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.
As with so much of coastal California, the San Diego County economy has seen slower growth in early 2019 as a result of a tight labor market and rising housing costs. The County’s overall employment growth has decelerated with a few industries actually shedding jobs, year-over-year. Despite a healthy unemployment rate, the supply of labor in San Diego County has grown slowly in 2019 and actually declined year-over-year in the most recent data. Meanwhile, there are signs that the pace of growth in home prices and apartment rents is decelerating as an increasingly slim share of the population can afford to live in the region.
Job and Labor Force Growth Slowing; Outlook Still Bright for Tech, Healthcare
From April 2018 to April 2019, the unemployment rate in San Diego County declined by 0.1 percentage points to 3.2%, which is lower than the statewide unemployment rate of 4.3%, and lower than the unemployment rates in the nearby Inland Empire (4.1%) and Los Angeles County (4.6%). Across all of Southern California’s major metro areas, only Orange County (2.8%) had a lower rate of unemployment as of April 2019.
San Diego’s decline in unemployment might well be driven by slow growth in its labor force since the start of this year. In fact, the County’s labor force contracted marginally, by 0.3% year-over-year, as of April 2019. Accordingly, total nonfarm employment in San Diego County increased by just 20,900 jobs for a growth rate of 1.4% from April 2018 to April 2019. This is lower than the statewide growth rate of 1.6%, but higher than the growth experienced in neighboring Orange County (0.98%), Los Angeles County (1.1%), and the Inland Empire (1.5%).
San Diego County’s Education industry continues to lead all sectors in terms of percentage growth, expanding by 10.3% or 3,100 jobs from April 2018 to April 2019. The Professional, Scientific, and Technical Services industry added the greatest absolute number of jobs at 4,100, and captured the second-highest growth rate at 5.5%. Overall, the biggest industry by employment in San Diego County is the Government sector with over 251,200 workers. Job gains in this sector accelerated to 1.6%, year-over-year as of April 2019. This compares to a 0.2% growth rate one year earlier.
Among the industries that shed jobs in the County, Information was the biggest loser in percentage terms (2.1%), but in absolute terms, this corresponded to a small loss of just 500 positions. The Retail industry lost the largest absolute number of jobs, shedding 2,400 positions or 1.6% of its workforce. Other industries that lost employment over the past year include Logistics (-1.3%), Administrative Support (-0.8%), Wholesale Trade (-0.2%), and Finance (-0.2%).
Looking ahead, Beacon Economics is forecasting San Diego County’s unemployment rate to remain in a narrow range around its current reading through 2019. Total nonfarm employment in the region is expected to expand in percentage terms by 1.4% over the year, with slightly slower job growth occurring in 2020.
Are San Diego Housing Prices Finally On The Decline?
The median price of an existing single-family home in San Diego County has continued to increase, but the rate of appreciation appears to be decelerating. As of the first quarter of 2019, the median price for an existing single-family home reached $609,600, up 1.8% over the first quarter of 2018, but well below last year’s 7.5% increase. Across Southern California, San Diego County’s yearly price growth was outpaced by Los Angeles County (2.1%) and the Inland Empire (2.0%), but not by Orange County (-0.1%).
Sales of existing single-family residences in San Diego County declined by 5.4% from the first quarter of 2018 to the first quarter of 2019, a smaller decrease than occurred in the Inland Empire (-11.4%), Los Angeles County (-14.0%) or Orange County (-17.9%). Weak price gains and lower sales are symptomatic of low affordability, and possibly adverse effects from the limitations placed on the deductibility of state and local taxes by the federal government in 2018.
From the first quarter of 2018 to the first quarter of 2019, average apartment rent in San Diego County increased 3.7% to reach $1,952/month, outpacing rent growth in neighboring Orange County (2.6%), but falling short of increases in Los Angeles County (4.1%), and the Inland Empire (4.4%). Compared to major rental markets in the northern part of the state, San Diego outpaced the South Bay (3.3%), the East Bay (3.1%), and San Francisco (MD) (2.6%) in rent price growth. The higher year-over-year rent increases in San Diego County occurred despite the region having a vacancy rate that ticked up by 0.3 percentage points and is among the highest vacancy rates in California’s major counties (only Santa Clara County at 4.1% is higher).