Economists Say Happy Days Are Here, Again, for S.D. : Convention Center Opening, Building Industry Are Expected to Spur a 7th Year of Growth

As the San Diego economy’s sixth straight year of growth draws to a close, one would expect some economists to be pessimistic about next year, if for no other reason than that the ascending arc is due to obey the laws of physics.

But several who read economic tea leaves for a living were optimistic last week that the good times will continue through 1989. They cite healthy prospects for San Diego’s visitor, building and high-technology industries as the main stimulants to the area’s increasingly broad-based economy.

Some expressed offhanded reservations. The nationwide recession that several pundits expect in 1989 would obviously have a local impact. Another dark cloud is the possibility of deep cuts by the Bush Administration in defense spending to reduce the staggering budget deficit, said Thomas Frey, an investment officer and economist in California First Bank’s trust department.

Significant Ripple Effects

Such cuts would have significant ripple effects here, Frey said, because defense contracts and military payroll will account for 20% of San Diego’s 1988 gross regional product of $47.4 billion. (Gross regional product is the term commonly used for the sum total of goods and services produced in an area.)

Expectations of cuts in military spending led the Greater San Diego Chamber of Commerce’s economic research staff to project that the local economy’s growth rate will fall to 3% in inflation-adjusted dollars in 1989, down from a robust 5% in 1988, according to research director Max Schetter. Even so, San Diego’s growth rate would easily outstrip the U. S. economy’s projected rate of 2.2%, he said.

“We will continue to grow, but not as rapidly, and the gap between our performance and national performance is going to come closer together,” Schetter said.

What will power San Diego’s economy in 1989? Several economists pointed to the area’s tourism and the boost the convention center will provide when it opens in late 1989. The inaugural convention is scheduled for Jan. 6, 1990, when the National Spa and Pool Institute arrives. But the center will open for smaller consumer shows a month or so before then.

The convention center will bring in as many as 14,000 more visitors a week to San Diego, creating a significant, almost overnight increase in demand for lodging, food, transportation and other services. That increase bodes well for the rest of San Diego’s economy, said Kenneth Shellhammer, a consulting economist and associate member of CIC Research of San Diego.

“If you take a long look going back to the last century, a healthy visitor industry here has always been associated with rapid growth in the (overall regional) economy,” he said.

By any standard of measurement, 1988 was a banner year for San Diego tourism. Visitor spending through October was running 11.2% ahead of last year and will break the $3-billion barrier for all of 1988. Total visitors numbered 29 million through October, nearly 6% above the 1987 year-to-date count, said Al Reese of the San Diego Convention and Visitors Bureau.

Hotel room nights sold in the county were up 6.6% over last year. And, although the average countywide hotel occupancy rate of 72.5% through October was down 4% from the previous year, the rate reflects the addition of more than 2,000 rooms to the local inventory over the past year.

Also driving the local economy upward is the construction industry, which through October showed the strongest job growth rate of all employment categories. The growth came despite San Diego’s interim development ordinance, a growth-control measure that limits the number of housing permits allowed within city limits.

Even with the limits in place, employment in construction-related jobs in the county totaled 59,600 workers in October, up 7.1% from the previous year, said Jack Nowell, a labor market analyst with the state Employment Development Department. Construction jobs may increase even more if the IDO lapses as scheduled in May, opening the floodgates for more housing construction.

Strong Visitor, Construction Industries

The healthy visitor and construction industries are the principal reasons for the county’s low unemployment level of 4.4%, the lowest rate in 14 years, and an improvement over last year’s 4.5% jobless rate.

With the service industries leading the way, Nowell said, he expects an addition of 42,200 jobs to the county’s employment base in 1988, a 5% increase. Although that is fewer than the record 56,000 jobs created in 1983 and ‘84, he said, “this is turning out to be a real crackerjack year for job growth.”

Could Cause a Spiral

“This is about as good as (the economy) can get without creating some instabilities,” Shellhammer said. “Because the unemployment rate is already very low, if the (economy) were to take off any faster, it would probably cause a wage-cost spiral.”

Word has gotten out about San Diego’s economy. Due mainly to “in-migration,” the county’s population is expected to add another 78,000 inhabitants in 1988, a 3% increase, bringing the total to 2.4 million, the Chamber of Commerce said. Of that total, slightly more than 1 million live within the city limits.

The dark spot in the economic picture is in the manufacturing category, where jobs increased only 1.3% over the first 10 months of 1988, Nowell said. Pointing out that aerospace manufacturing jobs alone are expected to decline 15% by 1990, the chamber’s Schetter said defense cutbacks are behind the decline.

“San Diego started to feel the pinch back in 1987,” he said. “Our survey showed a 5.9% decline in San Diego’s 1987 manufacturing output, a decline attributable to the defense slowdown. I would not be surprised if output declined even more in 1988.”

A bright spot in manufacturing was that jobs in high technology grew at a 5% annual rate, despite a number of layoffs at big electronics employers, including Kaypro and Cipher Data Products. Electronics employers are increasingly subject to the “globalization” trend of world manufacturing, in which labor-intensive manufacturing is moved out of the United States to plants where labor is cheaper.

A favored destination of such manufacturers is Tijuana, where the total of new maquiladoras, or plants run by foreign firms, is expected to exceed 400 by year’s end, a 25% increase over last year.

While the maquiladoras’ long-term effect is expected to be beneficial to San Diego, as suppliers and support functions move here to be close to their customers in Mexico, some say the short-term effect has been a loss of jobs as San Diego companies have rushed to realize the lower labor costs as well.