Hold on. The fiscal cliff isn’t the end of the federal government spending debate, but the beginning of a restructuring process that’s well under way, and still needs more time to get resolved.
That’s the view of Mark Vitner, senior economist for Wells Fargo Securities, the headline presenter at the San Diego Business Journal’s 2013 Economic Trends event.
“It’s unfortunately the beginning of this day of fiscal reckoning,” Vitner said.
Vitner’s says the nation will get past the cliff drama and move on, but the slog back to full recovery will likely continue this year.
The worst case scenario, the absence of any fiscal agreement causing the nation’s economy to fall back into another recession, remains a possibility but a remote one, he said.
Using the analogy of a coin flip, Vitner said the chances of that happening are akin to a coin that doesn’t land on heads or tails, but on its side.
Vitner says his forecast for the national economy is cautious, as businesses and individuals will deal with higher taxes from the expected compromise agreement coming out of Washington.
“Everybody will feel some pain, but the pain will be most acute in the upper end and the lower end,” he said.
Even with some fiscal agreement, job growth won’t be anywhere near the levels seen before the Great Recession, but it’ll rise, and California should continue to see improved gains, Vitner said.
“Job growth in 2012 was relatively strong, and we’ve seen the unemployment rate come down in California at a faster rate than it has nationally,” he said.
In an earlier report, Vitner noted that the state has added 541,400 jobs since February 2010 when the economy hit bottom, with the increases coming from a broad swath of industries.
While the state’s jobless rate remains elevated (at a seasonally adjusted 9.8 percent in November, the first time it’s been below 10 percent since 2009), job creation gained momentum last year, particularly in a range of high-tech sectors. Increased hiring in social networking companies and those feeding off the boom in mobile telecom devices benefited mainly the Bay Area, but its effects were felt in Southern California and other areas of the state, he said.
So were the gains in such related sectors such as software development, information processing, and professional and business services, he said.
San Diego’s jobless rate dropped to an unadjusted 8.3 percent in November, down from a revised 8.6 percent in October, according the most recent Employment Development Department report.
In San Diego, Qualcomm Inc., the makers of chips that go into most mobile devices and creator of lots of intellectual property, increased the number of local full-time employees 8 percent over the past year to 11,400.
The travel and hospitality sector also had a nice year in 2012, up by 5,300 jobs in San Diego from November 2011 to November 2012, and should continue being a big jobs generator both on the statewide level and locally, Vitner said. Other areas that should continue expanding are health care and education, retail, construction and financial services, he said.
Helping Local Hiring
Two major contributors to the surge in hiring both locally and statewide last year were professional and business services and trade, transportation and utilities. In San Diego, professional and business services employment grew by 8,600 jobs through November, while staffing in trade, transportation and utilities was up 4,300 over the same period.
However, manufacturing continues to shed jobs. According to the most recent monthly employment report for the San Diego region, there were 2,000 fewer manufacturing jobs over the 12 months from November 2011.
On a national level, Vitner said one clear area of improvement this year will be housing. As the number of foreclosures has declined, values have stabilized and are gradually rising as more higher-priced homes sell. With interest rates remaining at historic lows, demand is growing and that’s also causing values to rise, he noted.
Another factor helping to boost the market is that banks are agreeing to do more short sales, accepting less than what was owed on the mortgage, he said.
On the construction side, the number of new single family permits for San Diego was only 2,500 in the past year, but apartment construction was up by 4,100, Vitner said.
While building new single family houses here will remain slow, “we’ll probably see 4,500 to 5,000 new multifamily units permitted in 2013,” he said.
There Will Be Problems
Ultimately, the fiscal issues that have dragged down the overall economy will have to be confronted, causing some distress for just about everyone, Vitner said.
Taxes will almost certainly increase. The temporary reduction of the Social Security tax won’t be extended, and parts of the Bush tax cuts will likely be reversed, most likely on those making more than $250,000, he forecast.
As the reality of the changes take effect and things become clearer about what direction we’re heading, companies will adjust and resume growing their businesses again, he said.
“Once we get past the fiscal cliff (debate) we may see activity pick up a little bit as decisions that were put off begin to be made.”