Some regional experts date slump to spring ’07
By Dean Calbreath / The Union Tribune / December 3, 2008
Although the nation’s leading economists have determined that the national recession began in December 2007, regional economists are split over when San Diego County slipped into recession.
Some mark the beginning of the recession as early as spring 2007. Others say it did not begin until spring of this year. But they agree that the county – like the nation – is likely to remain in recession at least through the first half of 2009.
That view is bolstered by the region’s latest index of leading economic indicators, released yesterday by the Burnham-Moores Center for Real Estate at the University of San Diego. The index plummeted 2.3 percent in October – the biggest monthly decline in the 17-year history of the index.
“What that says is that there’s no end in sight as far as the downturn is concerned,” said USD economist Alan Gin, who compiles the index. “And there’s at least a little bit of worry that things could be accelerating on the downside.”
The USD index was released a day after the National Bureau of Economic Research said the nation’s economy had been in recession since last December, based on declines in income levels, employment, retail sales, manufacturing production and other indicators.
There is no firm definition for what constitutes a recession in a county or regional economy. And much of the data for regional economies lag far behind the national data. As a result, economists often differ when trying to estimate when a regional recession begins. But according to an informal survey of local economists, San Diego County fell into recession between June 2007 and March 2008.
“I’d date it back to June 2007,” Gin said. “That’s when the unemployment rate started surging. Before that, it was below 4.5 percent, but then it jumped toward 5 percent and then 6 percent.”
Most economists agree that San Diego’s economy started slowing earlier than the nation’s because of the effects of the housing bubble, which were felt earlier in Southern California than in most other parts of the nation.
The decline in housing prices led to unemployment among construction workers, mortgage brokers and real estate agents and cutbacks in sales at furniture and home improvement stores. Over the past year, the effects have spread through other sectors of the economy.
Economists previously hoped that San Diego’s early entry into a slowdown meant that the county would be able to recover earlier than other regions. But the depth of the national recession and the constriction in credit have darkened that outlook. Few economists now believe that the county will recover before the nation as a whole.
The sharp decline in the USD economic indicators suggests that the economy will continue to decline through at least the next six months. All six of the measurements used in the index were negative in October:
Residential building permits declined by more than 50 percent over the past year, largely because of a sharp drop in apartment and condominium construction.
Help-wanted advertising, measured by an index maintained by the online employment service Monster.com, dropped 20 percent during the year. From October 2007 to October 2008, employment fell by 12,200 jobs, nearly a 1 percent drop. Nationwide, 1.2 million jobs have disappeared this year.
Nearly 25,000 county residents filed initial claims for unemployment in October, compared with 16,000 in October 2007. The jobless rate jumped from 4.8 percent in October 2007 to 6.8 percent in October, the highest level since July 1995.
The barrage of bad news on the economy, housing and the financial markets continues to take a toll on local consumer confidence, which can put a dent in retail sales.
Local stock prices plummeted in October. The tech-laden Nasdaq index, where most local stocks are listed, fell 17 percent during the month amid huge volatility.
The national Index of Leading Economic Indicators has fallen three of the past four months.
Gin predicted that the recession will last at least an additional six months, for a total length of 20 to 24 months. “But that’s still shorter than the recession of the early 1990s, which lasted two or three years in San Diego because of all the layoffs in the aerospace industry,” he said.
Kelly Cunningham, economist at the San Diego Institute for Policy Research, also said the local recession probably began in spring 2007, based on a year-to-year decline in retail sales.
On an inflation-adjusted basis, retail sales began dropping in spring 2006, Cunningham said. But by mid-2007, retail sales were dropping even without an adjustment for inflation. In the second quarter of 2007, retail sales in San Diego County totaled $8.59 billion, compared with $8.7 billion a year before.
Consumer spending is a key indicator of economic growth. “The decline in the housing market didn’t necessarily put us into a recession, but when retail sales decline, that’s a pretty good indicator,” Cunningham said.
According to reports by the National Conference of Mayors, San Diego County’s gross metropolitan product grew by 1 percent in 2007, compared with 3.4 percent the year before. Because the beginning of 2007 had stronger growth than the end of the year, it is possible that growth in the second half was negative, Cunningham said.
Cunningham predicted the recession will last well into 2009.
“For the nation, some economists are saying that the economy could bottom out by the second quarter – and I don’t think there’s any reason San Diego would be any different,” he said. “But even after we hit bottom, it doesn’t seem like there will be any quick bounce-back to this recession. I think it will be a while before we see any real growth.”
Marney Cox, economist at the San Diego Association of Governments, suggested that the county’s recession began last December or January, when employment hit a peak. That would place the local recession about in line with the national recession.
“After that point, we started to see fewer jobs available and rising unemployment rates,” Cox said. “That’s when we began to see people who wanted jobs just sitting on the sidelines because there weren’t enough jobs available.”
Cox predicted that the national and local economies will remain in recession at least through September.
“There’s a lot of pain ahead of us,” he said. “Even though some areas will continue to grow – such as health care, education and hospitality – that won’t be enough to offset contractions in retail and continuing weakness in real estate and finance.”
Esmael Adibi, economist at Chapman University in Orange, said a large swath of Southern California, led by Riverside, San Bernardino and Orange counties, was in recession by June 2007, based on rising unemployment and declines in hiring.
Using employment growth as a guideline, he said San Diego County probably did not enter a recession until early this year. Based on data from the state Employment Development Department, the county’s year-to-year employment growth did not turn negative until March.
Even though Adibi disagrees with some peers about when the recession began, he has no doubt about how deep it has become.
“Right now, looking at the 10 largest metropolitan areas in California, it’s clear that everyone’s in recession except for Santa Clara and San Francisco counties, which had a much smaller percentage of the work force tied to real estate and construction,” he said. [Go here for the original article.]
Dean Calbreath: (619) 293-1891; dean.calbreath@uniontrib.com
{ 0 comments… add one now }