California’s U-Haul Meter Points South
San Bernardino economist John Husing knows all too well how Northern Californians, his brother included, view the economy 500 miles to the south--as sprawling, chaotic and uncouth as the Southland’s topography, lifestyle and culture. When its aerospace-driven economy imploded earlier this decade, he remembers the indignities that followed.
“I don’t know how many consultants we had come down here who told us how we needed to adopt their economic model,” said Husing, a Napa Valley native who moved to the Inland Empire in 1962 and never left. “They had this holier-than-thou attitude.”
Now Husing can’t help but smile a bit.
His adopted Inland Empire, with its low-tech, low-export economy, has become the state’s job-growth leader. Not far behind are Orange and San Diego counties. Even the big gorilla--Los Angeles County--is outpacing out-of-breath San Francisco and San Jose, the state’s jaguars most of this decade.
How the economic tables have turned.
While the Bay Area’s ultra-high-tech economy has been tripped up by the Asian turmoil, Southern California has only slightly lost its step. It is the south, with its hodgepodge of manufacturing firms, resilient entertainment industry and greater reliance on imports, housing and trade with Mexico, that in recent months has accounted for vastly more of the state’s growth.
Business confidence has shifted in favor of the south as well, as has the steam in the housing market. Even the direction of most U-Hauls traveling the state has changed, from north to south.
More Northern Californians are packing up and migrating south in search of job opportunities, cheaper homes and a life with, believe it or not, shorter commutes.
“We think continued growth in Southern California will keep the state’s economic expansion on track in the near-term future,” stated a new report by the legislative analyst’s office in Sacramento.
But the shift of positions between the north and south, however temporary, has also evoked provincial feelings from two geographical rivals that have long sparred over sports, politics and especially water.
The Southland’s advantage is partly timing and circumstance. It is also a good bet that the Bay Area’s highly educated, well-financed and technology-savvy economy will not stay down for long. But for a while--most figure another year--Southern Californians may have bragging rights.
“We’ve done a better job of preparing for the unpredictable ebbs and flows of the global economy,” said Regina Birdsell, director of the New Los Angeles Marketing Partnership, a chamber-like group.
A Regional Role Reversal
After going through a wrenching period of transformation, self-doubt and constant comparisons with the more world-admired Bay Area, the Southland’s resurgence has brought a measure of satisfaction. Birdsell and others draw parallels between the north today and the south in 1990: skyrocketing home prices, congestion, layoffs.
In the north, there is a feeling that their troubles have been exaggerated by people outside the region. They point to the Bay Area’s low (although recently rising) jobless rate of 3.6%. They dismiss comparisons with Southern California’s recession, saying the Bay Area’s economy is more diverse.
Jeff Eggert, owner of Certified Personnel, a labor supply firm in San Francisco, finds the reversal of fortunes hard to believe. “If Northern California is not as robust as Southern California, things must be going off the chart down there.”
Fact is, job growth throughout California has been easing this year amid a sharper nationwide slowdown caused largely by the economic turmoil overseas. The latest bits of positive economic news and the U.S. stock market rally haven’t changed the overall outlook for slower growth next year.
But within California, there are three major economies--the third being the vast agricultural region of the Central Valley, which has never gained any momentum.
The Bay Area emerged first from the state’s 1990-93 recession, driven by spectacular gains in Silicon Valley. But in recent months, the south has forged ahead. On an annual basis, payroll employment for the Bay Area grew in the third quarter by a rate of 2.1%, less than half the percentage of the previous year. Meanwhile, total July-to-September payrolls in Southern California rose 3.2% from a year earlier.
The swing reflects Southern California’s younger expansion, but also the differences between the two regions. For all the talk of the melding of Hollywood and Silicon Valley, the two economies operate like parallel universes, with little interaction, each with distinctive industries and markets.
The nine-county Bay Area, stretching from San Jose north to the wine country of Napa and Sonoma, leads the nation in high-tech jobs and exports. It has some 200,000 computer, electronics and other high-tech manufacturing jobs, nearly twice as many as the Southland. But the Asian malaise is causing deep layoffs in Silicon Valley and raising questions about whether the Bay Area’s $200-billion economy is diverse enough.
A Reliance on High-Tech Exports
Economist Ross DeVol at the Santa Monica-based Milken Institute doesn’t think so. He says high-tech goods make up 96% of all of the San Jose area’s exports. That contrasts with 62% for Los Angeles County, which also ships vast amounts of bulky, low-value goods such as wastepaper. The Southland, especially San Diego County, also sends more merchandise to Mexico, where the economy is doing much better than Asia.
By DeVol’s calculations, 25 cents of every dollar earned in the San Jose area comes from exports to Asia. The figure for Southern California: about 5 cents.
Manufacturing payrolls already have turned negative in the San Jose area, and further turmoil on Wall Street will make things worse. San Francisco also has three times the share of finance jobs as the national average.
