L.A. and Orange Counties

Amid Recession Fears, Slowing Economy's Real Risk is Worker Shortage

Amid housing costs, quality-of-life issues and fears about the next recession, the Los Angeles County and Orange County economies are burdened by an unsuspecting phenomenon: businesses can’t find enough workers to fill jobs—which is expanding the labor force but ultimately slowing economic growth.

That’s according to a collection of different local economic forecasts recently held or published over the past two months by the San Gabriel Valley Economic Partnership, Loyola Marymount University, Cal State Fullerton, UCLA, and the Orange County Realtors Association (and in partnership with consultancy firms California Economic Forecast and Beacon Economics). These experts’ opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately.

Los Angeles County and San Gabriel Valley

San Gabriel Valley Economic Partnership—from the "2019 San Gabriel Valley Economic Forecast Summit” conference:

  • Los Angeles County’s economic growth will ratchet down slightly in 2019 and 2020 compared to recent years. County domestic product (also known as “local” Growth Domestic Product—or GDP), which is the traditional measurement of economic growth, is expected to come in at 3 percent in 2019 and 2.7 percent in 2020. “This expansion will be on the back of robust employment increases in key service sectors, such as health care and professional/business services”—among other job sectors as well, the forecast report states. Put into context, county domestic product posted average annual 3.2 percent from 2012 – 2018 (helped by the “high” years of 2014 and 2015).

  • Total employment in Los Angeles County (company payrolls plus independent contractors) will climb by 61,000 added jobs in 2019 and 60,700 in 2020. This will come on the heels of an average annual 78,000 positions created from 2014 – 2018 (helped by the “high” years of 2015 and 2016). Meanwhile, the county’s unemployment rate (at 4.6 percent in 2018) will edge downward to 4.4 percent sometime in 2019 and 4.3 percent in 2020—stubbornly higher than the United States as a whole, but still low.

  • Relatively strong “real” personal income growth (after inflation is calculated) is expected to materialize in 2019 for Los Angeles County (2.6 percent) before edging down to 2.1 percent in 2020. “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,” the forecast report states. Additionally, “real” per-capita income (inflation-indexed to 2012 U.S. dollars), which is a different measurement than the commonly-used median household income, will rise to $46,500 by late 2020 (was $44,700 in 2018).

  • In the San Gabriel Valley, the company payroll job base keeps breaking records and is on track to do so again by 2020—even as job growth slows down in conjunction with the broader economy. By 2018 there were 697,000 company payroll positions in the valley, with nine of the 14 major local industry sectors adding jobs. By 2020 this number is projected to hit 704,000. There were only five industry sectors recording declines in employment over the past year: wholesale trade, retail trade, information, manufacturing and natural resources. “Most of these declines were insubstantial and reflect the difficulty of adding more jobs to a robust full-employment situation,” the forecast report states. “The only substantial decline was in wholesale trade (-2,000), which was likely heavily impacted by (foreign) trade uncertainty.”

  • Click here to view the latest San Gabriel Valley Economic Forecast Summit report (pages 14 – 23) on: demographics, employment and unemployment, income and wages, business establishments, foreign direct investment, and business sales and revenues.

  • Click here for other presentations delivered during the conference on: “Global and National Economic Forecast,” “Southern California and San Gabriel Valley Economic Forecast,” “New Faces and New Spaces: How Shifting Demographics are Changing Housing,” “Housing Development: Opportunities and Challenges,” “Solving the Housing Crisis,” “Affordable Housing,” and “It’s the End of the Housing World as We Know It (and No One Feels Fine).”

Loyola Marymount University—from the "Forecast LA” conference, presented and published by the Center for the Study of Los Angeles:

  • Even though Los Angeles residents’ confidence in the local and national economies is still upbeat in general, it has significantly waned from 2018 – 2019 compared to five years ago. Upper and middle-class residents mostly have a positive outlook on the economy (60 percent), but the lower-class is “nearly split” on its perception of the local economy (52 percent) and drops even lower on the national economy (46 percent). “So what’s happening here? Are there foreseeable fissures in next year’s economy?”, the report states. “Not so. An impending recession is on everyone’s mind. It has been talked about as a natural progression after 10 years of record growth and prosperity.” Additionally, even though confidence has dropped in the economy, perceptions of job opportunities are higher than ever over the past four years—bolstering the conclusion that Angelenos’ gut feeling is the economy is in “safe waters” for now.

