San Diego economy should be modestly softer next year
  • San Diego economy should be modestly softer next year
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Kelly Cunningham

"The weakest recovery in history will not become the longest in history.” Thus speaks Kelly Cunningham, economist for the National University System Institute for Policy Research.

From late 2007 to early 2009, the United States and San Diego went through the worst economic downturn since the Great Depression. Then came the most anemic recovery ever. Cunningham is not predicting that 2016 will be a disastrous year for the San Diego economy, but he thinks it will be a little weaker than 2015.

He is warning San Diegans not to expect the local economy to bounce back vigorously. “There is no reason to believe that in the seventh year of this weak recovery, things will accelerate,” says Cunningham. For example, San Diego County added 40,000 jobs in 2015, “the best performance since 1999.” Next year, the figure may be 34,000 jobs, “and a lot will be low-paying jobs.”

For many years, the military accounted for more than 20 percent of the San Diego economy. That included uniformed personnel, civilians working on bases, retirement pay, base construction and maintenance, and aerospace-defense manufacturing. Beginning in 2011, that came down and is now less than 20 percent. San Diego is a leading drone maker, but it has more work to do in transferring output to cybersecurity and the war on terrorism.

Similarly, real estate for years was 22 percent of the economy. That included sales, renting, leasing, and construction. “It’s now less than 22 percent but hasn’t dropped below 20 percent,” says Cunningham.

Robert Campbell, producer of the Campbell Real Estate Timing Letter, thinks that, for the next several months, or possibly a good deal longer, the housing boom will continue. That’s what his statistical indicators are telling him. Residential real estate was in a huge bubble before the 2008 crash. Then, when the Federal Reserve frenetically printed money in early 2009, interest rates plunged, and housing made a big rebound.

But this strong housing market has been a result of hyper-rapid money and credit creation by the Federal Reserve. “By holding short-term interest rates near 0.0 percent for six straight years, the [Federal Reserve] has been pushing savers into real estate and the stock market,” says Campbell. This rapid money printing “boosts asset prices — and not the economy.” Buckle your seatbelt: “We may be in the early stages of a global stock market and asset market crash.”

Most analysts have a moderate view similar to Cunningham’s, or even one that is more optimistic, but there are some very intelligent economists and analysts who share Campbell’s fears of another bubble exploding.

San Diego’s annual economic output per person is last among 20 large cities.

Bloomberg Business, and U.S. Bureau of Economic Analysis

And there is still another scary view: the stark chasm between the superrich and the rest of us spells economic danger. Joel Kotkin of Chapman University fears California is becoming a “feudal society” of rich and poor. Los Angeles, Oakland, Sacramento, Long Beach, and Riverside have very high poverty levels, according to a study by the National Resource Network. And, of course, San Bernardino, Stockton, and Vallejo have been forced into bankruptcy.

Peter Brownell

San Diego has similar problems, says Peter Brownell, research director of the Center on Policy Initiatives. The San Diego metro area poverty rate in 2014 was 14.7 percent, an improvement over the Los Angeles area’s 17.3 percent. Next year, San Diego should show “some slow improvement in poverty,” hopes Brownell. California’s minimum wage rises to $10 per hour in January. In June, San Diegans go to the ballot on an initiative that would raise the minimum to $11.50 in 2017, with later increases indexed to inflation beginning in 2019.

“Two-thirds of the county workforce works in [the city of] San Diego,” says Brownell. “That should make a positive difference. What is being proposed is more moderate than in other places; my impression is that people understand how high the cost of living is, and a pretty strong majority is willing to support a moderate increase in the living wage.”

A higher minimum wage should lessen the income and wealth inequality that has harmed San Diego, says Brownell. His forecast for the 2016 economy: “I don’t see much change from 2015, but I am hopeful for an increase in the minimum wage.”

Cunningham points out some problems: “Between 2011 and 2014 only 26,000 homes were built in San Diego, but we added 122,000 jobs. So, five times as many jobs have been added as homes built. It’s usually a 2 to 1 ratio. The housing market is becoming very tight; we are not building enough to accommodate the housing requirements.”

