Southern California labor markets continue to recover heading into 2014. Regional nonfarm employment gained 115,600 jobs in the 12 months ending in December. Boosts to nonfarm payrolls in 2013 included professional and business services, education and health services, and leisure and hospitality. Declining manufacturing and information jobs were a drag on area labor markets in 2013. The unemployment rate for Southern California dropped to 8.3 percent in December. This trailed the U.S. unemployment rate which dropped to 6.7 percent in December. We expect the region to gain 136,000 jobs and the regional unemployment rate to drop to 7.5 percent in 2014.
Southern California housing markets are set to improve in 2014. Regional housing starts hit 36,811 in 2013. This is a 36.9 percent increase from the 2012 average of 26,898. The 2013 average was boosted by a strong 2013Q4 starts total at a 43,794 annual unit rate. We expect the boost from job creation and income growth to overcome the drag of increasing mortgage rates in 2014. Our forecast has Southern California housing starts averaging 36,010 in 2014, increasing to 39,386 in 2015. Pent-up demand continues to drive up home prices in the area. Southern California home prices are expected to grow 16.5 percent (FHFA Price Index) from a year ago in 2013Q4. We expect home price growth to decelerate as housing markets expand the supply of homes in 2014 and 2015.
Increased uncertainty and federal budget sequestrations were a drag on defense-related industries in 2013. Boeing, which has facilities throughout L.A. County and Orange County, saw military aircraft revenues decline by 1 percent in 2013. Boeing announced in September that it will be discontinuing production on its C-17 Airlifter by 2015. Workforce restructuring of the 3,000 supporting production team for the C-17 will begin in 2014, the majority of which will take place in California. The passing of the Bipartisan Budget Act in December will provide $31.6 billion in relief to the automatic spending cuts that would have otherwise gone into effect for FY2014 and FY2015. Under the act, defense spending will increase to $520.5 billion for FY2014 and $521.3 billion for FY2015.
Click here for the complete Southern California Regional Economic Update: SouthernCA 2013Q4.