Current California economic activity measures are showing signs of a two-handed economy. On the one hand, overall job growth in non-manufacturing sectors continues to be a fundamental positive for the state’s economy. However, the state’s manufacturing sector is feeling the impact of the appreciation of the U.S. dollar compared to major trading partners and is contracting. Also, California’s technology sector has faced stagnant stock prices and squeezed corporate profits. We expect the California economy to continue to grow at a moderate pace this year, supported by firmer residential construction activity and a more positive outlook for the technology sector as we progress through 2016.
Greater Los Angeles job growth moderated in 2016Q1. Area nonfarm jobs grew by only 0.8 percent from 2015Q4. This coincided with financial market volatility at the beginning of the year. Tech stocks slumped in 2016Q1 possibly leading to more cautious hiring from area companies. Job growth in construction continues to be a solid performer. The area unemployment rate is dropping towards its historical lower bound, down to 5.2 percent in March. This poses a conundrum in our forecast two to three years out. As we approach the lower bound for the unemployment rate we either need weaker job growth or stronger demographic shifts into the region. High housing and overall costs of living are keeping our demographic forecasts tempered.
The manufacturing story is diverging between the Los Angeles and Riverside metro areas. The Los Angeles metro area has continued its longrun trend of declining manufacturing employment after a two-year pause in 2012 and 2013. The decline correlates with a rebound in the U.S. dollar in 2014 as potential U.S. economic growth strengthened compared to other developed nations. However, manufacturing employment in the Riverside metro continues to grow at a moderate 2.8 percent year-over-year as of March 2016. Relatively more affordable land may be supporting Riverside manufacturers. Even with the gains in Riverside, the losses in Los Angeles manufacturing will be strong enough to be a drag on our regional employment forecast for 2016.
Port activity at the Ports of Los Angeles and Long Beach had a breakout 2016Q1. The twin ports combined reached 3,593,438 total 20-foot equivalent units, the standard industry measurement. This is the strongest first quarter combined port activity since 2007. Last year’s first quarter port activity was hit by slowdowns as contract negotiations were taking place. The newly automated Middle Harbor terminal at the Port of Long Beach will help to speed up processing of containers as phase one opens in 2016.
Click here for the complete Greater Los Angeles Regional Economic Update: Los Angeles 2016Q2.