The federal government shutdown in October helped push San Diego's economic outlook into its first decline in more than a year, but the forecast for the next six months remains positive, according to a monthly index of leading economic indicators released Thursday by the Burnham-Moores Center for Real Estate at the University of San Diego.
The temporary job losses related to the shutdown, combined with a slippage in help-wanted postings, which may have been related to companies' insecurities about how long the shutdown would last, were enough to counterbalance more positive news from the upward surge of San Diego stocks on Wall Street, growing consumer confidence and improving performance for the national economy.
"October’s drop may be an aberration rather than a signal of a turning point for the local economy," said USD professor Alan Gin, who compiles the index. "The outlook for 2014 remains positive, at least through the first half of the year."
During the temporary government shutdown in October, roughly 33,000 federal workers were laid off and hiring programs froze at many government contractors. Partly as a result, unemployment filings, which typically decline in October because as retailers hire temporary workers for the holidays, rose to 39,787, the highest level since January 2012 and a significant jump from the 33,000 monthly average from first eight months of the year.
The uncertainty about federal spending may have also contributed to a decline in local help-wanted ads in September and October, as government contractors and grant-dependent research entities slowed their hiring -- a reversal of two and a half years of steady increases.
"Despite these negative results, the local unemployment rate remained near recent lows at 7 percent in October, which was unchanged from September and down from 8.6 percent in October 2012," Gin said.
Even though local shipyards, manufacturers and research labs cut jobs during September and October, hiring by other companies – especially construction firms – resulted in 13,700 new jobs being added.
Lynn Reaser, economist at Point Loma Nazarene University, said that the hiring shows that San Diego has "considerable resilience," but added that "more budget cuts and some tightening in monetary policy during the next few months will challenge the ability to sustain the momentum."
The other items tracked by the index include:
* Housing starts. Outside the job market, the only negative component in the index was for home construction. September was the weakest month of 2013 for residential building permits and even though the number of permits rebounded in October, it wasn't enough to make up for September's downturn. "Overall for the year, we'll be up – and up significantly," Gin said. "But the past couple months have not done so well." As has been the case for much of the year, most of the permits in October were multi-family units as instead of single-family homes.
* Stock prices. The stock prices of most large local companies rose with the rest of the stock market in October, culminating in a surge in November that brought the Dow Jones and S&P 500 indexes to all-time highs. Local companies that hit record-setting prices during that period include Jack in the Box (Nasdaq: JACK), Sempra Energy (NYSE: SRE), Cubic Corp. (NYSE: CUB), DexCom Inc. (Nasdaq: DXCM), PriceSmart (Nasdaq: PSMT), Bank of the Internet (Nasdaq: BOFI), WD-40 (Nasdaq: WDFC) and Halozyme (Nasdaq: HALO).
Gin said the surge is good news for the economy because it reflects good prospects for local companies as well as a potential uptick in spending "if consumers feel wealthier as their retirement and savings portfolios increase in value."
* Consumer confidence. Despite all the negative news coming out of Washington, D.C., regional consumer confidence has been on the rise for six months in a row, Gin said.
* The national economy. Unlike San Diego, the national Index of Leading Economic Indicators rose in October, the seventh month in a row that it has risen or remained unchanged. One reason for the difference could be that San Diego has more ties to the federal government than the national average and therefore was hurt harder by the shutdown.
"The news is getting better in terms of the national economy," Gin said, citing growth in the gross domestic product, stronger hiring and a continuing decline in the jobless rate. A report released Thursday by UCLA's Anderson Forecast echoed those sentiments, saying that the economy was poised for relatively robust 3 percent growth starting in the middle of 2014, driving the national jobless rate down from its current 7 percent rate to around 6 percent.
"The economy is growing despite self-inflicted wounds caused by the 16 day partial shutdown of the federal government," UCLA senior economist David Shulman wrote.