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Cloud of uncertainty hangs over 2013 economic outlook

A rebound in local real estate prices and growth in the local clean-tech industry signal that the county would do better in 2013 than 2012, said speakers at the county’s 29th Annual Economic Roundtable.

But with a cloud of uncertainty hanging over such key issues as interest rates, military spending and the national debt, local economists and industry leaders differed over how strong the growth rate will be.

"If there's one word to characterize 2013 it's 'better,'" said Alan Gin, associate economics professor at the University of San Diego, where the roundtable was held. "There's stronger job growth, the unemployment rate is dropping and the housing market is doing better than it has for a long while."

But Gin said there are looming questions over the impact of federal spending cutbacks, the global economy and the growing distance between rich and poor, since so many of the jobs created during the recession have come at the bottom-end of the pay scale.

"People just don't have the money out there that they'd normally be spending," Gin said. "The economy could be doing better with more solid middle-class jobs."

Here are a few predictions about how San Diego will perform this year.

Jobs: Both Gin and Lynn Reaser, chief economist for Point Loma Nazarene University's Fermanian Business & Economic Institute, predicted 25,000 jobs would be added in 2013, up from around 20,000 in 2012, with the greatest growth occurring in health care, administrative and support services, tourism and construction.

But Marney Cox, economist at the San Diego Association of Governments, was skeptical of the government-provided hiring numbers, noting that the 2011 numbers have since been revised sharply downwards. He estimates the economy added only 10,000 jobs in 2012, which will inch up to 12,000 this year.

Real estate: Russell Valone, chief executive of MarketPointe Realty Advisors, predicted a strong rebound in local home sales and housing prices, fueled by pent-up demand from the recession and more relaxed lending standards.

Valone predicted housing would have a rippling effect on the economy, leading to more business for retail outlets, especially gardening and construction specialists like Home Depot as well as furniture and appliance stores.

Valone said one of his chief fears now is that prices might rise too fast, “which would be one of the first things that would hinder our growth.”

Gin said his conversations with local real estate brokers match Valone's view: “The main thing that people are worried about is whether there’s enough supply to keep up with the demand.”

But Cox questioned whether the growth rates are sustainable, since the lion’s share of the market has been driven by cash purchases from speculators, sales of distressed homes and historically low-interest rates.

Cox said that based on historical standards, the market seemed poised for growth. “But right now our growth is coming from much different places than historically,” he added.

Clean tech: Holly Smithson, chief operating officer of the CleanTech San Diego industry association, predicted solid growth for green firms in 2013, especially with Mayor Bob Filner’s drive to make San Diego the nation’s top city for solar energy.
Smithson said the solar firm Soitec, which opened last month, would create 450 jobs in its factory as well as generating 1,000 jobs indirectly through its local spending. Smithson also pointed to growth in venture capital investments as a sign the industry would continue to expand.

Last year, local clean-tech companies received around $190 million from venture capital firms, 17 percent of the total venture money invested in San Diego County.

Defense: The biggest uncertainty in 2013 is what will happen to the defense budget. Because of the wind-down in Iraq and Afghanistan, the overall Pentagon budget is expected to drop $30 billion this year. Reaser said if Congress cannot resolve its dispute over federal spending, the military could be hit by $60 billion in additional cuts.

Since the military is tied directly or indirectly to 25 percent of the economy, those cuts could have a serious impact here, said Larry Blumberg, executive director of the San Diego Military Advisory Council.

But then again, San Diego could possibly benefit from the cutbacks -- if military bases elsewhere in the country are shut down and their work is consolidated here.

Blumberg said the problems were summed up earlier this month by Secretary of Defense Leon Panetta, who said “we have no idea what the hell is going to happen,” adding that the military faces “a perfect storm of budget uncertainty.”

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