The 2007 Economic Outlook for San Diego County

The region’s Gross Regional Product (GRP, the value of all goods and services produced in the county) is forecast to increase to $153.5 billion in 2007, up just 2.4 percent from the estimated $149.9 billion in 2006. In contrast, the 2006 GRP was 3.3 percent higher than the 2005 level of $145.1 billion. Inflation in 2007 is predicted to ease a bit further in the San Diego region, with the 2006 rate of 3.6 percent inching down to 3.2. The region’s population growth is projected to slow also, adding only around 25,000 new residents, down from the 26,200 that were added in 2006. This will bring the county’s estimated population to 3.12 million residents.

New job creation is expected to moderate this year, with only 10,000 to 12,000 new payroll jobs being added in the region, a growth rate of slightly less than 1 percent. This is about the same as the 10,000 payroll jobs created in the region during 2006. Job gains are expected in professional and business services, education, leisure and hospitality, and healthcare. Job stability is projected for the manufacturing sector, while job losses are projected for the construction and government sectors.

Predictions are for the unemployment rate for the county to remain relatively low in 2007 – around 4.0 to 4.2 percent, up slightly from the 3.9 percent rate for 2006. The increased rate will result from the combination of lower job creation and increased employee layoffs, particularly in the construction industry.

The visitor services industry is forecast to continue to expand, with new jobs being created as foreign tourists take advantage of the devalued dollar. It is estimated that the visitor tally will increase to 28 million this year, up from 27.6 million in 2006; and their direct spending will increase to $6.3 billion, up from $6.0 billion in 2006. Sixty-five conventions already have been booked at the San Diego Convention Center.

These conventions will attract 582,000 attendees, up from 578,000 in 2006. The attendees will stay 741,400 room-nights, up from 727,200 in 2006. Local tourist attractions also are predicting a modest increase in attendees, up to 13.7 million from the 13.2 million of last year.

The real estate market and construction industry have a large impact on the area’s economy. Five thousand jobs were lost in construction in 2006, and further job cuts – 1,000 to 2,000 – are predicted for this year. Added job losses may occur in the related areas of real estate, finance, architecture, and engineering.

New home construction has slowed, but home remodeling is expected to remain strong, though it will face materials shortages and price increases. Home prices are predicted to stabilize, after the median home price declined from $494,000 in 2005 to $490,000 during 2006. Any further decline in home values may not occur this year if interest rates stabilize and buyers regain their confidence.

Rising apartment demand, tied to the housing affordability challenges, will result in increased rents and lower vacancies, around 3.5 percent for the year. Generally, office space throughout the region was overbuilt, while demand for retail space will continue to be strong. 

Agricultural production in the county has shot past the $1.5 billion mark, ranking the county 12th nationally in the value of local production. The county stands #1 in nursery and avocado production, #1 in small farms (5,000 under 10 acres), and #1 in farmers with off-farm income. The early season freeze will have an effect on production levels this year, and quite possibly the next as well. Over $50 million in lost production is anticipated from the freeze. The outlook for the entire year is for moderate growth in nursery and floral production, over production in dairy and poultry, and an increase in the demand for locally grown products. A tight supply of land and water availability may limit production in 2007. None-the-less, the value of agricultural production should grow at a rate of 2 to 4 percent during the year.

In sum, the regional economic outlook for San Diego County in 2007 is positive, with continuing but slower growth, reflected by a slight increase in the GRP, lower new payroll job creation, added layoffs in the construction industry, and slightly higher unemployment rates.