San Diego Economy: Where’s the Oomph?

Chuck Flacks: “It’s a tough market. We are still seeing foreclosures.”
  • Chuck Flacks: “It’s a tough market. We are still seeing foreclosures.”

A recovering economy normally requires a robust housing revival, strong employment gains, and consumer spending fired by sharply rising incomes. Sorry. San Diego has none of these, although there are occasional transient statistical gains that spark hope, which quickly burns out.

Recent home-price data in the county have suggested that prices are inching up each month. Don’t be fooled. Even with interest rates at startlingly low levels, “It’s a tough market. We are still seeing foreclosures. We are not seeing investment in [projects] with greater density or some sort of mixed-use projects,” says Chuck Flacks, research director of the San Diego Workforce Partnership.

San Diego’s home ownership spiked over 65 percent in the bubble years. Now it’s below 55 percent.

San Diego’s home ownership spiked over 65 percent in the bubble years. Now it’s below 55 percent.

Kelly Cunningham, economist for the National University System Institute for Policy Research, agrees that “it’s hard to see a recovery in housing — maybe we will bounce along the bottom.” Historically, a high percentage of San Diegans have been renters, not buyers. Two decades ago, 55 percent of San Diego households owned homes versus 64 percent nationally. San Diego spiked past 65 percent in the bubble years but is now below 55 percent.

In those bubble years, real estate (buying, selling, leasing, building) was 21 percent of the San Diego economy, one of the highest such percentages in the nation. It’s probably below 16 percent now, says Cunningham.

He notes that more and more people between 25 and 34 are living with parents. Nationally, in 1983 only 10.5 percent of people in that age group lived with parents. That has shot up to almost 14.5 percent. There are no comparable local numbers, but the average household size has grown to 2.78, partly because of young people living at home and partly because of the rise in the number of Hispanic families, which are larger.

San Diego County home values have dropped 40 percent from their late 2005–early 2006 peaks, “and I don’t think in our lifetimes we will get back to those boom-period peaks,” says Cunningham. Despite the plunge, San Diego prices are still very high. According to Zillow, the county’s median home value is $338,100, topping New York City, Boston, and Washington, D.C., among the largest 30 markets, and trailing only San Jose, Los Angeles, and San Francisco.

And those high local home prices present a problem with San Diego incomes on the anemic side. In 2010, total personal income (including salaries, investment and rental income, Social Security, and the like) was up 1.2 percent adjusted for inflation. Last year, Cunningham estimates that it was flat after inflation adjustment.

And the flaccid income figures, in turn, wallop consumer spending. County retail sales peaked in 2006 at $47.8 billion, says Cunningham. Last year, sales had dropped to $44.3 billion. Adjusted for inflation and population growth, sales would be even weaker, he says.

Baby boomers, that cohort born between 1946 and 1964, are now starting to retire in large numbers. That trend will escalate. “Of that big wave of baby boomers, fewer are working now,” says Cunningham. “They are not out spending, buying new clothes or furniture, going out to eat as much. And a lot of them are migrating from San Diego” to places with a lower cost of living.

“In the last recession we lost a lot of middle-class jobs,” says Alan Gin, economist at the University of San Diego, and that has weakened consumption. Politicians on the federal, state, and local levels are cutting government services. That, in turn, hurts consumers. “Austerity exacerbates the problem,” says Gin, and the U.S. should learn from the experience in Europe. Massive spending cuts in beleaguered countries such as Greece are weakening economies, and tax receipts actually fall.

Governor Jerry Brown’s new budget will cut social services, no matter how the legislature and voters alter the program by, say, nixing the tax increases. So that’s another negative for San Diego. New Jersey–based economist A. Gary Shilling points out that state and local spending is normally around 13 percent of the nation’s yearly economic output, second behind consumer spending, which is 71 percent. Gin expects that such spending will continue falling in San Diego, further denting the economy.

Then there is federal spending. From 2001 through 2011, total military spending — uniformed and non-uniformed personnel, base expenditures, aerospace-defense manufacturing — doubled, notes Cunningham. But 2010 may have been the peak. “It’s drifting downward,” he says. Total defense spending is 12 percent of the local economy, 20 percent including the ripple effect (supplier sales, for example). There was a lot of construction at Camp Pendleton that is now running its course.

