Los Angeles County

Economy to Continue Downshifting, but Housing and Quality of Life Issues Remain

Los Angeles County’s economy will continue its moderate growth in 2019 and 2020 even as some experts fear a recession is nearing. However, the region’s more pressing issues are housing affordability, traffic congestion, and quality of life.

That’s according to two recent individual local economic forecasts hosted by the Los Angeles County Economic Development Corp. and the California Lutheran University Center for Economic Research and Forecasting. The keynote speakers’ opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately.

Los Angeles County Forecast

  • Los Angeles County’s local domestic product (similar to national Gross Domestic Product—GDP) will be 3 percent in 2019 before slowing down the 2.7 percent in 2020. GDP is the most commonly preferred measurement for economic growth—and local GDP reveals how the county is poised to most likely outperform California as a whole (and even the United States). No doubt, the Los Angeles County faces many socio-economic issues (most notably housing affordability across all household income levels). “The good news is that our economic fundamentals look very strong,” the forecast report states. The county’s “local” GDP was valued at $807 billion in 2017, larger than several states across the nation.

  • The odds of an economic “slowdown” in Los Angeles County from 2019 – 2020 are much higher than the chance of actual “recession” hitting business and consumers—which is relatively low. “The challenge now facing those engaged in economic development is how to channel top-line economic strength into meaningful bottom-up prosperity and opportunity for more of our neighbors and our communities,” the forecast report states. A recession isn’t expected this year or next in California and the United States; currently the odds are higher going into 2021.

  • The current unemployment rate in Los Angeles County (4.9 percent) will steadily decline to 4.3 percent sometime in 2020. As the job market continues tightening, there aren’t many individuals on the sidelines who can join the “labor force” (adults who are willing/able to work and looking for a job or already working). The county will add 61,000 new jobs in 2019 and 60,700 in 2020. This is a bump from the 56,000 annually experienced in 2017 and 2018, but far lower than the 75,000 – 110,000 yearly range seen from 2014 to 2016 (when the job market was still absorbing people on the sidelines due to the fallout from the Great Recession of 2007 – 2009). About 43 percent of the county’s workforce is “prime age” (25 – 54 years old).

  • “Real” annual personal income growth (adjusted for inflation) in Los Angeles County will rise slightly faster in 2019 (2.6 percent) and 2020 (2.1 percent) versus the past couple of years as the average worker wage continues increasing. It increased an average 1.6 percent annually from 2016 – 2018, but that’s after coming off stronger growth in 2014 – 2015 (average of 6 percent both years). “It will lag behind that of the state as a whole due to the relatively higher unemployment rate and greater degree of labor market slack (individuals still entering the labor force),” the forecast report states. “Real” per capita income growth will reach $46,500 sometime in 2020, a 14 percent increase from $40,700 in 2014. The median household income was $65,000 as of late 2017.

  • “Los Angeles County will continue its shift from production industries to service-based ones, with major growth in professional/business services, health care, and hospitality,” the forecast report states. Major investment in transit will continue to support strong economic growth, although failure to increase density along transit routes heavily limits the potential positive impacts. Additionally, failure to meaningfully address the housing and homeless crises will put a damper on what is otherwise likely to be strong output and wage growth.

  • Manufacturing and government are the only two industry sectors in Los Angeles County that are projected to lose jobs in 2019 and 2020 (about 7,100 positions total). Otherwise, over these two years transportation/trade and utilities will add 400 jobs; “other” services will add 400 jobs; financial activities will add 2,100 jobs; information will add 5,700 jobs; construction/natural resources and mining will add 9,600 jobs; professional and business services will add 24,800 jobs; leisure and hospitality will add 39,400 jobs; and education/health services will add 47,000 jobs.

  • Despite affordability problems for would-be homeowners, the median price of a single-family house in Los Angeles County (existing and new homes combined) is poised to continue rising into 2020. That price ended 2018 at $615,000, but it could foreseeably reach $632,000 in 2019 and $647,000 in 2020. Housing permits for residential building “starts” will average 23,700 annually from 2019 – 2020 after averaging 21,100 annually from 2014 – 2018. The county’s median home-price-to-household-income ratio was 9.6 as of mid-2018, compared to San Jose (9.5), San Francisco (9.2), San Diego (7.9), Ventura (7.2), Sacramento (5.9), Stockton (5.9), Riverside (5.9), and Fresno (5.4).

