While economic growth in the Inland Empire is downshifting slightly, the region will still outpace California in 2018 as it experiences a few particularly strong job sectors poised for continued expansion.
That’s according to leaders who spoke this week at the “26th Annual Inland Empire Economic Forecast,” an event hosted by the Building Industry Association of Riverside, ORCO Block & Hardscape, and Chapman University’s A. Gary Anderson Center for Economic Research. The local research spotlights some intriguing viewpoints, trends and projections so your credit union can plan appropriately:
Inland Empire Economic Forecast
- (Below is a synopsis of the event. You can purchase the full report by calling 714-997-6509 or emailing firstname.lastname@example.org)
- After experiencing tremendous employment growth over the past three years, the Inland Empire’s annual payroll expansion is showing signs of slowing down. However, even with a forecast of 2.8 percent for 2018, this job growth rate will still outpace California and the United States due to the region playing “catch up” from the Great Recession compared to coastal counties—as well as its (relatively) cheaper housing and unique geographic position. (For context, Inland Empire job growth averaged 4 percent annually from 2013 – 2017.)
- In particular, annual Inland Empire job growth will slow down throughout all industries during 2018 except in the combined trade/logistics, transportation and utilities sector. Besides this category, Inland Empire jobs will still be added but at a slower pace: 10 percent in construction; 2.6 percent in services (business and consumer); 1.9 percent in financial activities; 1.6 percent in local/state and federal government; and 0.8 percent in manufacturing. (The forecasted 2.4 percent job growth in trade/transportation and utilities will remain steady from the year before.)
- The Inland Empire’s unemployment rate is considered “healthy” even though it’s higher than coastal regions. Compared to several areas across the state with 2.6 – 4.4 percent unemployment rates, the Inland Empire in late 2017 still held the highest rate out of all these regions at 4.8 percent (newer data not shown because annual seasonal adjustments by California haven’t been released yet). However, this 4.8 percent is considered “full employment.”
- Worker wages in the Inland Empire are posting slower growth rates than other regions of the state. The following are average wages (just one of a few measurements used) as of June 2017 and their growth rates from the year-ago period: Inland Empire—$44,000 (2.3 percent); Orange County—$58,800 (2.5 percent); San Jose-Santa Clara region—$124,400 (6.3 percent); San Francisco region—$100,100 (7.3 percent); San Diego-Carlsbad region—$57,300 (2.8 percent); and Los Angeles-Long Beach region—$58,800 (3.8 percent).
- Residential building permits issued in the Inland Empire are poised to hit a record high of 15,000 in 2018, with single-family detached homes playing a significant role. Percentage-wise, total growth will drop noticeably—however, this is largely due to a huge spike in multi-family units in 2017 that will not be sustained. It’s interesting to note that the share of multi-family construction in the region has not increased since 2013 and is actually falling from 30 percent of total residential permits to 28 percent in 2018.
- The Inland Empire construction sector will experience a noticeable slowdown in 2018, although it will still remain a strong player in overall employment growth. The dollar-value growth of total building permits issued locally (commercial and residential combined) will decline in 2018. This valuation grew 11 percent in 2017 versus the 4 percent projected for 2018. The dollar value will reach $5.8 billion in 2018 (versus $3.6 billion in 2013).
- Inland Empire home-price appreciation (the region’s single-family median home value) will rise 6.5 percent in 2018. This compares to about 8 percent in 2017, revealing a slow-down in price growth due to the anticipated rise in mortgage interest rates. The region’s median home price hit $338,000 by late 2017 and will continue rising to $360,000 by late 2018 (it hit a record $383,000 in 2006 before dropping to a low of $162,000 in 2009). This 2018 price growth will be higher than Orange County’s, as well as California.
- From 2013 – 2018, the top three fastest-growing payroll employment categories in the Inland Empire (doesn’t include independent contractors) will be: construction (grows from 70,000 to 117,000 jobs); trade/transportation and utilities (grows from 73,000 to 110,000 jobs); and leisure and hospitality (grows from 136,000 to 171,000 jobs).
California and U.S. Economic Forecast
The economies of California and the United States will continue their modest growth patterns in 2018, but monthly job gains will continue slowing down.
California’s macro-economic trends mask a number of structural changes in its economy. In comparison to the United States, California’s manufacturing sector has hardly grown. The state’s weakness in this sector, however, has been more than offset by very strong growth in construction jobs and information service jobs.
