Kelly Cunningham, NATIONAL UNIVERSITY SYSTEM INSTITUTE FOR POLICY RESEARCH
Wednesday, November 20, 2013
While analysis of recently released (and revised) federal figures show San Diego’s regional economy has grown the past two years, the recovery remains lackluster. The National University System Institute for Policy Research (NUSIPR) finds San Diego’s gross domestic product (GDP) grew 2.7 percent in 2012 reaching $177.4 billion. This was the strongest increase of local economic production since 2005 prior to the onset of the 2007-09 recession, but it lags recovery seen in other regions as well as in the state.
Although improving economic momentum is welcome news, San Diego’s economic expansion has lagged since the depths of the “Great Recession”. San Diego’s GDP increased 4.5 percent between 2009 and 2012, compared to 5.3 percent in California, and 6.7 percent across the U.S. overall. Among the nation’s 40 largest metro areas, with GDP of $85 billion or more, San Diego’s recovery ranks 30th among the weaker rates of growth along with Los Angeles, Riverside-San Bernardino, Sacramento, Milwaukee and Las Vegas. By comparison San Jose, CA, the fastest growing large metro area, grew 21 percent, followed by Austin, TX (18.6 percent) and Portland, OR (18.0 percent).
“The GDP report shows us where and why the economy has been sluggish” says Kelly Cunningham, senior economist with NUSIPR. “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.”
According to NUSIPR analysis, much of San Diego’s recovery has been a function of military/defense expenditures, but softening federal spending since 2010 is now resulting in lagging economic activity. Moving forward, “sequestration” and other government spending cutbacks are likely to further undercut this pillar of the San Diego economy.
The BEA’s revisions and estimates of San Diego’s GDP also indicated $6 billion in cumulative lower economic activity than previously estimated. The revisions also reveal San Diego’s recession extended into 2010 before starting to recover in 2011 and 2012.
Breaking San Diego GDP figures further down by industry reveals the sectors of the local economy most impacted in the “Great Recession” include information, real estate, construction, trade, leisure/hospitality (food services, accommodations, entertainment), and natural resources. Although some growth in these sectors has since occurred, none had returned to prior peak levels as of 2012.
Surprisingly, San Diego’s manufacturing sector, as measured by GDP, grew throughout the recession, despite manufacturing employment significantly falling. Manufacturing locally has increasingly become higher-value, less labor intensive from producing high value-added goods utilizing labor-saving machinery. Much of San Diego’s manufacturing industry is also concentrated in research and development, with significant amount of administration of production actually taking place elsewhere (such as Baja California).
GDP figures further reveal San Diego’s greatest competitive strengths, in addition to the exceptionally high impact of military spending, are most clearly evident in computer and electronics, aerospace and shipbuilding, and recreational goods manufacturing. Professional, scientific, technical services, accommodations, and real estate are also major strengths. It is of critical importance that these industries continue to improve for San Diego’s overall economy to recover and prosper especially considering the further anticipated softening of San Diego’s major source of economic prowess, military and defense sectors.