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U.S. and San Diego economies muddling through
Only 1.8 percent this year for our town
The United States and San Diego economies should muddle through in 2012 — growing very slowly — unless an economic civil war of sorts erupts in Europe. It’s already rumbling and could cause a global recession that would be a rerun of 2008. New Jersey economist A. Gary Shilling calls this looming war the Teutonic North versus the Club Med South.
While the Northern European countries have generally built economies based on hard work and prudence, the Southern European countries, by and large, have built welfare states on piles of debt, while citizens evade taxes. In 1999, the countries banded together in the eurozone with one currency and one central bank but no common fiscal policy. This meant that money could be shoveled out to both the disciplined and undisciplined, and the former, it should have been obvious at the time, would one day have to bail out the latter. Now it’s happening: the northern countries have to rescue their profligate member nations to the south, and northern voters don’t like it.
If struggling Greece withdrew from the European Union and defaulted, Portugal, Spain, and Italy would probably follow. Banks would crumble; some of them might be American banks. Troubled Club Med countries account for much of eurozone economic activity: Germany is largest with 27.3 percent of the zone’s output, but when combined, ailing Italy (16.7 percent) and Spain (11.4) add up to more than Germany. Some say there isn’t enough money to bail out Italy.
Economist Ross Starr of the University of California San Diego explains that Germany once had rigid labor laws; it was extremely difficult to lay off a worker. Ten years ago Germany went through a restructuring and now has fluid labor markets. Generally, the Club Med countries in the south have not done that. “The conventional view is that Greece and Italy have thoroughly irresponsible policies, including not introducing German reforms,” says Starr. This imbalance threatens the economy. “Europe is definitely going into recession.” The questions are how deep it will be, how long it will last, and how much damage it will do to the world financial system.
Starr’s University of California San Diego colleague James Hamilton also warns that Europe could upset apple carts all around the world. “The biggest problem is financial,” says Hamilton. American banks have loaned money to European nations, hold derivatives that could set off a chain reaction, and are intertwined with European banks. “I am deeply concerned. This won’t be confined to Europe if things blow up there.”
In Europe, leaders are kicking the can down the road — avoiding real solutions (if there are any) until current officeholders step down. There is an election in the United States — historically, no time for risky initiatives. So the world might bounce along the bottom this year — not go into another 2008. But stay alert.
If there is a European recession, but only moderate conflagrations in the world banking system, the United States and San Diego should struggle through this year without major trauma. “I don’t think [eurozone woes] will have that much impact,” says Kelly Cunningham, chief economist of the National University System Institute for Policy Research. Europe is not a big market for San Diego goods and services, he points out.
The San Diego economy will grow only 1.8 percent this year, adjusted for inflation. That’s the best in six years “but not enough to bring unemployment down,” he says, predicting that the jobless rate will average 9.8 percent, just a hair down from last year’s 10 percent. “We are adding jobs, but they are not middle-wage jobs; they are low-end, low-skilled, or high-end, such as in technology or management.”
Housing will not provide oomph. In 2009, and again in 2010, the number of housing units approved for construction was the lowest since the Great Depression. Last year, housing units leapt 42 percent, but the number was still the third lowest on record. Cunningham doesn’t see much of an improvement this year. Population growth will continue to be slow.
He says that the presence of the military is our largest industry, followed by manufacturing (including defense manufacturing), biotech, and tourism. Both defense and tourism could be somewhat vulnerable, he says.
Susan Bruinzeel, senior director of planning and research at the Convention and Visitors Bureau, says 6 percent of San Diego’s overnight travel is from abroad (not including Mexico). Britain is the largest market. The possibility of European woes “is on our radar,” she says. In June, British Airways started a direct flight from London to San Diego, and it is bringing in visitors from a number of countries. “So far, it’s been successful; we’re not worrying about it going away,” she says.
Alan Gin, economist at the University of San Diego, also thinks European megrims will not make a big dent in San Diego this year. “The probability of another downturn in San Diego is about 30 percent,” says Gin. He believes unemployment will average around 8.5 percent, with industries such as health care, administrative services, leisure and hospitality, and biotech showing strength. However, if there is Europe-generated turmoil in the finance industries, biotechs could have problems raising capital.
Cunningham and Gin are not bullish on consumer spending. Between 2006 and 2009, it dropped by 17.4 percent, the biggest plunge in 70 years, notes Cunningham. Sales rose in 2010 and last year, but spending is slowing.
That’s why Gin, in assessing commercial real estate, thinks retail is a weak spot, partly because of the growth of online marketing. But Gin thinks office and apartment markets will do well.
But all economists warn to keep your eye on Europe, its banks, and possible further strains on banks throughout the world. Are you ready for more Wall Street bailouts? I didn’t think so.
Here's something you might be interested in.
