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Economists expect modest gains in 2011

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All around San Diego County there is evidence that 2011 will be a year of recovery for the region's economy. However, whether or not recovery becomes a reality depends on many factors.

Many of the challenges facing San Diego pale by comparison to the overall woes California, as a state, will face in the New Year. Yet even there, hope springs eternal.

“Looking ahead to 2011, I expect the California economy to make modest gains against a background of gradually accelerating national growth,” said Dana Johnson, chief economist at Comerica Bank.

A report released earlier this month showed the bank’s California Economic Activity Index declined slightly in October, the first dip since January.

So, if the San Diego region is to grow faster than the rest of the state in coming months, where will the leadership come from? Some suggest it will be job growth that provides the best barometer of recovery in the county.

Accordingly, the Manpower Employment Outlook Survey suggests that more companies will be hanging out the “help wanted” sign in coming months. The report finds that 18 percent of companies here plan to increase staffing levels in the first quarter of 2011, compared to 14 percent in the first quarter of last year.

The survey calculates that the net employment outlook -- companies planning in increase hiring minus those that will cut payrolls -- stands at 11 percent in the coming quarter.

“Employers expect a faster hiring pace compared to a year ago, when the net employment outlook was 2 percent,” said Phil Blair, Manpower (NYSE: MAN) representative in San Diego.

Also encouraging is that new hiring will take place in construction, transportation and utilities.

“Overall, look for San Diego County to end 2011 with company payrolls up by about 18,000 jobs from the year-end level of 2010. This would represent a significant improvement from the 6,000 job gain estimated for 2010 and the steep 70,000 job loss of 2009,” said Lynn Reaser, chief economist for the Fermanian Business and Economic Institute at Point Loma Nazarene University.

While Reaser's forecast is optimistic, it shows there is plenty of room for job growth. The UCLA Anderson Forecast for 2011 says “California must re-employ 1.3 million workers just to get back to pre-recession levels and must also find jobs for all the new entrants to the work force in the past two and a half years.”

Thanks to the San Diego region's diversified economy, job growth in 2011 will come from many directions. Kelly Cunningham, economist at the National University System Institute for Policy Research, said the most growth will come from health care, private education and federal employment workers including civilian military positions.

“San Diego's professional and technical services industries, led by telecommunications, biotech/medical, software and emerging clean-tech sectors, will also see growth. Military expenditures in the region have significantly bolstered San Diego's economy, that otherwise would have suffered much greater setbacks,” Cunningham said.

He sees the region's gross domestic production in 2011 rising by 2.5 percent. However, in order for employment to meet job demand, the local GDP needs to be above 3 percent.

PLNU's Reaser agreed with Cunningham on the engines for job growth.

“The military will continue to serve as a major economic driver and be joined by the growth of international trade and the gradual revival in business travel and tourism.”

Of course, the big anchor weighing down the San Diego region is the troubled housing market. Although 2010 saw in surge in home sales prompted by the federal tax credit for first-time homebuyers -- followed by a predictable slowdown in sales when the credit expired -- the pressure from distressed properties will linger into 2011.

“It appears from the sources I'm talking with at banks there's plenty to be happy about in 2011 as REO and short sales will be more prevalent due to banks releasing more inventory. Of course, this could create some downward pressure on values, but with rates holding firm, the market should be able to absorb it. Next year should see the return of higher unit sales,” said Erik Weichelt, president of Weichert Realtors-Elite and immediate past president of the San Diego Association of Realtors.

Cunningham also said there is another reason home prices will start to eventually move higher.

“With 'depression' level housing construction, eventually pressures will arise for prices to start increasing again. In the meantime, the glut of foreclosures and weak demand for housing keeps prices for the most part subdued during the year,” said Cunningham.

Perhaps the best way to describe the national, state and local economies in 2011 comes from Jonas Prising, Manpower president of the Americas.

“We are still stuck in first gear, but the ongoing improvement we have seen over the last year suggests that the labor market is ready to shift to a higher gear in 2011,” Prising said.

There are plenty of people hoping that applies to much more than just the labor market.

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