Presented by Beacon Economics
Welcome to The Regional Outlook, a forecast for five of California’s largest regional economies. Each quarter, find updated analysis that goes beyond the state and national level to present a snapshot of employment, home prices, consumer spending, personal income, and other leading economic indicators within key areas of the state. Visit your region of interest and subscribe for email delivery.
Despite growing at a slower annual pace in October 2019 than California’s other major metropolitan areas, Los Angeles County continues to add a substantial number of jobs to its massive employment base. Additionally, multifamily construction activity in the region continues to grow above trend, while the single-family construction market remains lackluster.
LA Education, Health Industries A Dominant Force
From October 2018 to October 2019, total nonfarm employment in Los Angeles County grew by 1.3%, slightly outpacing neighboring Orange County (1.2%), but tracking below the Inland Empire (2.0%), San Diego (2.0%), and the state as a whole (1.8%). Although employment growth in Los Angeles was below other major metros, the 1.3% annual growth in October 2019 tracks closely with the region’s average post-recession annual growth of 1.4%.
In absolute terms, the region’s massive addition of 58,900 jobs over the past year leads all metros in the state. Additionally, Los Angeles sustains the largest employment base of any region in California, with 4.58 million positions as of October 2019. By contrast, the Inland Empire, the second largest major metropolitan region in terms of total employment, recorded an employment base of 1.55 million positions, significantly less than Los Angeles.
Los Angeles County’s unemployment rate remained steady at 4.4% in October 2019, down 0.3 percentage points from the same period one year earlier. Los Angeles has a higher rate of unemployment than the state’s other major metropolitan areas, although year-over-year declines in unemployment have been roughly equal in all of California’s major metro areas. Los Angeles remains the only major metro to record an unemployment rate higher than the statewide average of 3.9%.
Consistent with the previous five-year trend, Construction sector employment in Los Angeles has remained strong, growing 5.3% year-over-year in October 2019 and adding 9,400 workers. Similarly, the Education & Health Services sector, the largest sector in Los Angeles County employing 17% of the total workforce, added a substantial 34,300 new jobs from October 2018 to October 2019, an increase of 3.3%. Employment in the Leisure & Hospitality sector, another major employment base in Los Angeles at 12% of the total workforce, recorded impressive year-over-year growth at 2.6%, or 11,700 new positions.
While the majority of industries in Los Angeles experienced positive employment growth, the Information sector contracted the most in percentage terms, declining by 4.6% year-over-year in October 2019, a loss of 11,600 jobs. This decline roughly cancels out the gains observed in the Leisure & Hospitality sector over the same period. And as e-commerce continues to grow as a heavily utilized channel for personal consumption expenditures, Retail Trade employment in Los Angeles declined for the 17th consecutive month in October 2019, shedding 3,600 jobs over the year.
Residential Construction A Mixed Bag
Home price appreciation in Los Angeles County has been moderating over the previous four quarters. However, from the third quarter of 2018 to the third quarter of 2019, the median price of an existing single-family home in Los Angeles County increased by 3.1% to reach $642,000, representing a reversal of this declining trend. Additionally, growth in Los Angeles’s median home price over this period outpaced growth statewide (2.2%) and in every other major metro with the exception of the Inland Empire (4.8%).
On a year-over-year basis, sales of existing single-family homes in Los Angeles edged up to 1.2% in the third quarter of 2019, marking the first positive growth recorded since the fourth quarter of 2017. With the Federal Reserve cutting interest rates in August 2019 for the first time since the recession, and with two additional cuts in September and October, short term interest rates are trending down. While the impact on longer-term obligations such as mortgage rates is less clear and often less substantial, mortgage rate averages have been declining since the start of the year. This creates a more favorable position for would-be home buyers as the cost of borrowing falls. As a result, home sales may continue to pick up in the fourth quarter of 2019.
Low market inventories have also contributed to home price growth as the tight supply of single-family homes continues to put upward pressure on prices. In October 2019, the existing supply of homes on the market in Los Angeles would have been exhausted in 3.0 month at the current pace of sales. Steadily increasing single-family permitting activity may help alleviate the tight homeownership market in the coming years. However, at less than half the number of permits issued in the years leading up to the recession, recent additions to the region’s single-family housing stock will likely not provide enough relief.
For those priced out of the homeownership market, the average rent in Los Angeles County increased 4.3% year-over-year in the third quarter of 2019 to reach $2,070/month. Los Angeles has the highest cost of rent compared to other major Southern California metros. Additionally, rent growth in Los Angeles exceeded rent growth in Orange County (2.8%), San Diego (3.8%), the Inland Empire (3.5%), and the state as a whole (3.7%).
However, unlike the single-family housing market, which has been lackluster statewide, multifamily permitting activity in Los Angeles County has been quite the opposite. In fact, the County has led the state in multifamily permitting activity – almost all of which has occurred within the City of Los Angeles. Following the recession, multifamily permitting in Los Angeles County recovered rather quickly, exceeding pre-recession permitting levels in 2015 and remaining above that level in the years since. Despite multifamily permits falling by 12.0% in 2019 (year-to-date as of the third quarter), multifamily construction in 2019 is on track with the post-recession trend, albeit at a slower pace than in previous years.
Los Angeles County issued $752 million worth of commercial property building permits in the third quarter of 2019 – more than were issued in the Inland Empire and San Diego combined. While Retail Trade employment continues to decline, Retail commercial permits comprised the majority of the commercial permits issued in the region in the third quarter of 2019.
** Los Angeles County refers to the Los Angeles-Long Beach-Glendale Metropolitan Division.