  • “With over one in four Californians living in Los Angeles County alone, it goes almost without saying that whatever happens in Los Angeles greatly affects and influences the rest of the state,” the forecast report states. “The current prosperity enjoyed by the county, on aggregate, and the long-awaited real income gains are emblematic of the trends taking place across the state. Job creation remains strong overall and in, though not exclusively, high-paying industries offering upward mobility for Angelenos. Inasmuch as recent trends can inform future predictions, the Los Angeles County economy demonstrates strength, if imperfectly.”

  • In the City of Los Angeles, 56 percent of renter households are “rent burdened,” meaning they spend one-third or more of their annual household income on housing rental costs. This measurement has been in the 50s for some time (most recently 57 percent in 2014 but 54 percent in 2010), displaying how the City of Los Angeles is the epicenter (as well as many areas across the county) for California’s housing shortage. If you include the greater metropolitan region (other parts of the county and Orange County as well), 57 percent are “rent burdened.” Moreover, 33 percent of residents in the City of Los Angeles are “severely rent burdened,” spending at least half or more of their annual household income on housing rental expense.

  • Housing affordability poses “the greatest long-term threat to local economic mobility and bottom-up prosperity” across Los Angeles County. The more local workers’ wages go toward housing expenses every month, the less is available to save, consume and invest in the local economy—and the more public social services and programs are impacted. “Exacerbating matters, the movement of work away from salaried, full-time employment toward ‘gig,’ temporary or contract work means households increasingly face dual pressures from the labor and housing markets,” the forecast report states. In fourth quarter 2018, only 24 percent of households in Los Angeles County could afford to purchase a home (bringing in $125,000 annually so they can afford the median home price of $615,000); and only 20 percent in Orange County. “These patterns bode poorly for economically stable household and family formation going forward.”

  • The number of homeless individuals in Los Angeles County has risen from 39,000 in 2013 to 53,000 by 2018—a 36 percent increase. However, the county is no stranger to this 53,000 level (reached in 2009). This doesn’t include people who have non-permanent housing accommodations, such as those moving from couch to couch in residencies. Homelessness is caused by many issues but exacerbated by housing affordability. “The key to a long-term solution to homelessness will not only be affordable housing and permanent supportive housing, but housing that is affordable—that is, saturating the housing stock to the point of bringing rents and home prices to reasonable levels,” the forecast report states.

  • A confluence of housing and transportation issues is at the forefront of Los Angeles County leaders’ goals as they seek to ease traffic congestion and home costs. They hope that focusing on these issues will support household and worker lifestyles, which ultimately help contribute to the local economy and employee/business productivity. A mixture of density and home-building zoning codes over several decades (since the1960s) have especially shaped the City of Los Angeles (and many suburbs) into what it is today—a place where a steady lack of home construction, of any density, over several years has taken its toll. Going forward it will take many years to “play catch up” as Los Angeles has just begun to pass and implement new housing and transportation policies to help alleviate the situation. “In addition to being a logistical, productivity, economic growth and environmental problem, inadequate transportation infrastructure poses an equity problem when coupled with housing affordability,” the forecast report states. “Both housing and transportation in tandem will likely be the primary local issues for the foreseeable future.”

  • What will help drive or detract from Los Angeles County’s economic future is how many working-age young people (ages 22 – 35) decide to live in the county going forward, and exactly where they live. The City of Los Angeles may be one of the most diverse in the nation (and the county too) with respect to race, businesses, entertainment and food, but its younger workforce is choosing to congregate within or outside certain areas that “make sense” for them—which has local economic implications. The challenges and solutions proposed for enhancing vast sprawls of single-family dwellings woven into a mosaic of 88 cities and 100 unincorporated areas “will have lasting ramifications,” the forecast report states. “The collective decisions made in the next few years on critical policy issues, such as housing affordability and transportation, will be decisive to the longer-term economic trajectory of the county and region.”

  • For more localized information at the county level, click here to access the forecast report. It includes predictions, challenges, and opportunities for the counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Ventura, Santa Barbara, Imperial, Kern, and San Luis Obispo (and Southern California, California, and the United States). Also included are facts on population, prime working age, local GDP, median household incomes, median home-price-to-household-income ratios, poverty rates, and unemployment rates. Additionally, historical data (2014 – 2018) and future projections are provided (2019 – 2020) on "real" (adjusted for inflation) personal income growth, "real" per capita income, job growth, local inflation, employment growth by sector, housing permits (building "starts"), and home prices.

