Southern California Faces Challenges

  • In addition to its marquis entertainment industry and associated tourism industry, Southern California relies heavily on international trade and defense spending. The ports of Los Angeles and Long Beach together are the fifth-busiest port in the world. The good news in the Southern California story is that port activity has been very strong. The Port of Los Angeles set a record for export container volume in 2011 for the second consecutive year.  Import volume was also very strong in 2011.

  • The Southern California economy is also beset by many challenges.  A heavy reliance on government spending, from the local, state and federal levels, leaves Southern California exposed to constrained fiscal realities. State and local government employment in California was hit particularly hard by the recession-induced budget crisis.  In the three years from June 2008 to June 2011, statewide, some 148,000 state and local government jobs were cut from California payrolls.  Tax revenues continue to be a source of frustration. According to the state controller’s office, state revenue in December 2011 was $165 million short of budget projections. Controller John Chiang stated that “legislative action may be needed” to deal with the unexpected shortfalls.  Expected sizeable cuts to federal defense spending by 2013 may also prove to be a strong drag, particularly to the San Diego area. The blow may be softened by an increased focus on the Pacific for the U.S. military.
  • House prices in Southern California were particularly hard hit by the Great Recession. Since peaking in 2007Q1 the FHFA house price index for the U.S. is down about 16 percent.  Since peaking in 2006Q3, the comparable Los Angeles house price index is down about 31 percent. Housing starts, particularly on multifamily projects have recently been on the upswing. Declining vacancy rates and improving rents are incentivizing multifamily builders.

 Click here for the complete Southern California Regional Economic Update, including a forecast table and charts of regional economic activity: SouthernCA2012Q1.

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