Source: Daily Breeze
The South Bay economic forecast has neither ominous storm clouds nor clear skies ahead – but predicts, rather, a moderately sunny future, with some mildly concerning clouds looming.
That’s according to the authors of the eighth annual South Bay Economic Forecast and Industry Outlook.
The clouds – inflation, supply chain disruption, slowing growth of the gross domestic product – are the same ones hovering across the rest of the country, as many experts predict some form of a recession on the way. But there is reason to believe that the South Bay is poised to weather the future financial storm with resilience, experts said earlier this week.
A key part of that, according to the recently published report, is the region’s diverse, profitable and growing industries, as well as strong labor productivity and an enviable housing market.
The report was prepared by researchers and economists of the South Bay Economics Institute at Cal State Dominguez Hills, with the key findings presented during a Thursday, Oct. 13, conference.
The economy is currently in an odd situation, with the Federal Reserve increasing interest rates in an effort to bring down inflation, an effort that has so far been unsuccessful – as consumer spending has grown during the first two quarters of 2022. Nevertheless, the South Bay Economics Institute experts have predicted spending will eventually slow and that some sort of recession is inevitable, although the severity of it is tough to predict.
“As of today, demand remains very, very strong, so that’s why it’s weird for economists, because how do you predict a recession when the economy’s doing so well?” institute co-Director Jose Martinez said at the conference. “It seems like the Fed will eventually get what they want, which is basically controlling inflation and that will most likely lead to a mild recession, at least.”
At a national level, GDP growth has been negative for the last two quarters.
The South Bay Economic Forecast Model estimates that the GDP of the regional economy will grow by 1.4% in 2022 before slowing to 0.5% growth next year – and then picking up again, reaching 1.7% in 2024 . The model also predicts a minor uptick in unemployment in 2023 – from 5% to 5.6% – before dropping back down to 5.1% in 2024.
The anticipated drop in consumer spending is already showing up in the South Bay’s housing market.
While prices increased by 14.6% from July 2020 to July 2021, this rate of increase slowed to 9.9% from July 2021 to July this year. Still, institute experts predicted that the local market will remain strong, given that demand for houses far outstrips supply.
“I think it’s (interest rates) going to have an effect, a real effect, but if you were expecting a correction, like a 10-to-20% decline, I don’t think it’s going to happen,” Martinez said. “The area remains very, very competitive and people love to live here.”
The South Bay, like the nation, is also contending with uncontrollable variables that are keeping the price of goods high, including supply chain disruptions from the war in Ukraine and China’s zero-COVID-19 policy, the report adds.
But when it comes to the economic fundamentals of the South Bay, the experts said, the region is in a solid place.
In California and the South Bay, for example, labor productivity remains high.
“The labor productivity for California has grown at a faster rate than any other state except Washington over the last 10 years,” said institute co-Director Fynnwin Prager, “and that’s a really remarkable story given that we already had a really highly educated workforce.”
On a regional level, industries are thriving and attracting high levels of investment.
The top private companies in the South Bay region are in aerospace, tech, banking, real estate and e-commerce, which boast a combined valuation of more than $200 billion, according to the report.
The biggest is SpaceX, valued at $125 billion; but the South Bay also has Miro, a remote work-focused tech company, with a $17.5 billion valuation, Bank of the West with $16.30 billion valuation, Cloudkitchens with $15 billion and Discord with $14.70 billion.
“Many years ago, we were seen as very aerospace focused and while that’s still a major industry, we also have a huge gaming sector and we’re seeing massive growth in robotics,” Prager said. “It’s a really innovative space, and that innovative culture, I think, there really is something in the air here.”
Innovation is happening and money is flowing.
The top 10 emerging South Bay industries have total capital of more than $56 billion invested and the top six investors in the region have collectively completed more than 1,700 deals in the South Bay, the report says.
“The large amount of venture capital that’s here, it’s a really exciting place to watch, to be a part of, to engage with,” Prager said. “We’re really excited for the future of this region.”
The report also identifies the cannabis industry as a potential source of economic growth for the South Bay, pointing to the more than $1 billion in retail sales made in LA. While most of the South Bay has yet to legalize any dispensaries, there are local measures to do so on the Nov. 8 ballot, including in Hermosa Beach and Manhattan Beach.
Another new industry that, the report says, is poised for growth in the South Bay is green technology, especially as California already leads the nation in electric vehicle development and adoption. Recently, there has been a push for more of the South Bay’s warehouse businesses to adopt electric trucks.
Overall, the diversity of the South Bay’s industries, the institute’s experts have predicted, will be one of the region’s greatest strengths when it comes to facing the uncertain economy ahead.
“Our new South Bay Economic Forecast model incorporates this diversity, such that when some sectors are facing choppy waters, others are plain sailing,” the report says. “Our regional economy is clearly resilient, competitive, and innovative, and these qualities will allow us to navigate challenging times.”