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Monday, Jun 5, 2023

Valley Brightens as State Growth Premium Fades

The outlook for the San Fernando Valley economy is even better than six months ago, according to the director of the Center for Economic Research and Forecasting at California Lutheran University in Thousand Oaks. At the Business Journal’s Valley Economic Forecast event on May 16, Matthew Fienup predicted 2018 growth for the Valley economy of 3.2 percent, an upgrade from the 2.8 percent he forecast in December. (See special section on page 18.) “Our outlook for the San Fernando Valley is bright,” said Fienup. “San Fernando Valley continues to grow more rapidly than neighboring geographies in the year ahead.” Fienup went into the minutiae of the San Fernando Valley’s economy, which has seen its biggest statistical boost from the information and technology sectors. He observed that, since 2014, the San Fernando Valley’s economy has “now every single year grown more rapidly than the rest of L.A.” In fact, in the 2014-15 fiscal year, the Valley’s growth proved stronger than the entire state of California on a percentage basis. While job growth last year ranked below Los Angeles and California, the Valley exhibited a higher GDP because the fewer jobs added on were high-paying. Fienup ultimately deemed the Valley’s fiscal landscape “a picture of strength and resilience” but he warned of a cooling trend arriving in a couple years, compounded by rising home costs. In the Valley, where the average house price totals $533,000, cost of living has reached 10.5 times the median income, well above the 4.3 times national average. He gave the example of Amgen Inc. in Thousand Oaks, which built a massive facility in Tampa, Fla. If workers from the headquarters relocated to Florida, they took a 20 percent salary cut, but Amgen estimated they could still live better than in the Conejo Valley because of lower costs. With an expected 6.7 percent growth in residential home prices this year, “one of the biggest threats to the San Fernando Valley economy is competition from other metropolitan areas for those jobs,” Fienup said. The Center for Economic Research and Forecasting is the only organization that specifically examines the Valley economy. The Thousand Oaks organization developed a data set using ZIP codes to define the local economy. State, national economies On the state level, Fienup added another caveat: that California’s position as sixth-largest economy in the world — even ahead of the entire country — may tumble in two years. “California will continue to outpace the U.S. economy but that’s just in the short term,” Fienup said. Despite California’s winning points — climate, location with respect to foreign markets, abundant national resources, and profitable industries in Silicon Valley and Hollywood, the U.S. will probably overtake California’s economy within three or four years. In other words, the historic “growth premium” that California has enjoyed compared to the rest of the country will disappear. Nationally, Fienup included a few caveats in his prediction. After admitting that his team had underestimated the ability of politicians in the nation’s capital to pass significant economic legislation, he credited President Donald Trump and Congress with federal tax reform and repatriation of profits. “We’re already seeing the impact of the federal tax cuts,” he said. On the downside, economists overwhelming agree on the benefits of free trade. The U.S. tariffs placed on solar panel manufacturers in January and March’s levy on imported steel have sent prices up and may hurt the economy. Since the Great Recession, the country has not reached the post-World War II average of 3 percent annual economic growth. Fienup doesn’t see the country reaching that bar in the next few years because of trillion-dollar deficits and a banking system that has tied up trillions more in safe Federal Reserve Bank deposits rather than circulating that currency in the marketplace where it could finance growth. “We worry about the Federal budget and Federal debt,” Fienup said. “The policy to unwind the Fed balance sheet is very slow. This really impacts our outlook and it doesn’t appear that we’ll be able to return to 3 percent growth.” Also, new laws that eliminate double taxation on repatriated money should slow the exodus of corporations from the country. He discussed Seagate Technologies, Allergan and Burger King – industrial giants that moved to foreign countries to avoid U.S. taxes. For Valley business and political leaders, the economist advice to grow the local economy is the take care of the region’s most thriving job-producing sector. “Don’t cook the golden goose,” Fienup warned. “Info tech is the golden goose in San Fernando Valley.”

Michael Aushenker
Michael Aushenker
A graduate of Cornell University, Michael covers commercial real estate for the San Fernando Valley Business Journal. Prior to the Business Journal, Michael covered the community and entertainment beats as a staff writer for various newspapers, including the Jewish Journal of Greater Los Angeles, The Palisadian-Post, The Argonaut and Acorn Newspapers. He has also freelanced for the Santa Barbara Independent, VC Reporter, Malibu Times and Los Feliz Ledger.

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