Southern California:

Economy Faces Challenges as Growth Projected to Continue at Slow Pace

The combined Southern California economies of Los Angeles, Orange County, the Inland Empire, Ventura, and Imperial County will grow in 2020 and possibly 2021 in tandem with the entire state. However, each individual area is displaying unique challenges in transportation, population, housing and jobs.

That’s according to the most recent forecasts published by the Southern California Association of Governments (SCAG) and Chapman University in December. The keynote speakers’ opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately.

Southern California Association of Governments (SCAG)
Presented on Dec. 5 by the Orange County Business Council; the Center for Economic Research and Forecasting at California Lutheran University; the Los Angeles County Economic Development Corp.; Economics and Politics Inc.; and Development Management Group Inc.:

A large component of the six-county Southern California region outperforming national growth in economic measurement and jobs is due to the significant ongoing investment the region is making in regional transportation infrastructure. This is critical for key industries such as goods movement/logistics and international trade; tourism and hospitality; and entertainment and recreation. The forecast report states: “SCAG-region industry sectors that exceeded U.S. employment sector growth trends are those that benefit from a more efficient, well-functioning transportation system, including construction; wholesale trade; transportation and warehousing; arts, entertainment and recreation; and accommodation and food service.”

Southern California estimates for 2020 show continued employment growth in the six-county region (with the exception of Ventura County), leading to an even lower total combined unemployment rate and growing wages/incomes in the greater region. Southern California’s strong economic performance is powered by job growth in the following diverse set of sectors: 1) professional and business services (a growing sector which includes architects, engineers, IT consultants, accountants, and lawyers); 2) leisure and hospitality (driven by a robust economy, increased tourist visits, spending, and significant tourism-related investments); 3) educational and health services (due to aging population demographics, new legislation, and technological advances); and 4) construction and transportation/warehousing (these industries are leading the way in terms of driving employment growth due to strong housing markets and rising e-commerce infrastructure investment). Since 2012, the six-county region’s employment has grown faster than national employment, translating to 185,000 "additional" jobs within the local region.

The increased demand for qualified workers has driven up salaries in Southern California (six counties), where the median household income has reached $71,666 — a 4.5 percent increase year-over-year. In fact, beginning in 2016, the region’s median household incomes have risen faster than the U.S. median. However, “While the region has seen continued improvements in educational attainment, it still trails overall state and national rates of (education),” the forecast report states. That is one reason for the regional disparity in incomes between Southern California and the Bay Area, since educational attainment correlates strongly to median household incomes.

Furthermore, “The region’s declining poverty rates are especially important in the context of the region’s high cost of living," the forecast report states. Driven by improvements in San Bernardino, Orange and Los Angeles counties, the six-county region poverty rate registered a 0.7 percent decline from 2017, dropping to 13.3 percent in 2018. While nearly all regions saw declines in poverty rates, Imperial County continues to struggle with rates actually increasing from 20.7 percent to 23.1 percent.

While Southern California’s economy continues to improve (six counties), several key emerging trends have surfaced from this year’s county reports. As Los Angeles, Orange, Riverside and San Bernardino counties have seen employment growth, as well as declining unemployment and poverty rates in recent years, total employment has trended downward (an opposite trend) in Ventura and Imperial counties. Additionally, counties in the region have generally seen an increase in median household income due in part to recent minimum wage increases. However, regional job growth in some areas tends to be concentrated in lower-paying, lower-skill jobs — a troubling trend considering the lack of affordable housing (more than 60 percent of jobs created between 2018 and 2023 in Los Angeles County will require a high school diploma or less).

The Southern California region’s lack of workforce housing supply near major job centers is driving up housing prices and rents. “A lack of sufficient workforce housing is a pressing issue regionally, with many potential ramifications — including recent population declines in Los Angeles and Ventura counties,” the forecast report states. Obstacles include building/zoning issues, “NIMBYism,” regulatory burden and restrictions by the California Environmental Quality Act (CEQA), and other land use regulations have all contributed to difficulties in finding and implementing viable new housing development solutions. “Insufficient workforce housing encourages longer commutes and increasing traffic congestion across the SCAG region.”

Southern California technological advances, especially automation, stand to dramatically impact the regional labor market. “While many expect automation has the potential to impact overall employment levels, it is important to note that automation may create a significant number of jobs as well,” the forecast report states. “Industries with the highest potential disruption from automation include manufacturing, office support and services, transportation, and logistics/warehousing.”

For more trends, analysis, context and economic outlook perspective for each county (Los Angles, Orange, Ventura, San Bernardino, Riverside and Imperial), see the following:

Chapman University
Presented on Dec. 10 by the A. Gary Anderson Center for Economic Research:

Orange County’s annual payroll (company) employment growth rate will dip to a low 1.1 percent in 2020, well below the entire state’s 1.5 percent rate. Orange County employment growth in 2020 will be dampened by a very slow population growth rate. The population increased by 0.3 percent in 2018, the lowest rate of increase since 2010. Yearly employment will have most likely increased by 22,000 payroll jobs in 2019, compared to 34,000 in 2018. “The lower unemployment rate in surrounding counties is making it more difficult to attract workers from these counties,” the forecast report states.

