Inland Empire

Vibrant Economy to Slow Down, but Will Still Outpace Other Regions as Population Grows

With economic growth slowing in the national economy, the Inland Empire still remains on track to meeting solid expectations in 2019 and 2020 as the region continues trending above other counties in job creation, population growth, and relatively higher home affordability.

That’s according to four different local economic forecasts recently held in March by Claremont McKenna College, UC Riverside, Inland Empire Economic Partnership, and Coldwell Banker Town & Country. These experts’ opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately.

‘Inland Empire Vision’ Conference (Claremont McKenna College)
From the "2019 Inland Empire Economic Report,” published by the Lowe Institute of Political Economy (author Manfred Keil, associate professor of economics at the Robert Day School of Economics and Finance):

  • The Inland Empire’s economy (and the national economy) may slow down in 2019 and 2020, but it’s difficult to make the case for a recession. "Even if the yield curve inverted later this spring, which we continue to find unlikely, then it will take on average 10 months for a recession to start, taking us into early 2020,” the forecast report states. The report also predicts “lower growth” going into late 2020 and hints that this slow economic growth may even extend into early 2021 depending on the circumstances. However, with annual U.S. Growth Domestic Product (the traditional measurement of economic growth) so low recently, it cannot withstand an unforeseen “negative shock” to the national economy—which is something for business leaders to keep in mind as they assess when the next recession may hit the economy.

  • "We no longer believe that the yield curve is as good a predictor of future economic activity as it used to be,” the forecast report states. For several months, experts have been arguing that a potential “inversion” of the yield on a 10-year U.S. Treasury note sometime soon may signal a recession within approximately 8 – 15 months. A yield-curve inversion happens when short-term Treasury bond yield rates (such as the 3-month bill or 2-year note) start jumping higher than longer-term yields (the 10-year note), essentially flipping—and for several months the yield curve has been heading this direction, essentially flattening. However: “Once the Federal Reserve started to buy out long term bonds and even mortgage related assets (through its ‘quantitative easing’ program after the Great Recession), we would argue that there has been a structural shift,” the report states. “The Fed is now implicitly targeting the yield-curve itself. We would suggest you focus less on the yield-curve, as we no longer believe it is a good predictor of future economic activity since the Federal Reserve started to use different policy instruments.”

  • Because of its balanced composition of voters (Republican versus Democrat), Inland Empire consumers are much less susceptible to “political shocks” than nearby coastal counties. “Moreover, the Inland Empire follows political news slightly less than Orange County or Los Angeles County, further suggesting that its consumer sentiment is less responsive to political shocks,” the forecast report states. While national consumer sentiment has “wobbled” lately due to trade-war tension with China and other issues, “the Inland Empire’s consumer sentiment is not currently a likely source of imminent danger.” Put into context, all four counties have experienced their consumer sentiment drop since mid-2018, but the Inland Empire remains higher overall.

  • The Inland Empire’s economy could remain at “full employment” for an extended period of time. The two-county region’s 4.3 percent unemployment rate may fall even lower in the coming months as more jobs are created and individuals on the sidelines enter the labor force. “Our advice is to look for the month-by-month development in what we consider two crucial markets: 1) Employment development in the Inland Empire as measured by the Current Population Survey or CPS, also known as the “household survey” (not the Current Employment Statistics or CES—the “payroll survey”); and 2) The index of local leading economic indicators. If these two significantly change in the near future, we will turn our low-grade forecast into a recessionary forecast.”

  • Click here for more information and analysis within the "2019 Inland Empire Economic Report” on: the region’s comparative local economic performance; output, population and standard of living; employment trends and labor demographics; sector deterioration and changes; industry/business and labor market growth; housing market dynamics and home sales; median home price trends and affordability; building permits and composition; domestic migration; and the economic cycle (pages 28 – 58).

