RIVERSIDE, CA—Despite a slow start of 2016, a new economic forecast for California and the Inland Empire takes a relatively optimistic tone, with both the state and region outperforming the nation over the next year or more.
The reason behind the outlook’s optimism, say the authors, is that the headwinds facing these economies are coming largely from external rather than internal sources. “Problems abroad have slowed US exports and hurt commodity industries, leading to a modest decline in business investment, but steady consumer demand has more than offset that drop,” says Christopher Thornberg, one of the forecast authors.
“The best news is that these drags on the economy are lessening, and that will help us regain momentum in the second half of the year.”
Key domestic indicators, including the national labor markets and median real wages, are also growing positively, says Thornberg, director of the UC Riverside School of Business Center for Economic Forecasting and Development, which released the forecast this week in conjunction with the 7th Annual Inland Empire Economic Forecast Conference.
The outlook for California and the Inland Empire is even brighter than for the US, according to the forecast. California’s economy is poised to outpace most other states in the nation over the next several quarters, while the Inland Empire’s robust job growth—the region has experienced the fastest rate of job gains in Southern California over the past five years—is expected to continue, driven partly by healthy population gains.
“Against a backdrop of a slower-than-usual-recovery, the California and Inland Empire economies have turned in impressive performances over the past year—and their economic engines will continue to chug along for the rest of 2016 and into 2017, outdistancing the nation,” said Robert Kleinhenz, one of the forecast authors and executive director of research at the Center for Economic Forecasting and Development.
Key Findings for the US are as follows:
- Consumers are increasing their spending for the right reason—they are earning more. This is in contrast to what happened a decade ago when spending was being fueled by debt accumulation.
- The competition for workers has finally shifted the economic balance toward labor to a small degree. Median real wages for a full-time worker have grown 4% over the past two years. That’s modest, but better than the previous eight years, when real earnings didn’t grow at all.
- There is no sign of anything resembling a housing bubble re-emerging, as low interest rates imply that overall housing affordability is still very good. Tight credit remains a major impediment to full recovery.
- Despite all the positive signs, the US is unlikely to return to an average pace of growth within the next year or more. Corporate profits will remain weak and government spending will stay constrained through the election cycle. And while the dollar has stabilized, it continues to be elevated compared to the last decade.
Key Findings for California are as follows:
- California’s job market has been impressive over the past four years, with job growth that has exceeded the nation’s each year since 2012.
- Spending activity statewide has been growing steadily over the last few years. Following an increase of more than 4% last year, taxable sales were up by more than 2 percent through the first half of 2016, with the busy holiday season still ahead.
- Outside of the San Francisco Bay Area, home prices have yet to surpass their pre-recession peaks. Home demand has been sustained by continued low interest rates, but impeded by limited inventories, high underwriting standards, and large down payment requirements.
- If there is any part of the housing market that is bursting at the seams, it is the rental market. Across many metro areas, high demand for apartments has driven vacancy rates down and rents up.
Key Findings for the Inland Empire are as follows:
- Despite rigorous price appreciation in recent years, homes in the Inland Empire remain affordable, both in historic terms and relative to neighboring regions. Affordability will work to the Inland Empire’s advantage in the future, as the local population is expected to grow at an elevated pace over the next 30 years.
- Local economic growth is showing signs of increased productivity. Gross metropolitan production in the Inland Empire grew by 2.7% year over year in the second quarter of 2016, and nonfarm employment was up by 2% year over year in July 2016.
- Population-driven output growth will continue to benefit local residents and businesses. Along with an improving economy, population growth has helped drive taxable sales to record highs across the region.