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What's In Store For San Diego's Economy In 2019?

December 26, 2018 1:38 p.m.

GUEST: Ray Major, chief economist, San Diego Association of Governments

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Related Story: What's In Store For San Diego's Economy In 2019?

Transcript:

This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

2018 is ending with a government shutdown at Wall Street investors nervous but overall this was another good year for the U.S. and San Diego economies the jitters on Wall Street are a sign that 2019 economic outlook might be more challenging. From tariffs to interest rates the economy is facing some speed bumps ahead. I spoke about those challenges and how they may affect San Diego with Sandy egg chief economist Ray Major. Now San Diego County's unemployment rate is at three point three percent and nationally the unemployment rate is the lowest it's been in 50 years.

Overall there's been steady economic growth this year. Do you expect those trends to continue in 2019.

You know it's been 10 years since we came out of the recession and we've had to slowly expand the economy. But in the last couple of years the Sandigo economy has really been on fire. Last year we saw somewhere around 3 percent economic growth. 2019 looks like it's probably going to be slowing. So we're looking at something closer to around 2 percent. And then I think we're going to start seeing some challenges in the future and in 2020 we probably are going to see about 1 percent economic growth.

OK. We're still growing.

Right well we are still growing but the unemployment rate as you had mentioned it three point three percent is so low that employers are having a hard time finding qualified workers.

Now we've seen the stock market tumble sharply in recent weeks and there's been sort of ongoing trade tensions between the U.S. and China. Are there reasons to worry about a slowdown for the global economy.

I think there are some reasons to watch out for the global economy. I think that for instance the stock market likes to have a steady economy and right now we're not experiencing that. And so it's reacting by pulling back.

Also we have in the mix the Federal Reserve raising interest rates the Fed signaled slower rate increases in the future. It was the fourth rate hike this year though that they just did last week President Trump called the move foolish. What is driving the Fed's decision to raise interest rates.

Well the Fed has been very clear that they're targeting a 2 percent inflation rate. And so what they're doing is reacting to the fact that in the economy we're seeing somewhere closer to a 3 percent inflation rate. And so what they're doing is raising interest rates to kind of slow down the economy and to moderate that inflation. And like you said they signal that there were only going to do two rate bumps in 2019 and that's probably precedented on the fact that the economy would be slowing a little bit that year too.

What do higher interest rates mean for San Diego.

Well it really hits San Diego in the pocketbook is really with mortgage interest rates and so as we see mortgage interest rates go up what we see is that people have less buying power. So for instance the average price of a home now is about 650000 dollars here in San Diego. If you had a half million dollar mortgage on that 500000 dollar mortgage over 30 years you had a 1 percent increase in the interest rate what you'd see is about a 300 dollar per month increase in your mortgage payment. That's a carping if you will.

So over the life of that loan you're adding about a hundred thousand dollars to that mortgage.

So that's where people are going to really see the impact of interest rates going up is now therefore a good time to refinance or something along those lines.

Well it's a good time to refinance if your rate was higher than that. However the rates have been low for so long that most San Diego probably have mortgage interest rates that are below the 5 percent level and therefore it would not be a good time to refinance.

Gotcha. What about wages. Let's talk about wages for a minute. The minimum wage in San Diego and in many California companies goes up to twelve dollars an hour. On January 1st. So do you think that signals that wages will improve across the board in the New Year.

I think wages are going to improve next year but wages are going to improve not necessarily because the minimum wage goes up but because employers are fighting harder for qualified employees. So after about ten years of no increase in real dollar terms in wages we're starting to see increases. So right now in the last year we saw about a three point nine percent increase in real dollar terms. And a lot of that is the competition because there just aren't enough workers. So I think in 2019 we're going to continue to see wage inflation.

But it has to do with the demand for those workers.

And when it comes to that wage inflation does that hit everybody. Is that across the board or is it just on the higher end jobs.

So in the past we have seen higher increases in the top 25 percent of wage earners. However in the last couple of years we've seen more pressure on wages increasing on the lower 25 percent.

So it's the lower group that's getting the higher wage Greece's Apple just announced it's opening a new site here with a thousand jobs over the next three years. What does that do for San Diego's economy to have a tech giant like Apple here.

Well that's fantastic news for our high tech cluster. Like you said a thousand jobs over three years for Apple. But the important thing is if you think about it is the name of that company. So we have Apple. We have Google we have Amazon now all making a footprint in San Diego. And recently Teradata data also decided to move its headquarters here to San Diego and increase the number of jobs here by about 200. And what that really does is it really gives our high tech employees different options and places to go to work.

And it also gives those companies the opportunity to hire San Diego ins into their workforce.

So what are some of the things that you are worried about when it comes to the economy in 2019.

The things that I'm worried about really have to do with employers being able to hire qualified staff and to provide housing for them in San Diego we have a housing shortage. And when I talk to employers the most difficult thing that they have is if we move to San Diego where are we going to locate our employees. They need places to live. So that's probably one of the biggest problems that I see coming in the future. That and the affordability of housing.

Do you have any economic predictions for 2019.

I think 2019 is going to be slower year than 2018. It's going to be a little bit rough especially when it comes to things like the stock market the housing market continues to be very expensive and we're going to continue to see housing shortages for the next couple of years.

I've been speaking with Ray major. He's sandbags chief economist. Ray thank you for your time.

You're very welcome. Thank you.