The one thing that I can say is that had Hillary won the election, this presentation would have been a lot easier along with our predictions. The answer to everything would have been 1 percent or 2 percent. So the one thing I can say about 2017 is that boy, it is not 2016 anymore.
The San Diego region is very much poised for continued prosperity next year. We're a diverse region of 3.2 million people. And we continue to grow. We're the fifth largest county in the United States. We're younger, we're richer and we're better educated than the rest of the nation. Some might say we're better looking and better dressed also.
Our $220 billion economy would rank number 26th if we were a state in and of ourselves. We are a huge economy over here. And we have a very diverse economy, no more than 16 percent of the employment in San Diego is in any one particular sector.
We have a very forward-looking economy, too. One that is positioned very well for the 21st century with a nice footprint in biotech and other innovative sectors.
The housing market has essentially recovered from the Great Recession. We're working on revitalizing the urban core. And not only that, but the drought is over, right? So what could possibly go wrong? This is the question I get all the time.
Well here's a headline from the day after the election: "Economists warn of global recession following Trump victory." Not a U.S. recession, global recession, so the whole globe goes into recession because Trump was elected. Three weeks later, "Trump administration to rev up global growth, says OECD." Four to 5 percent growth per year. They revised their forecast.
How many people believe the first headline is true? This is an audience participation presentation so you have to help me out here. How many people believe the first one is true? How many people believe the second headline is true? OK, how many people believe that it might fall somewhere in between the two? OK. I do, too. This is interesting what's happening in the media. But what is Trumponomics? How does that impact San Diego and the economy?
First of all, nobody knows, because it really hasn't happened yet. But what we've heard is it's a combination of personal tax cuts, corporate tax cuts, infrastructure programs, defense spending, buildup of military. We're going to repeal or modify Obamacare. We're going to relax regulations, energy environment, fiscal policy or financial policy, trade, tariffs, immigration, foreign policy. We're going to drain the swamp and build the wall. But now we're going to have doors in the wall, right? So all of this stuff, would this have an impact on San Diego's economy in 2017? Absolutely. The question is, though, how much of it actually gets implemented?
But what Trumponomics is, in a nutshell is a fiscal stimulus package. Right? It's tax cuts and spending. That's what everything falls into. And so what that means is that if you take a massive fiscal stimulus of any economy that's near full employment — and our economy is near full employment — it's going to lead to higher growth rates, higher levels of inflation and higher interest rates.
So I see for the U.S., GDP (gross domestic product) growth in the 3 percent range for the first time in a long time. I think employment increases. I see unemployment going down to below 4.5 percent. But it's also going to cause inflation to occur, and I think that we start to hit that magic 2 percent number that Janet Yellen is looking for. And with that, it will transpire into interest rates rising to 2 percent, maybe 3 percent by 2018. And all of the spending will add to the national debt and our debt will double to a trillion dollars by 2018. So we'll have to deal with that.
San Diego jobs
Turning our focus to San Diego, and taking a look at jobs, here's what's happened between 2000 and 2016. The economy peaks in December of '07 at about 1.35 million jobs in the region. We went into the Great Recession and we hit the trough in January of 2010. It took 78 months for us to recover from this recession. It took us six times longer to get out of this recession than any recession that has occurred before.
And we are now into our seventh year of expansion. The longest expansion in U.S. history was 10 years. It was in the '90s. So if Trump expects to have economic growth for the next couple of years, he's going to have to have a lot of fiscal policy to make that happen.
One of the problems we had here in San Diego is 70 percent of the job creation was in low paying jobs. I want to show you what happened to the jobs that we lost and what jobs we gained as we came out of the recession.
At SANDAG, we have different ways that we look at the economy. But this is one way of putting it together. The sectors that everyone talks about that drive the San Diego economy are the innovation sector, tourism and military. There are some supporting sectors, too, that really grow with the population. That's health and social assistance, education and government. They make up about 27 percent of total employment. Driving sectors (innovation, tourism and the military) are about 30 percent, and the rest of it falls into that traditional category of wholesale and retail trade, finance insurance and real estate, construction, manufacturing, transportation. (See charts on Page 2.)
Taking a look at the employment in the driving sectors, what happened from the recession through the trough? What you'll see is that all of the driving sectors have increased in terms of employment. Military employment is up 15 percent. Employment in innovation is up 14 percent. And tourism is up 12 percent. There's only one sector here that was even impacted a little bit by the recession and that was tourism, where we fell a little bit below at the trough. So tourism went down, but it had recovered by 2012.
When you take a look at the employment in the supporting sectors, you see a little bit of a different story. These seem to be completely resistant to any type of recessionary pressure. You see health care up 34 percent. It grew right through the recession. Education has also grown, and you see that government has also grown.
I think that some of the policies that Trump is outlining if the administration gets them through would be positive in terms of impact for military, innovation and possibly even for tourism here in San Diego. But in terms of health care with the restructuring of Obamacare, I think that particular sector may take a step back, before they start hiring additional people just to figure out what's going to happen. Healthcare will continue to grow as the population ages. But the real question is what happens in the next year? And I think that we need to see what happens with Obamacare and what kind of replacement there is. Government employment, too. Trump just announced he wanted to cut 20 percent of federal employment. So employment there would go down.
