May 27, 2003 Vol. VII, No. 17

Cautious Economic Outlook at CSUN's Forecast Conference

Economics Professor Daniel Blake Says Valley Can Expect Modest Job Growth, Continuing Rise in Real Estate

Three respected economists offered a cautiously positive outlook on future economic trends in the San Fernando Valley, Los Angeles County and the nation during Cal State Northridge's inaugural San Fernando Valley Economic Forecast Conference at the Sheraton Universal Hotel.

The May 14 event, presented in partnership with Chicago Title, marked the first time Cal State Northridge has turned to economic forecasting for the region. Prior to this year, the university only had produced annual and much anticipated reports on current conditions and recent trends in the Valley. Those reports will continue.

About 200 guests turned out to hear Daniel Blake, CSUN professor of economics and director of the university's San Fernando Valley Economic Research Center, provide an in-depth overview of the San Fernando Valley economy. Blake predicted modest growth overall, but continued vibrancy in real estate.

"Economic growth in the San Fernando Valley will remain modest in 2003, as labor markets produce some new jobs, mostly in the services sector," Blake said. "New job gains are limited by the lack of housing and infrastructure constraints. The retail climate will stay sluggish this year, picking up in 2004 as the California and national economies strengthen.

"Real income in the Valley rises throughout the forecast period, with population growth minimal over the next two or three years," Blake said. "Migration will be greater out of the Valley than into the Valley through 2006, and birth rates do not begin to turn up among the resident population until 2006. The rate of job creation in the Valley continues to be the dominant influence on general population growth.

"As for employment, the San Fernando Valley economy was hard-hit by the recession of the early 1990s, shedding 46,000 jobs or 7.5 percent of its private sector employment in the first two years, with the manufacturing sector being hardest hit. From the 1993 employment trough of 567,000 jobs, the Valley added 100,000 jobs through 2001. While some of this job growth reflected the re-creation of jobs lost in the downturn, most of these jobs were new and represented substantial changes in some Valley industries.

"The lost manufacturing jobs have not and will not return to the Valley," the professor said. "In place of those jobs, Valley service sector jobs rose dramatically from 228,000 in 1993 to approximately 310,000 today and will continue to expand. In total, about 3,000 new jobs will be created in the Valley this year, and 6,300 in 2004.

Turning to the local real estate market, Blake said, "Fears of a housing price bubble in the Valley are unfounded. The median Valley home price last year was $321,000, and is anticipated to rise another 7 percent this year, with modest 2 percent inflation-adjusted appreciation expected in 2004 and 2005.

"Development of new residential housing will continue at roughly its current pace, but the mix of new housing provided continues to shift decidedly in favor of condominiums and apartments, with Generation Y growing older and needing housing, and less developable land available. The increased density of future Valley development may further congest public facilities and tax existing infrastructure," Blake added.

Professor Blake included in his presentation the results of a recent study undertaken by his center, with the assistance of Davis Research and J.D. Power and Associates, of some 600 businesses in the Valley. Results were consistent with the expectations of the overall forecast.

For a look at the Los Angeles County economic forecast, CSUN turned to Mark Schniepp, director of the California Economic Forecast and senior economist in the California State Controller's Office.

"Economic growth in Southern California in general was impressive in 2002, compared to the northern half of the state," Schniepp said. "Employment in services such as health care, retail trade and professional services remains strong. However, employment growth in the export sectors‹manufacturing, motion picture production, and wholesale trade‹remains weak.

"For the current calendar year, Los Angeles County job growth, per capita income, and consumer spending will be positive, but limited. A return to the hyper-expansion scenario that characterized 1999 and 2000 should not be expected."

But because of housing shortages throughout much of the county, Schniepp said labor markets cannot expand with much momentum. Employers may want to hire, but large numbers of workers will not and cannot relocate into many areas of Los Angeles County.

"High costs of doing business in the City of Los Angeles and in many parts of the county will continue to induce defections to inland counties, or to the Santa Clarita and Antelope Valleys. Small business growth becomes the dominant method of economic expansion in much of Los Angeles County now and for the foreseeable future," Schniepp said.

Sung Won Sohn, executive vice president and chief economic officer for Wells Fargo Bank, led off the morning's presentation with an overview of the national economy. He said consumers at the lower end of the income spectrum have been keeping the economy afloat, partly through refinancing. But that trend cannot continue.

"Consumers are tapped out and pent-up demand is very limited. The economic baton needs to pass from consumers to businesses. Unfortunately, capital spending has been lackluster. Almost half of total capital spending comes from utilities, telecom, autos, housing and financials. It is hard to see these industries boosting capital spending significantly.

Turning to the stock market, Sohn said, "Investors are not convinced that the economy will be turbocharged anytime soon. Recent optimism in the markets does not portend another bull market yet. There are similarities between the 1968-1974 bear market and the recent plunge in equity prices.

In addition to Cal State Northridge and Chicago Title, conference sponsors included media sponsor the Daily News and founding sponsors Arter & Hadden LP; Bank of America; Citibank; City National Bank; Economic Alliance of the San Fernando Valley; First State Bank; Kirsch, Kohn, Bridge; Marvin R. Selter; Paris Industrial Parks; RAP Communications Inc.; Sternberg, Horner and Associates; The Gas Co.; Told Partners; Valley Economic Development Center; and Wells Fargo Bank.

Additional information concerning the San Fernando Valley Economic Forecast is available by calling Debi Klein in the College of Business and Economics at (818) 677-3621.

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