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Experts predict economic growth, more jobs for San Diego in 2014

In San Diego, 2013 will go down as a year when -- despite the turmoil at the mayor’s office, the federal budget sequester and two-week government shutdown -- local stock prices soared to all-time record heights, the jobless rate dipped below 7 percent and home prices pushed toward prerecession levels.

So what will 2014 bring? More of the same, economists predict.

“We expect San Diego’s economy to continue to gradually gain momentum” despite the possibility of more federal budget cuts and softness in venture capital funding, Wells Fargo Securities economists Mark Vitner and Sara Silverman wrote this month.

The latest forecast from Beacon Economics, an economic research firm in Los Angeles, said San Diego County has been “a key driver of economic growth in Southern California” since the depths of the recession and predicts that it will grow even faster in 2014 and 2015.

And economist Lynn Reaser of Point Loma Nazarene University predicts that “important positives will help drive the region’s economy forward in 2014,” including rising home prices and job growth in technology, hospitality and health care.

The following is a brief recap of what happened in 2013, coupled with some economists’ predictions of what 2014 will bring:

Employment. Between November 2012 and 2013, civilian payrolls in San Diego County grew by 1.8 percent, adding 22,700 new jobs. Total employment hit 1.3 million, the highest level since the global financial collapse in September 2008. During the same time, the jobless rate fell from 8.3 percent to 6.8 percent -- the first time in five years it has been that low.

Beacon projects that job growth will accelerate to about 2.5 percent in 2014 and 2015, which would mean that by the end of next year, the county would surpass its previous all-time high for employment in July 2007.

By 2015, Beacon predicts, the jobless rate will slide below 6 percent.

“Although the pace of growth in San Diego may leave something to be desired, the region has come a long way and recovered a significant portion of the jobs lost during the Great Recession,” Beacon said in its latest report.

Growth sectors. Of the new jobs created over the past year, 12 percent came from bars and restaurants, 11 percent were from the rebounding construction sector, 10 percent came from retail, 10 percent were from health care, 3 percent were from private schools and 2 percent came from professional, technical and scientific services.

Economists predict that those trends will continue next year, for better or worse.

The best news may be in the construction industry, where 5,300 jobs were created over the past year, reflecting improvement in both residential and commercial building.

“Given the direction the residential real estate market is trending locally, construction jobs are expected to continue to bolster the regional labor market into 2014 and beyond,” Beacon said.

But Wells Fargo says one reason that it “must temper our outlook for San Diego going forward” is that most of the jobs the county has added since the recession ended have been in lower-paying sectors – especially in tourism, retail and low-end health services. Those jobs provide less benefit for the broader economy than higher-paying jobs in sectors such as finance, information and manufacturing, which have shed 2,900 jobs over the past year.

“These sectors account for only 14 percent of the metropolitan area’s employment but 37 percent of the area’s GDP,” the report said.

Residential real estate. “San Diego’s real estate and construction sector has shaken off the ravages of the Great Recession and will be a driver of the region’s economy during the coming year,” Reaser wrote in an economic forecast released earlier this month.

Reaser predicts that home prices, which grew 18 percent in the past year, will grow 9 percent more in 2014.

Responding to growing demand, 7,000 housing units will be built in 2014, up from an estimated 6,400 units in 2013, with roughly 60 percent consisting of multifamily developments.

That would be the highest pace of new building since 2007, but would still be only half the average for the 10 years leading into the peak year of 2006. And Beacon notes that San Diego’s 17 percent rise in residential permits in the first three quarters of 2013 was far lower than the 40 percent statewide average.

"Indeed, home prices in San Diego, although rising, are also lagging some of the other major markets in Southern California,” the report noted.

Commercial real estate. Reaser forecasts that the local vacancies rate will decline to 11 percent for flex space, 10.5 percent for offices, 8 percent for industrial property and 7 percent for warehouses. The lower vacancy rates may be enough to low enough to justify new construction for offices, especially for outpatient medical facilities, as well as warehouses to meet the demand for same-day delivery distribution centers for online retail operations.

Retail sales: Based on the most recent data, sales tax receipts rose 6.7 percent in San Diego this year, topping the statewide average of 5.9 percent, according to Beacon Economics.

Beacon forecasts that local spending will continue to rise, with taxable sales growing 4.5 percent to 6 percent over the next three years.

Reaser says the rebound in consumer sales will lead to more tightness in retail real estate, with the vacancy rate dropping from an estimated 4.6 percent in 2013 to 4.2 percent in 2014. This could prompt landlords to raise leasing rates by 4 percent, after a 3.5 percent rise in 2013, which could cause further churning among various retailers.

Technology firms. Technology growth was relatively stagnant in 2013, partly because of funding cutbacks at the federal government and a sharp drop in venture capital funding. Reaser estimates that venture capitalists invested $838 million in 2013, a 30 percent drop from the previous year, as investors shied away from pharmaceutical firms and more toward software, robotics and wireless, which require less time and money to get their products to market.

Reaser said “significant federal cuts” may continue to affect companies and institutions throughout San Diego County in 2014. But she projected that the strengthening economy should push venture capital funding 10 to 15 percent higher in 2014.

“Despite the immediate challenges,” she added, “San Diego’s large tech sector already has much of the infrastructure and talent in place to foster further tech-based innovation and growth.”

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