Southern California

Diverse Industries Continue Fueling Economy as Some Leaders Prepare for 'Recession'

Southern California’s diverse industry clusters will continue fueling its economic expansion in 2019. However, local weaknesses—as well as risks to the state and national economies—are being flagged as leaders prepare for some sort of economic downturn sometime in the future.

That’s according to the “9th Annual Southern California Economic Summit,” recently co-hosted by the Southern California Association of Governments and the Southern California Leadership Council. The keynote speakers’ opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately:

Southern California Forecast

  • Although economic growth and job creation remain key goals for Southern California, “other factors should command attention because of their substantial impacts on overall economic strength throughout the region,” the forecast report states. Key economic indicators across Southern California have met or exceeded pre-Great Recession levels. Unemployment is very low and still declining. Job growth has been concentrated in professional/business services, leisure/hospitality, education services, health services, construction, transportation/warehousing, and utilities. However, this “hot” job market stands against a challenging backdrop of housing, demographic, and cost-of-living issues.

  • Income inequality remains a challenge across all counties of Southern California. The region’s inflation-adjusted median incomes—which had been relatively stagnant even during the recent economic recovery—have seen a recent bump due in part to the improving economy and the state’s minimum wage increase. But in some counties, median incomes remain at, below, or only slightly above 1990 levels on an inflation-adjusted basis. The “returns-to-education gap” continues to widen, suggesting higher education is even more important in today’s labor market. The value of education, however, is increasingly split (based on whether an individual possesses “in-demand” skills versus just a college degree, versus a combination of both).

  • Job automation in its various forms will present challenges for a segment of Southern California’s future workforce. The impacts of automation (robotics, artificial intelligence, machine learning) are projected to be far-reaching and will affect many key industries, including manufacturing, agriculture, transportation, logistics, warehousing, and office support/services.

  • A potential “trade war” between the United States and China (or other countries) poses an ongoing risk to Southern California’s economy. The agriculture and logistics industries are likely to be impacted under such a scenario, and a strong U.S. dollar will make exports in these industries challenging. International trade is an important and growing component of the Southern California economy. Foreign direct investment has also been a significant economic driver in some parts of the area, with Los Angeles ranking as the No. 1 region overall for international investment in the United States.

  • Demographic changes could profoundly impact Southern California’s future. As baby boomers retire and millennials/young families leave the region’s more expensive areas for other states, there will be an increase in demand for health care jobs and a decrease in labor force participation (as well as workforce-talent pipelines). This could result in severe labor shortages in some areas and could hamper any kind of economy, whether growing or retracting.

  • Housing unaffordability in Southern California could become even more of a drag on the local economy. A lack of workforce or middle-income housing is one of the biggest threats to the region’s economic competitiveness. It has already impacted the region to a small extent, but it could have even more consequences by pricing many future young workers and families out of the region, leading to a smaller workforce talent pool. “NIMBYism” (Not In My Backyard residential/local development issues) and state environmental regulations are seen as major drivers of this trend and make solutions difficult to implement in some areas. While strong job growth has somewhat decreased the net flow of residents out of the state, young families and recent college graduates will find themselves increasingly priced-out of housing—a trend already occurring in the Bay Area, calling into question that region’s ability to sustain its high levels of economic growth and prosperity.

  • Even with home prices continuing to appreciate regionwide, there are recent signs of a cooling trend in the housing market—not as good news for sellers, but maybe good news for certain “would be” buyers. However, housing market risks for buyers include higher mortgage interest rates, recession-era foreclosed homes being owned by institutional investors (which prevent people from building wealth through housing), and Federal Housing Administration (FHA) loan maximums that penalize Riverside and San Bernardino counties, where homeownership rates have fallen to the lowest levels in several decades.

  • Job “quality” will continue to be an issue in some parts of Southern California. In the counties of Los Angeles, San Bernardino and Riverside, much of the projected growth in jobs is in low-wage industries that require minimal education. Conversely, as the job market continues growing within what is perceived to be the later stage of the current U.S. economic cycle, job skill gaps are emerging in places like Orange County for middle-skill and higher educated workers, particularly in growing technology-related industries and occupational categories.

