On the heels of the Great Recession, Robert A. Kleinhenz, chief economist for the Los Angeles County Economic Development Corporation (LAEDC), currently sees a slow but steadily growing South Bay economy, more job creation, and a continuing shift away from manufacturing toward the service industry.
Kleinhenz presented the “2015-16 South Bay Economic Forecast and Industry Outlook” on Oct. 30 during California State University, Dominguez Hills (CSUDH) first “South Bay Economic Forecast Conference” on campus in the Loker Student Union.
Moderated by KNX 1070 news anchor Frank Mottek, the forecast offered a comprehensive look at key economic drivers, wages and employment, industry and other trends in the South Bay, Los Angeles County (LAC), and throughout California.
“You may have asked yourself, ‘Why is Cal State Dominguez Hills sponsoring a South Bay economic forum and conference?’ … In the past several months we have been conducting dozens of meetings with business, community, industry, political and educational leaders,” said CSUDH President Willie J. Hagan during his opening remarks. “…There’s an underlying theme that emerged from all those discussions. That we are all connected. That we’re mutually dependent–inexplicably bound in such a way that the success or failure of any one of us impacts the success of failure of all of us.”
Housing Market and Business Presentations
Prior to Kleinhenz’s main economic forecast, Jose Martinez, assistant professor of economics at CSUDH, presented his research and a forecast of the South Bay’s residential home market. He shared the ways in which the home market “affects everyone,” with an emphasis on “millennials” as the growing “new wave of first-time homebuyers.”
Martinez noted that over the past 15 years wages have not grown consistently with the rising cost of homes in the South Bay; from between $700 and $800 per week in 2000 to between $1,000 and $1,100 today. Overall, however, his research indicates a “healthy” housing market with moderate growth in home prices and sales in the foreseeable future.
“Millennials are having an easier time getting jobs because the job market has been great lately, relatively speaking. We hope this will lead to household formation and eventually a demand for housing,” said Martinez. “They will be the future of the housing market in the South Bay, but there may be a problem for them in terms of affordability if they just get the job but not the pay they need to be able to afford a home.”
Martinez was followed by presentations and a panel of three leaders in business and industry: Praveen Penmetsa, CEO and founder of Motivo Engineering; Michael Keenan, director of planning and strategy for the Port of Los Angeles; and Andre Oosthuizen, vice president of marketing for Porsche Cars North America, Inc (PCNA).
For more than 10 years, Penmetsa has been assembling innovative teams to enable the creation of high impact global products in the automotive and clean energy sectors. Motivo, his Torrance-based company, is a successful engineering service that has executed over 70 research and development projects for clients, ranging from next-generation cars to innovative sports equipment.
“Not too long ago I had dinner with a couple of people about General Motors and Toyota leaving the South Bay to talk about what the impact will be,” said Penmetsa. “The exit of those companies has led to the entry of new companies and opportunities. …Never has there been a better opportunity for technology companies in the region to fill in the gaps.”
Keenan’s roles for the Port of Los Angeles include leading its strategic planning efforts, managing its land use, and overseeing research activities related to the port. The Port of Los Angeles together with the Port of Long Beach handled more than 40 percent of the nation’s containerized imported cargo last year, and $409 billion in imported and exported cargo. Last quarter, volumes through the Port of Los Angeles alone grew 5.7 percent.
“Moving forward, we are dealing with all our stakeholders to get them to help find supply chain optimization paths that keep cargo moving through the port faster and more efficiently,” said Keenan. “That’s going to be our competitive advantage against people on the East Coast who are trying to take cargo away from us.”
Oosthuizen is based in Atlanta, GA, where Porsche sports cars and Cayenne sport utility vehicles are imported to the United States. He discussed the automotive giant’s opening next year of the “Porsche Experience Center” in Carson.
The center will feature a “proving ground” for the company to test and improve its models’ performance and technologies, as well as the “Driver Development Track,” which will enable potential buyers to test the vehicles on a performance track. The center will also offer a high-end café, a business center, and a personalized “lounge” where Porsche buyers may customize their own vehicles.
“It’s all about brand experience, being innovative, and putting our products in touch with people in the greater community to make it more immersive,” he said. “Because it is becoming harder to differentiate a brand out there–it’s hard to experience a Porsche driving from traffic light to traffic light.”
South Bay Economic Forecast
Kleinhenz, who noted that he does not see “any sign” of a recession in the next couple of years, began his presentation by asking audience members to raise their hands if they think a recession is “lurking in the shadows.” A large number of people raised their hands.
“This is an issue I often encounter with audiences and people who I speak to. Many today still think the economy is not back to where we were,” said Kleinhenz. “You hear of a rising tide [for a new recession] looms, but that’s not really the case now in this post-Great Recession period…Things are playing out as we suspected, just a little more slowly right now then we typically see in an economic cycle.”
Employment and Income
Nationally, wage increases “have been hard to come by,” but the workforce and consumer spending is “strong,” according to Kleinhenz. He pointed to unemployment, which has dropped to 5.1 percent in the U.S. and “within the range of what economists call full employment, and with little or no inflation.”
Kleinhenz reported that in 2014 employment in the South Bay increased to an estimated 552,886 jobs, up by 1.8 percent from 2013 and surpassing the pre-recession peak for the second year in a row. The South Bay has also expanded to become one of the primary sources of employment in LAC, he said.
“The South Bay population is about 700,078. That’s only eight percent of LAC’s population, but 15 percent of the county’ job base, and a third of the dollar value of sales shipment and receipts in manufacturing are in the South Bay,” said Kleinhenz. “A big part of that is our aerospace and energy industries.”
The LAEDC predicts that wage increases will remain slow, but total South Bay employment will rise to 561,400 workers in 2015, which is equivalent to a 1.5 percent gain, with a slightly lower rise in 2016.
According to the report, the average annual wage in 2014 in the South Bay was $57,502, particularly in wholesale trade and manufacturing, which ranked third among the 13 LAC “sub-regions” in the county. In education and the health industries, the average wage in the South Bay was $41,748 in 2014, 2.4 percent higher than in LAC.
According to Kleinhenz, of the 14 dominant South Bay industries, aerospace, petroleum refining and the automotive industry remain the dominant industries in its economy. Other thriving industries in the South Bay include entertainment and sports management, health care, higher education, retail, tourism, and hospitality, which have all seen notable growth. Even manufacturing continues to be strong–representing 12.2 percent in LAC–due to its size, the diversity of the local market, and its close proximity to the ports.
Last year, health services ranked first out of the 5,204 professional and business services companies in the South Bay. The region is also home to a growing number of tech start-ups, creative companies and firms, and pharmaceutical companies.
In closing, Kleinhenz asked the audience to think of the South Bay in context of all of Los Angeles County, particularly in terms of post-recession job growth.
“The county had 4.23 million jobs and hit rock bottom–below 4 million–during the recession, but as of last year we hit 4.23 million again,” he said. “Good news, right? But then I pushed it back to 1990. Since then we have added over 1 million people to our working-age population, but have only added of 120,000 jobs.
“So the challenge for us all, especially those who plan to leave this a better county for our kids, is to get out of this rut that Los Angeles County finds itself in,” he added. “There’s so much promise in the stories that we heard today about emerging companies and potential for growth, about the ports–we should be able to crack this nut. We all just need to work together. Not just for the South Bay, but for all of Los Angeles County.”