SAN DIEGO—Despite the extended economic recovery and expansion, all indicators point to smooth sailing on the whole nationwide for the near future, and San Diego is no exception, said speakers at Thursday's San Diego County Economic Roundtable here. The first part of the annual event, which was sponsored by the County of San Diego, the San Diego Workforce Partnership, the San Diego Union-Tribune and the University of San Diego School of Business, addressed the economic outlook, things to watch out for this year and the region's workforce picture.

Phil Blair, chair of the workforce development board at the San Diego Workforce Partnership, said San Diego's unemployment rate is at its lowest ever at 3.3%, and the market is in need of good workers. On the other hand, there are 43,000 young people between the ages of 16 and 24 who are neither working nor in school. The organization is trying to remedy this by opening up career centers in detention centers to help those who lost their way get a fresh start.

Ray Major, chief economist with the San Diego Association of Governments (known as SANDAG), said national economic events since President Trump took office have been staggering and unforeseen, from the 46% rise in the Dow to the lowest number of jobless claims since 1973. Locally, he said 650,000 additional people will be living in San Diego County by 2050.

But even though it took the region's workforce 78 months to recover from the Great Recession, we now have 1.56 million people working here, and we should expect to see continued job expansion through this year and into 2019, Major said.

Wage growth is a bit of a mixed bag. While wages have risen between 21% and 24% since the recession, if corrected for inflation, they really only rose between .04% and 2.55%, depending on worker income. Wage pressure has risen on the low end, but not for the middle-income worker.

One of the major concerns in the region is the housing deficit; 75% of homes being built now are multifamily or attached, which is a reverse of what we saw before the recession, said Major. Between 2007 and 2016, we generated a deficit of 60,000 units, and it will be very difficult—if not impossible—to catch up.

Also concerning is housing affordability, particularly since housing prices on existing homes are rising. “Affordable houses are in high demand,” said Major, and many of these are going to Airbnb, which is removing them from the supply. While the percentage of residents who can afford to buy a house has risen to 26%, this figure is only up because interest rates are down—not because prices are down—since before the recession. “Housing affordability is one of the biggest issues in San Diego for 2018.”

Down the road, Major predicted a slowing economy, but not until 2020; lower corporate and personal income taxes boding well for investments and consumption; a low unemployment rate putting pressure on wages; deregulation and tax reform supporting stronger investment and helping to lift productivity; tax cuts tempering the region's economic growth; and increases in mortgage rates affecting affordability.

Ryan Ratcliff, associate professor of economics at the USD School of Business, gave attendees five things to think about for 2018:

1. The current expansion is getting old—in fact, by summer it will be the longest expansion in US postwar history, suggesting perhaps a hint of trouble on the horizon;

2. Recent GDP figures are choppy, but a bit better. The economy is driven by consumption growth, and investment in big-ticket purchases, which is based on the perception of future economic conditions, had not been so high. “Businesses are doing less investment spending than before,” said Ratcliff, which is concerning. However, businesses are beginning to be more optimistic about future investment. While there was a decline in non-residential construction in 2015 and 2016, there has been a recovery in the last several quarters. Ratcliff said that he sees nothing troublesome in the economy over the next nine to 12 months, but this is an area he still wants to watch.

3. The Fed is facing an inflation puzzle. Historically, when interest rates rise and unemployment rates are historically low, inflation rises, but this isn't happening, said Ratcliff. This anomaly has created an area of dissent for the Fed, which isn't sure how to play it.

4. Another disconnection is between income levels and productivity. Typically, when productivity rises, as it has been doing, income levels follow—but they're not. “Productivity is growing faster than hourly wages,” said Ratcliff. We're seeing wage growth at high- and low-end jobs, but not in the middle, so where is the wage pressure? Tax cuts may help, but not enough.

5. We may see an inverted yield curve in 2018, based on where the 10-Year and 3-Month Treasuries are, which is the best predictor of a recession in nine to twelve months (mid-2019).

Ratcliff summarized that momentum and tax-cut stimulus should keep growth higher in Q1 and Q2, but we should watch for flattening in Q3 and Q4 for early warning of a slowdown in 2019. While tax cuts will generate stimulus, don't expect a major positive effect on wages, but there may be higher deficits. Also, international developments run the risk of cutting off vital sources of capital and disrupting supply chains, which are unwelcome shocks in this environment.

Sarah Burns, director of research and evaluation with the San Diego Workforce Partnership, said that apprenticeships—which are one of the mainstays of workforce growth in Switzerland—are beginning to catch on as companies become more involved in developing the talent pipeline. Colorado, for one US state, is doing a lot with apprenticeships, which are led by industry associations and allow students to gain industry-recognized certifications and college credit. She added that there is a lot of demand for nurses in the San Diego market and that businesses becoming producers rather than consumers of talent are key to maintaining a strong workforce here.

Instant Insights /

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