Southern California Faces Challenges

  • In addition to entertainment and tourism, 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 continues to be a source of growth. The Port of Long Beach showed increased activity in March after a weaker January and February. Filming activity in Los Angeles declined 2.1 percent in 2012Q1 due in part to increased filming at other locations.
  • A heavy reliance on government spending, from the local, state and federal levels, leaves Southern California exposed to budget tightening. 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. State tax revenues continue to be a source of frustration. According to the state controller’s office, state revenue in February 2012 was $146 million short of budget projections. Despite shaky tax revenues and uncertain state and local budgets, the California High-Speed Rail authority approved plans for a $68.4 billion, 570 mile long high-speed rail network designed to connect Southern California to the Bay Area.  The goal of the system, which could become partially operational in 10 years, is to move people from LA to San Francisco in 2 hours and 40 minutes.
  • Reduced federal defense spending may also prove to be a drag on Southern California in the years ahead. Aerospace Corporation cut 300 employees in El Segundo in March because of Air Force budget cuts. House prices in Southern California were particularly hard hit by the Great Recession. Since peaking in 2006Q3, the FHFA Los Angeles house price index is down about 31 percent. Housing starts, particularly on multifamily projects have recently been on the upswing, boosted by declining vacancy rates and improving rents.

Click here for the complete Southern California Regional Economic Update for 2012Q2: SouthernCA2012Q2.

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