ECONOMY: Local, national economies to dodge recession, forecast says

Economists predict housing market will slow growth, but region will still add jobs

By ZACH FOX - Staff Writer | Wednesday, May 7, 2008 8:03 PM PDT ∞

San Diego County's economy will skirt a recession this year and job losses will continue for only two more months, says a widely followed economic forecast.

Nagging weakness in the real estate and construction sectors will continue to drag down the local economy throughout the year but not enough to cause a loss in total jobs across the county, according to a report by the UCLA Anderson Forecast to be released Thursday.

The county will lose 1,200 more jobs in April and May, the forecast said, after having posted a loss of 1,700 in March, bringing the unemployment rate to 5.5 percent.

But the economy will then stabilize, posting growth in jobs by the fourth quarter when compared to a year earlier, the report said.

Though falling home prices and virtually nonexistent new construction are large obstacles, the forecast's economists wrote that the county will not come close to seeing the roughly 20,000 jobs lost in the early 1990s.

A fundamental reason is that a downturn in several sectors, including aerospace, accompanied that era's housing recession, said Alan Gin, an economics professor with the University of San Diego and a contributing author for the forecast.

"That was a double whammy (in the early '90s)," he said. "So then the question now is, 'Can a single whammy bring the economy into a recession?' I don't think it can."

While the academics believe that the local economy will survive the housing recession without a general downturn in jobs, businesses should not expect to turn to a traditional source of revenue: tourists.

The number of visitors to San Diego County declined in 2007 and reaction to last fall's wildfires could mean 2008 tourism might be even weaker, the economists wrote.

Discussing the future of residential real estate, writers of the forecast had no problem eating crow on their previous prediction. They noted that a year ago, the team forecast that home prices in San Diego County would remain relatively stable or fall only slightly.

Instead, countywide home prices tumbled almost 17 percent throughout the year, according to Standard & Poor's Case-Shiller Home Price Index, a closely watched price indicator.

The forecast's writers acknowledged underestimating the foreclosure crisis a year ago.

Looking forward, they expect foreclosures to continue to "wreak havoc" on home prices for the next nine to 12 months. And concerns among buyers about purchasing a home in a depreciating market mean that the county's housing market will not recover until mid-2009, according to the forecast.

On the bright side, the economists wrote, the county's housing recession will be over relatively quickly by historical standards.

UCLA's economists also stood by earlier predictions that the national and state economies will likewise dodge a recession. Those predictions run counter to several Wall Street analysts who have declared the economy in recession.

As with the county's economy, they reason that housing weakness alone is not capable of pulling the general economy into a recession.

In years past, housing downturns have foretold general recessions. But this time is different, the forecast said.

Historically, massive job loss precipitated housing downturns.

This housing recession was predicated upon creative financing. That means, the economists reasoned, the housing downturn does not correlate with job losses, so the economy's overall health is in better shape.

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com.