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For the San Diego economy, 1997 will turn out to be one of the best years of the 1990s. Jobs, construction, and home sales increased sharply compared to the depressed levels of recent years. Negative variables such as the unemployment rate and initial claims for unemployment insurance are approaching lows not seen in many years. Despite the good news, memories of the recession of the early 1990s remain in many peoples' minds. So just how solid is this recovery, and is it likely to continue in the future?
The University of San Diego’s Index of Leading Economic Indicators for San Diego County is designed to forecast the performance of the local economy six to nine months into the future. Through September 1997, the Index had increased for 30 consecutive months. The duration of this advance and the solid gains registered point to moderate to strong growth in the region's economy for 1998. The outlooks for various elements of the local economy are as follows:
Employment
The outlook for the labor market is very encouraging. For workers, 1997 was a very good year. Through the third quarter of the year, more than 25,000 jobs had been gained countywide compared with the same period in 1996. The county's unemployment rate for October 1997 was 4.3 percent, a level that has not been seen since early 1990. For 1998, the University of San Diego is forecasting another good gain of 24,000 jobs from the 1997 level.
Particularly encouraging is that many of the new jobs will be in the high-paying sectors of the economy. Leading the way is a resurgence in manufacturing. Gone are the days when manufacturing in San Diego meant aerospace production, led by General Dynamics. The manufacturing base has become more diversified, and that will benefit San Diego in the years ahead.
The manufacturing sectors that are expected to do well in 1998 are the same ones that did well in 1997. These include household audio and video equipment, with the San Diego-Tijuana region becoming the world's largest producer of televisions. High technology in the form of computers and telecommunications equipment should also do well. Sports equipment, specifically golf clubs and such, is another area in which San Diego is developing a niche. Even aerospace manufacturing will make a comeback, as the Space and Naval Warfare Systems Command (SPAWAR) program spends billions of dollars in the region, a lot of it on salaries.
Residential Construction
Residential units authorized by building permits will approach the 10,000 mark in 1997. While this is a far cry from the average of 25,000 units in the late 1980s, it will be the highest number since 1990. And 1998 should be even better. The University of San Diego is forecasting that 11,200 residential units will be authorized next year.
The boom in construction indicated by increased building permits has important implications for the local economy. Not only will there be an increase in high-paying construction jobs, but also in related areas such as real estate and finance. Once the units are built and sold or rented, the new occupants will spend money on items such as furniture, appliances, and home improvements. Thus, the ripple effect on the entire economy is substantial. Also, the higher level of construction will help ease, if only slightly, the tightness in the housing and rental markets.
Tourism
Tourism should have another good year in 1998. The Super Bowl will provide a big boost in January as fans from all over the country and from the visiting teams (sorry, Chargers fans) come to San Diego. As for the rest of the year, things should remain very solid. However, with tourism and visitor spending already at very high levels, it will be difficult to achieve strong comparisons with 1997.
In the intermediate term, tourism will continue to be one of the strongest sectors of the local economy. Hotel construction will increase the number of rooms available and help keep room rates from skyrocketing. An expanded Convention Center would allow San Diego to attract more and larger conventions. And looking into next year, the opening of Legoland in Carlsbad in the spring of 1999 will give tourists a reason to stay an extra day in the region.
Potential Problems
While most of the news is good, some negatives should be kept in mind. Ironically, one is the booming job market. The low unemployment rate has meant that some sectors, such as construction, are having difficulties finding skilled workers. The tightness in the labor market is likely to continue in 1998, and could lead to upward pressure on wages. This would mean higher incomes for workers but higher costs for businesses.
The economic crisis in Asia also poses some potential problems. San Diego firms, such as those in technology that have been dealing in Asian markets, will see their sales adversely affected. Tourism from Asia also will be affected as economic growth slows. Closer to home, the events in Asia could spill over to Latin America, which would have a greater impact on San Diego. Finally, the problems in Asia are expected to slow economic growth in the United States, which would hurt local companies that deal with a national market.
Don't Mind The Potholes
All that said, it appears that 1998 will be another good year for the economy of San Diego County. While there are some potholes that may prevent a completely smooth ride, the positives are likely to far outweigh the negatives. Given the rough years experienced here in the early 1990s, this should be welcome news to most San Diegans.
Alan Gin is associate professor of economics at the University of San Diego.
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