Retail sales have picked up, says Cunningham, but even including online sales, “We have still not recovered to where we were before the recession,” he says. One major reason: median household income, adjusted for inflation, is lower than it was in 2006 and 2007.

San Diego population has been about flat for the past decade

Population growth is “less than 1 percent a year,” says Cunningham, who can remember the boom years of the 1980s, when population would rise 3 percent in one year. “Domestic migration is still negative. More people are moving out [to domestic locations] than are moving in, although international migration is picking up.”

Adjusted for inflation, median household income is not yet back to pre–Great Recession levels.

San Diego incomes are higher than those in most major U.S. metropolitan areas, but the cost of living is third highest among the nation’s major metro areas. Household income is 23 percent higher than the nation’s, but the cost of living is 42 percent higher. Housing affordability is one of the nation’s worst. That’s a reason that domestic migration outflow tops inflow: how many families can afford San Diego?

Salaries are highest in tech jobs, and tech should continue to be more than 15 percent of the total economy. However, the loss of Qualcomm jobs, a result of announced layoffs last summer, will be a problem. “I find it hard to believe that all of [the people laid off by Qualcomm] will find other tech jobs in San Diego,” says Cunningham.

Jerry Morrison

This year has been excellent for the hotel business, says Jerry Morrison of Morrison & Company. But, San Diego hotels “have definitely been trailing Los Angeles and San Francisco.” Morrison believes “we will eventually lose Comic-Con, as its needs expand.” He thinks San Diego needs a convention center with a contiguous expansion. All told, “It looks like a very strong 2016” for the hotel industry, he says.

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Comments

jnojr Dec. 23, 2015 @ 8:42 a.m.

That's OK, we'll still hear about how we need to crowd a few thousand more "low income" people into San Diego, and then pay more for less water 'cause we're in a severe drought, right?

We really, REALLY need to stop subsidizing people who cannot afford to live here. Let them move to just about anywhere else with a lower cost of living, get their junky cars off of the roads, ease the pressure on housing, and save millions for welfare we don't pay any more. Everyone wins.

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Don Bauder Dec. 23, 2015 @ 9:29 a.m.

jnojr: It is more critical to stop subsidizing the richest people in town -- sports team owners, real estate barons, hotel developers and owners, operators of shopping centers, auto complexes, and the like. Best, Don Bauder

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FreedomPlease Dec. 28, 2015 @ 8:32 p.m.

Our "junky cars" are because we don't receive enough income to keep up with housing cost increases. The REAL welfare is to the businesses that don't pay a livable wage and still get employees! When a business/employer doesn't pay enough to cover employees living expenses (just basic survival) then that employer is being subsidized: working children living at parents for below market rate rents, gov't affordable housing projects, public transportation, food stamps, etc! If you sell products for less than it costs you to purchase and display you should go out of business. Here is San Diego, you just pay your employees minimum wage, and raise price a few cents. And the rest of us just subsidized the humanly basic needs. 30 year resident.

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Don Bauder Dec. 29, 2015 @ 8:01 a.m.

FreedomPlease: You are absolutely right when you state, "When a business/employer doesn't pay enough to cover employees' living expenses (just basic survival) then the employer is being subsidized."

Think Wal-Mart. Its employees are paid miserably low wages, and the company teaches those employees how to utilize government welfare, such as food stamps. When you think you get such a great deal at a Walmart store, think again. You will be paying for Wal-Mart employees' welfare payments through your taxes. Best, Don Bauder

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Visduh Dec. 23, 2015 @ 9 a.m.

Cunningham's comment about the ratio of home building to job growth is a strange one, and needs some elaboration. How many of those 122,000 jobs added since 2011 were just getting jobs back that had been lost between 2008 and 2011? I don't claim to know, but he should know that. However, I'll bet most or all of them just brought employment back to 2008 levels. The county wasn't seeing houses, apartments and condos being torn down in massive numbers as jobs were lost. So why the angst about not adding enough during a recovery? Oh, there's the matter of the quality of the new jobs. Weren't many of them lower income service sector jobs? If so, lower paying jobs don't boost a housing market all that much except to increase the numbers if people occupying a home.