San Diego is “the epicenter” of drone manufacturing, but those gains are offset by declines in shipbuilding and other industries. “Computer electronics defense manufacturing is slipping,” he says.

But defense is likely to remain a fortress of the local economy. Nationally, “the big cuts will fall on the Army rather than the Navy,” says Gin, noting that the military is slowly moving its operations to the western part of the U.S.

San Diego’s unemployment rate continues higher than the nation’s: in April it was 8.7 percent compared to the nation’s 7.7 percent. “Faster growth was being predicted around the first of the year,” says Flacks. “Some of the earlier growth expectations are being realized, but we are not seeing the same growth in employment.”

Health-care employment remains strong, as new hospitals are being built. “But a lot depends on the ruling of the Supreme Court [on what’s called Obamacare].” Despite all the fiscal problems, “I think California may be well on its way to doing something like Massachusetts — an Obamacare-type proposal for the state.”

Cunningham says tech and biotech account for 10 percent of jobs directly and 30 percent indirectly. Tech employment “is showing some gains, but it is fairly weak,” he says. “Some sectors are growing: biotech and software are showing some gains, but telecom and communications are on a downswing that puzzles me.”

All told, the local economy is “moving at a snail’s pace,” says Gin.

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Thank you Mr Bauder for your analysis. As professionals in our late 20s, my wife and I are researching buying a home. We have some lingering doubts...

I grew up here and watched what happened around Y2K. I remember reading newspaper pieces in the early 2000s saying that less than 10% of San Diegans could afford to buy a home. In spite of this, prices kept going up, up, UP!

Home prices in late 2005-early 2006 were the peak of an unsustainable bubble.... Home prices soared; incomes not even close.

Today in some areas that used to be relatively inexpensive (eg Mira Mesa) new single-family homes are being built and advertised as STARTING in the mid 600s. We see this and think it's insane. Who are going to buy these homes?

We get the impression that builders, buyers, and sellers expect a return to (and to exceed) peak bubble prices. That makes me uneasy.

How much of the wealth in SD is from real estate appreciation? How can that realistically continue?

San Diego home values are basically back to 2002 levels. But still the median price is high -- only topped among the top 30 markets by LA, San Francisco and San Jose. Affordability has improved as home values have come down 40%, but I do not buy the argument that they have bottomed. There are too many homes that will be foreclosed upon. I would not be surprised if there is another 10% to 15% drop. I would wait to buy, but of course, I could be wrong. Best, Don Bauder

Eventually San Diego.will default (Like Greece,Iceland,GM,Chrysler,the Post Office, Harrisburg, Pa.,Jefferson County, Alabama,Stockton) In the year of the lord 2011 The city of San Diego borrowed 100 million The city of LA borrowed 1 billion The state of Calif borrowed 7 billion The feds borrowed 3 trillion

In the year 2012 the feds increased the budget deficit by 1.2 trillion. The city of San Diego borrowed 83 million and cut 200 million from its' infrastructure budget,

The state of Calif passed a balanced budget which in several months because of missed revenue projection has a 3.5 billion deficit. If a car or home owner or renter defaults then they lose their car, house or apartment. If the San Diego defaults they lose nothing. Thus, why not default on as large a sum as possible which I believe is the directions the city of San Diego, the state of Calif and the post office are going.

A San Diego bankruptcy has been possible for several years. I don't foresee it in the immediate future, but the U.S., California, and San Diego economies will probably weaken dramatically next year, possibly going back into a pretty severe recession. That may be when the rubber hits the road. Best, Don Bauder

Much will depend on Congress. Tax cuts and stimulus plans expire. We face a fiscal cliff. But if Congress behaves as it has the last four years, we are in real trouble. Also, the European situation is grim; we could get swallowed up in it no matter what we do. And there is a possibility China is a bubble ready to burst. Best, Don Bauder

what does this mean for ur Kleenex stocks Don...hope u have enough for all of us...Kleenex that is...we may need it

Kleenex is a product of Kimberly-Clark. I have been buying that stock for more than a year. Best, Don Bauder

playin wid ya Don...i remember u saying u were buying that stock...lolol

I was walking to the central library this morning and the conditions of the roads on sixth ave and 'e' street are third world. I was watching the citty council on tv and one of the well-attired male members looked like a rat. When the terms of the new bond came up Council man Young sd lets talk about that later and the subject has never been broached. Do you know the terms and amount of the new bond? One sign of the pending default is the concrete covers on the water valves on my street have eroded and will never be replaced. It will be a slow drip for sure. Is they anyone in any hood that hasn't seen more vacant properties each passing year.

