The economic recovery in California and Orange County will stay slow for a while — that’s the gist of Chapman University’s Economic Forecast update released this morning in Costa Mesa.
Chapman economist Esmael Adibi predicts California will add about 216,000 jobs by the end of this year, and Orange County will add about 20,000 jobs. Adibi says that’s about a 1.5 percent increase, which is not very much.
The forecast predicts the national economy will grow about 2.7 percent by the end of the year. Adibi says that’s a little slower than expected.
"We believe that even California is going to do much better than it did last year and this year, partly because construction spending, which went down by almost 36 percent, is stabilizing," Adibi says. "We’re not building as many homes, but the numbers are so low that they’re not going any more lower. So we’re not getting as much of a drag from construction spending, which we were getting in 2010 and ’09 and ’08."
But the construction sector still isn't generating as many jobs as it used to.
"Particularly, commercial construction is in doldrums," says Adibi. "The residential is showing a little bit of increase, but the base is so low that you don’t need very many workers to build these new homes that are coming to the marketplace. The job growth primarily is going to be in professional business services. That would be the strongest sector for both California and Southern California."
Adibi says that sector includes accountants, computer programmers and management positions. The Chapman forecast also predicts hiring in health and education.
The leisure and hospitality sector is also looking up, according to Adibi, as consumers slowly gain confidence that they won’t lose their jobs and start to spend more money.
Adibi says he expects growth in those sectors to be able to more than offset the weakness in construction – and growth in several sectors means jobs.
"We think we’re moving in the right direction. We think job growth is going to pick up steam," Adibi says. "However, when you compare it by historical standards, the job creation rate is so low, that it’s not going to really make significant dent in [the] unemployment rate. So if somebody’s out of [a] job and expects tomorrow to find a job, unfortunately the news is not as good. The best people can expect is very gradual recovery in the job market."
Adibi says the job additions forecast for California and the region will come after nearly four years in a row of job loss. But Adibi points out the new jobs are only a small portion of the nearly 1.4 million jobs the state lost from 2007 to 2009.
He says the job market largely drives the housing market. More people employed means more people able to buy homes, which fuels the housing market.
Home values increased last year, but Adibi says that was because of tax incentives to buy. He says when those incentives ended, so did the boost to the housing market.
Chapman economists expect Orange County home prices to be down nearly 4 percent by the end of this year, with a little more of a decrease statewide.
Adibi says it will be a long haul to pull those values back up. "If we go back to 1990 and use that as a benchmark, home prices went down about 25 percent from peak to trough and then it reached back to the previous peak. And this whole process took about eight years," Adibi says. "Home prices are not a fixed asset. It’s not like [the] financial market. It’s not the stock market, that prices adjust very quickly. And pretty much it depends on job market."
Despite the uptick in jobs, Adibi says he expects home values will keep bobbing up and down for at least the next couple of years.