S.D. economic indicators fall for 10th straight month

By Dean Calbreath
UNION-TRIBUNE STAFF WRITER

March 16, 2007

San Diego's leading economic indicators fell for the 10th month in a row in January, dragged down by a weakening employment outlook and the continuing decline in the housing market, according to a report yesterday by the University of San Diego's Burnham-Moores Center for Real Estate.

Economist Alan Gin, who compiles the monthly index of indicators, attributed the decline to the downturn in local home sales, which is beginning to have a ripple effect through the rest of the economy.

“The interesting thing is the impact of housing on the economy,” Gin said. “In employment, not only construction and real estate are down, but you're also seeing an effect in the retail sector. And help wanted advertising is down significantly in a lot of categories.”

Three of the six categories in the index worsened in January: residential building permits, help-wanted advertising and unemployment filings. In contrast, there were improvements in consumer confidence, local stock prices and the outlook for the national economy.

But the three latter categories have all declined in recent weeks.

The stock market has turned choppy, especially for small or mid-sized technology companies – precisely the type of companies that are based in San Diego. The national economic growth rate for the fourth quarter of 2006 was recently revised downward to 2.2 percent, implying slow growth for the current quarter as well.

The increasing pessimism on Wall Street and rising gasoline prices have already dampened consumer confidence. The San Diego Union-Tribune's monthly consumer confidence survey – a component of Gin's index – rose 5.8 percent in January but fell 2.1 percent in February.

“January had relatively good stock prices and low gas prices, which helped consumer confidence,” Gin said. “It will be interesting to see what happens to consumer confidence with gas prices rising. There's usually about a 70 percent correlation between gas prices and consumer confidence. If the past is any sign, the prices will put a dent in confidence.”

The 10-month decline in the economic indicators has paralleled a 10-month decline in residential building permits, a sign of the weakening housing market.

“We're weak today, but I think we'll be through these problems in nine months,” said Marney Cox, economist at the San Diego Association of Governments. “Most of the declines are in construction and real estate, and I think we're beginning to see some stabilization there. By the end of this year, I'm expecting that we'll be through this.”

But Peter Schiff, who runs Euro Pacific Capital in Newport Beach, said the real estate decline will be an impact on the economy for quite some time.

“Think about all the mortgage debt that was assumed by San Diegans in the last few years,” he said. “All they're going to be doing is paying interest on that money. Instead of buying a new car or going shopping, they'll be paying down their interest on interest-only loans. And there are so many people who bought homes for zero down payment, they will just be going to be walking out of their homes, if they haven't already, since they have no financial incentive to stay. This is a real disaster.”

Initial claims for unemployment insurance have also risen 10 months in a row, pushing the jobless rate from 4.1 percent in December to 4.3 percent in January. Job growth slowed to a gain of slightly more than 13,000 jobs, compared with an average of nearly 18,000 for 2006 as a whole.