The prediction is that the local economy will rise by 1.8 percent in 2018.
  • The prediction is that the local economy will rise by 1.8 percent in 2018.
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Three months ago, San Diego economist Kelly Cunningham was concerned that San Diego might lead the state and nation into a recession in 2018. Back then, he thought this year’s local economy would grow by a mere 0.2 percent, following a meek 0.3 percent in 2016.

San Diego County hotel guru Jerry Morrison says tourism should have a good year.

San Diego County hotel guru Jerry Morrison says tourism should have a good year.

Now Cunningham is feeling much better. He is predicting that the local economy will rise by 1.8 percent in 2018. The difference is in military spending. Both military presence and defense contracting had been declining. Now, increased military spending will be the engine of San Diego growth, says Cunningham.

If the United States leaves NAFTA, San Diego would get hit hard, says San Diego economist Kelly Cunningham.

If the United States leaves NAFTA, San Diego would get hit hard, says San Diego economist Kelly Cunningham.

Local aerospace contractors are in booming fields: cyber security, intelligence surveillance, defense-related electronics and software, and unmanned aerial systems.

“The housing market could be impacted with changes in the tax law,” says Lynn Reaser, former chief economist at Bank of America and Wells Fargo.

“The housing market could be impacted with changes in the tax law,” says Lynn Reaser, former chief economist at Bank of America and Wells Fargo.

Overall, jobs will go up 1.8 percent, compared to 1.6 percent this year, as the unemployment rate “remains about the same — about 4 percent,” says Cunningham.

Lynn Reaser, former chief economist at Bank of America and Wells Fargo, and now an adjunct professor of economics at Point Loma Nazarene University, hasn’t made her forecast yet but says that the San Diego economy “will be favorable next year. The military will benefit from the increased number of ships coming to San Diego. There will be increased demand for medical care, and tourism should benefit from a softer dollar and strong currencies overseas. Technology should benefit from more demand for biotech.”

She is concerned about one thing: a labor shortage. Farm and construction jobs could be hurt by a tougher immigration policy, for example.

Phil Blair, executive officer of Manpower San Diego, which connects employers with potential workers, says there is a shortage of workers in “skilled information technology and engineers across the board.” Light manufacturing jobs can be tight, too. The East Coast weather disasters have created a lot of high-paying jobs for construction workers such as drywallers and roofers. And peripatetic construction workers have always done what Watergate sleuths did: follow the money.

Somewhat surprisingly, there is a shortage of people making between $11.50 (the current minimum wage) and $14 an hour. Recreational pot becomes legal on January 1st. Only 10 percent of Manpower’s clients don’t give drug tests. From experience in other markets his company serves, Blair suspects the failure rate for potential employees will rise to 25 percent. The local Manpower branch is sending out letters to 3800 associates saying that on January 1, “It is your right to partake socially if that is your choice, but we will continue with drug tests. Marijuana stays in your system 30 to 45 days. We want people who are stable, can commit to long-term assignments, can go to work every day.”

San Diego’s home values could rise even higher in 2018.

San Diego’s home values could rise even higher in 2018.

San Diego County hotel guru Jerry Morrison says tourism should have a good year. The hotel occupancy rate may dip very slightly, from 78.5 percent this year to 78.4 percent. But the average daily room rate should rise from $160.82 this year to $164.55 in 2018. Revenue per available room should rise from this year’s $126.24 to $129.06. Still, we lag behind San Francisco and Los Angeles in key stats. The occupancy rates in those two markets should be more than 81 percent next year. San Francisco’s average daily room rate should be a whopping $238.40. “San Diego will do well, although not dramatically so,” says Morrison. “We should have a 2 percent to 2.5 percent rise in rates, but occupancy will be pretty much flat.”

There are almost 200,000 jobs in leisure and hospitality fields, and that figure should continue rising next year, says Cunningham. Visitor spending this year is 4.7 percent above spending in 2016 and should continue rising next year.

One negative concerns the North American Free Trade Agreement (NAFTA). President Trump wants to renegotiate it. If the United States leaves the agreement, San Diego would get hit hard, says Cunningham. In particular, there is a lot of electronics trade between the United States and Mexico. “Backing out of NAFTA would slow that down,” says Cunningham, and would also hurt the nation’s auto market.