    Additionally, a national outlook is provided within context of the Great Recession leading up to today; GDP's historical context; duration of economic expansions; economists as forecasters; yield-curve predictions; short and long-term interest rates; unemployment signals; economic slowdowns; stock market behavior; leading indicators; consumer sentiment; and employment behavior (pages 1 – 27).

    The same webpage also offers the Spring 2019 edition of “The Inland Empire Outlook,” a bi-annual publication analyzing economic and political issues facing the Inland Empire—including an Inland Empire home market snapshot, California housing supply highlights, analysis of Senate Bill 827, and recent rent control analysis.

‘Inland Empire Regional Intelligence Report’ (UC Riverside)
From the "First Quarter 2019 Inland Empire Regional Intelligence Report,” published by the Center for Economic Forecasting and Development (author Robert Kleinhenz, executive director of research):

  • Worker wages in the Inland Empire have been increasing, although at a slower pace than California as a whole. However, continued upward pressure on wages is expected this year as labor markets tighten across Southern California and the Inland Empire’s home affordability advantage allows the local work force to expand more robustly than other regions. Average worker wages in the Inland Empire increased 2.8 percent from 2017 – 2018. At the same time, wages in the state overall rose 4.3 percent. Within the two-county region, there was little disparity with wage growth in Riverside County (increasing 2.7 percent) and San Bernardino County (jumping 2.8 percent).

  • Job growth in the Inland Empire continues to outpace the rest of Southern California and is running in tandem with a labor force that's expanding faster than any neighboring region. From January 2018 – January 2019, the labor force in the Inland Empire grew 2.3 percent (individuals coming off the sidelines and choosing to work) compared to 0.7 percent in Los Angeles County, 1.7 percent in Orange County, 2.2 percent in San Diego County, and 1.5 percent in California as a whole.

  • Home affordability is helping drive the Inland Empire’s workforce expansion (individuals entering the labor force and jobs being created). The region’s “relative” housing affordability compared to coastal counties represents a significant competitive advantage going into the future. “At the same time, the tight regional labor market bodes well for continued wage gains to Inland Empire workers as businesses across Southern California compete to fill open positions.”

  • Inland Empire households are on a spending surge. Continued job growth and recent wage gains have fueled a rise in local taxable sales as consumers, and also businesses, have boosted spending. Local taxable sales increased 7.3 percent in 2018 over 2017. During the same time, statewide taxable sales rose just 5.2 percent.

  • Additional housing stock will be critical to maintaining the Inland Empire’s housing affordability, attracting new residents, and growing the labor force. There were just over 55,200 homes sold in the Inland Empire in 2018, a 6.7 percent decrease from 2017. This is largely an effect of the median 30-year fixed mortgage interest rate peaking at nearly 5 percent this past November, chilling sales activity in the interim (although mortgage rates have dropped since then). However, while the regional affordability advantage remains intact, local home prices have risen faster than in neighboring areas over the past year.

  • Inland Empire renters are under pressure. Average asking rent in the Inland Empire increased 4.4 percent from fourth quarter 2017 to fourth quarter 2018, reaching $1,365 per month. Despite the jump, local renters continue to enjoy a strong cost advantage over renting in Los Angeles County ($2,004), Orange County ($1,948), and San Diego County ($1,822).

  • Passenger airline traffic at Ontario International Airport in 2017 experienced its best year since 2010—and 2018 was even better. A total of 5.12 million passengers passed through the airport in 2018, a 12.4 percent increase over 2017 and the highest number since 2008.

  • Click here for more information and analysis within the “First Quarter 2019 Inland Empire Regional Intelligence Report” on: employment, wage, and industry trends; business activity highlights and snapshot; housing market update; and commercial real estate data and information.

