San Diego MSA Can Weather the Headwinds in 2016

Our economic outlook for the San Diego MSA remains cautiously optimistic as international macroeconomic forces impact the area’s economy in 2016. The strengthening of the U.S. dollar compared to major foreign trade partners is a headwind for local export manufacturers and tourism-related industries. An appreciating dollar makes U.S. manufactured goods more costly to purchase and makes foreign travel to the U.S. more expensive. However, there is still local momentum that will drive San Diego’s economy in 2016.

In 2015, San Diego’s labor market saw the strongest gains since 2000, with nonfarm payrolls growing 3.0 percent. San Diego’s payroll gains were spread throughout most major sectors, particularly education and health services, professional and business services and construction. Our 2016 labor market outlook for the region is positive due to the area’s industrial mix and strength remaining in the technology and research industries. In the long-term, affordability is a headwind to area labor markets. Climbing living costs can price out potential employees, particularly at the lower end of wage earners.

There remains upside potential for the region’s residential and commercial real estate markets. After seeing net outward migration from 2002 to 2006, San Diego’s trend switched to net inward migration in 2007. While the demographic shifts in the region continued to improve in the ensuing years, total housing starts to household formation remained below parity. Using this ratio, the potential demand for housing in 2016 alone would be approximately 15,000 units. This is well above the 2015 actual of 8,569 units. On the commercial side of real estate, the local market outlook remains promising. According to Civic San Diego, the downtown area has over $6.4 billion in current and future projects for commercial, hotels, mixed-use and residential.

San Diego 2016Q1

Click here for the complete San Diego MSA Regional Economic Update: San Diego 2016Q1.

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