A big question mark is housing. San Diego’s median home price is $530,000, up almost 10 percent from the previous year. The House and Senate have not yet agreed upon the new tax law, but it is certain that housing will lose some tax breaks. For example, one purpose of the proposed legislation in Washington is to have fewer people take itemized deductions. That could result in a decline in housing prices. If the mortgage interest deduction is lowered or eliminated, housing values could drop. “The housing market could be impacted with changes in the tax law,” says Reaser, “at least at the higher end.” And compared with national markets, other than coastal California areas, San Diego’s home prices are at the high end.

Cunningham takes a different view: less generous deductions “could make housing even less affordable,” says Cunningham. High-tax states such as California will be hit hardest. “It’s kind of frightening. It will discourage building — there will not be as much profit motive in building. With all the bureaucratic hassle we have already to build, there will be even fewer reasons to build. Housing prices will probably go up even more. There will be a limitation on supply, and already we don’t have enough supply.”

Of the 35 largest markets in the nation, in only 4, including San Diego, do renters pay more than 40 percent of their incomes for rent. “That percentage may even go up in a tight market,” says Cunningham, although there could be more commuting to Mexico and Riverside County, as well as people doubling and tripling up.

In recent years, 14,000 people a year have been leaving San Diego (domestic migration), “but with better employment prospects, it will go down to 9000,” says Cunningham. On the other hand, even higher housing prices could keep people moving out.

Where should you put your money? You get almost a zero return from banks, savings and loans, and money market funds, and bond yields are also very low. Playing commodities is like going to Las Vegas, in my opinion.

“The Federal Reserve will be raising rates three times, maybe four,” says Reaser. Higher rates should make bonds and bank savings more attractive. “The stock market should benefit from higher after-tax profits [a result of the dropping of the corporate tax rate]. The stock market is likely to see a more modest gain. There is bigger risk,” she says. “All asset prices are at lofty levels.”

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Comments

JustWondering Dec. 20, 2017 @ 8:04 a.m.

This is going to get interesting in 2018.

My neighbor, who just bought his home, is paying over $14K a year in property taxes alone wiping out his 10K SALT deduction limitation in the new tax cut plan. He paid more than $1.2M for the house and then did further improvements. So he could lose some of his mortgage deduction depending on how much was financed. And, I betcha he doesn’t realize it going to happen.

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Don Bauder Dec. 20, 2017 @ 10:27 a.m.

JustWondering: And if he did vote for Trump, he is probably still backing him despite the majority opinion of psychologists and psychiatrists that Trump is a psychotic narcissist.

If I were a rightwing Republican, which I once was, I would not support him because of the dangerous foreign situation and fear of him reacting irrationally. Best, Don Bauder

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JustWondering Dec. 20, 2017 @ 10:56 a.m.

I doubt it. He and his wife are VERY liberal.

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Don Bauder Dec. 20, 2017 @ 6:45 p.m.

JustWondering: If that is true, he is committing one of the great political shams of all time. I don't think Trump has any ideology. He just says and thinks whatever he believes will register that minute. That is one reason his lying is so transparent. He says one thing to a cheering crowd in Younrgstown. He says just the reverse, the next day, to a cheering crowd in Nashville.

This behavior is typical of a sociopath -- one devoid of a conscience, which he is.

If he is very liberal, as you say, that has nothing to do with his launching an insane war. That would be a reflection of his pscyhological makeup, not any ideology. Best, Don Bauder

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JustWondering Dec. 20, 2017 @ 8:16 p.m.

Don, my comment he and his wife are very liberal was referring to my neighbor, not the President.

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Don Bauder Dec. 20, 2017 @ 9:02 p.m.

JustWondering: Oh, I really blew it. However, my remarks about Trump's stability remain. And that frightens me. Best, Don Bauder

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Don Bauder Dec. 20, 2017 @ 10:23 a.m.

JustWondering: Well, this tax bill was snuck through without hearings. Nobody -- including those in Congress who voted for it -- is sure what is in it. Best, Don Bauder

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JustWondering Dec. 20, 2017 @ 11:11 a.m.

