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Inside CSULB
Vol 57 No. 11 : June 2, 2005
Vol 57 No. 11 | June 1, 2005

Economic Forecast Predicts Increase
in Job Growth, Softening Housing Sector

CSULB Economic Forecast

A significant improvement in job growth in the Southern California region over the last year has researchers predicting even better growth in 2005 and 2006, according to a new forecast released by the Office of Economic Research (OER) at CSULB.

The 2005-06 Regional Economic Forecast reports the region added almost 92,000 jobs in 2004, growing at a rate of 1.3 percent -- a significant improvement from 2003 when employment was basically flat and 2002 when the region saw a slight loss of jobs. Forecast officials are expecting that improvement to continue in the future with employment growth of 1.9 percent in 2005 and 2.4 percent in 2006.

"You know, it looks like the worst of it is behind us," said Joe Magaddino, chair of the CSULB Economics Department and director of the OER at CSULB. "At the national level, it is very clear that the expansion has taken hold, and this time out the region's employment has tracked fairly close to the nation as a whole. So, we're predicting stronger growth for the nation in terms of employment, and as a consequence, we think we're going to get pretty much of a broad-based growth across a whole variety of sectors."

Now in its 11th year, the annual Regional Economic Forecast covers the five-county region that includes Los Angeles, Orange, Riverside, San Bernardino and Ventura counties. The optimistic report was delivered by Magaddino and Lisa Grobar, director of the forecast, to more than 300 business and civic leaders from throughout the greater Long Beach area on May 19, at the Westin Long Beach.

Despite the positive employment increase within the region, however, the growth was not uniform across all five counties. Los Angeles and Ventura counties struggled with poor job formation while Orange County and Riverside/San Bernardino (the Inland Empire) counties were the primary sources of that growth.

Los Angeles County, which has almost 4 million jobs, managed a gain of just 9,250 in 2004, an increase of just 0.2 percent. Still, it was a solid improvement over 2003 when the county lost 44,000 jobs. The outlook for 2005 and beyond is good with the forecasters projecting the county's job growth at 1.3 percent for 2005 and 1.8 percent in 2006.

"One of the factors that is helping the region is we're not getting the same sorts of job losses that we had before in durable goods manufacturing," Magaddino said, noting that employment in L.A. County's manufacturing sector fell about 8 percent in 2002 and 2003. "Actually, we've estimated that there will be some improvement there this year, some job generation in the manufacturing sector."

Because job growth is the measure for overall economic activity at the state and local levels, much of the forecast focuses on employment figures. This year's forecast, however, had an extended presentation on the region's housing sector, which both Magaddino and Grobar called an "interesting story."

The construction sector created the most jobs in 2004 (25,000) and posted the largest percentage change in employment with a 7.5 percent gain. Most of the employment gain is associated with the housing boom taking place within the region and across the nation. In addition, the region again saw annual house appreciation rates of more than 20 percent in 2004.

"Housing is a big topic, simply because housing prices are going through the roof," Magaddino explained. "The obvious question that people have on their minds is, 'Is this sustainable?' The answer is no. However, how is it going to end? Is going to end with this huge crash? Probably not. We think that rising interest rates will dampen the rate of appreciation. So, we're not looking for a collapse in this area. A soft landing is the most likely outcome for the regional housing market."

What does a "soft landing" mean? Well, it doesn't mean that home values will depreciate. In fact, the forecast is still predicting double-digit appreciation over the next two years, but that number will be closer to 10-15 percent over the next two years, not more than 20 percent.

Grobar noted that there are already signs of that "softening." Sales in 2004 were off from those in 2003, but just slightly. The median time for homes being on the market is up, and the unsold inventory index is rising, particularly in Orange County.

Grobar also noted that the region's housing market is vulnerable should an unexpected "shock" occur - a shock such as the Federal Reserve Board raising interest rates faster than expected because of the declining value of the dollar and/or inflation worries.

"(The softening housing market) does have implication for the employment in the region because there is a portion of the employment that is closely tracked to the housing sector," Magaddino said, "but we think the other sectors of the economy are pretty strong. So overall, we're pretty optimistic about the next two years."
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