By: Gary H. London
As published in the San Diego Business Journal: April 16, 2012

It is that time of year when we are able to present accurate data reflecting the state of our regional economy and employment for the year just passed.

From 2007-2010, it proved extremely challenging to find positive aspects about the economy. Finally, in 2011 we have been able to note across the board improvement in our local economy. In virtually every category of employment in the private sector there has been good news — except for construction.

There has been major upturns in employment in white, gray and blue collar jobs and our employment rate has gradually improved.

Total seasonally adjusted employment change year- to- year (December 2010 through December 2011) was an increase of 18,900 in total, while the nonfarm payroll portion showed an actual increase of 15,700.

We started 2011 with a 10.4 percent unemployment rate and ended below 9 percent. The number is finally trending down after five years of darkness.

First time unemployment claims have also declined. In mid-2010, first time claims had risen to 60,000 in San Diego County and have since receded to 40,000. This also offers up a good sense of the state of the economy because it tracks layoffs — the outfall when companies experience declining sales and revenue.

Sectors Experiencing a Breakthrough

Much has been made about the “diversity” of employment. Diversity matters because existing and ultimately new employment is not tied to a single sector. There is no “where blank goes, so goes our local economy.” Qualcomm matters because it is the largest truly private sector employer which regularly employees over 10,000. This is not nearly as large as General Dynamics’ dominance of our local economy four decades ago when it regularly employed upwards of 20,000 persons.

But it matters in a different way: It is the technological way station to other companies in a “cluster.” In the case of Qualcomm, it is the information technology cluster, which makes up a large employment block locally.

We have other clusters in both general technology and biotech or pharma technology. They are big economic placeholders in our region and should get bigger as the general economy improves.

What supports this picture of improving economic health is across the board growth in business services and improvements in the tourist sector. There are lots of subsets to the story of our economic future.

One critical issue is the increasing disparity between the types of jobs and their concomitant low wages (e.g. tourism) compared with the cost of living. This is played out on the national stage as the so called “decline” of the middle class.

The other important issue is education. With huge budget cuts, coupled with higher tuition in public universities, the “rub” will eventually be felt in our local economy because a less educated workforce means a low skilled workforce. A public discourse on this is critical.

The key sector that is still bad is construction. Construction and its multiple tentacles (which include real estate brokers, finance, development and consultants) in the past have accounted for a major part of the economy. This past year, only 2,200 new detached homes were permitted, compared with 10,000 new homes in 2005. And condominium construction has been negligible.

The numbers in this sector are not likely to rise quickly, and certainly not until existing inventory is re-stabilized as to value and absorption results in vacancy clearing.

Foreclosures/trustee sales have substantially declined, although they still account for 35-40 percent of all resales. Last year there were 12,000 homes foreclosed. This year, that total may decline to 9,000.

Demand drives new construction. But new construction trails an oversupply of existing inventory. First the inventory “clearing” must be completed — new construction will follow.

The scarcity of developable land has not yet impacted the market. It will. The overarching point is that the number of lots and land with approvals in place that are currently available to the building community is dramatically below the level needed to sustain the marketplace and certainly cannot sustain a construction industry.