Sounds just like Pelosi’s infamous statement as speaker of the House, on the 2010 ACA (Obamacare) legislation. “But we have to pass the [health care] bill so that you can find out what’s in it....” Look how well Obamacare turned out over the last several years! (Sarcasm intended).

Between Obamacare and this “tax cut” I may not be able to afford my government. I’m getting really tired of politicians who do what’s right for them, and not what’s right for the Country ....on both sides of the aisle.

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Don Bauder Dec. 20, 2017 @ 6:48 p.m.

JustWondering: People with means think ACA is a disaster. Those with pre-existing conditions, and those who are poor, like it. It doesn't matter now. The tax bill has probably killed it, with no replacement in sight. Best, Don Bauder

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JustWondering Dec. 20, 2017 @ 8:35 p.m.

I disagree. The only thing the tax bill explicitly does to the ACA is eliminates the tax “penalty” for not buying health insurance.

Something Chief Justice Roberts said about election consequences. When he wrote, “Because the small fee "looks like a tax," he wrote, the individual mandate could stand on the basis of Congress' broad power to tax.” It, in my opinion, reverses this onerous interpretation of the law where the government forced its citizens to buy something and restored the freedom of choice. Roberts also said, and I’ll paraphase here, ...if you don’t like the interpretation, change the government or change the law... So, as President Obama once gleefully remarked, “..elections have consequences.”

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Don Bauder Dec. 20, 2017 @ 9:04 p.m.

JustWondering; Yes, he is gleefully changing the government even though only 35 percent support him, according to polls. Best, Don Bauder

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AlexClarke Dec. 20, 2017 @ 8:17 a.m.

The typical hourly job in San Diego pays $12 -$14 an hour for 30 hours as listed on Manpower San Diego's job list. There are some jobs in the $14 -$17 hour rate. To put this in perspective a Walmart worker getting paid $11 an hours, 40 hours a week is $22,000 a year. With the average rent at $1800 is $21,600 a year. Two Walmart workers would have to live together just to survive and they still would be below the poverty level and still need welfare to get by. One of Manpowers's $14 an hour jobs (advertised at 30 hours) puts them at the same income level as a Walmart worker. Even with the so called middle income tax cut most of the non salaried jobs will leave the 200,000 restaurant, hotel, tourist and service employees living well below the poverty line. In San Diego the middle class does not include anyone who is employed by the hour. The Tax Bill my lower the payroll taxes but for those working in the $11 - $15 range the money will not result in enough increase in income to enable those workers to buy a coffee at Starbucks.

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Don Bauder Dec. 20, 2017 @ 10:35 a.m.

AlexClarke: I have been covering the San Diego economy for more than 40 years. (I started in 1973.) I have never figured out how some people, such as Wal-Mart employees, survive. The best explanation is that they are young people who double- and triple-up. Living in Mexico may be an explanation, but living in Riverside County is questionable. Or they may be older people who have retirement income.

Making it worse, some of the low-paying employers fix schedules so employees cannot get a second job. Best, Don Bauder

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Don Bauder Dec. 22, 2017 @ 7:59 a.m.

AlexClarke: I should have mentioned one other thing: young people still living at home. Best, Don Bauder

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jnojr Dec. 21, 2017 @ 11:03 a.m.

...and?

Anyone who finds they cannot afford to live in San Diego is always free to move. Those same Wal-Mart workers in many other places are easily paying rent, or even buying. Now, I know what happens next... the moans of, "If all of these people leave, who will flip your burgers and mow your lawn and clean your toilets?" Easy... look at what happened in North Dakota during the shale oil boom. The effective minimum wage rose, WITHOUT ANY GOVERNMENT ACTION, to over $17 an hour.

But when you have a lot of uneducated, unskilled people; low- and un-skilled work simply is not going to pay much, and no law in the world can change that. If you find your labor to not be worth what you feel it should be worth, it's up to you to learn a new skill or move to where your labor has more value.

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Don Bauder Dec. 21, 2017 @ 9:30 p.m.

jnojr: I agree that low- and un-skilled work is not going to pay well. But I think a minimum wage or living wage is a good idea to help those people. They can't afford to move and wouldn't get more pay in a new location. They should get enough to survive. Best, Don Bauder

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Cassander Dec. 20, 2017 @ 9:29 a.m.

