The Southern California economy is showing signs of improving, as payroll jobs increase and housing markets heal. Job growth in the Southern California area is on par with the national average, but is lagging behind Northern California. The unemployment rates for the Los Angeles, Riverside and San Diego metro areas are all above the U.S. average, with the large Los Angeles metro area showing the most slack at 9.4 percent in December, compared with the U.S. average of 7.8 percent for that month. Los Angeles home prices are pulling out of their double dip. According to Case-Shiller data L.A. home prices were up 7.7 percent over the 12 months prior to November. An eight-day strike at the ports of Los Angeles and Long Beach in early December highlighted the importance of those facilities to the regional economy. Over the long-term, the reshoring of U.S. manufacturing may reduce imports of some products to the ports.
The combination of federal and state-level tax increases is a headwind for California. The state income tax is the highest in the country and is the highest within the state since World War II. The state sales tax, at 7.5 percent is also the nation’s highest. On the positive side of the state tax hike, Governor Brown’s administration is projecting a state budget surplus for the upcoming fiscal year and beyond. If sustained, the turnaround in state finances will likely boost the state’s credit rating, making it easier for the state to borrow money.
Southern California has the potential to significantly expand oil production. The Monterey Shale, extending from San Francisco to Los Angeles is estimated to hold 400 billion barrels of oil, thought to be made recoverable by new drilling technology. California’s complex geology and strict environmental regulation will make retrieving the oil relatively expensive, but the vast volumes of recoverable oil are compelling. The shale play is still in the early stages of exploration. No commercially successful wells have been drilled to date.
Click here for the complete Southern California Regional Economic Update: SouthernCA 2013Q1.