Is the San Diego Economy Gaining Momentum?
Happy New Year! Most people I talk with are glad that 2011 is over. The encouraging news is that early 2012 indicators show positive signs in the economy. A shrinking supply of available homes for sale could precede higher demand, stabilizing prices and faster sales cycles. There are upbeat reports all over San Diego, including Rancho Bernardo, Poway, Carmel Valley and downtown! Here is an article that indicates things may be turning around…
By ANDREW KEATTS, The Daily Transcript
Thursday, January 5, 2012
The U.S. economy is gaining momentum, California is now outpacing the nation economically and San Diego’s better positioned than all but the San Francisco Bay Area, according to a forecast from Beacon Economics.
The Los Angeles-based economic forecasting firm, which has been notably bearish in recent years after accurately identifying the housing bubble, said the 1.7 percent rate of national economic growth represents a historically healthy market.
It forecasts 2.8 percent real gross domestic product growth in the first quarter of the year, 3.6 percent growth in the second quarter, 3.17 percent growth in the third quarter and 3.5 percent growth to close the year.
The unemployment rate will be 8.87 percent in the first quarter of 2012, before falling to 8.7 percent, 8.5 percent and 8.3 percent on a quarterly basis to close out the year, according to Beacon.
In California, it says the unemployment rate will be 11.42 percent in the first quarter of the year, followed by 11.1 percent 10.85 percent and 10.57 percent in the fourth quarter.
San Diego, meanwhile, has an above average outlook for 2012, according to Beacon.
“Military cutbacks are an area for concern,” said Brad Kemp, director of regional research for Beacon. “But there’s a larger research component related to military in San Diego, which won’t be affected by troop drawdowns in Iraq and Afghanistan.”
Robust growth — rates in the vicinity of 6 percent — isn’t a reasonable expectation because the economy is still correcting itself from the artificially created jobs associated with the housing boom, according to Kemp.
“It’s slow growth, but it’s pretty darn good growth,” Kemp said. “The robust growth that people think is normal post-recession we’re not going to get it. We had too much growth on the front end, and that’s been followed by a correction.”
San Diego, boosted by its research-oriented industries and tourism, will continue to lead Southern California in the recession, trailing only the Bay Area in the state.
California, now outpacing the nation, will likewise continue its steady level of slow-growth, and will reach its pre-recession peak of more than 15 million jobs by 2015. To date, the state has regained 250,000 of the 1.3 million jobs it lost.
Kemp said the state Supreme Court’s ruling last week effectively ending redevelopment agencies creates short-term turmoil for coastal markets with prohibitively expensive housing — like San Diego.
“Affordable housing is absolutely critical here and now we’ve lost the mechanism we do that through,” he said.
Otherwise, the effects of the end of redevelopment as we know it will be a long-term question and will depend on each market’s need to reinvent its industrial composition.
San Diego, Kemp said, should be relatively well positioned to weather that long-term concern.
Beacon’s economic forecast cited the country’s 3.55 percent gross domestic demand, which it called a better measure than GDP because it is ultimately responsible for driving production, as evidence that the economy was performing better than is widely perceived.
Dramatically declining delinquency rates are evidence that the return of the consumer is sustainable, the forecast said. It called delinquency rates a more predictive measure of spending than consumer confidence.
Business investment is increasing, evidenced both by capital goods orders and increases in outstanding commercial and industrial bank loans.
Currently at $1.7 billion, real investment is expected to reach $1.9 billion by the end of 2012, according to Beacon.
And construction, according to Beacon’s forecast, is no longer a drag on the recovery. Housing starts are creeping up now that excess supply has been absorbed and vacancy rates are beginning to fall.
The real estate market, historically a leader out of recessions, will continue to lag the recovery, Beacon forecasts. Housing prices have stabilized, but will remain flat through 2012. They’ll begin to experience modest appreciation beginning in 2013.
As California’s housing supply remains dramatically underbuilt, Beacon expects construction increases to accelerate in the next two to three years.
The greatest drag on the economy at this point is the public sector. After shedding jobs for months, the drag will only get worse once the federal government begins meaningfully addressing its hulking deficit.
Beacon adamantly rejected concerns of a double-dip recession over the summer, when it became a popular forecast in the media. The drivers of the economy’s disappointing factors early in 2011, they said, were transitory, while concrete economic numbers indicated a market that was slowly but undeniably improving.
The company’s forecast also said the trend of upward revisions to the Bureau of Labor Statistics’ monthly data is strongly indicative of a market in recovery.
“Do not mistake Beacon Economics’ bullishness with being Pollyannaish,” the forecast reads. “As far as recoveries go, this continues to be a disappointment.”
Kemp said the company’s relative bullishness is a result of focusing on long-term business cycles, rather than politically expedient hysteria.
“The economy is a living breathing thing, but it happens in long cycles, which are more important than short-term politics,” he said. “They can speed it up or slow it down, but they can’t change outcomes.”