‘Inland Empire State of the Region’ Conference (Inland Empire Economic Partnership)
From the "Inland Empire State of the Region” conference, hosted by the Inland Empire Economic Partnership (author John Husing, principal of Economics and Politics Inc.):

  • The Inland Empire’s employment base will grow 2.5 percent in 2019 (about 38,200 new jobs) versus 3.4 percent in 2018 (or 49,300 jobs). The unemployment rate (currently 4.3 percent) will hover around 4.2 percent by the end of this year. The strongest job growth will be experienced in the lowest-paying positions (retail, leisure/hospitality, etc.); moderate job growth will be seen in moderate-paying positions (logistics/distribution, construction, health care, etc.); and the least amount of jobs created will be in the highest-paying positions (local government, education, manufacturing, and business/professional services).

  • The Inland Empire’s population (currently 4.5 million) is projected to reach 6.1 million by 2045—essentially 61,500 new residents per year over the next 26 years. This 1.6 million total increase will account for the largest population expansion among all Southern California metropolitan counties as the following nearby regions experience lesser growth over the same period: 893,000 (Los Angeles County); 563,000 (San Diego County); 375,000 (Orange County); 111,000 (Ventura County); and 64,000 (Imperial County). But why? The combination of home affordability relative to other counties, space to build, and a more local diverse/stronger economic engine in the Inland Empire today than in the past are the main reasons.

  • The share of local Inland Empire households that can afford a median-priced home in the two-county region (whether they own a house or not) stands at 40 percent as of early 2019 (continues dropping)—a level not experienced since 2008 when it was rising. This “local affordability” measurement once ranged from 65 – 70 percent from 2010 – 2013 in the aftermath of the Great Recession. The same measurement today is 24 percent in Los Angeles County, 23 percent in San Diego County, and 20 percent in Orange County. The affordability gap between those other counties and the Inland Empire has varied greatly from 1988 – 2019. The largest gap ever seen was in 2012, and the smallest gap was from 2004 – 2009 during the housing boom and leading into and during the Great Recession.

  • The majority of jobs (44 percent) created between 2011 – 2018 in the Inland Empire were low-paying jobs (annual salary of $32,000 or less). About 27 percent were high-paying jobs ($62,500 and higher); and 29 percent were moderate-paying positions ($45,000 - $62,000). The same time period saw the Inland Empire add a total of 352,000 positive net jobs (compared to a negative net loss of 140,000 from 2008 – 2010). More recently, from 2016 – 2018 the Inland Empire ranked No. 2 in Southern California job creation with respect to average annual new headcount, ahead of San Diego County, Orange County, and Ventura County (and less than Los Angeles County but only by about 12,000 jobs annually, which is impressive given that Los Angeles County’s population is more than double the size of the Inland Empire). For the past few years the Inland Empire has intermittently been creating jobs above and beyond what its local workforce can fill and is attracting workers from outside counties.

  • Click here for more information and analysis within the “State of the Inland Empire—an Adventure” presentation on: job growth and historical context; comparative analysis to nearby counties; decreasing poverty trends; educational challenges; workforce initiatives; top 21st Century workforce skills; new job classifications; industry sectors to watch; individual employment/position forecasts; median worker pay per sector; home values; assessed valuations; and local taxable sales.

‘Real Estate Market Forecast’ (Coldwell Banker Town and Country)
From the "Real Estate Market Forecast” conference, hosted by Coldwell Banker Town and Country (with research and presentations from local organizations and academia):

  • Click here (video) for a local real estate market forecast by Lance Martin (principal of Coldwell Banker Town & Country).

  • Click here (video) for a local economic forecast by John Husing (principal of Economics and Politics Inc.)

  • Click here (video) for a local economic snapshot by Chris Thornberg (director of UC Riverside’s Center for Economic Forecasting and Development). You can also click here for Thornberg’s slide-show presentation.

