Presented by Beacon Economics
Welcome to The Regional Outlook, a forecast for five of the state’s largest metropolitan 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.
Employment Recovery Slowly Getting There
Los Angeles County closed out 2022 with slower job growth than initially estimated. In March, the California Employment Development Department (EDD) released annual benchmark revisions to their monthly employment survey estimates. These revisions indicate that the Los Angeles labor market has been growing slower than originally believed.
Every year, the EDD revises its monthly survey estimates with the Quarterly Census of Employment and Wages (QCEW), which covers roughly 97% of all wage and salary employees in the nation. Prior to this revision, the EDD estimated employment in Los Angeles County increased by 3.3% from December 2021 to December 2022. The revised estimates place employment growth at 2.8%. Although employment growth occurred slower than initially estimated, the County’s economy continues to improve, with most major indicators trending in the right direction. Los Angeles’s employment recovery has lagged other local economies. By February 2023, the County had recovered nearly all the jobs lost during the COVID-19 pandemic. However, in Southern California only Los Angeles and Ventura had fewer jobs when compared to the pre-pandemic peak.
Despite some concerns at the national level, Beacon Economics is maintaining its slow growth/no recession outlook, both nationally and locally. While the labor market provides important insight into the local economy, business and consumer spending is also crucial. When businesses spend money locally, they create jobs, generate income for residents, and contribute to the overall economic growth of a region. This can result in a multiplier effect, as the money spent by businesses circulates throughout the local economy, creating further opportunities for growth. Similarly, when consumers spend money at local businesses, they keep money circulating throughout the community, which can lead to increased employment and business growth.
Sales tax receipts data from HdL Companies shows that business and consumer spending remains robust despite inflation. Since the first quarter of 2020, sales tax receipts in Los Angeles County have increased by 25.1%. However, this is slower than other counties in Southern California, and slower than the statewide figure of 29.9%. Across California, coastal counties have underperformed relative to inland counties. This is due in part to the expansion of logistics that occurred over the course of the last couple of years. A more detailed breakdown of spending shows that every category has increased, especially Fuel and Service Stations, which increased by 53.4%. Demand at Restaurants and Hotels spurred much of the growth in consumer spending, with spending up 25.2%. The weakest category for spending was Food & Drugs, which might not come as a surprise given the decrease in Los Angeles County’s population.
Beacon Economics expects the consumer to keep the economy afloat in the near term, in line with the improvements seen in the labor market. Steady gains in payrolls in Los Angeles over the last year have driven the unemployment rate down below 5% in the region, a -0.8% decrease from last year. With the unemployment rate back to its pre-pandemic level, and non-farm employment inching towards all-time highs, Beacon Economics is forecasting Los Angeles County employment levels to continue expanding throughout 2023. Non-farm employment is projected to grow at a steady pace of around 1.5-2% for the year, while unemployment will likely hover around the 5% mark for the balance of 2023.
Unlike the labor market, housing continues showing signs of weakness. Rising interest rates have taken a toll on the market, making mortgages more expensive and sidelining would-be homeowners. As a result, home price appreciation has decelerated, and there has been little relief in terms of new housing production or new inventory of homes on the market. Higher frequency data from Zillow shows a synchronized decline in home price growth, with many markets in California starting to see negative year-over-year growth in home prices.
In February 2023, Los Angeles County home prices had increased by 0.8% compared to a year ago. At the same time last year, home price growth was in double-digit territory. As it stands, however, there is a very limited supply of homes for purchase on the market. Many homeowners opted to refinance when mortgage rates ticked down to all-time lows during the onset of the pandemic. Since then, the cost of owning a home has risen rapidly, shrinking the number of buyers that can afford to enter the homeownership market and likely keeping many who already own from considering a move. As a result, Beacon Economics is forecasting further, although modest, year-over-year price declines in Los Angeles’s housing market in 2023.
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