  • Future job growth across Southern California will heavily favor “population serving” industries. A significant share of job growth will be driven by health care, guided by increased health coverage rates from the Affordable Care Act. The health care industry also benefits from substantial demographic shifts as the region continues to age, especially Los Angeles, Orange and Ventura counties. However, lower education rates persist across the workforce in Imperial, Riverside and San Bernardino counties, which may result in a shortage mismatch in health care jobs requiring higher education. For retail jobs, wages across the entire region may be insufficient for a primary earner given the region’s high cost of housing and living. Nonetheless, middle-skill jobs are playing an increasingly important role in the Southern California labor market, a notable development considering how the region’s educational attainment levels trail state and national averages.

  • Southern California labor market data points to one of the “hottest” job markets in decades. The region is fueled by what’s taking place on a broader scale. U.S. employment has grown significantly over the past year, adding 220,000 jobs per month in 2018—markedly higher than 2017’s monthly average of 182,000. August of 2018 saw the most workers voluntarily quitting their jobs to move to other opportunities in more than 18 years, which is a sign of the national labor market at or near “full employment.” Many employers also report having trouble finding “qualified” available employees. But overall, there are now 0.9 unemployed persons (less than 1 human) per job opening, compared with 6.6 during the depths of the Great Recession in 2009. Also, 38 percent of small businesses nationwide had unfilled job openings in August 2018, the highest since 1973.

  • Each county across Southern California exhibits unique local industry “clusters”—areas of strength due to demographics and convergence. A cluster is a geography having an outsized job or occupational presence in any particular industry relative to the size of the broader region’s economy. These are: Los Angeles County (video production, entertainment distribution, apparel, and performing arts); Orange County (medical devices, information technology, analytical instruments, hospitality, and tourism); San Bernardino County (furniture manufacturing, distribution, e-commerce, transportation, and logistics); Riverside County (recreational and small electric goods manufacturing, medical devices, hospitality, and tourism); and Ventura County (metalworking technology, information technology, analytical instruments, education, and knowledge creation).

  • Median household incomes in Southern California grew by 6 percent to $68,500 in 2018. Growing household incomes in the region are especially important considering the area’s rising cost-of-living, which is driven primarily by housing costs. And incomes are affected by a growing job market. Nearly 9 million people are employed in the Southern California region, surpassing 2010 employment levels by more than 1 million workers. The number of workers without jobs in the region is down to 400,000, representing a 60 percent reduction from the more than 1 million individuals who were unemployed and looking for a job in 2009.

Los Angeles, Orange, San Bernardino and Riverside
Individual reports were commissioned by local economists to give you an introspective look on what’s shaping each county’s economic and demographic future. Topics include strengths and weaknesses in employment, industries, types of jobs, workers, emerging occupations, income, wealth, households, businesses, housing markets, poverty, educational attainment, innovations, current conditions, demographic breakdowns, population growth, and age cohort trends.

Click on each county to view these individual reports:

  • Orange County (Orange County Business Council)
    The county’s diverse job sectors continue propelling it forward. These include educational services, health services, professional/business services, and leisure/hospitality. Also, there is a continuing larger role to be played in technology and innovation, especially when it comes to ophthalmology, medical devices, big data analytics, cybersecurity, and “fintech.”
  • Inland Empire (Economics and Politics, Inc.)
    The two-county region’s job market is “hotter” than coastal counties, supporting 1.5 million positions total (a 16 percent increase over the last employment peak in 2007). More importantly, the poverty rate has dropped from 18 percent to 14.5 percent during 2011 – 2017. One of the region’s biggest challenges is the regulatory attempts to slow the growth of the logistics industry (some being development and environmental issues).
  • Ventura County (California Lutheran University)
    The county’s economic vitality has disappeared after the region has suffered two consecutive years of economic contraction (in contrast to nearly all other regions of California). The county exhibits negative net domestic migration (people moving away), producing a net outflow of productive working-age adults. Jobs in high-paying sectors have been declining for the past 10 years, and industries experiencing job growth are sectors where wages do not pay enough for workers to live nearby.

You can view all other information on the forecast conference website, including materials, agenda, program book, infographics, regional economic update presentations, individual county reports, and post-event news coverage from local news media.

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