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.
San Diego MSA job growth continued to improve in 2016Q1, up 1.8 percent from 2015Q4. Recent gains in area job growth pushed the San Diego unemployment rate down to a nine-year low at 4.6 percent in March. The improvement in San Diego’s job growth occurred even as other major metro areas around the state struggled with financial market volatility at the start of the year. The S&P 500 Biotechnology sub-index was still down around 15 percent from the July 2015 high as of April. We expect to see the overall tech sector and related industries continue to stabilize as we move towards the second half of 2016. Market stabilization would support our current San Diego MSA outlook of improving area labor markets this year.
California’s new $15 minimum wage law is expected to impact 522,000 workers in the San Diego MSA by 2023, according to the UC Berkeley Labor Center. The law incrementally increases the minimum wage from 2017 to 2022 for businesses with 26 or more employees and from 2018 to 2023 for businesses with 25 or less employees. In 2014, the state’s minimum wage was raised from $8 an hour to $9. The new law will almost double the minimum wage in the course of eight years. There are social benefits to improving wages for lower paid workers. However, the San Diego MSA is already an expensive place to do business and this makes the “sunshine tax” for businesses that much higher.
There is increasing political uncertainty surrounding trade deals such as the North Atlantic Free Trade Agreement and Trans-Pacific Partnership. Changes in trade policy would have direct impacts on the San Diego trade industry. According to the International Trade Administration, San Diego exports totaled $18.6 billion and accounted for 10 percent of overall California exports in 2014. San Diego exports to NAFTA regions, Mexico and Canada, were $5.4 billion and $1.1 billion, respectively. China made up another $971 million.
Click here for the complete San Diego MSA Regional Economic Update: San Diego 2016Q2.