"The military will benefit from the increased number of ships coming to San Diego. There will be increased demand for medical care, and tourism should benefit from a softer dollar and strong currencies overseas."

Between the extra military personnel increasing demand for housing and extra tourism encouraging more landlords to turn their long-term rentals in Airbnbs, there won't be anyone left who can afford to live here and be employed in most sectors of the economy. And increasing interest rates will sink those who have to take on credit card and other debt to make ends meet.

A good year next year? My Magic 8-Ball says, "Don't count on it."

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Don Bauder Dec. 20, 2017 @ 10:47 a.m.

Cassander: Ah, a Cassandra. You might have added that the city council has tied itself in a knot trying to figure out what to do about rental houses (Airbnb is one example.) Personally, I don't think the Fed will raise interest rates very much. It can't. There is too much private and public debt out there.

Trump is a fool to keep talking how he drove the economy up and the market up. Actually, stocks have been rising steadily since early 2009, after the Fed brought short rates to zero. So have bonds. Obama was smart enough not to take credit for the markets' and economy's health. Presidents don't play a big role in either of those. The Fed is the big mover. If the stock and/or bond market tanks, Trump will say he never took credit for their increase. His supporters will believe him. Best, Don Bauder

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AlexClarke Dec. 20, 2017 @ 12:27 p.m.

Don FYI

San Diego County Area Median Income (AMI) and Income Limits

2017 Area Median Income (AMI) for San Diego County is $79,300

San Diego County Income Limits Effective April 14, 2017 FAMILY SIZE 80% of AMI Low Income 50% of AMI Very Low Income 30% of AMI Extremely Low Income 1 50,950 / 24.50 hr 31,850 / 15.31 hr 19,100 / 9.81 hr 2 58,200 36,400 21,800 3 65,500 40,950 24,550 4 72,750 45,450 27,250 5 78,600 49,100 29,450 6 84,400 52,750 32,960 7 90,250 56,400 37,140 8 96,050 60,000 41,320

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Don Bauder Dec. 20, 2017 @ 6:53 p.m.

AlexClarke: The median income of $79,300 (higher than the U.S. median) sounds good until you realize that the cost of living is one of the highest in the nation -- particularly the cost of housing.

We have a differences here among our economists on whether housing prices will go down or up under the new tax bill. If it goes down, that will actually be good for the local economy. Best, Don Bauder

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jnojr Dec. 21, 2017 @ 10:58 a.m.

All we have to do to avoid being "punished" is to vote for lower taxes.

Why should the rest of the nation subsidize high-tax states like California? If we want to pay higher taxes, we should pay higher taxes, not try to get others to pay them for us. But that's the foundation of the Democratic Party... how to get their mitts on as much of OPM as possible.

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Don Bauder Dec. 21, 2017 @ 9:35 p.m.

jnojr: So you agree that the new tax bill deliberately punishes the high tax, Democratic states -- California, New York, New Jersey? You mean politics entered into the tax law? Hmmm.Best, Don Bauder

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Don Bauder Dec. 21, 2017 @ 9:23 p.m.

Jeremy Landry: The unemployment rate is calculated by comparing people working with those in the work force. People who don't want to work are not in the work force. I think that answers your question about the homeless. Few if any are looking for work, so they are not included in unemployment figures.Best, Don Bauder

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Bob_Hudson Dec. 24, 2017 @ 8:12 a.m.

Did Manpowers HR department watch Reefer Madness before writing this policy?

"The local Manpower branch is sending out letters to 3800 associates saying that on January 1, “It is your right to partake socially if that is your choice, but we will continue with drug tests. Marijuana stays in your system 30 to 45 days. We want people who are stable, can commit to long-term assignments, can go to work every day.”

And this is a too kind a synopsis of a company that got very rich providing business with easily expendable labor: "Manpower San Diego, which connects employers with potential workers..."

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Don Bauder Dec. 25, 2017 @ 1:23 p.m.

Bob_Hudson: I don't see how a company like Manpower can NOT provide easily expendable labor, even though it might not attempt to do so. Best, Don Bauder

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