That link is a tenuous one, and perhaps over a long term of years when the overall population is on an uptrend, it may have some relevance. But over a four year period that was one of recovery and not real growth, it means little.

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Don Bauder Dec. 23, 2015 @ 9:33 a.m.

Visduh: There is no question that the quality of jobs added in this extremely weak recovery has been low. That's true nationwide.

I see your point on the ratio that Cunningham used. However, the gap from prior years is so extreme that the ratio appears relevant. Best, Don Bauder

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Flapper Dec. 23, 2015 @ 12:39 p.m.

It appears that some want to ride the poor out of town on a rail (if this is not true, kindly be specific in precisely what "we" should do with them. Send them to Slab City? Darn--that won't work; they're gonna be kicked out of there too.) Or?

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Don Bauder Dec. 23, 2015 @ 3:05 p.m.

Flapper: The anti-poor statement on this blog came from a huge misunderstanding. Corporate welfare, as well as welfare for rich individuals, is a larger part of governments' expenditures than welfare for those at the lower end of the spectrum. Best, Don Bauder

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Flapper Dec. 23, 2015 @ 3:51 p.m.

junior called for banishing the poor, not you.

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Don Bauder Dec. 23, 2015 @ 4:15 p.m.

Flapper: Yes, my name didn't come up in his comments. Why should it have? Best, Don Bauder

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Flapper Dec. 23, 2015 @ 4:36 p.m.

It shouldn't have. Are we communicating clearly?

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Don Bauder Dec. 23, 2015 @ 9:13 p.m.

Flapper: Oh, I see. jnojr complained of excessive welfare for the poor. I did not complain about that. I complained of excessive welfare for corporations and the rich. Best, Don Bauder

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Don Bauder Dec. 24, 2015 @ 6:55 a.m.

Flapper: Of course some want to ride the poor out of town on a rail. They want to hog all the welfare for themselves -- the rich. Best, Don Bauder

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jnojr Dec. 28, 2015 @ 4:16 p.m.

This isn't tough to figure out, flipper. Don't pay them to stay here. There is no need to "run out of town"... just let them find a place where they can afford to live.

I'm almost afraid to ask your argument against that, but... go ahead...

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Don Bauder Dec. 29, 2015 @ 8:09 a.m.

jnojr: With all due respect, I think you are blind to something. San Diego needs cooks, waiters and waitresses, retail and hotel clerks, house and hotel cleaners, and others who make very little -- often less than the minimum wage, which is far too low.

Already, many of those people are forced to live in Mexico and Riverside County where housing is much cheaper, or they double-up (several families living in one small home). San Diego has an obligation to provide affordable housing, but it's not doing so to a sufficient extent. Best, Don Bauder

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Don Bauder Dec. 23, 2015 @ 3:05 p.m.

Flapper: That is a good essay by Moyers. Best, Don Bauder

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Don Bauder Dec. 23, 2015 @ 4:18 p.m.

Billskicpl Snark: Supercharged like the San Diego Super Chargers? Best, Don Bauder

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Don Bauder Dec. 23, 2015 @ 4:19 p.m.

Billskicpl Snark: 'Til Gabriel blows his Horn? Best, Don Bauder

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AlexClarke Dec. 23, 2015 @ 4:45 p.m.

If the high paying tech industry jobs go like many other good jobs have gone they will be shipped off shore or those receiving high pay will be replaced with immigrants willing to do work (for lower wages) that Americans are not willing to do (for cheap). As the gap widens between the rich and the poor and the ranks of the poor grow, fueled by low wage jobs, we will find ourselves facing a two class system of the working poor/poor and the rich with no middle class buffer. Without the middle class buffer we will have civil war. If we have another round of stock market crash or asset crash the stage will be set for disaster.

