‘Can’t Be Too Bullish’ on Economy

In case you didn’t see our last issue, the one dated March 4, you missed a true day brightener. If you live or work in the San Fernando Valley, that is. That’s because the issue contained our Valley Economic Forecast supplement. The takeaway: The Valley’s economy is doing great. Just great. The economists who analyze the Valley now predict 4.1 percent economic growth for this year. That’s not only better than most areas around here, it is much higher than the 3.1 percent growth they earlier predicted for this year. “In each of the two previous forecast publications, we have predicted that the San Fernando Valley would enjoy a significant growth premium over its neighbors,” wrote Matthew Fienup, the economist who analyzes the Valley for the Business Journal. “In each case, we have underestimated the growth premium. The Valley has outperformed even our optimistic forecasts. It seems you can’t be too bullish on the San Fernando Valley economy.” Fienup is the executive director of California Lutheran University’s Center for Economic Research and Forecasting. He and Dan Hamilton, the director of economics at the center, commonly called CERF, have done the Valley-specific economic assessment and outlook for the Business Journal for three years. This year’s findings were presented Feb. 27 at a steak and eggs breakfast at Larsen’s Steak House at the Westfield Village shopping center in Woodland Hills. (By the way, CERF is nationally recognized. A couple months ago, for example, it was added to the list of institutions that the Wall Street Journal consults each month for its forecast survey.) The CERF economists added a twist to this year’s effort. They did a second analysis and forecast that included Burbank and Glendale. The results are even more eye popping. Adding those two relatively large communities boosts the forecasted growth for the greater Valley to 5.7 percent this year. However, Hamilton cautioned that Burbank’s economy is large and tied to the entertainment industry. A few big movie projects in one year can make that economy appear to boom – and pull up the overall Valley’s economic numbers in a way that may seem artificial because it exceeds what the rest of the Valley is actually experiencing. As a result, the economists favored using the more conservative figure of 4.1 percent growth because that is closer to what most business people are feeling. As for next year, the economists project growth of 3.8 percent for the Valley minus Burbank and Glendale. Add those two cities, and next year’s growth for the greater Valley will be 4.7 percent. That’s a raft of digits, but here’s the main point: Whichever number you choose to use, the Valley’s growth is greater than just about anything around. The Valley’s economic gains are better than Los Angeles County as a whole, Orange County, Ventura County, the state and country. And it’s been that way for years. From 2014 through 2018, the real GDP for the San Fernando Valley grew at an average annual rate of 4.3 percent – “enviable almost anywhere in the country,” Fienup said. The broader Metro L.A. economy grew 3.1 percent over that span. And Ventura County saw zero growth. In fact, it’s contracted in two of past three years, Fienup said. Ventura County has seen big declines in non-durable manufacturing over the past 10 years, Fienup explained. Also, anti-development laws in that county make expansion difficult and sometimes impossible, which obviously dents growth. So why is the Valley’s economy gaining more briskly than its neighbors? One factor, Fienup explained, is that the growth is broad-based. Over the past year, the Valley saw gains in every single nonfarm sector. And there was one standout sector: Information technology. That includes software engineering and internet development and the like, but importantly, also includes a good deal of entertainment industry work, such as editing and post-production – the kinds of jobs that are abundant in the Valley. Salaries in information technology last year in the Valley averaged $110,000 – the highest of any sector. Alas, there are concerns. Despite the rise in those high-paying information tech jobs, there’s been a loss of middle-income jobs; the Valley’s middle-class is being “hollowed out,” Fienup said. Housing costs in already-pricey California are particularly high in the Valley, which hurts prospects. And job growth – although relatively high at 2.2 percent this year and 2 percent next year – is not growing as fast as the economy. For that matter, we still haven’t regained all the jobs lost in the Great Recession. Still, the fact that the overall economy in the Valley – even if you exclude Burbank and Glendale – consistently outperforms most others is definitely a day brightener, as I said at the outset. But now that I think about it, isn’t that more of a year brightener? Charles Crumpley is editor and publisher of the Business Journal. He can be reached at [email protected].