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Inland Empire’s Economic Reality: EXPANSION VS. CAPACITY

by admin on 26th-January-2018

S. E. Williams

A recent analysis by the University of California Riverside’s Business Center for Economic Forecasting and Development has painted a picture of optimism regarding job growth and wages, and offered caution regarding how the availability of housing could slow the region’s economic growth in the long run. 

The Inland Empire Regional Intelligence Report (RIR) examined employment, consumer and business spending, and residential and commercial real estate. 

The great news for the inland region in 2017, compared to the rest of the state highlighted in the RIR, was in relation to job growth. While the rest of the state experienced a slow-down in job growth, strong economic expansion continued in the inland region. For example, from October 2016 to October 2017, employment increased by 3 percent, twice the statewide average which saw a modest 1.5 percent gain.

More area residents are finding jobs in the Inland Empire and, as a result, a smaller number commute to neighboring counties for work. For example, five years ago, fully 31.3 percent of area workers commuted to neighboring counties for work, and by the end of 2016, that number was reduced to 29.5 percent. 

This downward trend in work commutes was welcomed news in light of the recent 12 cents per gallon increase in gasoline taxes that went into effect last November and increased financial pressures on many economically strapped families in the region. 

As job opportunities expanded in the region so did the area’s population. Between 2016 and 2017, both Riverside and San Bernardino Counties rated among the top ten regions in the state for population growth, with Riverside County rating in the top 5 percent of the fastest growing counties in the state. 

When the report was released, Robert Kleinhenz, Executive Director of Research at the Center for Economic Forecasting and Development at the UC Riverside School of Business, noted, “The IE’s recent population growth is indicative of a vigorous economy with the strength to draw in new residents.” Kleinhenz also noted that he did not see the results as surprising, “given this is an area that is both leading the state in job growth and benefiting from a significant home affordability advantage compared to neighboring areas in Southern California.” 

Despite the encouraging news regarding job growth, the report was also prudent in its projections, noting that although the forecast for 2018 was similar, continued increased demands for housing may limit the local economy’s ability to expand. The region’s growing demand for housing has added fuel to a long-awaited increase in local home construction; however, much more building is necessary to ease the affordable housing shortage in the region. 

Although the area’s job growth has been broad-based, the construction sector led the region’s expansion and added approximately 14,700 new jobs between October 2016 to October 2017. This was encouraging news, but growth in this sector was still below the area’s pre-recession peak by more than 18 percent. This shortfall held true across the state. Despite the shortfall, however, the industry and economists are optimistic the sector will continue to see gains as the strong demand for housing expands. 

The Leisure and Hospitality sector also experienced notable gains. It added 8,300 jobs last year, partly the result of new establishments, but existing tourism and hospitality businesses also saw gains—key among them was the expansion of the Pechanga Resort and Casino in Temecula, projected to add 750 jobs. 

The area also experienced job growth in the Education and Health Care sector, adding 7,500 jobs between October 2016 to October 2017. 

The RIR also pointed to the strong nexus between the area’s job growth, increased wages, and stronger consumer and business spending. 

Between the second quarter 2016 and second quarter 2017, the inland region outpaced the state regarding gains in taxable sales. Overall, the two counties combined saw a 5.4 percent increase versus a 4.1 percent increase at the state level. Riverside County carried the region with an 8 percent growth rate, while San Bernardino County experienced a more modest 3 percent growth in this regard. 

Despite these gains at the county level, spending growth across the region’s cities remained uneven. For example, in Riverside County sales in the City of Corona grew an impressive 17 percent, and Moreno Valley saw a 5 percent gain, while sales in the City of Riverside experienced a paltry 0.5 percent gain. 

Although cities in San Bernardino County saw less impressive gains overall, the disparities across the county were similar to those experienced in Riverside County. For example, the City of Fontana led San Bernardino County in this area with 8.2 percent growth, Rancho Cucamonga experienced a 1.1 percent gain, and growth in the City of San Bernardino was a mere 0.4 percent. 

Beyond gains in taxable spending, the region saw steady growth in the residential real estate market. However, as it continues to be widely reported, the demand for housing is impeded by a limited inventory. There was minimal relief in this area related to rental housing. The region experienced a modest one percent gain in rental vacancy rates during the third quarter last year, from 2 to 3 percent over 2016, while the average asking rent in 2017 increased to $1,300 per month locally—a 3.7 percent increase over 2016.

New houses being built are out of reach for many inland residents. In 2017, the median price of housing in the area increased by 7.1 percent to $445,400. When compared to other areas in the state, local housing prices are extremely competitive, but for many of the region’s working class, they are becoming unaffordable. 

The report also highlights that the rising population, employment gains, and incomes in the area coalesced and drove an increased demand for retail space. In the third quarter 2017, the local vacancy rate in this regard reached its lowest level since the Great Recession when it dropped to 9.1 percent. 

Inland Empire economist, John Husing, released an overview of his economic analysis of the region last November, in preparation for the Southern California Economic Summit. In his assessment, Husing noted, “there is every reason to anticipate growth levels will be sustained given the forces impacting the key sectors that make up the inland region’s economic base.” 

Husing also noted, while the availability of housing remains a concern, “residential costs are a bargain compared to Southern California’s coastal counties.” This is a factor that workforce development officials point to as a competitive advantage when it comes to attracting employers and workers. Husing also raised awareness in relation to trends in four key employment sectors in the region as follows: 

Logistics: Husing explained, “Continued high trade volume through the Ports of Los Angeles and Long Beach and the expansion of fulfillment centers in the area should sustain employment growth in the years ahead.”

Healthcare: “A shortage of healthcare workers, a growing and aging population and an increased number of insured people as a result of the Affordable Care Act,” Husing noted, “have made this one of the fastest growing career fields in the two counties.”

Manufacturing: Although the inland region’s performance in regard to manufacturing was labeled by Husing as “sub-par,” it was not an aberration when compared to the rest of the state. “Since 2010,” he noted, “California has accounted for only 5.9 percent of all manufacturing jobs created in the United States. Husing stressed this is largely the result of high energy costs for manufacturing facilities and an unfriendly regulatory environment in the state.

Professional, Management, and Scientific Work: Husing described how a rising educational attainment, a migration of qualified workers into the region, and a growing need for professional service providers to support other industries, “has increased employment in this higher-paying segment.” 

The economic optimism presented in Husing’s assessment was clear, yet he did not shy away from describing the challenges that remain—high poverty levels and income disparity. According to Husing, these problems are compounded by the fact that even with these recent gains, educational attainment in the Inland Empire lags behind the rest of Southern California—47.6 percent of adults in San Bernardino County and 45.2 percent in Riverside County had a high school education or less in 2016. 

“Unfortunately, a marginally educated population tends to correlate with high levels of poverty given the direction that technology is taking good paying jobs in the 21st Century,” Husing stressed. 

The Inland Empire Regional Intelligence Report examined employment, consumer and business spending, and residential and commercial real estate performance in 2017. It also served as a preview of what is on the Inland Empire’s economic horizon for 2018. To view the report in its entirety visit ucreconomicforecast.org/index.php/services-for-business/publications/los-angeles-regional-intelligence-report/.

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