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Don Bauder Dec. 23, 2015 @ 9:15 p.m.

AlexClarke: American-born engineers are already being replaced with immigrants willing to work for lower wages. It is the H-1B program, about which I have written a lot. Best, Don Bauder

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AlexClarke Dec. 24, 2015 @ 5:49 a.m.

I have read them and thanks for continuing to bring it to our attention. The American worker has been sold a bill of goods: 1. Immigration is good. 2. A service economy is good. 3. We don't need manufacturing. 4. Workers don't need a living wage or benefits. 5. Unions are bad. 6. Employers should have all the power. etc, etc, etc

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FreedomPlease Dec. 28, 2015 @ 8:38 p.m.

S.D. Econ...softer next year. (SD Reader Vol.44#52 12/24/15: Don Bauder) San Diego might look better on paper, but the streets tell something different. Homelessness increased by nearly 25% and included even more veterans when the federal, state and regional goal was to eliminate homelessness for veterans. We've seen few housing starts, but many increases in rents. And it was not so much about improved housing stock as much as a lack of housing, especially affordable housing. We might of gotten 40,000 more jobs, but what portion of those pay a livable income. I typed “livable wage”, but then thought about it, who cares if you have a livable wage, yet only get minimal hours and have to work 2 or 3 jobs to get the income needed to survive in San Diego. And if you have more than one job it probably means you aren't getting good benefits (healthcare, vacation, retirement) at either of them. By the time we do vote to a increased city minimum wage of $11.50 when it is implemented (2017) the “livable wage” for San Diego will be way over $14 an hour. But it is very likely that the, “I got mine, why should I pay you yours” lobby will get advertising and the initiative won't pass. We need to make the “softer year” work better for the whole of the city. Why not make incentives for older housing stock to be turned into affordable housing co-operatives. Housing that is for getting people housed rather than investment real estate. Co-operative housing brings vestment in neighborhoods rather than fear of highly increased rents. Members of co-ops know their monthly housing payment (similar to a mortgage) therefore can afford to spend more in “their” community and invest time to help neighbors. The City could ask the County & State to make tax incentives for rental property owners who sell rental complexes at or below market rates to Co-ops for a reduction in their taxes (income and other real estate) for a set amount of time, like 5 years. Win, win, win. City gets more affordable housing, real estate investors get tax break, and low income workers get a chance at lower known home payments. Even more communities become neighborhoods because people can justify investing more into the area they live in.

Sincerely, Daniel Beeman 30 year San Diego worker/resident Clairemont

Don, were you talking about "Q"? Who nows seems to own "Public Radio" too!?!

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FreedomPlease Dec. 28, 2015 @ 8:39 p.m.

2nd page:

And about minimum wage and income. Minimum wage jobs should be for minimum work/skills/experience. Having jobs that require a certificate, licensing, or degree at minimum wage is totally unjustified. And to require the employee to have special equipment to work that minimum wage job also is unfair. That also goes for entry level jobs, requiring 3-7 years of experience on multiple computer programs/machines/languages/etc is not right. We need to have restriction on what jobs can require for “MINIMUM WAGE”. And there probably should be a tier level of minimum wage/income; minimum certificate or licensing $1 more per hour, higher cert./lic. more. Use of personal equipment for work (ie: personal cell phone, laptop/home computer, tools, GPS, vehicle, etc) an additional $1 or 2 per hour {where can you rent ANYTHING FOR LESS THAN $2 an hour?} Businesses have to be taught to be responsible. Going to work has expenses too! Housing of employee costs, transportation to work costs, meals (out) costs, clothes cleaning costs, child/elder care costs, etc. If your wage doesn't even pay the cost of housing then the wage is humanly unfair. And it means that someone else is subsidizing that employer: parents who house working age children at below market rate or government affordable housing programs. Same for would be employees educational costs/student loans, equipment purchase, and vehicle expenses/or public transportation costs. This is the reason the rich keep getting richer and poor keep getting poor. The rich and powerful pay for less of their burden, while we pay for their increased benefits. Wage stagnation and inflation cause the low wage worker to be at a loss, while going into financial debt and ruin. During “slow years” we need to increase affordable housing (cost less to start), increase small business start ups (less regulation & affordable housing helps), and strengthen no/low cost education (providing a better prepared workforce). When one of the “top 20 richest cities in the U.S.” has housing costs going up much faster than incomes and inflation we are no longer “Americas Finest City”, but more like “Land of the haves and have nots”.

