June 01, 2004 Vol. VIII, No. 17

Forecasters See Valley Economy Shaking Off Recession

Northridge Research Center and Chicago Title Issue Second Annual Forecast Tailored to Valley

The San Fernando Valley is shaking off the recession and looking forward to a brighter future in most sectors of the Valley economy, according to the highly anticipated San Fernando Valley Economic Forecast.

Titled "The Recovery: Breakout or More Doldrums?," the second annual forecast is presented by Cal State Northridge's San Fernando Valley Economic Research Center in partnership with Chicago Title.

CSUN economics professor Daniel Blake, director of the research center, worked with Northridge colleagues and students to compile a comprehensive look at the future of the economies of the Valley, the region and the state through 2006.

Issued on May 25 at a Universal City breakfast summit, the forecast includes a discussion of regional and state trends by Mark Schniepp, director of the California Economic Forecast and senior economist with the California Controller's Office. Gary Zimmerman, an economist at the Federal Reserve Bank in San Francisco, offers a look at national manufacturing and high technology trends.

Among the Forecast's Projections for the Valley:

Job Growth
In 2003, 6,250 new jobs--or 1 percent of the total--were added to the Valley's private sector job total, with projections that job growth will burgeon to a 1.7 percent rate during the current year, creating more than 11,000 new private sector jobs by year's end. At least another 11,000 will be generated in 2005. By 2006, the end of the forecast period, more than 17,000 new private sector jobs will invigorate the Valley economy, according to the forecast.

Employment services and temporary help agencies in the professional and business services area will continue to be major jobs contributors. Health and education's 2,800 added private sector jobs in 2003 will be boosted by another 2,800 new jobs--or 3.3 percent--in 2004 and nearly 4 percent in 2006. The Valley's previously ailing information job sector is poised to add jobs at a "healthy" rate of 2.2 percent in 2004, or 2,000 new jobs. By the end of the forecast period, 4,000 more information jobs will have been created.

Construction, leisure and hospitality and trade sector jobs also are expected to make gains.

Higher interest rates will slow financial activity sector jobs to a "still impressive" 2.7 percent rate, or 1,600 jobs--in 2004, easing down to a rate of 1 or 2 percent in the 20052006 period.

Manufacturing will continue to lose jobs due to intense national and international competition. These job losses--largely confined to the durable goods sector--will slow to 2,400 in 2004, from a 3,000 loss in 2003. While manufacturing job losses will continue through 2006, they will drop to just 400 to 500 per year in 2005 and 2006.

Average Salaries and Total Earnings
A return to robust rates of growth is anticipated throughout the forecast period, averaging 5 percent per year.

Consumer Spending
The retail sector will flex its muscles in 2004 as inflation adjusted sales rise nearly 2 percent in 2004 and 2.6 percent annually in 2005 and 2006.

Population and Net Migration
Due to a long-term drop in the birth rate and a stable death rate, the Valley will in 2004 add fewer than 25,000 to its population of more than 1.8 million people, and the growth rate will remain in a 1.2 to 1.3 percent range for the rest of the forecast period. In-migration will remain active in the Valley, but below the boom levels of the late 1990s.

Real Estate
A residential housing price bubble is not foreseen for the Valley within the forecast period, with low supply and high demand still in force, but forecasters advised caution in the face of an expected end to double-digit appreciation.

The rates of residential rents are rising, with vacancies plunging to rates just above recent all-time lows. From 1999 to 2003, the pace of rent increases doubled from the previous five-year period, rising from $899 to $1,191. Normal vacancy rates of 4 to 5 percent are not within striking distance--the Valley's rate currently is less than 3 percent--so upward pressure on rents will continue. At the current pace, rents are expected to register a 6 percent rate increase in 2004. Forecasters believe that continued pressure on living space will drive residential building permits up during the forecast period.

The dynamic rebound from the recession has pushed vacancy rates in the Valley's industrial space market to record lows. Industrial space vacancies, at 3.1 percent, beat the county's 3.3 percent and the nation's 9.2 percent. The recovery also has made inroads into the Valley's office vacancy rate, which stands at 12.1 percent now, down from 14.4 percent last year. Pressure on industrial and office space will increase as the recovery spreads, leading to increases in non-residential building permits--including new building, alterations and additions--in 2005 and 2006, but not at levels set in 1998 and 1999.

Forecast sponsors include Bank of America, Citibank, Wells Fargo Bank, the Economic Alliance of the San Fernando Valley, First State Bank of California, the Los Angeles County Metropolitan Transportation Authority (Metro), Northridge-Porter Ranch Chamber of Commerce, Paris Industrial Parks and Westfield Shoppingtowns.

The Forecast also is supported by The Gas Company, a Sempra energy utility; City National Bank; College of Business and Economics Dean Emeritus William Hosek; Marvin Selter of CMS Inc.; NAI Capital Commercial; Valley Economic Development Center; Kirsch, Kohn and Bridge LLP; and the San Fernando Valley Business Journal. Davis Research LLC is the survey sponsor.

For more information on the Forecast, call Northridge's College of Business and Economics at (818) 677-3621, or visit the Forecast Web site at buslab3.csun.edu/sfverc/ upcoming/forecast.html.

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