Southern California Positive Outlook Faces Headwinds

California’s drought, now in its fourth year, is a long-term issue for economic growth for Southern California, if it persists. California Governor Jerry Brown issued an executive order in April to reduce urban water usage by 25 percent statewide. Cuts for California cities are based upon per capita usage in 2013 and range between eight and 36 percent. The cities of Los Angeles and San Diego are required to reduce water usage by 20 and 16 percent, respectively. For now, using the per capita use of water as the measurement of conservation permits economic development, primarily in the form of home and business growth. While more people moving into an area creates more demand on the total water used in the short-run, most new residential buildings are equipped with energy saving technology allowing for more efficient use of future resources.

West Coast ports are renormalizing after the port shutdown ended in February. Total container counts in TEU’s (twenty-foot equivalent units) hit a recent high for the Ports of Long Beach and Los Angeles in March. This was primarily due to the clearing of backlogs that built up during negotiations. April showed a weaker, yet more normal volume of container counts. Strikes held by Southern California port truckers at the end of April did not have a major impact on the flow of cargo. The outlook for trade activity through the twin ports is positive in 2015. However, the expected completion of the Panama Canal in 2016 and the growing use of mega cargo ships will create more competition with East Coast Ports.

The City of Los Angeles voted to increase the city minimum wage from its current level at $9 to $15 an hour by 2020. Under the plan, those currently making the minimum wage would receive an annual increase in pay of about 16.7, 14.3 and 10.4 percent in 2016, 2017 and 2018, respectively. The increased pay will benefit workers. However, the strong increase in costs may incentivize some companies to relocate.

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Click here for the complete Southern California Regional Economic Update: SouthernCA2015Q2.

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