San Diego Business Journal

San Diego's once red-hot economy is cooling down this year, but should hold steady through 2001, according to the latest Index of Leading Economic Indicators for the county.

Alan Gin, the USD economics professor who compiles the index, noted a third consecutive decline in the index in September doesn't necessarily mean a recession is looming.

"Right now, my thought is we're not going to have a downturn, but more of a plateauing situation," Gin said.

The index, a compilation of six economic measurements, dipped a half-percent in September, following the same percent drop in August, and 0.3 percent decrease in July. Before that, the index showed a positive gain for 18 consecutive months.

Gin said normally three consecutive decreases in the index would signal a turning point for the economy, but in San Diego's case, some of the components had been at fairly high levels for much of the year.

The probability is for a slowdown in economic growth from the rapid expansion that had been occurring for the last several years, he said.

Kelly Cunningham, research director for the San Diego Regional Chamber of Commerce, agreed with Gin's assessment.

"I think we're due for a slowdown because the national economy has been kind of slowing," Cunningham said. "But I don't see how we could go into some type of recession, unless the rest of the country does."

Cunningham said the local economy has been expanding by an average of 6 percent to 8 percent annually over the past three years, but that rate probably will decline next year.

Gin said he expected growth for the first quarter to land between 3 percent to 3.5 percent, below the much higher rates seen in the last few years.

During September, four of the six measurements in the index showed a decline: building permits, stock prices, consumer confidence, and help wanted advertising. The index for the national economy showed no change.

The sole component that showed a gain was unemployment insurance claims. The measure registers as positive when there's a drop in the number of initial unemployment claims filed.

Utility Prices Have Effect

Gin noted the decline in consumer confidence was something that has been occurring since the spring and stems from a combination of an unexpected rapid increase in electricity and gas prices, the continued volatility in the stock market, and higher housing prices.

Cunningham said the steep increase in real estate prices this year has resulted in San Diego being the least-affordable area in Southern California , worse than Los Angeles and Orange County.

Only about 22 percent of the county's population can afford to purchase a median-priced home of about $250,000, he said.

On the positive side, the area's unemployment rate , averaging 3 percent for most of the year , remains lower than both the state's average of 4.5 percent and that of the nation of about 4 percent, and shows no signs of rising above those numbers.

September's unemployment claims numbered 10,590, only slightly above the amount in April when the number of claims hit a 13-year low, Gin said.

Even when those figures are adjusted to what is generally a low month for new claims, the unemployment level is the best that it has been since early 1989, Gin said.

Second Survey Concurs

Indeed, another local survey showed a large majority of employers expected to expand the number of employees for the first quarter of next year.

The San Diego Manpower Inc. office said 71 percent of the firms surveyed plan to increase their staffing, while 11 percent plan reductions, and 18 percent expect no changes in the first quarter.

Mel Katz, co-owner of the local Manpower franchise, said the latest survey compares favorably to the same period last year when 39 percent planned to hire more staff, and 20 percent were planning cutbacks for 2000's first quarter.

"San Diego seems to be bucking the national trend," Katz said. "There's a lot of optimism right now."

Increases in staffing should come in the areas of construction, durable and non-durable goods; manufacturing; transportation/public utilities; finance, insurance and real estate; and education, services and public administration, according to Manpower.

Cunningham predicted when the state Employment Development Department conducts its annual revision of its numbers, the area will probably see an overall net gain of about 35,000 new jobs this year.

He said the Manpower survey was somewhat disturbing in light of the area's already low unemployment rate, which will make it difficult for businesses to find the people to fill those anticipated job openings.

Although state reports show the largest gains in job growth to be in retail trade and services, Cunningham said many of the jobs in the latter category were higher paying positions in engineering and business services.

About 40 percent of the newly created jobs came from the high-tech sector and contained many high-paying positions. The economy seemed to be creating lots of jobs at both ends of the pay scale spectrum, but not as many in fields that paid average wages, Cunningham said.