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2011 business economic outlook modest, but recognizable

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Locally and nationally, the business community can look forward to a modest but noticeable recovery in 2011.

Lynn Reaser, chief economist of the Fermanian Business and Economic Institute at Point Loma Nazarene University, said the ongoing recovery would start to feel a lot more like a recovery in the new year.

“We’ll see more activity on the military front, tourism, international trade (will be) very strong, technology -- a real driver of this region’s economy -- (and) health care,” she said.

She predicted 3 percent growth in GDP, and said if all of the tax cuts in the compromise between congressional Republicans and the White House are approved, that could go as high as 3.5 percent.

The economy grew by 2 percent in 2010.

In addition to extensions of the Bush tax cuts for all income levels and unemployment insurance, the compromise also extended the estate tax and created a temporary payroll tax holiday, along with various other tax credits.

The San Diego economy will gain between 18,000 and 20,000 jobs in 2011, she said, three times more than the 6,000 it created in the “jobless recovery” of 2010.

Leslie Appleton-Young, chief economist for the California Association of Realtors, said companies don’t need to hire to maintain the current 2 percent growth rate.

As such, improvements in the labor market will need to come from new sectors, she said.

Reaser, however, said companies that continue to squeeze productivity out of a bare-bones work force will see productivity slip, and risk losing their best employees, due to a burnout factor.

At a recent economic outlook roundtable hosted by The Daily Transcript, business leaders agreed that a tight credit market holds the key to a robust economy.

Lending has been exceptionally tight since the economic bust, and Joye Blount, vice president of US Bank in San Diego, said there’s reason to believe things could loosen in the coming months.

But there are still many risks keeping banks from lending liberally.

“If you think about our banking industry across the nation, we have experienced over 140 failed banks this year, and I think you'll continue to see some of that because there's a lot still behind the curtain,” Blount said. Representing perhaps the hardest hit industry in California, Chris Hess, vice president of operations for Lusardi Construction Co., said loans are only available to those who don’t need them.

Military construction, and federal work in general, have provided a crutch to the construction industry while private work has been nearly nonexistent, Hess said.

William French, commander of the Navy Region Southwest, said the Navy will continue to inject money into the local economy.

He said the military is estimated to have contributed $2.3 million into the local economy in 2010. Next year, that number is projected to grow to $2.6 billion, with the impact expected to increase steadily over a five-year period.

Consumer spending is likely to be affected by two competing factors.

After two years of increasing savings or paying down debt, Reaser said consumers are suffering from “frugality fatigue” and are likely to increase purchases of big-ticket items.

Gary London, president of London Group Realty Advisors, however, said consumption habits learned in the last few years may have permanently changed consumer behavior.

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