With mounting job losses, the housing market collapse and dwindling consumer spending, San Luis Obispo County’s economy has not been spared the pain of one of the worst recessions in decades.
Despite these tough times, there is a glimmer of light at the end of a dark and gloomy tunnel, economists say.
“You went into the recession earlier than other areas, but you’ll come out of it much earlier than other communities,’’ said Brad Kemp, director of regional research for Beacon Economics.
The Los Angeles-based firm presented the county’s 2010 economic outlook on Friday for the UCSB Economic Forecast Project.
The county’s economy, which has experienced flat growth for the past four years, will likely see the beginning of a recovery next year, Kemp predicted, as some stimulus dollars trickle in to local projects, new retail sites such as the Paso Robles Lowe’s pop up and travelers from other parts of California continue to visit the county for an affordable escape.
While the worst may be behind the county, the healing will be slow and there will be more headaches before the economy begins to grow again.
The county’s unemployment rate, which is typically one of the lowest in the state, bottomed out at 3.8 percent in the fourth quarter of 2006, but has risen to 9 percent in the third quarter of this year.
Unemployment will peak in the fourth quarter of 2009 at 9.3 percent before it slowly declines through the end of 2013, according to Kemp’s analysis.
‘Temporary agency employment will lead the job recovery,’’ Kemp said. “But that takes some time. When employers make a decision about whether to hire again, they will bring in temps first.”
San Luis Obispo County has sustained a loss of just under 4,300 payroll positions since April 2007.
Housing is worst area
The most resilient sectors continue to be health services and education.
The industries with the greatest losses were construction, real estate, and finance and insurance, a result of the bursting of the housing bubble, which saw median home prices fall by more than $207,400 — to just over $379,490 in the second quarter of this year — from the peak in the fourth quarter of 2005, when it stood at $582,900.
Beacon economists believe that sales and prices of single-family homes here are showing signs of stabilization.
Yet, median home prices in the county are poised to drop an additional $45,000 or about 12 percent by the first quarter of 2011, making housing less expensive.
“Prices will then begin to return to a reasonable and sustainable growth rate — unlike what the market experienced during the earlier part of this decade,’’ Kemp said.
Growth in the housing market, too, will be slow as a large number of foreclosures are expected to be funneled through the pipeline as moratoriums expire. Between the first and second quarters of this year, foreclosures in the county rose by 22 percent.
“Housing has a way to go before the bottom,’’ Kemp said.
While vacancy rates in the commercial market have increased, it is also showing signs of stabilization, although there have been some lease transactions and few sales because banks have been reluctant to lend, according to the forecast.
Local banks, he said, will continue to be “risk averse for the foreseeable future, as the specter of being taken over by the FDIC looms large.”
Banks also have been slow to foreclose on commercial properties. However, that could change in the next 18 months, the forecast said.
Kemp stated in the forecast that, unlike the early ’90s, when the county avoided the commercial crunch, it “won’t be so lucky this time.”
Beyond the continuing specter of unemployment and real estate woes, what concerns economists most about the county’s economy is that it is “ultrasensitive” to consumer spending, and that has had an effect on the retail trade, leisure and hospitality, Kemp said.
The county should place more stock in growing other sectors such as business services and finance, he added.
The retail industry alone has shed 1,200 jobs or cut 8.3 percent of its work force during the recession as consumers — nervous about their drop in income and future prospects for employment — shut their pocketbooks.
Per capita income in the county dropped by nearly $600 since the peak in the fourth quarter of last year, the forecast said.
Tax cuts that provided relief for many households are also set to expire, dealing another blow to the consumer.
Taxable sales, forecasters predict, have fallen by more than 23 percent on a per quarter basis from a peak in the fourth quarter of 2007 and are expected to continue falling in early 2010, returning to growth by the end of next year.
While Kemp noted that the economy’s tie to consumer spending makes for continued uncertainty, he said it will ultimately be the medicine the county needs to get over its recessionary funk.
“Consumer spending will be the driver that gets us out of it,” he said. “But it won’t happen right away.”
More depth wanted
Mike Manchak, president and CEO of the Economic Vitality Corporation of San Luis Obispo County and a member of the UCSB Economic Forecast San Luis Obispo County board, said the county would benefit from greater depth in its economy.
The economists, he said, were right to point out the area’s over-dependence on too few business sectors, which can leave it vulnerable to large upswings and downswings.
Manchak said sustainable growth is what the local economy needs to survive and thrive.
“The economy is on reset, and this may not be bad if we learn from the lessons of the great recession,’’ he said. “Let’s look to growing our economy, not back to where it once was, but to a sustainable place that benefits many.”