The South Bay Economic Forecast has no ominous storm clouds or clear skies ahead – but instead predicts a moderately sunny future, with some slightly ominous clouds looming.
That’s according to the authors of the eighth annual South Bay Economic Forecast and Industry Outlook.
The clouds — inflation, supply chain disruption, slowing gross domestic product growth — are the same ones hanging over the rest of the country, as many experts predict some form of recession underway. But there is reason to believe South Bay is poised to weather the future financial storm with resilience, experts said earlier this week.
A key part of this, according to the recently released report, is the region’s diverse, profitable and growing industries, as well as strong labor productivity and an enviable housing market.
The report was prepared by researchers and economists at the South Bay Economics Institute at Cal State Dominguez Hills, with key findings presented at a conference on Thursday, October 13.
The economy is currently in a strange position, with the Federal Reserve raising interest rates in an effort to bring down inflation, an effort so far unsuccessful as consumer spending has increased in the first two quarters of 2022. Nonetheless, South Bay Economics Institute experts have predicted that spending will eventually slow and some sort of recession is inevitable, though the severity of that is hard to predict.
“As of today, demand remains very, very strong, which is why it’s weird for economists, because how do you predict a recession when the economy is doing so well?” institute co-director Jose Martinez said at the conference. “It looks like the Fed will eventually get what it wants, which is basically controlling inflation and that will most likely lead to a mild recession, at least.”
At the national level, GDP growth has been negative over the past two quarters.
The South Bay Economic Forecast Model estimates that GDP for the regional economy will grow 1.4% in 2022 before slowing to 0.5% growth next year and then picking up to 1.7% in 2024 . The model also predicts a slight increase in unemployment in 2023 – from 5% to 5.6% – before falling back to 5.1% in 2024.
The expected decline in consumer spending is already showing in the South Bay housing market.
While prices increased by 14.6% from July 2020 to July 2021, this rate of increase slowed to 9.9% from July 2021 to July this year. Still, experts at the institute predicted the local market will remain strong, as demand for homes far exceeds supply.
“I think it (interest rates) is going to have an effect, a real effect, but if you were expecting a correction, like a 10-20% drop, I don’t think that’s going to happen,” he said. Martinez said. “The region remains very, very competitive and people like to live here.”
The South Bay, like the nation, also faces uncontrollable variables that keep commodity prices high, including supply chain disruptions from the war in Ukraine and China’s zero COVID-19 policy. , the report adds.
But when it comes to South Bay’s economic fundamentals, experts said, the region is in a strong position.
In California and the South Bay, for example, labor productivity remains high.
“Labour productivity in California has grown at a faster rate than any other state except Washington over the past 10 years,” said institute co-director Fynnwin Prager, “and it’s is a truly remarkable story given that we already had a highly educated workforce.”
Regionally, industries are thriving and attracting high levels of investment.
The top private companies in the South Bay area are in aerospace, technology, banking, real estate and e-commerce, which have a combined valuation of more than $200 billion, according to the report.
The biggest is SpaceX, valued at $125 billion; but the South Bay also has Miro, a technology company focused on remote work, with a valuation of $17.5 billion, Bank of the West with a valuation of $16.30 billion, Cloudkitchens with 15 billion dollars and Discord with $14.70 billion.
“Many years ago we were seen as very aerospace focused and although it’s still a major industry, we also have a huge gaming sector and we’re seeing massive growth in robotics,” Prager said. . “It’s a really innovative space, and this innovative culture, I think, there’s really something in the air here.”
Innovation happens and money flows.
South Bay’s top 10 emerging industries have a total invested capital of more than $56 billion, and the region’s top six investors have collectively closed more than 1,700 deals in South Bay, the report said.
“The vast amount of venture capital that’s here, it’s a really exciting place to watch, to be a part of, to engage,” Prager said. “We are really excited for the future of this region.”
The report also identifies the cannabis industry as a potential source of economic growth for South Bay, highlighting the more than $1 billion in retail sales made in Los Angeles. While most of South Bay has yet to legalize dispensaries, there are local moves to do so by the Nov. 8 ballot, including in Hermosa Beach and Manhattan Beach.
Another new industry the report says is poised to grow in the South Bay is green technology, especially since California already leads the nation in electric vehicle development and adoption. . Recently, there has been a push for more South Bay warehouse companies to adopt electric trucks.
Overall, South Bay’s diversity of industries, the institute’s experts predicted, will be one of the region’s greatest strengths when it comes to weathering the uncertain economy ahead.
“Our new South Bay economic forecast model incorporates this diversity, so that when some sectors face choppy waters, others sail smoothly,” the report said. “Our regional economy is clearly resilient, competitive and innovative, and these qualities will see us through difficult times.”