Predictions for the Orange County economy in 2020 vary, but one thing people agree on is the need to watch the tight, and potentially troublesome, local labor market.
Chapman University economists led by President Emeritus Jim Doti predict that OC employment growth will slow from 1.3% this year to 1.1% in 2020. That lags well below the 1.5% expectations for California as a whole next year.
“This year, job growth in the county dropped more sharply, not only below that of California, but the U.S. as well,” Doti said in presenting the school’s annual Economic Forecast to a crowd at Segerstrom Concert Hall in Costa Mesa on Dec. 10.
“So, something is happening in Orange County more negative than national and California trends.”
The U.S.-China trade dispute and a slowdown in construction contributed to the local job market troubles, while Doti says he is concerned that most of the new jobs the area is adding are in “lower valued-added activities like leisure, hospitality where the rates of pay are much lower.”
OC job growth dropped to an estimated 22,000 positions in 2019 from 34,000 last year.
Total payroll employment for the county now totals just under 1.7 million positions, according to Chapman’s data.
Doti and his colleagues expect 1.9% U.S. economic expansion next year, good enough to keep the recession at bay despite a slowdown from this year’s expected 2.3% rise.
The region’s closely watched housing sector will be a “bright spot” in OC, with an uptick in sales and median prices, they predict (see story, page 4).
$100M, $1B Push
Despite some choppy waters, many local business leaders remain upbeat about next year’s outlook.
Tim Britt, chief executive of information technology consulting and service provider Synoptek LLC, told the Business Journal he expects 2020 to be a good year.
“We are planning for significant growth and we are hiring against that plan,” the head of the Irvine-based company says. “There are a few areas showing weakness—trade dependent firms, etc.”
But Britt, whose firm will top $100 million in sales this year, and is among OC’s fastest-growing private companies, emphasizes that the “the labor market is extremely challenging. There are more new positions created than there are people to fill those positions.”
“In our space, this is driving wage increases,” he adds. “However, in many cases, positions just go unfilled.”
Ash Patel, chief executive of the Commercial Bank of California in Irvine, told the Business Journal that OC “seems to be doing well” and is “extremely resilient” (see related story, page 3). The bank, which just passed $1 billion in assets, plans a major growth push over the next few years to accommodate OC’s growing economy, he said.
Scott Wetzel, a senior vice president at commercial brokerage JLL in Irvine, is among those with an upbeat view, based on the volume of new leasing his firm is seeing in the area.
“Orange County’s office leasing indicators remained strong in Q4 2019 and look to continue that trend in 2020 with moderate, but healthy, velocity, tempered in part by the upcoming presidential election,” according to Wetzel.
“The industries contributing to that growth remain varied in nature, as some of the county’s mature companies like Edwards Lifesciences Corp., MicroVention Inc. and Medtronic PLC continue to expand their OC-presence,” he said, citing three of the area’s largest employers in the healthcare sector.
Wetzel added that while office vacancy rates slightly increased year-over-year as new buildings came online, “the improved offerings have also increased market prices countywide—about (a) 1% increase year-over-year.”
CSUF’s Cautious Optimism
Anil Puri, a leading economist at California State University-Fullerton, said last week his outlook “continues to remain cautiously optimistic even though political and economic uncertainties show no signs of abatement.”
“Positive job growth is expected to continue in the county but at a slower rate than in 2019 and the unemployment rate will remain close to 3%,” according to Puri, co-head of the university’s Woods Center for Economic Analysis and Forecasting.
Puri and center co-head Mira Farka in October projected job growth of 25,500 this year in OC—or a gain of 1.5%—which is slightly more robust than the Chapman view. That growth will slow to 0.9%, or 16,000 new jobs next year, and a further slide to just 14,300 or a 0.8% gain is predicted in 2021, the Fullerton researchers said, highlighting the difficulties the area has had of late creating new jobs.
The latest Fullerton forecast for national GDP growth of 1.8% next year was slightly more pessimistic than the 1.9% foreseen by the Chapman researchers.
Still, both forecast modelers agree: no recession in 2020.
Tech Jobs Lag
The Chapman team pointed out at its forecast that the county’s population increased by 0.3% in 2018, the lowest rate of increase since 2010, which hindered the potential increase in employment.
A falling unemployment rate in surrounding counties is making it more difficult to attract workers from these counties.
“A serious challenge to Orange County’s economic future is the fact that much of its job creation in recent years has been in low-paying sectors like leisure and hospitality,” they said in their written forecast. “If this trend continues, it will place constraints on overall economic growth for the county.”
Although the average annual salary for all county workers is about $67,000, it’s only $27,000 in leisure and hospitality.
The total number of jobs in the three key computer-science-related categories that Chapman measures in Orange County has been stagnant at about 60,000.
“That pales in comparison to the Silicon Valley, where jobs in the above three categories increased from 357,000 in 2016 to about 400,000 in 2019,” Doti and his colleagues said.
They added that a trade agreement with China would “help stem the downturn in transportation and warehousing.”
Housing Boost
The highest marks came for the OC housing sector.
The Chapman researchers said residential permits are expected to grow at a healthy 9% in 2020, exceeding the numbers of 2018 and 2019.
Median single-family housing prices will increase at a 3.2% rate in 2020 compared to 0.2% in 2019, while the volume of home sales will rebound in 2020 following a decline this year, according to their forecast.
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