LAEDC Economic Report Sees U.S. Growth Over the Next Two Years

Many are worried that the United States may be headed for a big economic slowdown or recession.

But the economists at the Los Angeles County Economic Development Corp. are optimistic that California and the rest of the country will see positive growth over the next two years.

The LAEDC, a nonprofit created in 1981 to attract and retain businesses to the area, predicts in its annual forecast released on Feb. 20 that the U.S. economy will expand 2.2 percent this year and 2.4 percent in 2020. While that is down from the country’s 3 percent gain last year, it is still a healthy sign that the country is not headed for a recession.

There were, however, some caveats. “One source of concern continues to be the trade standoff between the United States and the People’s Republic of China,” the report said.

Currently, negotiations with an early March deadline are going on between U.S. and Chinese trade representatives to determine whether a 10 percent tariff the Trump administration put on $200 billion in Chinese goods imported into the United States could be upped to a 25 percent tariff. That tariff includes fabric, fur and handbags. “It is reasonable to presume the Chinese government will respond in kind and impose tariffs on American exports to China [if the 25 percent tariff goes into effect],” the report said.

On the economic front, things were looking a little rosier for Los Angeles County. Economists predicted the county would see 3 percent growth this year and a 2.7 percent increase in economic activity in 2020.

“This expansion [in Los Angeles County] will be on the back of robust employment increases in key service sectors such as healthcare and professional business services, which will drive an additional increase in roughly 60,000 jobs per year,” the report noted.

One hurdle to the region’s economic expansion is a lack of affordable housing in the area. “This crisis poses the greatest long-term threat to local economic mobility and bottom-up prosperity,” LAEDC economists wrote.

Rents in the region have continued to rise. Currently, a one-bedroom apartment’s rent can start at $1,800 a month but frequently hovers toward $2,500 to $3,500 a month in popular neighborhoods including downtown Los Angeles.

The California Association of Realtors estimated that in the third quarter of 2018 only 22 percent of households in the county could afford a home, meaning they made at least $134,160 a year to afford the median home price of $628,940. And more than 57 percent of renter households in the Los Angeles metropolitan area, which includes Orange County, are considered rent burdened. That means they are spending one-third or more of their income on rent.

To help relieve this problem, Los Angeles this year is issuing more residential-housing permits than in the past, totaling a possible 23,000 new units this year and 24,000 units next year. But that may not be enough to keep rents down.

Another economic concern is the large number of homeless people who live in the region and the cost to care for them. Currently, the estimate is that 53,000 homeless people resided in Los Angeles County in 2018. That is down 4 percent from the previous year, but homelessness is near an all-time high. In 2013, fewer than 40,000 people were considered homeless.

The golden state

The outlook for the state’s economic well-being was even better than for the United States and Los Angeles County.

Economists predicted that the state’s economy would rise by 3 percent both this year and in 2020 after growing 3.4 percent in 2018.

In turn, that means wages for California residents will rise 2.9 percent this year and 2.8 percent the following year, translating into the average Californian earning more than $52,000 a year.

The largest job gains for California will be seen in construction, logistics, utilities, business services, education, health and tourism.

Silicon Valley has been a major generator of high-tech jobs as Apple, Google and Facebook have grown their workforces. But competition could be in the wings as other regions of the country try to grab a part of that tech pie by offering lucrative incentives for companies to move, as seen in Amazon opening a new campus in Arlington, Va., where at least 25,000 jobs will be created.

LAEDC economists also warn that venture capital could be gravitating away from the seed-stage system and shifting toward later-stage investments, which would stifle new ventures trying to get off the ground.

Important to California and the rest of the United States is the Chinese economy, which seems to be slowing after two decades of galloping growth. China was the third-largest export market for California farmers, who in 2016 exported to that country $4 billion worth of goods including pistachios, almonds, wine, oranges and dairy products.

Economists expect China’s gross domestic product to rise between 6 percent and 6.5 percent this year, which is on par with last year but down considerably from the 7.8 percent increase experienced in 2013.

Also important to California and the U.S. is the North American Free Trade Agreement between the United States, Mexico and Canada. It was renegotiated and signed last year under its new name—the United States Mexico Canada Agreement.

Not too many changes were made to the agreement in apparel. But the deal saw major changes for the automotive industry.

Under NAFTA, cars made in Mexico had to have at least 62.5 percent of their parts made in North America to be duty-free. That percentage has been upped to 75 percent by 2023.

Mexico is a big manufacturer of apparel exported to the United States, particularly high-end blue jeans made by Los Angeles companies including True Religion, Hudson, Joe’s Jeans and 7 For All Mankind.

For the one-year period ending in November 2018, the United States imported $4.67 billion worth of clothing from Mexico, a slight decrease from the $4.7 billion brought in during the same time period in 2017.

The U.S. Senate has until mid-2019 to ratify the renegotiated free-trade accord or withdraw from it.