Economist takes second look at Inland economy

At the start of this year, there was reason to be optimistic about the Inland Empire economy.

As of November, the region’s unemployment rate was 5.3 percent, according to the state Employment Development Department. That was a respectable number, and close to the four to five percent range that most economists agree is full employment.

Nationwide, prices were relatively stable at the end of 2024, and the consumer price index was stable, down only 0.2 percent year-over-year, according to the U.S Bureau of Labor Statistics.

As the year began, one of the region’s better-known economists predicted the Inland economy would grow three percent this year, a solid number.

Right now, with the local economy showing sign of a slowdown, that economist has revised that prediction, and not because he wanted to predict stronger growth.

“We had three percent year-over-year growth in 2024, but I think by the end of of this year we’ll be down to one percent, at the most,” said Manfred Keil, chief economist with the Inland Empire Economic Partnership and an association professor of economics at Claremont McKenna College. “I don’t think there will be a recession, because I don’t think the rate of growth will fall below one percent.

“But one percent growth doesn’t amount to much.”

Keil, spelled out his concerns in a lengthy op-ed he co-wrote with Mark Schniepp, director of the California Economic Forecast, the private consulting arm of the UC Santa Barbara Economic Forecast.

Published last month by the Southern Californian News Group, Keil wrote that unemployment in Riverside and San Bernardino counties went from 4.8 percent in May to 5.9 percent in June, a 1.1 percent increase, according to the state Employment Development Department.

That might not sound like much, but it is. A month-over-month jobless increase of that size is “highly unusual,” the report states.

The Inland Empire usually mirrors the national labor market, but that didn’t happen this time: seasonally adjusted unemployment nationwide went from 4.2 percent in May to 4.1 percent in June, a statistically insignificant drop, the U.S. Bureau of Labor Statistics reported.

Seasonal factors tend to affect the Inland Empire more than other Southern California submarkets. To cite one example, employment in the Coachella Valley drops every summer due to the slowdown in travel and hospitality caused by triple-digit heat.

The May-to-June Inland Empire employment numbers were not seasonally adjusted. When seasonal factors are included, the Inland unemployment rate in June was 5.6 percent, up from 5.4 percent in May and five percent compared with June 2024.

All of those numbers are particularly bad for the Inland Empire because only two sectors in the two-county region – health and local government – are currently producing jobs. In June, those two sectors added 29,800 jobs. The remaining sectors including construction, manufacturing, retail sales, and logistics, dropped a combined 12,100 jobs.

Despite all of that, the report maintains that it’s not time to panic.

“There are reasons to be concerned,” the report states. “The bottom line is, the Inland Empire labor market is weakening.”

Keil agreed that the op-ed is pessimistic, but not as pessimistic on the revision piece he’s currently writing.

“The reason for pessimism is the lack of diversity in our industries,” Keil said in a telephone interview, repeating a critique of the Inland economy that has been made for years by economists, local business people and elected officials. “Most of the jobs in the Inland Empire are created by a few industries: healthcare, local government, and logistics.”

Right now, healthcare and local government, which is primarily jobs in public education, are the only Inland sectors producing jobs, according to Keil.

“All of our eggs are in one basket,” Keil said. If something bad happens to the economy, it could be disastrous.”

Since April, when the Trump Administration announced its proposed tariffs and sent the markets into a free fall, predictions of an economic slowdown have been everywhere.

Locally, the most recent purchasing managers index published by the Institute of Applied Research and Policy Analysis at Cal State San Bernardino reported a sharp drop in purchasing managers index in June, including declines in production and new orders.

The monthly report, which tracks purchasing orders, production and other aspects of manufacturing, was 50 in June, down from 65 in May, a staggering decline. Three consecutive months below 50 would mean Inland Empire manufacturing is contracting.

Only 43 percent of the purchasing managers surveyed in June said they expect the Inland economy to get stronger during the next three months.

At the start of this year, Beacon Economics in Los Angeles put the chances of a recession happening at 20 percent. It then changed that forecast to 30 percent in April in response to the market turmoil caused by the Trump Administration’s tariff announcements.

The firm has since gone back to its 20 percent forecast, but it remains less than enthusiastic about the U.S. economy.,

The Trump Administration inherited an “overheated” economy, but rather than try to calm it down with tax hikes and spending cuts, the administration has “thrown fuel on the fire” with its proposed tariffs and other “policy gyrations” that have riled the markets, according to Beacon’s Summer 2025 report.

“The imposition or extremely high tariffs on imports could indeed create a recession in the United States,” the report states. “But we still believe that President Trump will never act out the worst of his tariff threats, and at lower levels tariffs wouldn’t have that great an impact.

There’s no doubt that the Inland Empire economy, like California’s, is moving in the wrong direction, said Robert Kleinenz, a private economic consultant based in Long Beach.

“Even at the national level, we’re seeing only a handful of industries drive job growth, and we’re also seeing lower job growth now than the last couple of years,” Kleinhenz said.

Tariffs are a major concern, but they won’t damage the economy as much as a lot of people fear they will, according to Kleinhenz.

“By themselves they won’t cause a recession, but they will cause inflation.” Kleinhenz said. “It won’t be 25 or 30 percent inflation, it will be a modest increase, and when it will happen remains to be seen. The wild card in all of this is the policy moves coming out of Washington, D.C. That’s something no one anticipated.”