San Diego

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.

San Diego County closed out 2022 with an even better rate of job growth than expected. In March, the California Employment Development Department (EDD) released annual benchmark revisions to their monthly employment survey estimates. These revisions indicate that the San Diego labor market has been growing faster 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, employment in San Diego increased by 3.5% from December 2021 to December 2022. The revised estimates place growth at 3.9%. San Diego County experienced a much quicker recovery than both the nation and the state – and continues to see payrolls increase at a steady rate.

Despite some headwinds and a bearish news cycle, 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 continues trending above pre-pandemic levels. Since the first quarter of 2020, sales tax receipts in San Diego County have increased by 32.3%, outdistancing the statewide figure.  A more detailed breakdown of spending in San Diego reveals that every major category has seen double-digit increases. Business and Industry experienced the largest increase, growing by nearly 53%. Fuel and Service Stations also saw notable gains, increasing by 37.9%. This jump is unsurprising given the rising cost of oil and the relatively inelastic demand for travel (not as price sensitive). Travel to San Diego has also been limited, as indicated by total passenger counts through San Diego International Airport. However, this hasn’t slowed down discretionary spending for residents and visitors alike, with sales tax receipts for Restaurants and Hotels increasing by 33% since the first quarter of 2020.

Despite headlines about tech layoffs and bank runs, we expect 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 the local economy over the last year have driven the unemployment rate down below 4% in the region, a -1.5% decrease from last year. With the unemployment rate back to its pre-pandemic level, and non-farm employment inching toward all-time highs, Beacon Economics is forecasting San Diego employment levels will continue expanding throughout 2023. Non-farm employment is projected to grow at a steady pace of around 2-2.5% for the year, while unemployment will likely hover around the 4% mark for the balance of 2023.

Unlike the labor market, housing continues to show 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 growth 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, San Diego County home prices had increased by 1.8% compared to a year ago. Steeper declines were observed elsewhere in the state. At the same time last year, home price appreciation was in double-digit territory. As it stands, 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, albeit moderate, year-over-year price declines in San Diego’s housing market in 2023.