A solid economic year seen ahead ---- with one potential pitfall

By: BRADLEY J. FIKES - Staff Writer | Friday, January 7, 2005 9:10 PM PST ∞

SAN DIEGO ---- San Diego County can expect a repeat of 2004's low unemployment and strong high-tech and biotech growth this year. But if the upcoming round of military base closures hits the county, local business and economic experts said in a panel discussion Friday, that promising outlook could be upended.

The panelists were mostly positive in their forecast Friday at the 21st annual Economic Roundtable, held at the County Administration Building in downtown San Diego. It was sponsored by the county of San Diego, the San Diego Workforce Partnership Inc. and The San Diego Union-Tribune.

Bases such as Camp Pendleton and other military agencies such as the Navy's San Diego-based Space and Naval Warfare Systems Command, also known as SpaWar, are a bulwark of the county's economy, said panelist Mitch Mitchell, a spokesman for the San Diego Regional Chamber of Commerce. Mitchell said the county gets about a $15 billion to $18 billion boost from its military presence.

But if military bases and agencies move out of San Diego County, a reverse "domino effect" could drain even more jobs and economic activity, Mitchell warned. The Pentagon has a May deadline to turn over a list of recommended closures to the 2005 Base Realignment and Closure Commission.

"If we lose SpaWar, do we lose SAIC?" Mitchell asked, referring to Science Applications International Corp., a major San Diego-based defense contractor.

SpaWar estimates it spends about $1.2 billion annually in San Diego County through its contracts. Last month, it gave a $60 million contract upgrade to Carlsbad's ViaSat.

Julie Meier Wright, chairman and chief executive of the San Diego Regional Chamber of Commerce, said local bases are in danger because other areas of the country want the economic boost they provide.

"Wille Sutton said he robbed banks because that's where the money is," Wright said. "We've got 15 bases and commands in San Diego ... 2005 is going to be a very pivotal year."

Aside from that concern, panelists said the local economy should do at least as well as 2004, and perhaps even slightly better.

Marney Cox, chief economist for the San Diego Association of Governments, said about 25,000 more jobs will be added in the county, as opposed to 14,000 in 2004 and about 10,000 in 2003.

The county's job growth had been declining since a 1998 peak of 50,000 jobs added, Cox said, with 2003 representing the low point.

As job growth strengthens, the county's unemployment rate should drop to 3.5 percent, as opposed to about 4 percent in 2004, Cox said.

"We're building on the successes of 2004, as opposed to maintaining constant growth," Cox said.

The high-tech and biotech industries are another plus, Cox said, because they bring money into the county from outside the area, providing an economic stimulus.

More positive news can be expected from the county's tourism industry, said Cox and panelist Ross M. Starr a professor of economics at UC San Diego. Starr's role in the panel was to discuss how the national economy was likely to perform.

Cox said local tourism had a "banner year" in 2004, and prospects look good for this year. One possible factor, he said: Some tourists who would have otherwise gone to areas devastated by the recent tsunami in Southeast Asia might decide instead to visit San Diego County.

Starr said tourism could be helped by the weakening dollar, especially against the euro.

"We could see a flood of European tourists coming into California and Florida," Starr said.

However, Starr said the national economy will be hurt by the continued high price of oil.

"For every $10 increase in the price per barrel of oil, you knock off 0.3 percentage points of GDP (Gross Domestic Product) growth," Starr said. "So the rise from $28 to $48 per barrel of oil knocks off 0.6 percentage points in GDP."

That translates into about 450,000 jobs that were not added nationwide in 2004 because of the higher price of oil, Starr said.

One local cause of concern, the increasing cost of housing, should be less of an issue this year, Cox said. He predicted prices would increase, but at a slower rate than in 2004.

San Diegans simply can't afford to pay much more for homes, Cox said, pointing to statistics showing that county residents spend an average of 40 percent of their income on housing, when the national average is 33 percent.

Cox said one sign that San Diegans are increasingly hard-pressed to afford homes is that 70 percent of home buyers during the fourth quarter of 2004 are taking adjustable rate mortgages, which have lower initial interest rates than fixed-rate mortgages.

But housing prices will not go down, Cox said. Only a recession could cause that to happen, he said.

Contact staff writer Bradley J. Fikes at bfikes@nctimes.com or (760) 739-6641.

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