What will 2007 cost you?


Published: Thursday, January 4, 2007 at 6:01 a.m.
Last Modified: Wednesday, January 3, 2007 at 12:00 a.m.

Congratulations, Average Local Worker. You will earn 3.4 percent more in wages in 2007.

But before you run out and buy that big-screen TV, you should know: Several economic factors may be conspiring to take that raise, or more.

Expert opinion varies widely about what's on the horizon for the costs of housing and gas, both of which factor largely into inflation and the performance of the economy in general. There is little disagreement that insurance for housing and health will rise. The only question is how much.

Keep in mind, economists have a reputation for being less accurate than weather forecasters, so we can't tell you to buy that TV, but we can't tell you not to, either.

Wages up, but ...

The average annual wage in the fourth quarter of 2006 is $35,000 in the Gainesville Metropolitan Statistical Area, which includes Alachua and Gilchrist counties.

By the end of 2007, the average is projected to be $36,200, an increase of 3.4 percent, according to the University of Central Florida Institute for Economic Competitiveness.

Minimum-wage earners in Florida now will receive a 4.2 percent raise, from $6.40 to $6.67, based on the federal consumer price index for urban wage earners and clerical workers in the South Region for the year ending Sept. 1. The federal minimum wage is $5.15.

The index is based on costs of major expenditures — food, housing, clothing, transportation, medical care, recreation, education and communication and other goods and services. Based on 4.2 percent, that 3.4 percent average raise now looks more like a pay cut.

Health insurance

This is the first thing to take a bite out of your take-home pay, in addition to income taxes. And every year, it takes a bigger bite.

Health care inflation is often double that of national inflation, according to Bruce Vogel, health policy researcher for the University of Florida and Department of Veterans Affairs.

The overall consumer price index for the year ending November was 1.8 percent, while medical costs for the year were up 3.7 percent, he said.

The result is that medical costs annually eat a larger share of Gross Domestic Product, meaning we have less to spend on other things.

Another trend is for employers to put more of the burden on the employee, though Vogel cited economists who say even the employer contribution is funded by lower wages. Other companies are dropping employee coverage altogether.

Housing costs

Whatever gloom and doom you hear about the national housing market is buffeted locally. While some were referring to a 2006 housing recession, the Gainesville MSA had the fifth fastest growing median price increase in the nation of 15.9 percent for the third quarter.

To guess about 2007 home prices, consider:

· Housing inventories are up, which would typically drive costs down, although it did not this year.

· Local growth and therefore demand is up, driving costs up.

The rising costs matter most to those purchasing new homes. It also increases property assessments and therefore property taxes, but that is capped at 3 percent for homesteads.

Rising assessments and taxes also mean higher costs for rental properties, with owners making up the difference by raising rents.

Also hurting owners and renters, housing insurance increases because of the 2004-05 hurricanes will continue to come home to roost, mitigated slightly by a quiet 2006 season.

Policy holders will see additional surcharges up to 9 percent to cover policies of failed companies and other recent losses. Many owners are having to rely on the state-run Citizens Property Insurance Corp., as companies have dropped policies or stopped writing new ones. Citizens is considering an average 56 percent hike — less for noncoastal areas — on top of a 26 percent increase already set to take effect.

Of private insurers, Florida Farm Bureau will likely increase rates in Gainesville 15-20 percent, according to Bert Gindy, vice president of government affairs and compliance. Two Allstate companies were recently approved for an 8.2 percent rate increase.

Reinsurance carried by insurance companies has increased 30 percent for 2007, which companies will seek to make up by applying for premium increases.

It's enough to give you gas

Alachua County commissioners are considering an extra 5-cents-a-gallon gas tax to improve the road network. Other options include increased impact fees and sales tax. On the other hand, they have also set lower property taxes as a top priority.

On the national scene, McClatchy Newspapers report that oil prices are expected to remain volatile, but experts are sharply divided about whether the price of crude is headed up or down.

Variables include consumer behavior in the U.S. and Eastern Europe, potential conflicts affecting oil-producing nations, oil field production and the severity of the hurricane season.

Some relief?

USA Today reports that inflation will ease, according to most economists, as a result of an economy that will continue to grow, though at the slowest pace in four years.

The Federal Reserve may be faced with cutting interest rates to prop up the economy, lowering borrowing costs.

Read my lips ...

Florida legislators did not enact any major new fees or taxes for 2007, according to the Department of Revenue.

They did repeal the intangibles tax effective Jan. 1, meaning taxpayers will not be charged twice for intangibles such as inherited property.

University of Florida students, however, may face an additional "don't-call-it-a-tuition-hike" academic enhancement fee of $1,000, if approved by the Legislature.

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