Orange County’s total residential building permits are expected to grow at a “healthy 9 percent” in 2020, exceeding the numbers from 2018 and 2019. Furthermore, the county’s median single-family home price will increase 3.2 percent in 2020 compared to only 0.2 percent in 2019 due to a rebound in home sales (following a sales decline in 2019).

The weakness in Orange County’s construction industry in 2019 put downward pressure on employment in the financial services sector and professional/business services sector. Also, “The growth rate in employment within the leisure/hospitality sector that has the lowest average salaries was second only to employment growth in the education and health sector,” the forecast report states. Moreover, the county’s taxable sales will increase by 3 percent in 2020, with motor vehicles and parts increasing at 6.1 percent compared to only 3.3 percent in California.

Filene Research Institute
Presented on Nov. 14 by experts at Filene Research Institute: 

Researchers think credit unions can immediately prepare for the next economic recession whether it happens in two months or two years. No matter what “flavor” of downturn the economy experiences in the future, the industry can glean historical lessons from the high performers of the past, according to the recent “Get Your Credit Union and Members Ready for Recession” online discussion.

Chief Research and Development Officer Gorge Hofheimer and Senior Research Director Taylor Nelms discussed plans that credit unions can implement today to prepare. Some are strategies that many credit unions are (or aren’t) known for practicing in past years as the economy heads into recessions.

For more: view the post-event article by clicking "CUs That Grew During Past Recessions Took 'The Long View'."

Moody’s Analytics
Presented on Nov. 21 by Equifax and the Consumer Bankers Association:

Those working in financial services should focus on the severity of the next recession. If an economic downturn began this quarter, it would probably be one of the mildest recessions in modern history. If it began in late 2020, it would probably turn out “average.”

“The economy is in fairly good shape to deal with a recession when it comes, but the wildcard is whether both monetary policymakers and fiscal policymakers are ready to act,” said Cristian deRitis, deputy chief economist for Moody’s Analytics. “There’s a lot of uncertainty regarding how the next recession will be managed.” He and Amy Graybill, vice president of USIS Strategic Initiatives for Equifax, spoke during the “2020 Outlook: Plan for the Best—Prepare for the Worst” webinar, discussing not only the economy but the latest U.S. consumer credit trends.

Unsecured personal consumer loans are on a growth streak and will continue at a healthy rate in 2020 before slowing in 2021. All other lending/borrower credit categories will continue slowing down in 2020, with some ticking back up in 2021 (retail financing and credit cards). “The consumer credit forecast is good” deRitis said. “We don’t want to see consumers over-extending themselves in an economy that, for now, is forecasted to continue slowing down.”

For more: view the post-event article by clicking "Credit Trends: As Economic Risks Abound, Consumer is Savior for Now"

Local County-Level Perspectives
The California Department of Transportation (Caltrans) will soon release its updated 2019 – 2050 demographic forecast sometime in late 2019 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 2019 – 2024 within this annual 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).

Southern California Occupational/Industry Trends
Additionally, download Chmura Economics and Analytics’ latest Southern California Economic Overview to see 10-year future trends in worker occupations, employment, wages, cost of living, and industries.

Your Local Region’s GDP: 2001 - 2018
The U.S. Bureau of Economic Analysis has released an overview and history on "Local Area Gross Domestic Product from 2001 - 2018" for individual counties in California, Nevada and the entire nation. It includes highlights and trend breakdowns for large, medium and small-population size counties, as well as the U.S. dollar size of economies for each county. Tables and files are included for download and review.

Latest CA Population and Demographic Trends
The California Department of Finance has released its latest news — "State's Population Increases by 141,300 While Rate of Growth Continues to Decline" regarding 2018 to 2019 population growth, which includes highlights and snapshot trends of each county and region across the state. (You can also download the long-term 2010 to 2019 demographic tables by clicking here)

Also, the department's deeper demographic breakdown (age, race, income, employment, poverty, health care, education, and social/housing characteristics), courtesy of the American Community Survey by the U.S. Census Bureau, can be found by clicking here.

County Income and Poverty Estimates
The U.S. Census Bureau has released its "Small Area Income and Poverty Estimates (SAIPE) Program", which gives single-year estimates of income and poverty for all counties in California, Nevada and the entire nation — as well as estimates of school-age children in poverty for all 13,000-plus school districts.

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: 3.8 percent (versus 3.9 in CA and 3.5 in U.S.)
  • Unemployed workers: 338,000.
  • Median household income: $69,000 as of 2018 (compared to $71,800 for CA and $60,400 for U.S.)
  • Poverty rate: 16 percent (versus 15 in CA and 13 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 September 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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