ECONOMY: Recession or not, commerce struggles

Jobs lost, home equity gone as county's economy lags.

By ZACH FOX - Staff Writer | Saturday, July 5, 2008 4:46 PM PDT ∞

As economists debate whether San Diego County has entered a recession, homeowners have lost $118 billion in equity, thousands have lost their jobs and fewer from out of the area are visiting.

Even if the county's economy is never officially dubbed recessionary, consumers have felt the pinch of a lagging economy. Just one sector of the economy ---- housing ---- has spectacularly dragged down the business activity of the entire county, according to state employment figures and other key indicators.

A sharp decline in home values has begun to cut into consumer spending. During the region's long housing boom, which began in 1997 and peaked in 2005, owners grew accustomed to steady increases in home values.

Meanwhile, credit became cheaper and easy to get, enabling thousands to pull cash from their homes to pay for remodeling projects, new cars and other discretionary spending.

Those days are gone.

"We are in a slowdown, no doubt about it," said Kelly Cunningham, economist for the San Diego Institute for Policy Research, a free market-oriented think tank. "We're right there on the edge and it's close enough that you could call it a recession."

Many analysts look to jobs as a primary indicator of local economic recessions. By that measure, a recession is here.

For the first time since 1993, the county in March employed fewer workers than the year before. By May, 3,200 jobs were lost. The figure is significant, because San Diego County typically generates varying levels of job growth.

For perspective, the region lost about 30,000 over two years in the early 1990s, paced by losses in the aerospace industry.

If the county has tipped into recession, it will have been led by a housing meltdown. The first wave of job losses came from construction and real estate workers, such as Patricia Hunter of San Marcos.

She lost her job as an appraiser last December. Since then, she has struggled to make ends meet, she said, forgoing necessities such as health insurance.

"When I was laid off, they offered a (health insurance) plan," she said. "They were talking about $400 a month. I can't even make my house payment, much less $400 a month."

She missed her first mortgage payment in January.

Hunter has been getting cheaper medical care based on advice from the North County Career Center in Oceanside, where she has enrolled in retraining classes to help find a job in the medical field.

Vanishing home wealth

Though real estate job losses were the first wave, some economists say the housing meltdown will bring about a recession by causing a drop in consumer spending.

In all, $118 billion in home values across the county has disappeared since 2005, according to a North County Times calculation using data from Standard & Poor's Case-Shiller Home Price Index, the San Diego Association of Governments and DataQuick Information Systems.

Home prices peaked in November 2005 and have since tumbled 28 percent, according to the latest Case-Shiller report.

The mammoth loss in home values has wrought a drop in consumer spending of about $5.3 billion, as people typically feel comfortable spending 6 cents for each dollar in home price appreciation, said Marney Cox, economist for the San Diego Association of Governments.

In fact, consumer spending has been so tight that the county's job losses are reaching beyond construction and real estate, which have been hammered by the housing recession with 11,300 jobs lost in the county over the last year, according to data from the state's Employment Development Department.

There are almost 2,000 fewer retail jobs in May than the same month a year earlier, and the total number of jobs is lower than the previous year for the first time in 15 years.

Pessimism takes hold

The sabotage of San Diego County's economy by just one sector blows apart assertions by regional economists that the economy was too diversified ---- boasting vibrant economic motors such as defense, biotechnology, tourism and housing ---- to suffer a recession.

"That's total hogwash. ... People grab it because it sounds good. The entire U.S. economy is way more diversified than any city, and we've had lots of recessions, so how could you possibly say that?" said Christopher Thornberg, an economist with Beacon Economics in Los Angeles.

While most economists are predicting any recession to be mild, Thornberg has been more pessimistic.

"The glass is one-third full," he said. "And we've got a mess in front of us here. ... At some point in time, we're all going to wake up and realize this is not a small thing."

With a different view, UCLA's Anderson Forecast, which Thornberg used to work for, has stood firm on his forecast of no recession, based largely on that the economy has not shed a large amount of jobs.

If San Diego County is in a recession, the housing turmoil is to blame. Probably the most significant hit by housing has come in consumer spending, which has rippled through the retail sector.

But direct losses from the real estate recession are large as well. Building permits, considered a leading indicator of housing, have plunged 45 percent from a year ago, according to the Construction Industry Research Board, a research firm in Burbank.

Fewer permits translate into $422 million less that will be spent on new projects from the same time last year. Also, the $1.1 billion expected to be spent by builders on new projects filed from January through May is $1.13 billion below a peak in 2005.

Further, sluggish home sales have slashed income for real estate professionals. Real estate agents and mortgage brokers brought in about $202 million less this year through May than the same five months last year, based on a North County Times estimate of commissions using sales and price data from DataQuick.

In total, the housing market has sucked more than $600 million out of employee paychecks and companies' bottom lines over the last year ---- without counting $66.6 billion lost in equity by county homeowners in that time.

Tourism weakening, too

But even those towering numbers might not be enough to officially cause a recession. Local economists have long considered tourism to be San Diego County's bulwark against an economic downturn.

The county is uniquely situated, the argument goes, in that strong economic times bring tourists from all over the world while recessions attract visitors from Los Angeles, who take more modest vacations.

However, early numbers indicate there might be a chink in the county's bulletproof industry.

From January through April, 150,000 fewer tourists visited San Diego County than during the same time a year ago, a decline of about 2 percent, according to data from the San Diego Convention and Visitors Bureau.

Spending by tourists was still up from a year ago, according to the data, but the increase was smaller than the rate of inflation.

The weak numbers have forced the visitors bureau to downgrade its forecast for the year, a rare move, said Sal Giametta, vice president of public affairs for the bureau.

As gasoline stays above $4 a gallon, Giametta said, the bureau is planning another revision to the forecast, which calls for more tourists this year than last.

"It's interesting, if you look at the last four or five years, we've always had spikes in gas prices. What we've found is the impact on our visitors here is minimal," Giametta said. "People don't change their vacations, they change their spending."

For this holiday weekend, the Automobile Club is expecting fewer Southern Californians to leave home than last year, the second straight holiday that will see a year-over-year decline in tourists after a weak Memorial Day.

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

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