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SD expected to outperform the state, nation in 2012

San Diego is expected to outperform both the state and the nation in 2012, according to Lynn Reaser, chief economist for Point Loma Nazarene University at the Fermanian Business & Economic Insitute.

Reaser addressed the global, national, state and local outlooks at the institute’s 2012 Economic Outlook Forum.

The boost of military, technology and tourism sectors will drive further progression in San Diego in 2012, Reaser said. San Diego will benefit from growth in biotech, oceanographic research, clean energy, software and telecommunications.

San Diego is also expected to see gains in tourism in both leisure and business travel.

And the housing market "will likely see some stabilization this year," Reaser said.

“There are still a lot of foreclosures in the pipeline,” Reaser said. “Home prices will remain flat for the balance of the year.”

Prices are expected to rise only 1 percent by year end, and sales of new and existing homes are expected to increase 5 to 6 percent in 2012. New housing permits are expected to increase slightly to 5,700 in 2012, up from 5,400 units in 2011.

Rick Bregman, market president at Bank of America Merrill Lynch, said housing and unemployment are “closely aligned.”

“The creation of jobs is one of the primary solutions to the housing problem,” said Bregman at the 2012 Economic Outlook Forum on Thursday. “I feel like we’re at the bottom of the pool but we’re making our way from the deep end to the shallow end.”

San Diego is expected to gain 28,000 new jobs in 2012, up from 27,000 in 2011 – “enough to drive the unemployment rate down to 7 or 8 percent,” Reaser said.

Negatively affecting San Diego’s progress in 2012 will be Europe’s recession, little construction in commercial real estate and cutbacks in the public sector payrolls and spending.

While Reaser said a major default in Greece was avoided this week, “Has a major bullet been dodged? I think for now, but the European debt problem is by no means solved,” Reaser said.

The European recession affects exports to Europe, fewer tourist dollars from Europe and investment from Europe.

Reaser said while office vacancies are dwindling in most parts of San Diego, commercial real estate won’t see an upswing in new building until 2013.

Statewide, 290,000 jobs are expected in 2012, up from 240,000 in 2011. This should be enough to push the unemployment rate down to 9.5 to 10 percent by the end of 2012. California’s unemployment rate remains one of the highest in the nation.

“Has the state finally turned a corner? I think it’s a pretty definite ‘yes,’” Reaser said.

Positive momentum for California will come from leadership in technology, demand for tourism and entertainment, agriculture, energy resource development, and demand for California’s colleges and universities.

Negatively affecting California’s growth in 2012 will be the overhang of foreclosed homes and delinquent mortgages, budget deficits in the public sector, and the regulatory climate.

In the United States, there have been better signs recently with consumers and businesses spending more. While 2012 may look better than last year, “it’s not really a booming economy by any stretch of the imagination,” Reaser said.

Job growth picked up to some extent nationwide, and 2012 is expected to add 1.7 million jobs in 2012 – a slightly higher number than in 2011. Reaser said not until 2015 will jobs be regained to peak employment levels. The unemployment rate is expected to be slightly above 8 percent by year-end.

The global economy “has seen some slowdown with better signs recently,” Reaser said. “The economy is by no means ‘dead in the water,’ but there’s uneven performance around the world.”

Based on this forecast, Reaser suggested the following steps for businesses:

* Plan for contingencies. "The days of the one profit, one business plan are over," Reaser said. She suggests having at least three plans: a base plan, a plan if the economy is better than expected and a plan if the economy is worse.

* Pay attention to inventories. Sales are volatile and could balloon or fall too low, resulting in lost customers.

* Invest in employee training. Most employees try to perform well and fall short only because they are not properly trained, Reaser said.

* Raise prices cautiously. If there is an increase in commodity prices, Reaser said to be cautious of competitors and customers and "react warily."

* Track global developments. "We're no longer U.S. centric. We need to know what's going on in the developing, emerging markets," Reaser said.

* Be conservative in investing. "Resist the temptation of super low interest rates," Reaser said. The stock market is volatile, and this is the "year to stay with higher-rate corporate bonds."

* Advance income into 2012. There could be higher tax rates as a result of the November election, especially for higher-income individuals.

* Invest in infrastructure. During the recession, companies, nonprofits and government agencies cut down on infrastructure spending, Reaser said. Investment in technology will be critical for future growth.

* Take care of employees. "Employees are often the first touch-point for customers, and often the only touch-point," Reaser explained. While raises might not be achievable this year, "gratitude and appreciation goes a long way."

* Be an informed voter. "Take time to read ballot issues and understand the candidates' positions so you're making an informed vote," Reaser said.

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