Southern California Economy Improves Yet Faces Sequester Uncertainties

Southern California labor markets are underperforming the national average. Payroll employment growth dropped to 1.5 percent from a year ago in Q2, slightly below the national average of 1.6 percent. July payroll employments in the 3 metropolitan areas that comprise our Southern California Index were down, decreasing by a combined 72,400 jobs. San Diego and Los Angeles metropolitan areas kept up with the state average of 1.7 percent growth in payroll employment from a year ago in July, while Riverside grew by just 0.4 percent. The unemployment rate for the region dropped to 8.8 percent in Q2, yet remains well above the national average of 7.6 percent.

Southern California housing markets continued to recover in Q2. Total housing starts were up 16.1 percent from a year ago in Q2, led by single-family construction which grew by 35.3 percent to a 13,692 unit annual rate. Growth in home prices have outpaced the national average. The S&P Case-Shiller Home Price Index showed Los Angeles gaining 19.9 percent and San Diego up 19.3 percent from a year ago in Q2. Each exceeded the composite-20 average of 12.1 percent.

As of July 8, the Department of Defense employees began with mandatory furloughs to aid in sequestration induced budget cuts of $37 billion through the end of the fiscal year 2013. The procedure required employees to take a day without pay every week until the end of the fiscal year essentially reducing employee incomes by 20 percent. The number of furloughed days was reduced to six from the originally planned 11. Deeper budget cuts for the DOD are expected for next year in the amount of $52 billion if sequestration continues into 2014. There are approximately 123,000 federal employees in Southern California, with the largest concentration in the San Diego metro area. Continued uncertainty of future furloughs or even reductions in force will have negative impacts on consumer spending in the region.

Southern California 2013Q2

Click here for the complete Southern California Regional Economic Update: SouthernCA 2013Q2.

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