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San Diego 2012 Economic Outlook

A Year to Muddle Through


Thursday, December 15, 2011

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San Diego’s overall economy is forecast to increase 1.8 percent in 2012, the strongest increase in six years according to the National University System Institute for Policy Research. The outlook, however, is for still sluggish growth characterizing the region’s continuing struggle to recover from the nation’s deep recession that purportedly ended in 2009.
After losing 102,400 jobs between 2007 and 2009, San Diego added 36,000 in 2010 and 2011. Another 21,000 are forecast to be added in 2012, reaching just over half-way to full recovery in job numbers.
Despite employment rising, San Diego’s unemployment rate is projected to only slightly decline from 10.0 percent in 2011 to 9.8 percent in 2012. With additional job seekers and “re-entrants”– those that fell out of the labor force because they were too discouraged to actively seek employment, job gains will be nearly matched by increases in the total labor force.
Continuing high unemployment actually understates our labor market woes and the hole we continue to face in the employment market. Based upon U.S. Bureau of Labor Statistics “alternative measurement of labor underutilization” in the state of California and Los Angeles, NUSIPR projects San Diego’s 2011 labor underutilization rate to be nearly 20 percent, meaning one in five working age adults in the County are unable to find full-time employment.
San Diego will continue to see challenges in the kinds of jobs being created and the wages that San Diegans receive. Middle-skilled jobs that once formed the broad-based middle class are disappearing. Most jobs being created are relatively low-skilled (and low-paid) that cannot be replaced by machines or easily sent overseas–such as home nursing and landscape gardening. Jobs are also being created for the highly skilled, notably in science, engineering and management. This is particularly true for high-cost areas of California, such as San Diego, where job growth prospects are also limited by the state’s onerous taxes and draconian regulatory environment.
Professional and business services, health care, and hospitality industries lead San Diego’s job recovery. Wholesale trade (not retail), transportation, warehousing, and utilities, and even some manufacturing are also adding workers at slower paces.
Lagging employment sectors include construction, all levels of government (other than military and public education), information, retail trade, and real estate. As the military winds down troop numbers in 2012, government employment locally is expected to decline.
Population growth slowed according to revised estimates based upon the 2010 Census. The 1.0 percent rate of growth per year for the last decade was the lowest in San Diego over the past 100 years. Lower birth rates and international migration, as well as higher out-migration, caused the slower growth rates and are significantly changing local population identity and demographics.
Housing construction remains relatively modest after building activity fell to depression era levels. We project the number of housing units to be built will increase, but not enough for construction employment to recover. The overhang of foreclosures continues to loom over the housing market, while the spectacle of little new construction in the pipeline leaves little being added to accommodate San Diego’s slow but still growing population.
Consumer spending as measured by taxable sales is rising since a bottom reached in 2009. San Diego led the rebound in sales among southern California counties. Continuing high consumer debt, however, restrains the stronger rebound expected to follow such substantial losses. Higher inflation is also limiting more spending, as energy, food, and other commodity prices soar.
NUSIPR’s outlook for San Diego compares and contrasts with other forecasts of state and local economic activity. UCLA Anderson recently projected California payroll employment will increase 1.2 percent in 2012, while Chapman University projects 1.7 percent growth, which matches NUSIPR’s forecast for San Diego of 1.7 percent. Beacon Economics projected slightly stronger employment growth in San Diego at 2.2 percent.
Chapman projects housing construction across the state will decline 2 percent in 2012, while UCLA projects a 17 percent increase, which slightly exceeds NUSIPR’s forecast for San Diego of a 15.2 percent increase. Beacon forecasts stronger 25 percent gain for San Diego, although with still low levels of construction, the difference is not substantial.
Chapman projects taxable sales across California will rise 5.4 percent, much stronger than UCLA Anderson’s forecast of 3.4 percent growth. NUSIPR’s projects San Diego sales will rise 5.0 percent, somewhat lower than Beacon Economics forecast of 5.8 percent for San Diego.
Details of NUSIPR’s 2012 forecast of San Diego’s economic outlook are published in the December 2011 edition of the “San Diego Economic Ledger”.