FOR IMMEDIATE RELEASE

August 10, 2005

Contact: Ryan Singer, Economic Research Bureau,
San Diego Regional Chamber of Commerce
(619) 544-1347

San Diego, CA –Today the Economic Research Bureau of the San Diego Regional Chamber of Commerce released its Economic Forecast for 2005 and 2006. Despite a recent downturn in local consumer sentiment, economic fundamentals such as business investment, consumer spending and employment remain strong. The Economic Research Bureau forecasts steady nominal growth for the region’s Gross Regional Product (GRP) of about 6.6 percent in 2005 and 2006.

The recession of 2001 was characterized by a profound reduction in business investment, but non-residential investment levels have returned to pre-recession levels. Business investment reached $1.199 trillion in the 4th quarter of 2004 marking a 22.5 percent rise from its three-year low. The resurging business investment pushed annual productivity growth in California above 3.5 percent, utilizing new technologies to make workers more productive.

Higher productive efficiency should translate into income growth for San Diego workers in 2005 and 2006. Compensation levels should rise to match the worker’s ability to produce more. The Economic Research Bureau anticipates per capita personal income will reach $40,000 in 2006.

Increases in the incomes of San Diegan’s will help to sustain annual consumer spending growth in 2005 and 2006. Consumer spending grew at a very rapid 10 percent between 2003 and 2004. Growth in income and employment should help sustain local spending trends in 2005 and 2006.

The Economic Research Bureau forecasts employment growth to remain relatively flat in 2005 and 2006. San Diego’s current unemployment rate is very close to 4 percent. Economists generally consider 4 percent unemployment full employment of the labor market because there is inevitable movement of people from job to job. Due to the current ‘full’ capacity of the labor market, annual employment growth will be limited to the number of new potential workers entering the labor market in 2005 and 2006.

The current home financing trends in San Diego County present a significant concern for the local economy in the long-term. As the Federal Open Market Committee (FOMC) continues to raise interest rates, larger and larger portions of the monthly budget for recent homebuyers will be needed to avoid default on adjustable rate mortgages.

Additionally, principal payments will start to accrue for local residents who financed with interest only loans. Alone, these issues could precipitate a rise in the number of foreclosures, but coupled with a downturn in the business cycle could result in a local recession longer and deeper than the last.

To review the complete report, please visit: www.sdchamber.org/economic/Forecast2005.pdf.