California’s nearly recovery will continue through 2011 and possibly accelerate by the end of the year, according to a forecast from Beacon Economics.
Noting the Philadelphia Federal Reserve’s finding that the state’s economy has grown in nine of the past 10 months at an average rate of 1.5 percent, “Beaconomics,” as the report is called, cited a thawing labor market and a bounce in both import and export activity as the primary drivers for market growth in the Golden State.
The quarterly report predicts the national recovery will become more pronounced in 2011, with average growth of 3 percent that accelerates throughout the year. By 2012, it says, national growth could reach 4 percent.
Echoing other forecasts, California’s near-term outlook according to Beacon isn’t quite as bright as the rest of the country’s, but San Diego’s is a bit brighter than the state’s.
The California-based company is currently forecasting the state’s unemployment rate to remain above 12 percent through the first half of 2011, and says it won’t dip below 10 percent before the end of 2012.
Total nonfarm employment will increase at 1.21 percent, 1.69 percent and 1.95 percent rates in the year’s first three quarters, before reaching 2.32 percent before the year draws to a close. The growth rate will continue to increase through next year and will hit 3.1 percent in the fourth quarter of 2012.
For comparison, there was negative growth of 1.13 percent in the third quarter of 2010, the most recent period of available data. Beacon’s projections have the final quarter of 2010 to have produced a 0.34 percent employment increase.
The report cites the state’s increase of 40,000 jobs in administrative services as an indicator of coming job growth. Because that area includes so many temporary positions, it’s seen as a leading indicator of growth in other sectors.
Thanks to a recent uptick in consumer spending, retail and hospitality sectors are also noted as areas that could see a hiring swell.
As in San Jose and Orange County, San Diego will see continued success from its high-tech related products and services.
“In general, San Diego has all the benefits you look for,” said Brad Kemp, director of regional research at Beacon. “Biotech and biomeds, the demand isn’t going to wane, it’s only going to rise.”
While its expectations for the state’s housing market aren’t necessarily bullish, Beacon dissents from the growing chorus predicting a double-dip in housing prices in 2011.
Real estate has hit bottom, but won’t see meaningful improvement until 2012, the report says.
Distressed and underwater mortgages along with tight access to credit will remain obstacles to housing recovery.
But prices aren’t expected to fall below their current levels.
“The huge decline in home prices … has dramatically increased the affordability of housing in California,” the forecast reads. “This affordability coupled with historically low interest rates should prevent home prices from dropping much further.”
Improvements in the labor market will spur household creation, which screeched to a halt during the recession as young adults moved in with their parents or roommates, waiting for the economy to heal.
Still, Beacon says home sales and prices will remain flat for the next two quarters.
By 2012, however, the state will cross the 80,000-sales-per-quarter threshold. That, combined with rising incomes, will create modest price appreciation.
In the absence of price appreciation, and combining with high land and construction costs, new home building will continue to lag in the foreseeable future. Beacon predicts between 40,000 and 50,000 permits to be issued each year through 2012.
Unlike others, the company doesn’t expect this supply shortage to result in a pricing spike.
“Where’s the down payment coming from?” Kemp asked. “Who wants to sell the house? How does the market express the pent-up demand when we don’t have those things?”
The slow price growth and restrained activity, he reminds, remains preferable to the bubble-induced activity of the last decade.
“Looking for the value of your home from 2007 is like looking for an invisible friend,” he said. “This is the healthy market.”
Trade has been performing well over the last 18 months, particularly in exports, thanks largely to a dollar that’s trending low.
Along with strong growth in emerging markets, this should continue to push exports higher, which will disproportionately benefit California, where air and sea ports connect the country to overseas markets.