Friday, Aug. 8, 2008 | For the first time in 15 years, San Diego County’s economy has entered a regional recession, local economists have reluctantly acknowledged.
A key measure of the local economy’s health — job growth — dipped negative in the first half of 2008 compared to the first half of 2007. That hasn’t happened since 1993. The job growth measure is the local equivalent of how recession is calculated on the national level. Economists who ardently argued even in recent months that the San Diego region would steer clear of a full-blown recession have now reluctantly allowed the ‘r’-word to cross their lips.
“San Diego went through the (national) recession of 2001 without actually going into recession — we never had negative job growth,” said Kelly Cunningham, economist at the San Diego Institute for Policy Research, a conservative think tank. “I was thinking maybe we could get through this similarly but this time it doesn’t seem to be the case.”
The county’s unemployment rate reached 5.9 percent in June, the highest point in more than a decade. It has risen nearly a whole percentage point since December, according to preliminary numbers from the state Employment Development Department. And in June, the local unemployment rate passed the national rate of 5.7 percent.
While the study of economics is a historical one, the announcement that the region is in a recession comes as little surprise to many workers, business owners and gas tank-fillers in San Diego.
Some of them work in the shops in a tile-roofed shopping center on the corner of Third Avenue and Broadway in Chula Vista. On Wednesday afternoon, Charlotte Bonds sat waiting for customers behind the counter at El Dorado Cleaners, a dry-cleaning shop. For Bonds, who works to supplement her monthly Social Security check, concerns mount daily over the cost of gas and food and the availability of jobs that pay sustainable wages. She marveled that economists have just now acknowledged a recession in the region.
“I think it’s so blatant now that they’re owning up to it,” she said. “One day you have a home and next day you don’t and you don’t have a job.”
Down the row from Bonds’ shop, past a vacant retail unit, hairdressers Paola Cardenas and Kat Sataeva at a shop called “The Haircutters” said it’s a tougher sell these days to convince patrons to spring for the extra $10 blow-dry after they pay for a $17 haircut.
The new owners of a pizza shop on the corner of the complex have only had their family- run Gigante Pizza operation going for about three months. Manager Sadda Shaker said they’re finding it’s a tough time to start a business. Her brother, Rafel Shaker, added that at his other job, as a mechanic, three people have just been laid off.
The biggest job losses in the region have come in construction and real estate-related financial services jobs. That people have lost jobs that depend on a bustling housing market is hardly surprising, considering the slump in local real estate for the last two years. But the sectors counted on to pick up the slack as those housing-related sectors bleed jobs are also tied to the health of the general economy — retail and tourism among them.
“The magnitude of our so-called rescue was leisure and hospitality,” said Murtaza Baxamusa, research and policy director at the liberal-leaning Center on Policy Initiatives. “It was, to some extent, a lifeboat, but it was a lifeboat that was pretty patchy. We’re creating an economy where we’re always struggling to make ends meet.”
For years, the economists who study the region have contended that without significant job loss in a major sector like manufacturing or defense contracting, the region would avoid recession. Housing market malaise, argued University of San Diego economist Alan Gin, wouldn’t be enough to drag the region into anything more than a “San Diego-style recession,” — an economic funk that still allowed for job growth compared to the year earlier.
Economists have known consumers in the region lost confidence with the plunge in real estate values. They knew that their once abundant home equity had been sapped, leaving them without the spending power that bolstered local big-ticket sales for years this decade.
Still, economists like Gin contended that this housing downturn would not be accompanied by a recession like the region saw in the early 1990s when the aerospace industry cut thousands of jobs here. Then, housing prices tumbled due to job losses and weakness in the economy. This time, it’s the other way around, but it’s still a recession.
“Usually the real estate markets will kind of follow or trail what’s happening in the rest of the economy,” Cunningham added. “But the real estate market dragged us into this recession, which is not the usual way it’s happened.”
The last time Gin’s monthly index dipped this low was in late 1993. The index measures unemployment, consumer confidence, local stock prices, building permits, the national economy’s health and help wanted ads to get a picture of the local economy. That index has fallen for 26 of the last 27 months, finally yielding in June the diagnosis of recession.
“Basically, the real estate-related jobs, the losses there were much larger than I’d expected,” Gin said.
And so the push continues among labor force advocates in San Diego to urge policy makers to work to attract better-paying jobs to the region, to shift away from the affinity for leisure and hospitality-related developments that has characterized the region for years.
“It’s our own creation because of the strategic choices we have made in creating jobs at the low end of the wage spectrum,” Baxamusa said. “It’s like running on a treadmill and you keep accelerating the speed of the treadmill. And at some point you just get exhausted and fall off the treadmill if you can’t keep up with it.”
Correction: The graph that originally accompanied this story mislabeled the California and National unemployment statistics. It has been corrected to accurately reflect the information. We regret the error.