  • Almost half of Los Angeles residents feel positive about their current financial standing and say they are in a “good” or “excellent” personal financial situation. However, there is a racial gap under the surface: 60 percent of whites have this opinion, but only 43 percent of blacks and 36 percent of Latinos share the same sentiment. Also, 58 percent of upper-class and upper-middle-class groups believe their financial situation will improve (while only 47 percent of the lower-middle-class and lower-class feel this way). Additionally, for all racial groups, individuals who are in a better financial situation are more likely to say their neighborhood is heading in the right direction and give a higher rating of their neighborhood’s “sense of community.” Overall, financial optimism is highest among younger residents and tends to decrease with age. “Notably, African-Americans and Latinos—groups with the lowest current financial self-assessments—are also the most optimistic about their household’s finances in the upcoming year,” the report states. In fact, Latinos (above all sub-racial groups) are the most optimistic about their near-term future financial outlook when they happen to be 29 or younger and hold a graduate degree.

  • More than half of Los Angeles residents believe economic disparity between “rich and poor” will increase in the future. “In 2019, 16 percent of African-American residents, who continue to be overrepresented among the homeless population, believe the gap will decrease,” the report states. “This is noticeably higher than any other racial group (9 percent Latinos, 9 percent whites, and 7 percent Asian-Americans). The residents most worried that this disparity will increase are the elites: those with graduate degrees (73 percent) and those with annual household incomes of $100,000 – $150,000 (61 percent) and $150,000-plus (67 percent). In other words, residents with seemingly stronger safety nets are the ones most worried that economic disparity between the rich and the poor will get worse.”

  • Click here to view the latest “Forecast LA” report and Los Angeles Public Opinion Poll results on local residents’ attitudes and facts/figures on demographics regarding: race, age, education, employment, households, political ideology, income, and other demographics; key political issues and institutional trust; economic disparity, housing, homelessness, development, new business, technology, and renewable energy; and the liberal versus conservative divide at the local and state levels.

  • Click here for other presentations delivered during the conference on: “2019 Los Angeles Public Opinion Survey,” “Forecast LA: Challenges and Challenges,” and “Downtown LA Study.”

  • Click here for the California Credit Union League’s latest forecast report coverage from other local organizations in March on Los Angeles County and San Fernando Valley: “Economy to Continue Downshifting, but Housing and Quality of Life Issues Remain.”

Orange County

Cal State Fullerton—from the "2019 Spring Economic Forecast” conference, presented and published by the Woods Center for Economic Analysis and Forecasting (at the Mihaylo College of Business and Economics):

  • Although a recession in Orange County (and the state and nation) isn’t expected until 2021 or 2022, economic growth will slow down in the interim. County domestic product (also known as “local” Growth Domestic Product—or GDP), which is the traditional measurement of economic growth, is expected to come in at 2.5 percent in 2019 and 2.1 percent in 2020. “The pause in interest rate hikes (by the Federal Reserve) ought to ease financial stress and temper concerns that an overzealous Fed will tip the economy into a recession,” the forecast report states.

  • One of the most trusted local business indicators in Orange County paints a picture of moderately strong economic growth going into 2020. The Orange County Business Leader Expectations Index (OCBX)—which combines expectations of future business activity/growth and the local economy together—registered a healthy “91” in January 2019 (after ranging between 88 to 98 from 2017 to 2018). For context, it averaged 83 annually from 2013 – 2016. The survey also showed a “general softening of business optimism compared to the last two quarters: Profit expectations were lowered and hiring decisions pulled back somewhat,” the forecast report states. “The survey also showed low expectations of a recession in 2019, a less than 20 percent chance.”

