This might not be a year of drastic changes, but some growth is projected in the national and local economies.
Local experts discussed the local and national outlook for 2014 at the 30th annual San Diego County Economic Roundtable on Friday.
GDP growth in 2014 is expected to come in at 3 percent, according to Alan Gin, associate professor of economics at the University of San Diego School of Business Administration. He expects the national unemployment rate to dip to 6 percent in 2014 and the local unemployment rate to fall below 6 percent. Interest rates are projected to increase slightly but remain “relatively low.” He expects the 30-year mortgage rate to hit 5 percent by the end of the year. Gin also predicts the Dow Jones Industrial Average will increase 10 percent in 2014 to 17,800 points.
Home prices rebounded in 2013 with strong appreciation, and price increases are expected to continue into 2014 but at a slower pace, said Joe Bertocchini, director of residential real estate at the USD Burnham-Moores Center for Real Estate. He expects home prices to increase about 6 to 7 percent.
A “nice, normal, stable” growth process for the coming year is something that will receive a “warm welcome,” Bertocchini said.
Increased inventory and fewer investors in the market will lead toward more moderation in the market with gradual, more sustainable growth, Bertocchini said. An equilibrium of buyers’ and sellers’ expectations is a good sign of a “normal, stable, fair” market, he said, and he expects to see more of that in 2014.
Housing permits bottomed out at about 3,000 and this year they are expected to reach about 8,500 -- but about 12,000 permits are needed to accommodate demand, said Marney Cox, chief economist for the San Diego Association of Governments. Of the 8,500 permits, only 2,500 of them are projected for single-family units -- compared to 10,000 prior to the downturn.
Job growth won’t be as good in 2014 as it was in 2013, and San Diego is expected to add about 20,000 jobs this year, Cox said. That’s less than the 25,000 jobs added in 2013, but double the 2011 level of about 10,000 jobs.
The recession was deeper in San Diego than the nation and in terms of job loss, and the growth out of the recession has been slower than in the nation. The nation and San Diego are both below past peaks but are projected to reach or surpass those peaks with the addition of one year’s worth of employment growth at current levels, Cox said.
Labor force growth is problematic, Cox said, because it has declined in unexpected areas -- about 5 million 25 to 54 year-olds left the labor force due to frustration. There has also been more people in that age group moving out of San Diego than moving in.
“People have voted with their feet,” Cox said.
In addition to the unemployment rate -- nationally at 6.7 percent -- there’s an underutilization of labor, Gin said. If discouraged workers, marginally attached workers and those working part time who want to work full time are added into the mix, that number increases to 13.6 percent. In the depths of the recession, that number was at more than 17 percent.
“It has improved, but we need more action to drive that down further,” Gin said.
About one-fourth of those unemployed have been unemployed for 27 weeks or more, and there are about 2.9 job seekers for every job opening out there.
“Even if they’re looking for work it could be difficult to find it,” Gin said, adding that there’s a stigma against those unemployed for long periods of time.
Businesses are profitable but hiring is slow, as many companies streamlined operations during the recession, Gin said. Jobs have gone overseas, but some are expected to be coming back. Manufacturing continued a downward trend between 1993 and 2012, but is at a point in time where that trend can be reversed due to reshoring, said Mark Cafferty, president and CEO of the San Diego Regional Economic Development Corp. Michele Nash-Hoff, president of ElectroFab Sales, said new reshoring is increasing.
Businesses look for three things when considering coming, staying and growing in an area: if the area is inexpensive, the ease of doing business, and if there’s the workforce businesses are going to need in order to grow.
There has been a reduced value in minimum wage, Gin said. Minimum wage was $1.65 in San Diego in 1968, and if it kept pace with local inflation it would be $13.87 today.
Gin referred to what he calls the “virtuous cycle” -- which shows that normally, increased employment would lead to increased income, which would lead to increased spending, which would lead to investment and hiring.
“With employment being affected and now income being affected as well, that virtuous cycle has less of an impact,” Gin said.
Slow growth in wages and hours worked has affected consumption. Over the last 10 years, people had been consuming more than they were earning, and the debt-to-income ratio reached 140 percent, which was unsustainable and caused people to borrow to consume. During the recession, people started paying down that debt, and for each dollar paying down debt, they weren’t consuming, Cox said. Part of the downturn was a decline in the stock market and in home equity -- “people felt uncomfortable not having cushions they could rely on,” Cox said, and they started saving money, causing a reduction in net consumption.