Look at the traditional sectors, though. This is what got hit hard in the economy. All of these sectors lost employment going down into the trough. Construction was hit the hardest. And as we came out eight years now past the recession, only one of these sectors has recovered and that was retail, wholesale trade, which is basically now 1 percent above where it was in 2007. All the rest of them are still below. Construction is still 20 percent below where it was in 2007. So the forecast for the San Diego region is to add about 40,000 jobs next year. Unemployment will dip down to about 4.5 percent.
Among the economic driving sectors, innovation continues to thrive in San Diego, especially with the help of the universities and the focus that the EDC's and the chambers are giving it. Travel and hospitality will outgrow, outpace GDP in 2017. And the military is going to expand its presence, and therefore I think you'll see more employment come to San Diego that's military related. In terms of the population-driven sectors, healthcare will continue to grow as the population ages. I think education remains stable in terms of employment. And government, which seems to grow proportionally to population, will continue to grow. But I think there may be some changes at the federal level coming.
When we look at the other sectors, you see retail trade. Brick-and-mortar sales are significantly weaker than they have been in a long time. I don't know that they're going to necessarily get much better this year. There might be some increased spending as the economy starts to heat up a little bit. Finance and professionals, I think, grow very slowly. Construction and real estate right now seem to be strong and will continue to grow strong through 2018. I don't know that they will reach the levels that they were back in 2007. Manufacturing also has started to grow steadily in the last couple of years.
What about wages?
When we take a look at wages in San Diego, this tells a complete different story.We have a lot of new jobs; we have 100,000 new jobs over the peak of 2007. Over a quarter of a million new jobs since the bottom of the trough. But what's happened to wages? If you take a look at wages, the orange line (See chart, Page 2) there shows 2007, which was the last peak. You'll see that the top line represents the top 25 percent wage earners. The middle represents the median and the bottom is the 25 percent lowest wager earners. And you'll see that on average there's been some increase in wages in nominal dollars. But when we take a look at it in real terms, over the last 10 years, what's happened? What you see is that the lowest 25 percent of the wage earners have really had zero percent increase in their wages. It's only been the last couple of years that they've started to actually have a little bit of an increase.
Even the median wage earners are up only 1.3 percent. That's a tenth of a percent per year over the last 10 years. And the highest wage earners are up about a half a percent. This is why people don't feel that we've really recovered from the recession, because from an economic perspective you don't feel better. You basically are exactly where you were 10 years ago in terms of wages. For the outlook for wages in 2017, I think we need to look at the skilled worker visa program, what is going to happen with Trump, and some of the things that he's looking at versus non-skilled workers. If we deport non-skilled workers from the San Diego region, it's going to have significant impact on our labor force. And if that happens, if there is a decrease in the labor force, what you'll see is wages starting to increase locally because we're going to have to induce people to move to California from other areas. That means we're going to have higher wages to pay for the higher cost of living here.
So I see growth and real wages going up between about 2 percent in 2017 and maybe 2.5 percent in 2018. So this is the first time that I think that we're going to see an increase in wages in real dollar terms. Deportation and the wall, I don't know how much of this actually happens. But if it does, it has a huge impact on places like the Central Valley. And it increases the wages for labor, for documented labor. So the $15 minimum wage that I know we always have a lot of questions about may end up becoming the prevailing wage just from a supply and demand perspective. If you take everybody out of the equation who is low-paying right now, you have to hire into those positions. We may see some increase of the bottom of the wage structure.
You take a look at before the recession we were building about 13-, 14,000 units per year. After the recession we're building on average around 6,000 per year. Before the recession, 55 percent were single-family homes. Now two-thirds of them are multifamily homes. So it's a very significant shift in the type of housing stock that we're building here in San Diego.
Housing prices have crept up, too. They're almost back to where they were at their peak in June 2006 after troughing in May of 2009. The important thing here is really the affordability index. People's ability to purchase a home. At the peak of the housing prices, about 9 percent of the people were able to afford a home, according to the Affordability Index. We're now at 24 percent. The real difference there is only interest rates. At about 6 percent interest rates when the affordability was 9 (percent). We're in the 3s right now, at 24. So interest rates have a huge amount to do with our ability to afford housing.
And it's something we should look out for in 2017 going forward. If you take a look at the average median — or the median home price — it's about $557,000. You need a two, a dual income family earning $79,200 to qualify for that home. The average income in San Diego is $55,300. So you can afford a home of about $232,000. Two people earning average income in San Diego can afford a unit of about $433,000. This is really the biggest problem I think we have in San Diego.
From a jobs and employment perspective we're doing pretty well. But housing is really the issue. So when you take a look at the outlook for housing, I think that there's going to be an increase demand for housing. Especially as more jobs are created in the economy. And prices increase a little bit during the short term. I see higher prices in 2017. I think interest rates hit say 5 percent, so mortgages probably hit the 5 percent level by late 2017, going into 2018. I think housing affordability starts to fall back down below 20 percent, which will create a softening of the housing market. And I don't believe that the construction industry, at least the residential construction industry, will return to the levels that they were at in 2007.