Lower Oil Prices to Boost Southern California

Lower oil prices will support the Southern California economy. West Texas Intermediate spot prices have taken a sharp slide from $102 per barrel in June down to near $55 per barrel in mid-December. Lower oil prices are expected to persist heading into 2015, shifting economic activity from oil producing areas such as Texas, to energy consuming economies such as California. The lower price of oil will also support Southern California manufacturing which employs over 690,000 workers. Lower gas prices will increase non-energy spending amongst consumers, supporting the region’s service industries and retail sales in 2015.

Southern California housing markets remained muted as housing starts are set to improve by just 2.0 percent in 2014. Institutional buyers began exiting the region’s housing market in 2013, leaving traditional home buyers to fill the void. Thus far that has not happened as October home sales were down 4.4 percent from a year ago according to CoreLogic DataQuick. One source of untapped home demand is the millennials. Many U.S. young professionals are flocking to the nation’s major metro areas. However, millennials are the newest to the workforce, have lower levels of savings, high student debt obligations and are attempting to enter some of the most expensive markets for homeownership. As sustained income growth occurs and credit standards ease, millennials are expected to gradually increase home buying, supporting area housing markets.

We expect port activity to increase due to a strong U.S. economic outlook in 2015. The Port of LA indirectly supports around 896,000 jobs in the region and the Port of Long Beach supports 316,000. The twin ports’ total container activity was up a combined 3.0 percent from a year ago in October. The boost from the improving U.S. economy is balanced against the risk of competing ports as the expansion of the Panama Canal is completed in 2015 and opened in early 2016. The expansion will allow shippers to bypass West Coast ports.

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Click here for the complete Southern California Regional Economic Update: SouthernCA 2014Q3.

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