San Fernando Valley Forecast

  • San Fernando Valley is a “true economic hotspot,” displaying strong economic vibrancy that stands out among all regions within Los Angeles County. The valley shows no signals of slowing down as “real” (adjusted for inflation) local gross domestic product (GDP) is expected to grow 4.1 percent in 2019 and 3.8 percent in 2020—a bullish outlook and much higher than California or the United States. Nearly every local non-farm industry business sector continues to experience employment gains, especially in utilities, information/technology, and financial activities (with job growth in all areas noticeably outpacing Los Angeles County and California). Only the non-durable manufacturing and wholesale trade sectors are experiencing job declines (yet they are small). The valley’s job growth will come in at 2.2 percent in 2019 and 2 percent in 2020, and economic growth (local GDP) will continue to exceed job growth due to the high-value input/output of certain local jobs (high skilled, technology, and similar positions).

  • However, the San Fernando Valley is undergoing a “hollowing out” of its middle class. “The share of the population with incomes between $15,000 and $100,000 has declined since 2010,” the forecast report states. “The sharpest decline is among the segment with incomes of $50,000 to $75,000. Simultaneously, the share of population with annual income greater than $100,000 is growing substantially. Some of the shift in income distribution is explained by the aging of the San Fernando Valley’s population. Some of the shift may also be explained by the growth in high-value sectors of the economy and the addition of jobs with high average salaries.”

  • The San Fernando Valley is creating tens of thousands of jobs in lower-paying sectors of the economy. These jobs are in retail, leisure/hospitality, and education/health services—and workers are most likely finding it challenging to live in the valley, instead requiring lengthy commutes from outside the area. “There are social costs to this pattern,” the forecast report states. “One of the challenges is… how to provide vibrant communities to compliment the vibrant economy that the valley currently enjoys. Our definition of a vibrant community is one that can employ and house individuals of many income levels, providing widespread opportunity and upward economic mobility.”

  • The median price of a single-family home in San Fernando Valley was $670,000 as of December 2018, and for condominiums it was $430,000. “Prices have risen to a level that workers cannot afford,” the forecast report states. “Thus the lack of new home building restricts sales via two channels, first by reducing the size of the stock of available houses, and second, by raising prices to the point that affordability is a serious and restraining factor on the market.”

Local County-Level Perspectives
The California Department of Transportation (Caltrans) has released its 2018 – 2050 demographic forecast for all counties in California regarding local jobs, wages, home prices, population, personal income, taxable sales, net migration, wildfire issues, public policy implications, legal cannabis, industries, workforce, and more.

For forecasting purposes, the shorter-term economic projections for 2018 – 2023 within this county-wide report by Caltrans do not factor in an economic recession into its local scenarios. They are only highlights stemming from a baseline projection (view the report above for more information).

Latest CA Economic and Demographic Research
The organization “Next 10” recently released a handful of new studies in early May looking at divisions in California's economy with respect to residents' income, where they live, and other key insights:

Demographic Profile and Projections: Southern California*

  • *(Combined counties of Los Angeles, Orange, San Bernardino and Riverside)
  • Total population: 18.3 million (and will hit 19 million by 2025).
  • Working-age individuals (15 - 64 years old): 68 percent of total population in 2015 (and will fall to 64 percent by 2025).
  • Labor force (at least 16 years old who are working/looking for a job): 8.9 million out of 14.3 million adult population.
  • Labor force participation rate (adults who “want” to work): 62 percent (or 8.9 million individuals).
  • Unemployment rate: 4.2 percent (versus 4 in CA and 3.9 in U.S.)
  • Unemployed workers: 368,000.
  • Median household income: $68,500 as of 2017 (compared to $69,000 for CA and $61,000 for U.S.)
  • Poverty rate: 15 percent (versus 14 in CA and 14 in U.S.)
  • Education of population: 31 percent have a college degree; 29 percent some college; 21 percent high school diploma; and 19 percent no high school diploma.
  • Employment sector growth: click the following links for local future growth breakdowns (2014 – 2024) of nonfarm job projections by industry, occupation, education, and fastest-versus-largest areas of importance: Los Angeles County; Inland Empire; and Orange County.
  • * Data as of December 2018 from the California Center for Jobs and the Economy; California Employment Development Department; California Department of Finance; Federal Reserve Bank of St. Louis; U.S. Bureau of Economic Analysis; and U.S. Census Bureau

CU Quarterly Performance Report
California and Nevada trend analysis for YOUR credit union.

Regional 3Q Credit Union Trends


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