  • Employment growth in Orange County will continue slowing in 2019 and 2020 (even as the economy continues moderately expanding). The county’s annual company payroll job base will post 1.6 percent growth in 2019 and 1.4 percent in 2020 (compared to a higher-than-anticipated 2 percent in 2018, or an average-annual 2.4 percent over the long term from 2011 - 2018). The same phenomenon is predicted within the nearby counties of Los Angeles, San Bernardino, and Riverside as well. Overall, the perceived “tightness” storyline within news-media chatter about the labor force (adults who are wiling and able to work) has stretched out longer than many economists predicted over the past few years as individuals on the sidelines continue entering a hot job market in “surprising” numbers. One school of thought says this “late trend” can’t last much longer as job openings are continually outpacing the supply of workers for years on end, and an aging worker cohort (those retiring) makes its mark on the local labor force. Another theory says this recent labor force growth increase still has room to run.

  • There are still “many” unemployed individuals in Orange County (by choice) who can make the decision to enter the labor force in the coming years, the forecast report argues. “The labor force participation rate in the county dropped from 54.7 percent in 2004 to 50 percent in 2014. While it has crept up to 50.5 percent in 2018, there is room for further improvement. A 1 percent improvement in the county’s labor force adds approximately 15,000 people to the workforce. So if the participation rate were to reach the pre-recession level, more than 60,000 workers could be added to the labor pool. At the current clip, this should take an additional couple of years, potentially extending the life of this (economic) expansion.”

  • Click here to view the latest Spring 2019 Economic Forecast report on: national and state economic outlook; equity/stock markets and bond market yield-curve activity; causes of past recessions; household and business deleveraging; growth domestic product, consumer activity, and economic dashboard indicators; labor market and job openings; housing market and sector dynamics; trade/tariff issues; Orange County/Southern California housing dynamics, job markets, industry sectors, and other local economic information.

UCLA—from the "Orange County Economic Forecast” conference, presented and published by the UCLA Anderson Forecast and the consultancy firm California Economic Forecast:

  • It’s hard to make the case for a recession hitting businesses and consumers in Orange County (and the state and nation) in 2019 or 2020 given the economy’s current condition. A recession may not even materialize in 2021—but perhaps in 2022 instead. In reality, economic growth is on track to gradually slow down between now and 2020, hitting a “near recession” pace before perking back up in 2021 (possibly due to a short-term benchmark interest rate cut by the Federal Reserve to fight softening conditions). “For a recession to occur, conditions that cause it have to be significant; they have to occur rapidly; and they have to be sustained,” the forecast report states. “Currently, there are few conditions that might produce a recession, let alone meet those criteria.”

  • Job creation in Orange County will diminish—although not completely disappear—in 2019 and 2020 as the broader economy stretches its growth phase longer than many experts originally anticipated. “The professional business and technical/scientific service sectors will dominate local job creation this year, together with healthcare, restaurants, and hospitality in general,” the forecast report states. “New development still remains quite active, and construction employment will peak this year or next.” More job opportunities (along with rising wages and salaries) means more disposable income to support increased spending levels on local goods and services. About 25,000 local jobs will be added to the local employment base in 2019; about 10,000 in 2020; and possibly 8,000 in 2021 (compared to an average annual 34,000 from 2011 – 2018).

  • Orange County’s unemployment rate (ending 2018 at 2.9 percent) will rise to 3.1 percent in 2019 and most likely remain unchanged in 2020. With the unemployment rate so low and income growth exceeding inflation, the economy doesn’t have much downside to enter a recession unless an unforeseen event sparks one. “Because everyone who wants a job already has a job, companies will only be able to expand if they recruit workers from other regions, hire local graduates, or adopt new technologies,” the forecast report states. “Since more generation Z students will graduate this year and next, the labor force (adults who are willing and able to work) is due to expand.”

  • Click here to email Elise Anderson and purchase the entire 2019 Orange County Regional Economic Outlook report on local dynamics in: the labor market and employment, economic fundamentals, household income and wages, housing market and production, home and price forecast, residential real estate trends, consumer inflation, employment industry breakdown and projections, population growth and migration patterns, education and skills, demographic projections, and new commercial/industrial development.

Orange County Realtors Association—from the "2019 Orange County Regional Outlook” conference, presented and published by the consultancy firm Beacon Economics:

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: 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 4.6 in CA and 3.6 in U.S.)
  • Unemployed workers: 370,000.
  • Median household income: $68,500 as of 2018 (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

Access California and Nevada trend analysis for YOUR credit union.

Pin It