faster than municipal revenues.
Property taxes account for 53 percent of total municipal revenues, up from 48 percent in 1990. Homeowners pay 72 percent of that total, up from 68 percent in 2000.
Meanwhile, the percentage of state budget devoted to local aid peaked in 1988 at 20 percent of state spending. Now it is less than 17 percent.
Another recommendation: Give towns flexibility to develop “local option” meals taxes,
parking excise taxes or rental car surcharges, but these ideas have been shot down in past. And a new wrinkle: Internet-based hotel-motel taxes.
Cape summer tourism tapers off
The 2005 Cape Cod tourist season was neither a banner summer nor a bummer summer.
Businesses reported a reasonably good season; not great, but not a disaster.
Overall, Cape tourism the last two summers has been flat. Available data suggest demographic and economic realities are changing the Cape tourist landscape for the foreseeable future.
Increasingly, the Cape is drawing more year-round and part-year retirees, pre-retirees, second-home owners, long weekenders and people staying with friends and relatives.
Cape tourists on average spend $550 over 2.3 days, while tourists who stay in hotels and motels spend at a rate above the average. While these desirable hotel and motel guests spend more at restaurants, attractions and specialty stores, their numbers are relatively fixed. In contrast, this new type of getaway visitor tends to make last-minute trip decisions after searching the Internet for room availability, price and weather forecasts.
Overall, the $1 billion tourist industry has dwindled to 23 percent of the 2004 Cape economy, down from 27 percent in 1997, as other sectors of the economy, such as construction, health care and financial services, have grown at a strong pace.
Visitor-dependent lodging, restaurants, specialty retailers and summer rentals are revamping their strategies to adapt to this “new normal” tourist economy. For 2006, Cape Cod Chamber of
Commerce officials are implementing new tactics, such as attracting more high-end tourists with arts and cultural events. Virtually everyone speaks of the importance of Internet-savvy marketing.
