Economic growth will remain sluggish for the region’s small businesses, with the exception of real estate-related firms, according to an analysis by the National University System Institute for Policy Research.
Erik Bruvold, president of the organization, spoke Wednesday morning to members of the North San Diego Business Chamber during an event at Sony Electronics about the region’s “middling” economic outlook.
Although the region led the state and nation in economic growth in 2011 and 2012, progress since then has slowed, he said.
While the region is reaching full employment, with a 4.2 percent rate of unemployment recorded in May, neither household income nor sales are expected to return to pre-recession highs this year, Bruvold said.
And, even as the unemployment rate falls, so is the region’s rate of labor force participation: The percentage of people in San Diego who are working or actively seeking work is the lowest it has been in nearly 40 years.
As technology becomes more advanced, companies are cutting costs by automating work previously done by people: this has resulted in fewer middle-wage jobs, he said.
“San Diego will be fortunate to achieve a seventh consecutive year of ‘real’ positive economic momentum moving forward in 2016,” the National University System report states.
Still, trends point toward a slowing of gains made since the end of the recession rather than an outright reversal, the organization has said.
One unexpected bright spot this year, Bruvold said, is residential construction-related business. Since early 2016, the organization has revised upward its projection for residential units approved in 2016 from 9,000 units to more than 10,000, the majority of that multi-family housing, he said.
More broadly, while the potential economic effects of the U.S. presidential election are front of mind for many, whoever is elected is unlikely to have a major effect on the economy unless one of the nation’s two political parties gains control of the legislative branch; more concerning is the economic uncertainty that may stem from Britain’s “Brexit” vote Thursday, Bruvold said.
Mike Peters, executive vice president and regional manager of Pacific Western Bank, also spoke at the event. He gave an overview of how lending is changing as a result of low interest rates and the growth of alternative lending options, such as online lenders.
As they have been for about four years, banks are likely to continue waiting, perhaps until 2017, for interest rates to rise, he said.
Banks’ rate of loan growth, like the economy, has been tepid, he said.
“People shop rates more than they ever have,” he said, thanks to low demand for loans. “Businesses are sitting on cash.”
Peters urged businesses interested in commercial loans to meet regularly with their banker to ensure flexibility, if necessary – something online lenders, which provide quick approval for loans but do little research and typically come with high interest rates, can’t provide.