The San Fernando Valley’s economy survived the pandemic well and is expected to grow 4.4 percent this year – faster than the Los Angeles metro area, California and the nation as a whole, according to economists who recently reported on the state of the Valley economy.
“The San Fernando Valley is still a real economic hotspot, which provided it a degree of insulation” from the worst aspects of the pandemic, said Matthew Fienup, executive director of the Center for Economic Research and Forecasting at California Lutheran University in Thousand Oaks. Fienup and his colleague at the center, Dan Hamilton, who is director of economics, have analyzed the Valley economy since 2016.
The coronavirus pandemic certainly hurt. The Valley’s equivalent of a gross domestic product declined 5 percent in the pandemic year 2020 – worst than many other areas – but bounced back big last year, growing 9 percent – better than most.
The economists said the Valley’s economy is expected to outperform other regions not only this year but in coming years. However, growth will be tethered by what they expect will be a slower U.S. economy and by towering housing costs, which by one measure, appear to be higher in the Valley than anywhere else in the country.
Fienup delivered his report Feb. 28 at the Hilton Woodland Hills hotel at the Valley Economic Forecast breakfast, attended by more than 100 local leaders. The event is put on by the Business Journal. Reports by Fienup and Hamilton begin on page 18 of this issue.
Through the years of studying the Valley’s economy, the economists regularly said the Valley outperforms just about all other regions of the state not named Silicon Valley. The same is true now. Economic growth this year is expected to be 3.4 percent in the greater metropolitan Los Angeles area, 3.8 percent in California and 3.1 percent in the United States – lower than the 4.4 percent expected in the Valley.
Likewise, job growth is expected to be 5.2 percent this year in the Valley. That’s greater than the 3.7 percent expected for Metro L.A., 4 percent in California and 3.3 percent for the country.
The Valley enjoys broad based growth, Fienup said. In the years leading up to the pandemic, “every single sector of the nonfarm economy experienced gains in output.” The standout sector is one called Information and Technology. That category includes software engineering, internet development and – significantly for the Valley – motion picture production and post-production. Not only was Information and Technology fast growing, but it includes the highest-paying jobs.
However, the pandemic was hard on that sector. From 2007, the eve of the Great Recession, to the start of the pandemic, jobs grew 14 percent in Information and Technology. But today, two years after the onset of the pandemic, jobs in that sector are down 8.6 percent from the eve of the Great Recession.
“That is to say, the pandemic succeeded in undoing more than a decade of labor market gains in a sector which has been a source of well-paying, family sustaining jobs and which has been vital to the robust growth enjoyed by the Valley over the past decade,” Fienup said. Interestingly, he added, the economic output from that sector is up more than 100 percent from 2007, “so the impacts are seen much more obviously in jobs than in GDP.”
Housing dilemma
One big drawback for the Valley is housing prices. By one measure, they are more expensive than anywhere else.
The median house price in the Valley last year was nearly $919,000. That’s not the highest price relative to other regions in the state and country, but it is very high compared to the lower household income in the Valley.
The median home price in the San Fernando Valley was 11.8 times the median household income of Valley residents, Hamilton wrote. That multiple is higher than the Los Angeles metro at 10.3 and much higher than the United States at 5.2. In fact, no place is higher than the Valley, Fienup said.
By January, the median house price in the San Fernando Valley had climbed to $967,000. That’s up a dramatic 30 percent from $740,000 in April 2020 when the coronavirus pandemic depressed the median price to its recent nadir.
That means the median house price in the Valley escalated a stunning $10,000 a month for 20 months.
“Families who cannot afford the home prices will migrate to another region in the United States when they can,” Hamilton wrote. That’s not good for the economy. “Population growth and economic growth are well-known to have a consistent, strong, positive correlation. Net out migration and slow population growth potentially indicate a slowing of the Valley’s economy over the next decade.”
Another headwind is the distinct possibility of a slower U.S. economy, Fienup said. Both job growth and economic output are expected to slow over the coming two years because of that, but the Valley is still expected to outperform most other regions.
“U.S. growth is forecast to slow significantly in response to the extraordinary monetary and fiscal interventions of the past two years,” Fienup wrote. “Even in the face of this headwind, we still believe that the underlying strength of the San Fernando Valley economy will continue to provide a degree of insulation from this broader macroeconomic trend. The Valley economy is forecast to continue to grow more rapidly than the nation, the state of California and the L.A. Metro area for the foreseeable future.”