Inland economy looks strong despite slight economic slowdown

Despite a slowdown in overall economy and a drop in job growth, the local economy is expected to stay strong well into 2020, according to a report.

Is the Inland Empire economy finally starting to show signs of weakening?

It is according to one recent report, although one of the study’s authors says the drop in growth is probably nothing to be too concerned about.

Business activity in Riverside and San Bernardino counties grew by only 0.8 percent during the first quarter, well below recent quarterly growth in the two-county region, the UC Riverside School of Business Center for Economic Development reported.

Perhaps more importantly, the Inland region’s economic growth during the first three months of 2019 was well below the anticipated growth of the U.S. GDP.  

That number measures the condition of the U.S. economy much like the business center’s data reflects the local market. It’s expected to grow by 3.2 percent in the first quarter, according to a preliminary forecast cited in the Inland Empire Business Activity Index, which the business center released this month.

The Inland economy has been showing signs of slowing for awhile, so the results of the first quarter index aren’t really a surprise, said Robert Kleinhenz, executive director and chief economist with the business center.

Also, the Inland Empire economy is still growing, just not at the pace it has been growing at recently, Kleinhenz pointed out.

“I don’t think we’re losing ground,” Kleinhenz said. “Our main concern now is the difference between local growth and the [U.S.] GDP.”

The Inland Empire will remain “on a positive trajectory” during the rest of 2019, but at a slower pace than its has grown in the past few years. The report also speculates that the 3.2 percent growth in the GDP might be misleading because of several “transitory” changes to the economy, including more inventory than usual and an extremely strong export market recently.

Both of those factors might have led to a higher-than-normal prediction for the GDP growth rate, according to the index, which is adjusted for seasonal variations. The analysis is based on multiple factors at the local, state and national level, including employment, economic output, income and real estate trends.

The index does note several problems with the Inland economy, starting with a tighter labor force, which sometimes happens when a market approaches full employment and some jobs become difficult to fill.

In March, job growth in the Inland Empire was 1.2 percent, less than half the amount recorded in March 2018 but still better than Los Angeles and Orange Counties, which grew by 0.7 percent and 0.6 percent, respectively

Statewide, job growth during the third month of this year 1.4 percent.

“The slowing is consistent with what we’ve been reporting about sluggish labor force growth across Southern California – and the increasingly serious constraints that places on the ability of the economy to expand, both in the Inland Empire and beyond,” Kleinhenz wrote in the report.

He also noted that labor force growth in Los Angeles and Orange Counties has crawled to a standstill while the Inland Empire’s labor force growth has only begun to slow in recent months.

With the transportation and health care sectors are still adding jobs, the Inland economy is likely to remain strong for the foreseeable future, according to the index, which predicts two percent job growth or higher during the second half of this year.

“The [nationwide] economic recovery is getting close to 120 months, which is the record,” Kleinhenz said. “There’s still a lot of positive momentum out there, which is why I expect the [local] economy to stay strong well into 2020. We’re on cruise speed. There’s no sign we’re going to put on the brakes anytime soon.”

President Trump’s growing trade war with China is the one thing that could disrupt the national economy, said Jay Prag,  professor of economics and finance at the Drucker School of Management at Claremont Graduate University.

That development could be disastrous for the Inland Empire, which is so dependent on the logistics industry.

“I don’t think the slower job growth is hard to explain,” Prag said. “We aren’t building as much so we’re losing construction jobs.  If the tariff issue gets bad I think it will hurt China’s economy more than it hurts ours, but’s it’s not a major issue now. We’re nowhere near recession territory at this point.”