Beacon Economics Provides Mixed Forecast for California Supply Chains

Supply chains in Southern California could be gaining traction as the year ends, say regional economists.

A new forecast for the U.S., California, and Inland Southern California economies finds that the recovery at the national, state, and regional level is continuing despite shocks to the system stemming from political pressure and uncertainty in the nation’s capital.

The forecast, authored by Beacon Economics and released in partnership with the University of California, Riverside School of Business Administration as part of the 2013 Riverside/San Bernardino Economic Forecast Conference, reports that the U.S. economy bounced back for 2 plus percent GDP growth in the 2nd and 3rd quarter of 2013, despite the headwinds out of Washington DC.

As reported here earlier this month, Beacon was unable to obtain state trade figures due to the federal government shutdown.

California’s enormous economy has also continued on a growth path and events at the national level have not significantly affected the regional Inland Southern California economy, according to the analysis. However, the series of partisan standoffs in the past few years over the “Fiscal Cliff,” budget negotiations, and the debt ceiling, have served to slow an already tepid recovery.

“The recovery is clearly continuing but we would be further along were it not for the inability of our national elected leaders to pass a budget and negotiate reasonably with each other over long term fiscal issues,” says Beacon Economics’ Founding Partner and one of the forecast’s lead authors Christopher Thornberg. “The tax increase and spending reduction that resulted from last year’s ‘fiscal cliff’ confrontation have meant that aggregate demand, although increasing, has not grown at the pace it would have without these drags on the economy.”

Away from Washington, the new forecast points to the real estate market as a standout in the current recovery and a key driver of the economy’s continued growth. The residential market has come roaring back with the median price of a home sold in California posting over 20% growth on a year-over-year basis at the beginning of 2013 and that pace of growth accelerating to nearly 30% since June, according to the analysis.

In Inland Southern California, the price of a median home has risen 28% from the 2nd quarter of 2012 to the 2nd quarter of 2013. And although the region’s housing market has not seen the same degree of price appreciation as some neighboring coastal areas, its relative affordability is attracting new residents, which will provide a boost to economic activity, says the new forecast.
Yunzeng Wang, Interim Dean of the School of Business Administration at UC Riverside, says that Inland Southern California’s diverse combination of industries – ranging from regional strongholds such as transportation and retail to a newer, rapidly growing high tech sector – illustrate the area’s promising future path of growth. “This region has a very unique blend of business strengths and affordability that are steadily driving us towards a more diversified economy and that have made us one of the fastest growing areas in California,” says Wang.

This is the fourth year the School of Business Administration, the only research-based business school in Inland Southern California, has partnered with Beacon Economics to release an economic forecast. The forecast event will include an in-depth discussion of economic development in California following the demise of the state’s redevelopment agencies.

Key U.S., California, and Riverside/San Bernardino findings from the forecast include:
*Riverside/San Bernardino Counties: Rising household employment in the inland region indicates that many residents are finding work in neighboring employment centers along the coast. This is in line with increases in westbound morning commute traffic, as seen in data from the Department of Transportation.
*California: Through August 2013, the state had recovered just under 830,000 of the nearly 1.37 million jobs lost during the recession. Currently, California is only 3.6% short of its pre-recession employment peak set in July 2007.
*United States: The nation’s housing market continues to recover despite a modest recent hike in interest rates. According to the analysis, for the first time in 7 years, between 2012 and 2013, there was an increase in the number of owner-occupied housing units in the United States.