“Clearly the San Jose area is a candidate for recession next year,” said Mark Zandi, chief economist at Regional Financial Associates in West Chester, Pa.
Many in Silicon Valley would disagree. Yet even Bay Area boosters don’t see a slowdown as necessarily a bad thing, given the heady growth in recent years that has sent housing prices and office rents soaring and has caused traffic snarls that seem as bad, if not worse, than those on the notorious freeways of Los Angeles. That is one reason people are leaving.
Until recently, Eric Ellis, 26, a mechanical engineer, worked for Document Processors, a Burlingame firm that dried the waterlogged books damaged in the Los Angeles Central Library fire in 1986. He says the distance from his home in San Ramon to Burlingame is 37 miles. But lately he had been driving 90 minutes to get there--nearly twice as long as it took two years ago.
A month ago, Ellis and his family moved to the Southland for a job with Special Devices, a fast-growing firm that once manufactured triggering systems for the cruise missile and converted to making devices that ignite automobile air bags. Ellis sold his tiny condo in the East Bay and, for about the same price, bought a three-bedroom house off Tapo Canyon in Simi Valley. His commute now: 10 minutes.
“Everybody told me, ‘You’re nuts leaving the Bay Area,’ ” Ellis said. But he doesn’t talk about what he misses, rather about the extra time he has with his wife and two daughters, one age 2, the other just 2 months. “That’s three hours out of my day I have back,” he said.
Silicon Valley’s Ups and Downs
Richard O’Brien, an economist at Hewlett-Packard, the big Palo Alto-based computer maker, sees no clear signs of a bottom yet in Silicon Valley. But he sees no reason for panic, either. O’Brien remembers that shortly after he started at HP in 1984, the company required workers to take one day off every two weeks without pay. There was another high-tech slump in 1990-91, related to defense cutbacks, when people talked about Silicon Valley as if it would never recover.
“We’ve been there before,” he said, adding that hiring has continued at software, Internet-related and other computer service firms--which account for a growing share of its technology sector.
To be sure, Southern California has not escaped the nationwide rise in layoffs. High-tech companies, oil firms and golf equipment makers all have cut back. Confidence among business executives is waning.
“The bubble may have burst, but Southern California is still doing pretty well,” said Bill Dunkleberg, an economist who conducts a quarterly survey for NFIB, a Washington-based lobbying group, and Wells Fargo Bank. His latest survey, in October, found businesses in Southern California clinging to a more favorable outlook than those across the nation.
Dunkleberg attributes part of the better mood in the Southland to the still-strong entertainment industry, a critical player in the economy. Hollywood figures to hold up well in a downturn because movies are a relatively inexpensive form of entertainment.
Entertainment and tourism account for nearly 5% of the Southland’s employment, almost twice as much as the Bay Area’s. Yet the north is feeling more of a pinch there too. Hilton Hotels says its luxurious San Francisco Hilton has been hit hard by a drop-off in Asian tourists but that its other major corporate-owned hotel in California, the laid-back San Diego Hilton, is having a terrific year.
Transit, Housing Favor Southland
Also favoring the Southland is its transportation infrastructure, enabling the region to better absorb growth than other cities such as Seattle, Las Vegas and San Francisco, now all struggling with increased traffic. What’s more, the crush of imports from Asian countries trying to work themselves out of recession has kept Southland docks and warehouses busy.
Then there’s Southern California’s housing market. Strong job growth has brought more residents, while low mortgage rates have sparked sales and jobs in home building and other industries. Southland homes are far more affordable. The average house in the Bay Area costs about $334,000 versus $253,000 in the Southland, excluding the Inland Empire, where prices are about $100,000 lower, according to First American Real Estate Solutions.
“Heck, [the Bay Area] makes Los Angeles look cheap,” quipped Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. Levy thinks housing and other cost issues could prove to be long-term competitive disadvantages for Northern California. But he remains bullish on the Bay Area.
He points out that Silicon Valley has raised record venture capital for eight straight years. “That’s laying the foundation for the next wave of growth.”
Husing, the Inland Empire economist, knows it’s hard to bet against that, or against the information technology sector.
Nor does he doubt that a region with an overreliance on high-tech manufacturing is better off than one that warehouses or moves those goods.
“Would we [the Inland Empire] trade places with them if we could?” Husing asked. Of course, he said, then added with a laugh: “But not at this moment.”
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The South Rises
After years of lagging their northern cousins, employers in Southern California are now creating more jobs and feeling more confident about the future, as payroll data and surveys indicate.
Counties / Job growth-3rd qtr
Riverside-San Bernardino: 5.2%
San Diego: 2.9
Los Angeles: 2.5
S. California average : 3.2
San Jose: 2.1
San Francisco: 1.7
Bay Area average: 2.1
Good time to expand business?
1997 1998 Northern CA 33% 21% Southern CA 28 31