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Don Bauder Dec. 29, 2015 @ 8:18 a.m.

FreedomPlease (Dan Beeman): You have many good ideas in your entry. San Diego has indeed failed to do something about homelessness. Ditto for affordable housing. You are correct that even if the higher minimum wage passes, by the time it is implemented it will be insufficient. Best, Don Bauder

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Don Bauder Dec. 29, 2015 @ 8:31 a.m.

FreedomPlease. Absolutely: "the streets tell something different." The streets tell the story of homelessness, but also tell the story about the pitiful lack of infrastructure and maintenance. Yet the ruling class still wants to subsidize the Chargers' billionaire family and expand the convention center into a nationwide glut that has forced center prices down as much as 50 percent. The convention center needs internal repairs -- not external expansion.Best, Don Bauder

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Don Bauder Dec. 24, 2015 @ 6:53 a.m.

AlexClarke: The business community using its friendly mayor to try to stop a rise in the minimum wage was disgusting. Think how much money business interests will pour into that election. Best, Don Bauder

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MURPHYJUNK Dec. 24, 2015 @ 7:49 a.m.

If the economy changes better or worse, our quality of life still keeps being "diluted "

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Don Bauder Dec. 24, 2015 @ 1:30 p.m.

murphyjunk: Economists and politicians concentrate on quantity of life instead of quality of life. Best, Don Bauder

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Flapper Dec. 24, 2015 @ 9:24 a.m.

Even a parasite "knows" better than to suck all of its prey dry. When the Great Shift of wealth happens, who will buy more and more and more TV's, stadiums, and the vast array of trinkets to salve our souls?

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Don Bauder Dec. 24, 2015 @ 1:33 p.m.

Flapper: That is another matter that has been discussed at length on this blog before you joined it. Chief executives making 300 times more than the average worker -- up from 70 times in the 1960s -- forget that their companies need markets. To have markets, companies need a healthy middle class. Best, Don Bauder

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Don Bauder Dec. 25, 2015 @ 10:32 p.m.

Flapper: I believe capitalism is the system that over time works best. But it needs major reform now, or it could possibly self-destruct. (Marx predicted that. So far he has been wrong.) Best, Don Bauder

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Don Bauder Dec. 25, 2015 @ 10:28 p.m.

Flapper: Yes, more than 70 percent of GDP is consumption. The economy is based on consumer spending. But business and government leaders are doing everything they can to steer more money to the richest few, and the middle class -- the consumer base -- is shrinking. Think about. They won't -- until it is too late. Best, Don Bauder

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Don Bauder Dec. 29, 2015 @ 8:35 a.m.

Flapper: The Great Shift of Wealth has already happened. The richest 1 percent hold 42 percent of the nation's wealth. Best, Don Bauder

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pjamason2 Dec. 24, 2015 @ 8:36 p.m.

"Housing affordability is one of the nation’s worst. That’s a reason that domestic migration outflow tops inflow: how many families can afford San Diego?"

The Reader prints article after article filled with quotes from residents opposing any development in San Diego, simply because they got here first. Their parking and traffic concerns trump everything else, because they insist on driving for every trip. No matter that we're setting global temperature records each year as climate change impacts are already being felt.

Along with contributors Barbara Zaragoza and Susan Lazarro, Mr. Bauder is consistently one of the biggest opponents at the Reader to any new housing: http://www.sandiegoreader.com/news/20.... Given this incredible hostility to development, is it any wonder why families can't afford it here? Wealthy homeowners are more concerned with increasing their home values through exclusionary zoning than providing badly-needed housing for their own children.