U.S. and San Diego economies muddling through
Only 1.8 percent this year for our town
U.S. and San Diego economies muddling through
Only 1.8 percent this year for our town
The United States and San Diego economies should muddle through in 2012 — growing very slowly — unless an economic civil war of sorts erupts in Europe. It’s already rumbling and could cause a global recession that would be a rerun of 2008. New Jersey economist A. Gary Shilling calls this looming war the Teutonic North versus the Club Med South.
While the Northern European countries have generally built economies based on hard work and prudence, the Southern European countries, by and large, have built welfare states on piles of debt, while citizens evade taxes. In 1999, the countries banded together in the eurozone with one currency and one central bank but no common fiscal policy. This meant that money could be shoveled out to both the disciplined and undisciplined, and the former, it should have been obvious at the time, would one day have to bail out the latter. Now it’s happening: the northern countries have to rescue their profligate member nations to the south, and northern voters don’t like it.
If struggling Greece withdrew from the European Union and defaulted, Portugal, Spain, and Italy would probably follow. Banks would crumble; some of them might be American banks. Troubled Club Med countries account for much of eurozone economic activity: Germany is largest with 27.3 percent of the zone’s output, but when combined, ailing Italy (16.7 percent) and Spain (11.4) add up to more than Germany. Some say there isn’t enough money to bail out Italy.
Economist Ross Starr of the University of California San Diego explains that Germany once had rigid labor laws; it was extremely difficult to lay off a worker. Ten years ago Germany went through a restructuring and now has fluid labor markets. Generally, the Club Med countries in the south have not done that. “The conventional view is that Greece and Italy have thoroughly irresponsible policies, including not introducing German reforms,” says Starr. This imbalance threatens the economy. “Europe is definitely going into recession.” The questions are how deep it will be, how long it will last, and how much damage it will do to the world financial system.
Starr’s University of California San Diego colleague James Hamilton also warns that Europe could upset apple carts all around the world. “The biggest problem is financial,” says Hamilton. American banks have loaned money to European nations, hold derivatives that could set off a chain reaction, and are intertwined with European banks. “I am deeply concerned. This won’t be confined to Europe if things blow up there.”
In Europe, leaders are kicking the can down the road — avoiding real solutions (if there are any) until current officeholders step down. There is an election in the United States — historically, no time for risky initiatives. So the world might bounce along the bottom this year — not go into another 2008. But stay alert.
If there is a European recession, but only moderate conflagrations in the world banking system, the United States and San Diego should struggle through this year without major trauma. “I don’t think [eurozone woes] will have that much impact,” says Kelly Cunningham, chief economist of the National University System Institute for Policy Research. Europe is not a big market for San Diego goods and services, he points out.
The San Diego economy will grow only 1.8 percent this year, adjusted for inflation. That’s the best in six years “but not enough to bring unemployment down,” he says, predicting that the jobless rate will average 9.8 percent, just a hair down from last year’s 10 percent. “We are adding jobs, but they are not middle-wage jobs; they are low-end, low-skilled, or high-end, such as in technology or management.”
Housing will not provide oomph. In 2009, and again in 2010, the number of housing units approved for construction was the lowest since the Great Depression. Last year, housing units leapt 42 percent, but the number was still the third lowest on record. Cunningham doesn’t see much of an improvement this year. Population growth will continue to be slow.
He says that the presence of the military is our largest industry, followed by manufacturing (including defense manufacturing), biotech, and tourism. Both defense and tourism could be somewhat vulnerable, he says.
Susan Bruinzeel, senior director of planning and research at the Convention and Visitors Bureau, says 6 percent of San Diego’s overnight travel is from abroad (not including Mexico). Britain is the largest market. The possibility of European woes “is on our radar,” she says. In June, British Airways started a direct flight from London to San Diego, and it is bringing in visitors from a number of countries. “So far, it’s been successful; we’re not worrying about it going away,” she says.
Alan Gin, economist at the University of San Diego, also thinks European megrims will not make a big dent in San Diego this year. “The probability of another downturn in San Diego is about 30 percent,” says Gin. He believes unemployment will average around 8.5 percent, with industries such as health care, administrative services, leisure and hospitality, and biotech showing strength. However, if there is Europe-generated turmoil in the finance industries, biotechs could have problems raising capital.
Cunningham and Gin are not bullish on consumer spending. Between 2006 and 2009, it dropped by 17.4 percent, the biggest plunge in 70 years, notes Cunningham. Sales rose in 2010 and last year, but spending is slowing.
That’s why Gin, in assessing commercial real estate, thinks retail is a weak spot, partly because of the growth of online marketing. But Gin thinks office and apartment markets will do well.
But all economists warn to keep your eye on Europe, its banks, and possible further strains on banks throughout the world. Are you ready for more Wall Street bailouts? I didn’t think so.
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