These sharp swings in the pattern of job creation point to California’s shedding of lower value-added manufacturing jobs to higher value-added jobs in information services. Also, these swings suggest California is becoming increasingly dependent on the cyclical and volatile construction sector.
Economic highlights for California and the United States in 2018 are as follows:
- California’s manufacturing sector will show additional weakening in 2018. Not only is the manufacturing sector declining nationally as jobs move offshore, but it will be increasingly difficult for California’s manufacturing industry to compete against lower-cost regions in the United States.
- The supply of California’s unsold resale homes is near historic lows, which suggests a future uptick in construction activity. But given rising mortgage rates, housing affordability is forecasted to continue its downward slide. These countervailing indicators translate to solid growth in residential permits in 2018 but at a slower rate than 2017’s pace.
- Proposals to gut the North American Free Trade Agreement (NAFTA) have the potential to sharply cut into California’s economic growth. This would come at a time when the state’s ability to create jobs is already on the wane. Since NAFTA’s creation in 1995, California’s exports to Mexico increased from $6.5 billion to $25.3 billion in 2016. Imports increased even faster, from $9 billion to $46.3 billion. Moving these imports from Mexico to market creates thousands of jobs in California. It’s estimated U.S. trade with Mexico will eventually decline up to 40 percent if NAFTA is gutted. Such a decline would lead to 280,000 job losses in California over five years—a 1.6 percent drop in employment.
- Although cumulative U.S. economic growth during the current expansion has been weak when compared to other recoveries, it is now the second-longest expansion on record. The critical question now is whether the expansion can endure in the face of full employment and falling productivity. Historically, three economic trends have consistently signaled the end of expansions and onset of recession. Those signals include a negative interest rate spread in the bond market (short-term interest rates are higher than long-term rates), a sharp drop in housing starts, and rising levels of private debt. None of these recessionary signals are in sight. Additionally, U.S. Gross Domestic Product (GDP) is forecasted to grow 2.2 percent in 2018.
- Private debt as a percentage of real GDP has held constant near 150 percent since 2011. But debt will increase in 2018. While this increase will not be enough to point to recession—coupled with continuing “quantitative tightening” by the Federal Reserve—it is expected to restrain consumer and investment spending. And while the global economy is probably in its best overall shape since the recovery began, China’s growth will be constrained as a result of its increasing private debt.
- The Federal Reserve will most likely raise its “federal funds” bank-to-bank short term interest rate as it intends. The 90-day U.S. Treasury Bill closely parallels that rate and is forecasted to rise from 1.2 percent to 1.8 percent by year-end 2018. The 10-year U.S. Treasury Bond will increase about 60 basis points. With short- and long-term rates increasing in lock step, the interest rate spread is expected to hold steady at 1.1 percent. Although this is a decline from the 1.8 percent spread at the beginning of this year, it’s not enough to signal an imminent recession.
- A decline in housing starts is almost always preceded by increases in the supply of unsold units, as well as greater pessimism on the part of leaders in the housing industry. However, recent trends within these indicators could hardly be more positive. The supply of unsold inventory at current sales trends is down to four months, while the National Association of Home Builders’ (NAHB) housing market index is near all-time highs. Although housing production will be constrained somewhat by declining affordability and limited availability of construction workers, our forecast calls for a continuation of relatively strong levels of 1.2 million U.S. housing starts in 2018. This roughly matches the cyclical traction reached in 2017.
Demographic Profile and Projections: Inland Empire*
- Total population: 4.5 million (and will hit 5 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): 2.06 million out of 3.5 million adult population.
- Labor force participation rate (adults who “want” to work): 59 percent (or 2.06 million individuals).
- Unemployment rate: 4.1 percent (versus 4.3 in CA and 4.1 in U.S.)
- Unemployed workers: 83,900.
- Median household income: $55,000 as of 2016 (compared to $66,600 for CA and $59,000 for U.S.)
- Poverty rate: 17.5 percent (versus 14.3 in CA and 12.7 in U.S.)
- Education of population: 20 percent have a college degree; 33 percent some college; 26 percent high school diploma; and 21 percent no high school diploma.
- Employment sector growth: click here for a local future growth breakdown (2014 – 2024) of nonfarm job projections by industry, occupation, education, and fastest-versus-largest areas of importance in the Ontario-San Bernardino-Riverside metropolitan region.