I haven't followed the new bond, but I can say this: Sanders claims he has put the City back on a sound fiscal footing. Nonsense. All he has done is spend little on infrastructure, letting it rot. But the budget may look better. Sanders's predecessors raided the pension fund; Sanders raided infrastructure funding. Best, Don Bauder

San Diego isn't "poor" as are some cities like Detroit and Cleveland, but the cost of living is quite high and incomes are only moderately high. Housing prices are very high despite a 40% decline from the November 2005 peak. Best, Don Bauder

Europe is on the brink. Japan is in trouble, and China may prove to be a bubble, although that might not be obvious for some time. The U.S., of course, is just stumbling along. Each time the world's central banks pump in more liquidity, as the euro countries will do for Spanish banks, stock markets rally. That's because all the liquidity gushers, and hints of same, drive the bears off the street, and stocks -- completely controlled by institutional speculators (high frequency traders, hedge funds, bank trading desks, etc. --) almost automatically rise. The market now is a contra-indicator: if it's strong, the world economies are probably doing worse. Best, Don Bauder

was it u who said unemployment was 25% in Spain...or did i hear that on PBS??

that's a depression as u well know

Spanish unemployment is above 24% and youth unemployment is above 51%. With joblessness that high and banks having to be bailed out to the tune of $125 billion -- yes, you can call it a depression if you like. Best, Don Bauder

it makes me glad i'm old...but my kids and grand kids...oy vey!!!

Well, you don't live in Spain, Nan -- or Greece, or Portugal, or Italy, or Ireland. But your observation is correct: our children and grandchildren face problems. Our generation, and ones close behind us, have been borrowing from the future to live beyond our means. Best, Don Bauder

i was as dumb as a doorknob Don...i admit it...and i'm sorry 4 that now that' it's 2 late 4 me to do anything about it

i realize i was a marginal citizen...naive and accepting that those i voted 4 were doing the right thing and that people in power (corporate and otherwise) were inherently good

You weren't dumb at all. You were just going with the flow. Remember, economists left, right, and center through the years have encouraged debt and consumption. Best, Don Bauder

but i knew about conspicuous consumption Don...i didn't give it a thought as anything but a philosophical catch phrase with no ramifications

The concept of conspicuous consumption has been around a long time. As the income/wealth gap spreads frighteningly, conspicuous consumption takes on more meaning these days. However, the superrich are being a little more circumspect flaunting their wealth currently. I think some are belatedly aware that the income/wealth gap could lead to violence. So their consumption is not so conspicuous.Best, Don Bauder

i don't agree Don...i think they flaunt their spending!!

San Diego soon will be able to have a new tourist marketing appeal. "Visit the Third World without a passport. See San Diego's crumbling streets, leaking pipes, ragged beggars, and polluted beaches without crossing a border."

The visitors then could be given a tour of Rancho Santa Fe to see the 1%. Best, Don Bauder

Took the coaster through the san elijo lagoon and it is a dump.

So is the San Elijo Saloon. Best, Don Bauder

On the charity circuit attendance is down.... all it takes is a few big check writers to make up for that but quite a few grass roots events do not have that. by the way Don, Kima was proud to be the Dog Ambassador for the 3rd year for the Arthritis Foundation.

That is an interesting observation, and often a telling one as an economic indicator, Margo. Best, Don Bauder

Kima is a beautiful girl Margo......................... she is lucky to have you and vice versa........

Kima is more beautiful than the beautiful people she is photo'd with. Best, Don Bauder

The Beautiful People are under severe financial stress, no doubt about it. As an example, prospective debutantes are no longer being tested for purity during the vetting process due to a shortage of funds.

Chastity belts would obviate the need for such tests. Does Wal-Mart sell them? Best, Don Bauder

This is an interesting article, but I would recommend that you learn the difference between a semicolon and a colon. In this statement, "San Diego’s unemployment rate continues higher than the nation’s: in April it was 8.7 percent compared to the nation’s 7.7 percent," a semicolon should have been used since you connected two independent clauses into one sentence.

