Sauntering, But It Feels Like a Jog

The Business Journal hosted an economic forecast Nov. 16 that was surprising: The economists said the San Fernando Valley economy stood above most others. “The San Fernando Valley’s growth rate is strong no matter which geography you choose as a comparison,” said Matthew Fienup, the executive director of the Center for Economic Research and Forecasting at California Lutheran University who delivered the economic forecast. The economists determined the Valley’s gross domestic product last year increased by 2.6 percent. That’s much better than the 2.1 percent increase for Los Angeles County and vastly better than the astounding decrease of 2.7 percent in Ventura County. That’s reassuring to Valley denizens, but to be candid, the local economy doesn’t feel that great. Our office is in the Valley, and business activity around us seems decent but not brisk. It’s as if we’re sauntering, not jogging. Maybe this is the reason: 2.6 percent growth is still not that fast. Nationally, average real GDP growth in the postwar period right up to the great recession was greater than 3 percent a year. Those of us who experienced the 4- and 5-percent economy in the 1980s and ’90s (a few hiccups notwithstanding) recall how dynamic and bountiful it felt. Yet we haven’t seen 3 percent growth nationwide since 2005; it was 1.84 percent last year. Here’s my takeaway: since we’ve had a slow-growth national and regional economy for the better part of 12 years, we’ve become inured to the sluggish pace. The anemic seems normal. That makes the Valley’s 2.6 percent growth (and it is expected to increase by that much or a little more over each of the next two years) appear good by comparison. We’ve spent such a long time in an economic winter that 2.6 percent growth seems fast. It’s kind of like a 50-degree day in Michigan in late February; it may feel warm to those who suffered through sub-zero weeks, but it’s still chilly to those of us who remember summer. The economic analysis represents the first time the Business Journal partnered with Cal Lutheran’s economics team, commonly called CERF. (A summary of the forecast begins on page 17 of this issue.) By the way, the National Association for Business Economics last year awarded second place in its annual most-accurate-forecast competition to two economists at CERF, so they have bragging rights. Here are a few other aspects of CERF’s report that stood out to me: • The Valley’s economy has a nice, heavy dose of the private sector. Economist Dan Hamilton of CERF said that more than 92 percent of jobs in the Valley are in the private sector, compared with 86 percent for Ventura County. “This edge in private enterprise gives the Valley greater economic vitality,” he wrote. Indeed, government jobs are perfectly fine, but for a vibrant economy, the private-sector can’t be beat, thanks to its innovation and dynamism. • The entertainment industry appears to be thriving in the Valley. Fienup said that a broad industry sector called Information and Technology, which includes everything from software engineering, data processing and internet development all the way through to movie and video production, has grown by an astonishing 74 percent over the past decade. So much for the dire warnings of the porn industry a few years ago; you might recall that many claimed the city’s condom law would chase an important economic sector right out of the Valley. Maybe the porn industry didn’t leave after all. Or it did leave but was supplanted by greater entertainment activity, perhaps spurred by the state tax credit program. Either way, the economy appears uninjured by the condom ordinance. • The mix of jobs since the great recession has changed – and not for the better. Fienup pointed out that jobs in such sectors as Non-Durable and Durable Goods Manufacturing and Financial Activities are down big. But jobs in Transportation and Warehousing and Leisure and Hospitality, among others, are up big. Translation: A lot of higher-paying jobs have been replaced with lower-paying ones. If you read through the reports in this issue, you’ll see some other areas of concern. High housing costs remain an impediment to economic growth. What’s more, the rate of homeownership has declined in the Valley, Fienup noted. That means a slow-motion wealth transfer is underway in which individuals are giving up homes while investors and companies are buying more. Still, the Valley economy is generally strong. At least, comparatively speaking. And that’s reassuring. Said Fienup: “The Valley is outpacing the broader state economy as well as the nation.” Charles Crumpley is editor and publisher of the Business Journal. He can be reached at [email protected].