Economic momentum appears to be evident — finally.
That was the consensus view from a panel of seven professionals assembled at the San Diego Business Journal’s 2012 Economic Trends event Jan. 5 at Paradise Point Resort & Spa.
Robert Dye, chief economist at Comerica Bank, said that while the economy remains sluggish, the gross domestic product numbers gained every quarter last year, and should pick up steam in the latter half of this year.
“We finished 2011 with a good sense of momentum,” Dye said, citing higher job creating reports, declining unemployment insurance claims, increased consumer spending, especially on autos, and increased construction spending.
But obvious headwinds still lurk ahead, Dye noted, particularly the European debt issue that has already caused most of Southern Europe to fall into a recession.
Locally, Dye noted that San Diego has added 45,000 jobs since the bottom of the Great Recession in the first half of 2009. Although a proposed 8 percent cut in military spending could impinge locally, the U.S. Department of Defense is also shifting its focus to the Pacific from the Atlantic and that could help stem reductions.
Susan Afan, district president of Robert Half International, cited a net gain of 26,600 nonfarm jobs locally through November as evidence of a turnaround.
Tale of 2 Job Markets
However, both locally and nationally, there’s a tale of two job markets. While the overall outlook is for conservative growth, there’s been ever-increasing demand for highly skilled jobs, she said.
In industries such as information technology and finance, demand is so high that there are clear shortages. By her company’s report, the unemployment rate as of the third quarter for financial analysts was 0.6 percent; for accountants and auditors, 3.4 percent.
Afan said a Robert Half survey found that executives are more confident about their businesses’ prospects this year and are poised to hire. “They cut so deeply in the downturn that the first sign of any pickup in their business will mean (they are) hiring,” she said.
Trindl Reeves, principal for Barney & Barney, a commercial insurer, had a much different take than most of the panelists.
“2011 was one of the worst years in the history of the insurance industry,” she said, citing billions of dollars in losses caused from tornados, earthquakes, flooding and other disasters. “There were 171 catastrophes in the U.S. last year totaling $35 billion in losses.”
Expect more rate increases for workers’ compensation insurance, Reeves said, citing a 128 percent loss ratio last year by insurers.
“Bottom line, we’re seeing double-digit rate increases for workers’ comp this year, and it’s probably not going to get better as the year moves forward,” she said.
David Yasukochi, partner with BDO in San Diego, delivered sobering news regarding tax laws, particularly all those tax breaks that expired at the end of the year.
While there’s been talk in Washington of extending some of those tax credits, particularly the Social Security payroll break, prospects for those getting extended look dim, he said. If there’s been no solution by the end of the first quarter, “it’s likely that nothing will happen until the end of the year after the election,” Yasukochi said.
He noted that President Barack Obama’s deficit reduction plan calls for raising $1.5 trillion in personal income taxes over 10 years, with about $866 billion coming in the form of raising the tax rates on wealthy citizens from the current 35 percent to 39.6 percent. Wealthy is defined as taxable income of more than $250,000 for married couples and above $200,000 for individuals.
Declining Vacancy Rate
Tom Van Betten, senior tenant adviser for Cassidy Turley BRE Commercial, said the vacancy rate on office space in the county is slowly declining. The current 18.6 percent rate declined from 19.4 percent a year ago, and should continue to drop by 1 percent in the next three to five years.
Another sign that the economy is improving can be seen in rental concessions that tenants are getting. In the depths of the recession, some received as much as 10 months in free rent on a five-year lease. Today, the market is about one month free rent per year, Van Betten said.
Office rents are also on the rise, and have moved up to an average for the county of $2.20 per square foot. But that is still 20 percent below the peak rates landlords were charging in the first quarter of 2008, he said.
Dan Clark, vice president of marketing for ESET North America, said cyber attacks on businesses continue to rise, and are getting more expensive. A study done by his employer showed that companies with an average of 700 workers lost an average of $5.9 million from a computer system attack last year.
“These attacks are becoming more commonplace and they do take longer to clean up,” he said.
More Uninsured Workers
Mary Ann Barnes, senior vice president of Kaiser Permanente, said health care coverage has fallen dramatically since the recession took hold.
“We see less employers offering health insurance. We see a rise in Medicaid, and we’ve also seen a rise in more uninsured in the marketplace,” she said.
For those who do get health insurance, many employers are shifting more of the costs to workers, who are getting fewer benefits, Barnes said.
One way that employers are trying to reduce the escalating costs of health insurance is by introducing wellness programs that address such major issues as obesity, which cause many serious health problems, she said.