By the old pristine rules of grammar, you are correct. However, increasingly, journalists and other writers are jettisoning some of the old rules in favor of constructions that may enhance readability. I use colons a lot, rather than semicolons, when the thought expressed in the second clause buttresses the point made in the first. In that sense, the clauses are not really "independent." The second one fortifies the first. I am sure you will disagree with this. Having written regularly for about 60 years, I can assure that I know the difference between a colon and a semicolon. Best, Don Bauder

My doc wants me to get a colonoscopy. I should have asked him if I could instead get a semicolonoscopy.

That would have been a half-assed solution. Best, Don Bauder

The last time I got a colonoscopy I was given a photograph of the results. I told people I would autograph the photo and charge only $100 for it. No takers. Best, Don Bauder

you wrote the article like you had no idea what happened and the cause. bad oversight of the financial industry caused this problem. there were some in san diego that helped with the problem but i have not heard of them being held responsible. the people who you talked with also act like this crisis should end easily. all someone has to do is say it and it will be over.

Bad oversight was certainly one cause of the housing bubble, but it was hardly the only one. The consensus of people I interviewed is NOT that this crisis will be over quickly. I hope the column did not purvey any such optimism. Best, Don Bauder

The cause was due to many factors-mismanagement of the gov being 90%

Mismanagement of the government might have been 30%. Wall Street and mortgage industry greed, combined with consumer greed and naivete, were the other 70%. Best, Don Bauder

Yeah, I like to blame gov for everything though!

The attitude of blaming government for everything takes people's eyes off the real villain: private sector greed. Best, Don Bauder

who is Kima....and is it the pension fund that drove the cost of water up Don

Java Joe says NO...my husband Bobby says YES

all of us know only U know 4 sure

i will pay 4 this info with a can of wup ass...figured u need it from time to time

Kima is the dog belonging to Margo Schwab, who has a a society website. The rise in the cost of water is not directly related to the pension problem. There are a number of factors in the rise of the cost of water: one is that the Colorado River is not providing enough water for Southern California, Arizona, and other areas. The San Diego County Water Authority has made some mistakes. Best, Don Bauder

OK u can have that can of wup ass now...thx Don

Is Wup Ass donkey meat? Never heard of it. Best, Don Bauder

hahahahahahahahaha...now i'm wondering what u'll write about my comment about Ms Margo...yawn.........

Margo is very attractive. So is Kima. Best, Don Bauder

i expected a more boobilicious comment here

Margo's website is a very good one. I check it for news of the Beautiful People, although the only time I mixed with the BPs in San Diego was at events related to San Diego Opera, my big love. Best, Don Bauder

At some opera events, the BPs would arrange to have me sit with some of the big CEOs in town. They would tell me that I was not being helpful to local companies. I would reply that my job was to give balanced information to shareholders and the general public, not try to "help" local companies' managements. They never understood that. Nor did Copley editors. Best, Don Bauder

u were more beautiful then them Mister!!!

You've only seen my picture, Nan. I doubt if you have seen me in public. I haven't done San Diego TV or given any San Diego speeches in almost ten years. In person, I'm ugly -- like my disposition. Best, Don Bauder

Don found this and it remind me of u...maybe u can use it in a blog sometime

just put my name below Chris Hedges

u probably know of the guy...a journalist ..war correspondent ... opinionated speaker


it's time 4 inspirational speaking...words have power if said often enuff,,,

yeah i know...u can see me twirling my finger in my dimples eh....hahahahahahaha...cockeyed optimism anyone???

I agree with Hedges but I am a hypocrite. I have a bachelor's in business and a master's in journalism -- trade school degrees. My wife has a PhD in plant ecology -- ideal for Hedges's philosophy. Best, Don Bauder

how wonderful to have a wife who is an ecologist...i marked trees in the 70's

She got the doctorate in plant ecology while we were raising two sons. Best, don bauder

quote Bauder: "You've only seen my picture, Nan. I doubt if you have seen me in public. I haven't done San Diego TV or given any San Diego speeches in almost ten years. In person, I'm ugly -- like my disposition". Best, Don Bauder

hey i can hero worship an ugly bastard if i want 2!!!

and i'm speaking of beauty on the inside....a beautiful spirit Mr Bauder

i'm off my head bananas nuts about this UGLY creature...why not u....hahahahahahaha

Happy Fathers Day Don!!

It has been a great gathers day with two sons and a grandson. Best, don bauder

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