IE Real Estate Trends and Projections 
Based on surveys and other analysis, the latest comprehensive report published by the Urban Land Institute and consulting firm PWC ("Emerging Trends in Real Estate") reveals the following Inland Empire real estate characteristics:

  • The Inland Empire’s “homebuilding prospects” recently rated No. 42 out of the top 79 U.S. real estate markets. Other metropolitan areas in California ranked as follows: San Diego (No. 25); Oakland/East Bay (No. 31); San Jose (No. 32); Los Angeles (No. 33); Orange County (No. 38); the Sacramento region (No. 41); and San Francisco (No. 52). “Sacramento and the Inland Empire are markets that may actually benefit from the higher cost in other markets as they report seeing companies and employees move from higher-cost areas into the market.”

  • The Inland Empire’s five-year projected annual median home-price growth for “existing” housing (2019 – 2023) is higher than any other region in California. Assuming some potential economic fluctuations (recession and growth periods), the local two-county region’s median housing appreciation will register an average growth rate of 1.7 percent yearly while all other large regions across the state come in lower (between 0.7 – 1.5 percent).

  • From an investor standpoint, the Inland Empire’s industrial real estate market, space, activity and potential ranks No. 13 on the latest top-20 U.S. industrial markets. About 61 percent of investor survey respondents gave a “buy” rating on local industrial space in the two-county region, versus 24 percent giving a “hold” rating and 15 percent saying fellow investors should “sell.” The only other California metropolitan areas to make the top-20 list were Oakland/East Bay (at No. 19) and San Diego (No. 20). However, while Los Angeles and the Inland Empire continue to report good industrial activity, “some concern exists regarding the potential for overbuilding in the near term,” the report states.

  • The Inland Empire is one of four U.S. industrial real estate markets where one-third of all new industrial construction nationwide is taking place (sharing the spot with Dallas, Atlanta, and Pennsylvania). “Given record low vacancy rates in most markets across the United States, developers are now bringing product to these markets and submarkets where possible,” the report states. “Furthermore, the economics of development have been incentivizing larger projects to a higher degree than ever before. Within these markets, most projects are outside the urban core in outlying submarkets where large plots of land are more plentiful. Demand has kept pace with new supply.”

  • The Inland Empire ranks No. 9 in the entire Pacific West region with respect to the strength of its local economy and other variables affecting commercial and residential real estate markets. These also include real-estate investor demand, capital availability, development and redevelopment opportunities, public/private investments, and local community development. Other California metropolitan areas on this top-12 Pacific West region list include Los Angeles (No. 2); Orange County (No. 3); San Jose (No. 4); San Francisco (No. 6); San Diego (No. 7); Oakland/East Bay (No. 8); and the Sacramento region (No. 12).

Emerging IE Job Sectors Report 
Click here to access the new Inland Economic Growth and Opportunity (IEGO) report, which details local economic trends and joins them with key findings on the following:

  • "How can we develop actionable strategies and tactics, along with commitments for implementation, focused on growing more middle-skill/middle-income jobs, and ensure access to them?"
  • "How have other regions tackled this challenge?"
  • An assessment of those markets revealed several themes: cooperation between stakeholders, a supportive fiscal and regulatory environment, and investments in educational and training programs.

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).

Demographic Profile and Projections: Inland Empire* 

  • Total population: 4.5 million (and will hit 5 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): 2.06 million out of 3.5 million adult population.
  • Labor force participation rate (adults who “want” to work): 59 percent (or 2.06 million individuals).
  • Unemployment rate: 4.3 percent (versus 4 in CA and 3.8 in U.S.)
  • Unemployed workers: 90,000.
  • Median household income: $58,000 as of 2018 (compared to $68,000 for CA and $59,000 for U.S.)
  • Poverty rate: 16 percent (versus 14 in CA and 14 in U.S.)
  • Education of population: 20 percent have a college degree; 33 percent some college; 26 percent high school diploma; and 21 percent no high school diploma.
  • Employment sector growth: click here for a local future growth breakdown (2014 – 2024) of nonfarm job projections by industry, occupation, education, and fastest-versus-largest areas of importance in the Ontario-San Bernardino-Riverside metropolitan region.
  • *Combined counties of San Bernardino and Riverside
  • ** Data as of February 2019 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

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