I've asked the Reader to reference our region's housing crisis when they print development-related articles, yet the one-sided NIMBY pieces keep coming. How about a more balanced approach in 2016?

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Don Bauder Dec. 25, 2015 @ 10:36 p.m.

pjmason2: I think the authors you mention (including me) write more about development subsidization and corruption than on the economic question of whether more development is needed.

Where should more development go? Mission Valley? Best, Don Bauder

1

Flapper Dec. 26, 2015 @ 12:59 p.m.

Greed and need need not be conflated.

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Don Bauder Dec. 26, 2015 @ 10:05 p.m.

Flapper: But they rhyme. Best, Don Bauder

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Flapper Dec. 28, 2015 @ 1:07 a.m.

Just add grr.

But I'm serious. Greed and need ARE conflated. THAT'S the problem. The distinction is crucial, but it's ignored.

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Don Bauder Dec. 28, 2015 @ 12:38 p.m.

Flapper: The crook says his investment will pay 100 percent a year. The potential victim says he NEEDS that much money and buys in. He loses everything.

Another, related point to ponder is the statement by W.C. Fields: "You can't cheat an honest man." Best, Don Bauder

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Flapper Dec. 28, 2015 @ 3:38 p.m.

If I may be so presumptuous as to "correct" you, you have conflated need and greed. The victim may SAY she "needs" that much money, but there is no proof that she needs it vs WANTS it. I must presume that you do "get it," but are just having fun. I'm still serious.

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Don Bauder Dec. 29, 2015 @ 8:38 a.m.

Flapper: When discussing victims of scams purporting to pay 100 percent a year, use "he" and not "she." Men are more likely to be sucked in by greed-centered scams than women. Best, Don Bauder

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Flapper Dec. 29, 2015 @ 8:38 p.m.

Oops! I opened myself up to more digression--nay, displacement activity.

Why can't she (or s/he) be used as a gender-neutral pronoun as well as "he?"

So back to the point. Regardless of the sex of the "victim," when one DEMANDS or lusts after some consumer product that is not essential to life, liberty, and the pursuit of happiness, one is claiming to "need" something that is EXCESS to true needs. This leads to an imbalance of resources out of proportion to fundamental need. Just because we take "prosperity" (and an ever-increasing level of DEMAND) for granted, it does not erase the fact that we are eroding the same resource-base from which true NEEDS are drawn. By fulfilling our fantasies of endless "progress," we are making the potential for meeting true needs scarcer and scarcer.

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Don Bauder Dec. 30, 2015 @ 5:26 p.m.

Flapper: Agreed. When you lust after something you actually have no use for, you are doing just what you suggest. Best, Don Bauder

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Darren Dec. 31, 2015 @ 5:07 p.m.

But Don, you cannot be reporting on the realities of our economy, nor should you be so pragmatic. You need to put your rose colored glasses on, and $ell all of us the Kool-Aid that the economy of San Diego will cease to exist, if the Chargers leave San Diego. :o) Wait, I forgot, you work for the San Diego Reader, not SDUT, UT, Sign-On Charger Diego, or whatever their last name change was.

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Don Bauder Jan. 3, 2016 @ 12:22 p.m.

Darren: But even when I was financial editor, columnist, and senior columnist for the U-T, I opposed both the ballpark and potential Chargers scam. i stated my objections much more cautiously, of course. The Reader has liberated me to say what I really think.

As to the U-T, I paid for stating an opinion opposite to the paper's bias. (The editor of Copley newspapers, Herb Klein, was in charge of publicity for both the Padres and potential Chargers scams. The news was disgracefully slanted in favor of both scams.) My raises were minuscule and I was suspended a week without pay for expressing my views in public. Best, Don Bauder

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Don Bauder Jan. 4, 2016 @ 1:06 p.m.

Flapper: Stiglitz and Reich are saying all the right things about the unbalanced wealth and income distribution. It's a phenomenon that could gravely hurt capitalism. Best, Don Bauder

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