The advance was led by sharp increases in building permits and local stock prices. There were also small gains in consumer confidence, help wanted advertising, and the outlook for the national economy. The only negative component was initial claims for unemployment insurance. The five advancing components outweighed the one declining one to push the USD Index to its ninth straight gain and 17th in 18 months.
With May's advance, the outlook for the local economy remains unchanged from recent reports. Good growth is expected in the local economy through the end of 2013 and into at least the first part of 2014, according to USD professor Alan Gin, who compiles the report.
One thing fueling San Diego's recovery is the housing market, whose collapse contributed to the Great Recession locally and nationally. Housing has both helped and been helped by the rebound in the local economy. As employment grows and incomes increase, the demand for housing increases, which leads to higher home prices. This in turn has led to increased building permit activity and more employment in construction and real estate-related businesses. On top of that, increased housing prices can lead to increased consumer confidence and a "wealth effect," with homeowners feeling wealthier and therefore consuming more.
Residential units authorized by building permits topped the 1,000 mark for the second time this year after previously not having been at that level since 2007. Residential units authorized are up nearly 50 percent this year, with strength in both single-family and multifamily units.
The outlook for the labor market was mixed in May. There was a surge in initial claims for unemployment insurance, which is a negative for the USD Index, and which suggests an increase in the rate of job loss in the local economy. This could be due to the impact of the sequester beginning to hit San Diego. The hiring front was more positive, with help-wanted advertising increasing for the seventh month in a row. The net result was that the local unemployment rate decreased to 6.7 percent in May, the first time it had dropped below 7 percent since November 2008. That compares to a rate of 7.0 percent in March and 8.8 percent in May 2012.
Consumer confidence was up for the first time this year, likely buoyed by the improving job and housing markets.
Local stock prices rose along with the overall stock market to reach recent highs in May. Unlike the other market indices, local stock prices are not at all-time highs, which were reached in 2000.
The national Index of Leading Economic Indicators was up for the second month in a row and fifth time in six months. The outlook for the national economy remains positive, although first quarter Gross Domestic Product growth was revised downward to 1.8 percent in the third estimate for the quarter. That is down from 2.5 percent in the "advance" estimate and 2.4 percent in the second estimate. The Federal Reserve has indicated that it may pull back on its monetary stimulus if the economy continues to improve, which spooked the financial markets in June.