SCAG Economic Roundtable Update - First Quarter, 2024

First Quarter, 2024

SCAG’s Economic Roundtable met for its first 2024 quarterly discussion on the state of the regional economy. The Roundtable discussion focused on the state budget deficit and its potential impacts on the SCAG region, the updated employment situation and tools for building resilience in SCAG’s cities. The following overarching themes emerged from the conversation:  

• The Roundtable explored state budget deficit impacts on the SCAG region and recommended strategies for SCAG cities to build resilience, including continued housing production and public safety. 
• The region’s labor market remains strong but uneven throughout the region. Payroll jobs increased, year-over-year, in December in all SCAG counties, with Ventura County leading with nearly 3% payroll job growth.  
• The labor market is also showing signs of slowing: the seasonally adjusted unemployment rate in the SCAG region in December 2023 was 5.2%, up 1 percentage point from a year earlier. 
• Despite increased unemployment rates, the region saw job growth in higher-wage sectors such as Construction, and Professional and Business Services. 
• Housing supply and affordable housing are crucial for the SCAG region’s economic growth in the future. 

California Budget Deficit 

• The state is facing a projected budget shortfall in excess of $40 billion, which will require budget cuts, and thereby directly impact cities. California cities depend on the state for grants and funding mandates.  
• The swings and cycles in the state’s budget are driven by the state’s tax structure, which depends on income taxes that fluctuate with financial market movements. Given this tax structure, relatively large swings in the state budget are expected.  
• Despite facing strict fiscal hierarchy and constitutional limits on reserves, SCAG region cities can implement the following strategies for building and expanding economic resilience:  
  • Becoming more business-friendly and growing the city’s economic base, expanding economic opportunity. 
  • Investing in and protecting public safety so businesses and residents perceive the city to be safe. 
  • Avoiding city-level policies that impose wage controls and constrain businesses from responding to economic shocks. Instead, cities should directly address poverty and equity concerns with workforce training, business-friendly policies and better transit as discussed in the Inclusive Economic Recovery Strategy, and more effectively protect businesses and workers from unfair business practices. 
  • Consolidating services to capture efficiencies; for example, smaller cities could consolidate fire departments, police departments, water districts and school districts. 
  • Considering the potential long-term gains from industrial-zoned land rather than focusing on sales tax-generating land uses, such as retail, for economic development. 
  • Developing thoughtful, region-wide land-use policies to support both long-term, high-value employment while achieving climate change mitigation and adaptation goals. 
• The Cities of Irvine, Santa Clarita and Ontario are good case studies of SCAG cities building economic resilience. 

Labor Market 

• The unemployment rate continues to be near historic lows in all six counties of the SCAG region. However, unemployment rates are increasing. At the end of 2023, the SCAG region unemployment rate was 5.2% (seasonally adjusted), up 1 percentage point from 4.2% a year earlier. Year-over-year in December, payroll jobs in the SCAG region grew by 2.1%, adding 177,300 jobs. 
  • Imperial County saw a 3.5 percentage point year-over-year increase in unemployment from 15.8%in December 2022 to 18.9% in December 2023. However, Imperial County is an outlier, and typically has one of the highest unemployment rates in the nation. Year-over-year Imperial County payroll jobs increased by 2.2% (1,500 jobs) in December. 
  • Los Angeles County saw unemployment rates increase by 0.6 percentage points to 5.2% in December 2023 relative to 4.6% a year earlier (seasonally adjusted). In October and November, the number of jobs in the motion picture industry grew due to the resolution of the strikes. Overall, Los Angeles County added 95,900 jobs (2.1% growth) year-over-year in December. The county’s Health Care and Social Assistance sector had the largest job growth, adding over 49,000 jobs in December 2023, year-over-year. 
  • Orange County reported the lowest unemployment rate in the region in December 2023 at 4.0% (seasonally adjusted), a 1.1 percentage point increase from last December. Orange County employers added 36,400 jobs in December year-over-year (2.1% growth). However, Orange County executives expect layoffs in 2024 if first-quarter sales are slow.  
  • Riverside County and San Bernardino County together saw an increase in unemployment rates to 5.7% compared to 4.0% a year earlier (seasonally adjusted). The Inland Empire lost jobs primarily in the Transportation and Warehousing, Wholesale Trade and Real Estate sectors. However, Inland Empire employers added 33,500 jobs in December relative to December 2022 (2% growth). The Construction, Professional and Business Services, and Healthcare and Private Education sectors led the job growth in the Inland Empire. 
  • Ventura County also saw a small increase in its unemployment rate, ending the year with an unemployment rate of 4.8% (seasonally adjusted), 1.3 percentage points higher than at the end of 2022. However, payroll jobs in Ventura County increased by 2.9% (10,000 jobs), year-over-year, in December, leading job growth in the SCAG region. 
• The pandemic impact on the SCAG region labor force continues to affect the region. The SCAG region’s labor force is 4% lower than during the last month of the previous expansion (February 2020). The labor force now exceeds pre-pandemic levels in San Bernardino, Riverside and Imperial Counties. The labor force is below pre-pandemic levels in Los Angeles County (by 7.6%), Orange County (by 2.1%), and Ventura Counties (by 2.2%). These gaps in the labor force are closely tied to housing affordability and demographic shifts. While the labor force in Riverside County and San Bernardino County is 2.2% above the pre-pandemic level (February 2020), growth in the labor force has started to level off. Nevertheless, the Inland Empire counties continue to show growth in both employment and labor force participation. In contrast, both the labor force and employment have decreased in Los Angeles, Orange and Ventura Counties. 

Housing 

• Despite continued high mortgage rates, 2023 home prices in the SCAG region counties continue at historic high levels.  
• Housing reflects a whole bundle of spending and lifestyle-related economic decisions for households. Housing markets in the SCAG region and throughout California are bifurcated between Inland and Coastal communities, but all regions face fundamental problems of housing equity.  
• Housing plays a key role in the retention of workers in a region. While new housing starts have continued to rise, the lack of affordable housing is a serious constraint in the region and a risk to economic growth. 

Macro Economy 

• The state and federal fiscal stimulus is still working through the regional economy, and large projects are expected to continue supporting job growth in the region.  
• The economy is still getting back on track from the shock of the COVID 19 pandemic. Inflation drivers are more complicated than energy prices and wages. Consumer and investor expectations also play a role in driving inflation.  
• Consumer spending has been robust, but credit balances are rising. Consumers appear to be financing their exuberance about the future through borrowing or dissaving‚ which poses a risk to the regional economy if consumers spending exceeds capacity for credit. 

Members of the Roundtable are selected for three-year terms and have expertise in the economics of SCAG’s six counties, workforce development, equity, and sustainability.  

Members are:   

• Imperial County, Michael Bracken, Managing Partner & Chief Economist, Development Management Group, Inc. 
• Los Angeles County, Shannon Sedgwick, Director, Institute for Applied Economics, Los Angeles County Economic Development Corporation 
• Orange County, Wallace Walrod, Chief Economic Advisor, Orange County Business Council 
• Riverside & San Bernardino Counties, Manfred Keil, Robert Kleinhenz & Fernando Lozano, Inland Empire Economic Council 
• Ventura County (and SCAG region), Mark Schniepp, Director, California Economic Forecast 
• Sustainability, David Roland-Holst, Managing Director, Berkeley Economic Advising and Research 
• Equity, Karthick Ramakrishnan, Professor of Public Policy, University of California, Riverside