National University System Institute for Policy Research

(858) 642-8498 Get Started

San Diego lagged nation on recovery


Wednesday, November 20, 2013

View Article

San Diego's economic growth since the depths of the Great Recession has lagged the state and national averages and is lower than most of the nation's biggest metropolitan areas, according to an analysis released on Wednesday by the National University System Institute for Policy Research.

One reason for the sluggish growth is a slowdown in federal spending, particularly military contracting, said Kelly Cunningham, senior economist at the institute.

“We see military and defense expenditures further lagging in 2014, so it becomes even more critical that other major drivers of the San Diego economy -- technology, manufacturing, real estate, hospitality, utilities -- pick up the pace for the region to prosper,” Cunningham said.

From 2009 through 2012, San Diego's gross regional product grew 4.5 percent after adjusting for inflation, compared to 5.3 percent in California and 6.7 percent throughout the United States. San Diego's growth rate ranked in 18th place among the 20 largest metro areas during that period, or 30th place among the top 40 metro areas.

In comparison, San Jose led the top 40 list with 21 percent growth, followed by Austin, Texas, at 18.6 percent, and Portland, Ore., 18 percent. At the bottom of the list were Hartford, Conn., which declined 3.3 percent after adjusting for inflation; Las Vegas, which grew 1.3 percent; Sacramento, 3.1 percent; and Los Angeles, 3.2 percent.

One reason for the relatively slow growth in San Diego, Los Angeles and Sacramento is that the latest data show that much of California remained in recession into 2010, while most of the rest of the nation bottomed out in 2009. The latest statistics from the U.S. Bureau of Economic Analysis show that San Diego generated $6 billion less economic activity between 2009 and 2012 than previously estimated.

For much of the past decade, San Diego could rely on military spending -- the area's top driver of economic growth -- to buffer against a downturn. But Cunningham said federal spending has been softening since 2010 and is likely to continue, as the war in Afghanistan comes to an end and legislators in Washington tighten the purse strings on the budget.

After adjusting for inflation, government spending declined 1.5 percent from 2011 and 2012, and that was before the cutbacks that occurred under sequestration and the government shutdown this year.

"The military is such a big part of the county's economy that the spending cuts have been enough to cause sluggishness, even though we've been seeing growth in a number of civilian areas," Cunningham said.

Real estate and construction have traditionally been the region's second-largest economic engine, but despite recent growth, they remain below pre-recession levels, Cunningham said. So does another major growth center: tourism.

On the other hand, one of the strongest areas for economic growth has been manufacturing, which is now 18 percent ahead of where it was at the beginning of the recession in 2007. Despite the growth in money generated by local manufacturers, however, factory employment continues to decline.

"We're building more stuff but using fewer people to do it," Cunningham said. "Instead of having a factory full of workers, we have machinery and the people who are needed to keep the machines running. And a lot of things are not fully built here, since the actual production takes place in other places, like Mexico."